Balance Scorecard

Who to compete

Where to compete

How to compete

Time and efforts sharing

Running the business

Changing the business

Front Line Apex Team

The Management Challenge 9 0f 10 companies fail to execute strategy

Vision Barrier: Only 5% of

the workforce understands

the strategy

People Barrier: Only 25%

of managers have

incentives linked to

strategy

Management Barrier: 85%

of executive teams spend

< 1 hour per month

discussing strategy

Resources Barrier: 60% of

organizations don’t link

budgets to strategy

Why Balance Scorecard?

The Balance Scorecard is a management system

(not only a measurement system) that enables

organizations to clarify their vision, mission and

strategy and translates them into Action. It

provides a generic framework to translate strategy

into operational terms. It also provides a clear

line of sight to the vision and strategy of the

company

� Creates a systems approach to form an Integrated

Strategic Management Process

� Provides feedback around both the internal business

processes and external outcomes in order to

continuously improve strategic performance and

results

� Draws a cause and effect roadmap to

stakeholder value - shareholder, customer and

employee

� When fully deployed, the balanced scorecard

transforms strategic planning from an academic

exercise into the nerve center of an enterprise.

“What gets measured gets done”

This is the power and the risk of

performance measurement. If you establish

a measure, and faithfully attend to it,

communicating widely your expectations

and results, your organization will being to

align to it

Premise behind BSC is that measurement motivates behavior

The Premise

Measurement communicates

Values, Priorities and Direction

The Conclusion

Measurement Must Be Linked to Strategy

StrategyBalanced

Scorecard

Measurement To Communicate, Not to Control

Making BSC a Strategic Tool Operating

Strategy

Organizations need to

language for

communicating strategy as

well as processes and

systems that help them to

implement strategy and

gain feedback about how

well the strategy is working.

The BSC Process helps

strategy to become

everyone’s everyday job

Using a Mix of Performance Measures

The traditional focus of performance measures had been

on quantitative financial measures.

What are some quantitative non-financial measures?

Customer

Retention

Schedule

Adherence

Market

Making BSC a Strategic Tool Why use the BSC Approach?

Two Words

Alignment

What is BSC ?

The balanced scorecard consists of three things:

Balanced Scorecard

Strategic Management System

Communication Tool

Measurement System

What is BSC ?A carefully selected set of quantifiable measures derived fromstrategies, goals & objectives that represent a tool for leaders touse in communicating strategic direction to the organization andfor motivating change. These same measures form a basis formanagers to plan, budget, structure the organization and controlresults

Strategy & Vision

Financial Customer

Financial Learning & Growth

� Translate the strategy to operational

– Formulate

– Communicate

– Execute

– Navigate

What is BSC ? 5 steps module

� Align the organization to create synergy

– Corporate role

– Business unit synergies

– Shared service synergies

� Make strategy everyone’s every day’s job

– Strategic awareness

– Personal scorecard

– Balanced pay cheques

� Make strategy a continuous process

– Strategy learning

– Analytical information system

– Link budget & strategy

� Mobilize change through leadership

– Management system

– Governance process

– Mobilization itself

Alignment & Integration

Aligned Integrated

Balance Scorecard Cause-Effect Hypothesis

4. Increased customer satisfaction

will lead to better financial results

3. Improved work processes will lead

to increased customer satisfaction

2. Skilled, empowered employees

will improve the ways they work

1. Knowledge & skills of employees

is foundation for all innovation and

improvements

Customer

Financial

Internal Process

Learning & Growth

The Four Perspective

Financial Perspective

“To satisfy our shareholders, what

financial objectives must we accomplish?”

Customer Perspective

“To achieve our financial objectives, what

customer needs must we serve?”

Internal Perspective

“To satisfy our customers, and

shareholders, in which internal business

processes must we excel?”

Growth & learning l Perspective

“Knowledge & skills of employees

is foundation for all innovation and

improvements”

Important Concepts in Balanced Scorecard

� Strategic Mapping

� Multiple Perspectives

� Balance

� Feedback of measurements

� “Cascading” Scorecards

� Cause-Effect Framework

Cascading Scorecards

While it is possible to develop a single set of performance measures for the whole organization

The likelihood is that there will be a cascade of cards that closely reflect the formal organization reporting chain

From Strategy to Budget

Strategy MapMetrics Targets Strategic Initiatives

Customer

approval

rating

reduction

% strategic

skills

available

Each Strategy Initiative plan contains:

•*Sponsor

•*Schedule

•*Resources

•*Budget

BSC TerminologyStrategy Map:Diag of cause- And-effect

relationships betnStrategic objectives

Profitability

Fewer Plane More Customers

Flight is on timeLowest Prices

Fast ground Turnaround

Ground crew alignment

Strategic Theme:Operating Efficiency

Learning

Internal

Customer

Financial

Statement of what strategy must achieve

and what’s critical to its

success

How success in achieving the

strategy will be measured and

tracked

The level of performance

or rate of improvement

needed

Key action

programs reqd to achieve

objectives

Objectives Measurement Target Initiatives

Fast good

turnaround*On ground time

* On Time departure

•* 30 minutes

•* 90%

* Cycle time

optimization

Balances in the BSC

Lagging Indicators Leading Indicators

Short term objective Long term objective

Diagnostic Measurements Strategic Measurements

Desired outcome Performance driver

Cost & Risk Benefit & Value

‘Hard’ objective measures ‘Soft’ subjective measures

Los risk / low benefit High risk / high benefit

BSC is based on an understanding of the basic Blocks of the Strategy

Financial Perspective

Revenue

Strategy

Productivity

strategy

Customer Perspective

Price Qlty Functn Image R.ShipTime

Internal Process Perspective

Build the

Make the

Deliver

Product

Service

Exceptionally

Sources of growthSources of Productivity

Learning & Growth Perspective

Competencies

Infrastructure

Climate for

Action+ +

1) The economic model of key

levers driving financial performance

2) The value proposition of target customers

3) The value chain of core business processes

4) The critical enablers of performance improvement, change and learning

Corporate Balance Score CardExample

Performance

M easures

Review

Reporti

Unit Target

2004-05

Actual

Aug 04

Indicator

03-04 04-05

C1 Focus of

profitable

segments &

customers

- XYZ M onthly RS % 60 66.5 63.5 New G

- ABC M onthly RS % 50 50 49.8 41 G

- PQR M onthly RS % 16.5 15.4 15 New Y

Line Profits in

these segments

M onthly RS Lacs 229 183 206 New R

C2 Enhance reach Incremental

vo lume so ld in

new markets

M onthly RR M T 1500 p.a. 16 121 New R

C3 Create differntial

Domestic Ann RS Index 78 69 69 72 R

Exports Ann RS Index 75 70 70 R

Customer Satisfaction Index (CSI_ No for "Value for M oney"

Strategic Objectives

B Customer Perspective

Cumulative Upto

M arket Share o f XYZ, ABC and profitable segments for PQR (Domestic)

Corporate Balance Score Card - Example

Performance

M easures

Review

Reporti

Unit Target

2004-05

Actual

Aug 04

Indicator

03-04 04-05

B1 Enhance

customer

relationship

Adherence to

customer

contact plan

M thly RS % 100 72 89 New R

Domestic Ann RS Indx 80 77 77 86 Y

Exports Ann RS Indx 80 79 79 97 Y

B2 Build M arketing

capabilities

Adherence to

implementation

plan o f mkg &

sales process

(Renoir)

M thly RS % 100 100 100 New G

B3 Product /

Offerings

development

% of vo lume

(tonnage) so ld

differentiated

prodt/o fferings

per month

M thly RS % 20 25 1.6 New R

B4 Add/relocate

capacities

Compliance to

relocation plan

M thly VKS M T 100

Additional

capacities

create incl

conversion and

alliances

M thly RR M T 10000

B5 Enhance

Operational

excellence

Reduction in

cost o f quality

M thly VKS Rs 3 L/ mth 4.71 7.52 4.3 G

Net working

capital turns

M thly DG No 4 4.53 4.5 4.05 R

Employee cost

as % of value

M thly PRR % 25 Cum 27.23 R

Six Sigma

pro jects % of

identified critical

issues reso lved

M thly SSC % 100 0 0 New R

Customer repurchase intention CSI (Customer Satisfaction Index)

C Business PerspectiveStrategic Objectives Cumulative Upto

Recovery Plan

Performance Trend

97.70%

98.43%

96.96%

98.04%

97.89%

98.04%

98.37%

96.50%

97.50%

98.50%

99.50%

Apr 00 May 00 Jun 00 Jul 00 Aug 00 Sep 00 Oct 00

Improvement initiative in previous month

* Process capability of Bekaert

Galvanizing Furnace for Temp done

* Team formed in galvanizing line to

improve first compliance

Improvement action plan for this month

•Team to collect the data wrt Different reasons

•Collect data for process capability in Annealing Mid/long term

improvements planned

Team will

• Analyze & stratify resetting data under different categories

•Evolve solution to prevent retesting

•Implement the new process of testing thru’ line/dept heads

Improve statistical stability of processes & correlate with prdt CpK.

Thereby, improvement in first compliance

% First Compliance

66.06%

18.24%8.67% 4.98% 2.02%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

Galv. Ann L.R. Others FWSS

BSC Example:

Profitability

Fewer Planes More Customers

Flight is on timeLowest Prices

Fast ground Turnaround

Ground crew alignment

Strategic Theme:Operating Efficiency

Learning

Internal

Customer

Financial

Objectives Measurement Target Initiative

•Profitability

•More

Customers

•Fewer Planes

•Returns on Cap

•Seat Revenue

•Plan Lease

• 20% ROCE

•20% increase

• 5% COS

•Flight is on time

•Lowest prices

•FAA on time

arrival rating

•Customer

Ranking

(Market Survey)

• # 1

•# 1

•Quality

management

•Customer

loyalty program

•Fast ground

turnaround

•On Ground

•On-Time

departure

• 30 Minutes

•90%

•Cycle time

optimization

program

•Ground crew

alignment

• % Ground

crew trained

•Ground crew

stockholders

•Yr 1 70%

•Yr 3 90%

•Yr 5 100%

•ESOP

•Ground crew

training

Common BSC Implementation Challenges

Mission, vision and strategies poorly defined or

understood and not actionable.

Strategies and goals not linked to performance

drivers, outcome measures, individual goals,

and incentives

Budget and planning processes are not linked

Common BSC Implementation Challenges

Treating performance measures as an “end”

rather than “means”

Performance targets sets too high or too low

Feedback that is tactical, rather than strategic

Lack of meaningful employee involvement

Balance Scorecard

Documents

Balance scorecard

SCORECARD BALANCE