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Head Office: Level 2, 120 Pacific Highway, ST LEONARDSPh: (02) 9461 0430 Fax: (02) 9461 0429 Website: www.cegroup.com.au
Strategic Action PlanStrategic Action PlanProcess and WorkshopProcess and Workshop
CEG Strategic Action Plan Process CEG Strategic Action Plan Process FlowchartFlowchart
OVERVIEWOVERVIEW
NOWNOW
Business Analysis
Pestlied
Strategic SWOT
Paradigm Shift Analysis
Magic Wand List/Whinge List
Management Buy-InInterviews
WHEREWHERE
Mission
Purpose
Core Values
Objectives
Core Business Statement
Sustainable Competitive Advantage
Growth Strategies
Ranking Issues
Scenario Planning
Vision / DestinationStatement
HOWHOW
Strategies
Initiatives – Action Plans
Strategic Accountabilities
Budgets
Strategy Map
Balanced ScorecardKPI’S/Initiatives
Communication Plan
Critical Issues
ACTIONACTION
Leadership
Strategic Mapping
Corrective Action
Middle Mgt / Team Leader
High PerformanceTeams
Emerging Issues
Reporting
PerformanceManagement
People First
Situation ReviewSituation Review Strategic PlanStrategic Plan Business PlanBusiness Plan ImplementationImplementation
What is Strategy?What is Strategy?
To achieve superiors profitability and value to customers
Competition is about a relative advantage and is dependent on differentiation
Operational effectiveness is essential but is not a replacement for strategy
DefinationDefination A business plan is a formal statement of a set of business goals, the
reasons why they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals.
For-profit business plans typically focus on financial goals, such as profit or creation of wealth.
Business plans may be internally or externally focused. Externally focused plans target goals that are important to external stakeholders, particularly financial stakeholders. They typically have detailed information about the organization or team attempting to reach the goals
Internally focused business plans target intermediate goals required to reach the external goals. They may cover the development of a new product, a new service, a new IT system, a restructuring of finance, the refurbishing of a factory or a restructuring of the organization. An internal business plan is often developed in conjunction with a balanced scorecard or a list of critical success factors
Business plans that identify and target internal goals, but provide only general guidance on how they will be met are called strategic plans.
DefinationDefination Strategic planning is an organization's process of defining its
strategy, or direction, and making decisions on allocating its resources to pursue this strategy, including its capital and people. Various business analysis techniques can be used in strategic planning, including SWOT analysis (Strengths, Weaknesses, Opportunities, and Threats ) and PEST analysis (Political, Economic, Social, and Technological analysis) or STEER analysis (Socio-cultural, Technological, Economic, Ecological, and Regulatory factors) and EPISTEL (Environment, Political, Informatic, Social, Technological, Economic and Legal).
Strategic planning is the formal consideration of an organization's future course. All strategic planning deals with at least one of three key questions: "What do we do?" "For whom do we do it?" "How do we excel?“ In business strategic planning, the third
question is better phrased "How can we beat or avoid competition?". Our point of differentiation
What is What is StrategicStrategic Thinking? Thinking?
Anticipation; reading the game Big picture; knowing what to do Conscious and deliberate; leadership
“I skate to where I think the puck will be.”
Wayne Gretsky
Planned versus Emergent StrategyPlanned versus Emergent Strategy
PlannedStrategy
RealisedStrategy
Adopted Strategy
Unrealised Strategy
EmergentStrategy
Developed Continuously as New Issues Arise
Formal Once-a-year
Planning & Budgeting
What happens in practice will always be some blend of what is intended and what emerges along the way - Mintzberg (1994)
Objective Objective
Improve Shareholder Value
Revenue Growth Strategies
Productivity Strategy
Increase valueto customer
Grow new business in existing and new customers
Improve coststructure
Improve use of assets
Revenue Growth Strategies Revenue Growth Strategies Increase Revenue Better Margins and Product Mix Services
Market Penetration Product Expansion
Existing products / services in existing
markets
New products in existing markets
Market Expansion Diversification
Existing products in new markets
New products in new markets
Existing Markets
New Markets
Existing Products / Services New Products / Services
THE COST OF QUALITY
Sigma Level
Defects per Million Opportunities
Cost of Quality
2308,537 (Non-competitive companies)
Not applicable
3 66,807 25 – 40% of sales
4 6,212 (Industry average) 15 – 25% of sales
5 233 5 – 15% of sales
6 3.4 (World class) <1% of sales
Each sigma shift provides a 10% net income improvement
Source: Six Sigma, M Harry & R Schroeder
Six Sigma – A measure of productivity Six Sigma – A measure of productivity variationvariation
Keys to SuccessKeys to Success
1. People First
2. Strategy
3. Sales (Revenue Growth)
4. Operational Innovation
5. Teams
People FirstPeople First
“Right people on the bus, wrong people off the bus and the right
people in the right seats”
PRINTERSJim Collins “Good to Great” please reference
StrategyStrategy
1. Differentiate
2. Customers, Customers, Customers! Focus
3. Increase Revenue
4. Operational Efficiency
Teams and TrainingTeams and Training
Teams are the foundation of
High Performance Companies – Try as you might, you cannot get
to high performance without them.
Strategic Planning Workshop
Vision
Business Statement
Objective
Prioritise Issues
1 Page Plan
Business Plan
Critical Issues
StrategiesAction Plans
Now – Where? – How?Now – Where? – How?
60 – 100 Issues
SWOT/PEST
Situational Review
Situational Review Situational Review
Magic Wand List / “Whinge List” Management Interviews PESTLIED STEER Strategic SWOT Strategic Marketing Business Analysis
NOWNOW
The Strategic Plan The Strategic Plan
Vision / Destination Statement Mission Core Values Purpose Core Business Statement Sustainable Competitive Advantage Position the Product Portfolio Growth Strategies Defining Critical Issues Scenario Planning
WHEREWHERE
Business Plan Business Plan
Critical Issues Strategies Initiatives – Action Plans Strategic Accountabilities Budgets Strategy Map Balanced Scorecard KPIs / Initiatives Communication Plan
HOWHOW
ImplementationImplementation
People First Leadership Strategy Mapping Corrective Action Middle Management / Team Leader High Performance Teams Emerging Issues Reporting Performance Management
ACTIONACTION
Situational Review Situational Review
Magic Wand List / “Whinge List” Management Interviews PESTLIED Strategic SWOT Review current business documentation
Marketing and sales plans Business plans ( last year) Employee & customer surveys Financials/Budgets Research
NOWNOW
Stretch BrainstormStretch Brainstorm (Magic Wand) (Magic Wand)
If you did not have to worry about time or money, what would I change about my
business.My business “issues list”
Management InterviewsManagement Interviews Purpose of interviews: Purpose of interviews: The easiest way to identify the key/critical
issues in a business is to undertake a series of interviews of between 30 minutes – 1 hour duration across the organisation using our diagnostic questionnaire. Within 2 or 3 days you will have identified everything you need to know about the business including culture, the politics, priorities, opportunities, issues, inhibitors etc.
Interview a cross section of individuals at all levels – Senior management, middle/line mangers, supervisory level and some frontline staff
Ensure you interview senior managers of marketing, sales, operations, technology, HR, finance, innovation/product, etc
Ensure confidentiality ( consider using an internal/external consultant) typically undertake a minimum of 8 and maximum of 30 interviews
Use Diagnostic General Questionnaire attached Summarise issues into Issue List Template and complete
Diagnostic Questionnaire Survey Identify issues into their appropriate category – management,
marketing, sales, operations etc. Please note an issue can be in more than one category
Demographic
Economical
SocialPolitical
Legal
Technical
Environmental
International
Demographic
ORGANISATION
PESTLIED PESTLIED Model –Model –What’s happening in the What’s happening in the world around us?world around us?(Source: Annual Reports)(Source: Annual Reports)
STRENGTHS WEAKNESSES
SWOT
OPPORTUNITIES THREATS
Internal
External
Build Greater Capability
Respond Cautiously
Fix or Improvise
Consider Responses
Assess Internal Capabilities
Assess External Environment
Summarise from questionaire
The Strategic Plan The Strategic Plan
Vision Mission/Purpose Core Values Core Business Statement Sustainable Competitive Advantage Porters 5 Forces Customer Value Proposition Growth Strategies – Objectives & Goals Defining Critical Issues
WHEREWHERE
DefinitionsDefinitions Vision: Defines the desired or intended future state of a specific
organization or enterprise in terms of its fundamental objective and/or strategic direction. Vision is a long term aim, a view of how the organization would like the world in which it operates to be.
Mission: Defines the fundamental purpose of an organization or an enterprise, basically describing why it exists. A corporate Mission can last for many years, or for the life of the organization. It is not an objective with a timeline, but rather the overall goal that is accomplished over the years as objectives are achieved that are aligned with the corporate mission.
Values: Beliefs that are shared among the stakeholders of an organization. Values drive an organization's culture and priorities.
Values include the stated values and the “real values”. Real values can be described as “what really happens here” . The “real values” unless understood can impact a businesses ability to implement its plan
PlanningTip
Vision, Mission, Values Vision, Mission, Values Walt Disney ExampleWalt Disney Example
Purpose To make people happy
Core Values No cynicism
Nurturing and promulgation of “wholesome” American values
Creativity, dreams and imagination
Fanatical attention to consistency and detail
Preservation and control of the Disney magic
Mission Disney’s overriding objective is to create shareholder value by continuing to be the world’s premiere entertainment company from a creative strategic and financial standpoint.
Culture of one of the World’s Leading Culture of one of the World’s Leading Technology CompaniesTechnology Companies
Quality Team Open Communication
Stretch Goals
Teamwork Empowerment Trust
Frugality No Technology Religion
Drive Change
Customer
The CORE PROCESS: We market, design and construct..
The PRODUCT: quality new homes..
The CUSTOMER: for high net worth individuals.
Business Statement ExampleBusiness Statement Example
Up market project home builder
Sustainable Competitive AdvantageSustainable Competitive Advantage
DEFINITION:
The point of difference or winning edge that will enable you to beat others in the same business.
DefinationDefination Competitive advantage is, in very basic words, a position a firm occupies against its competitors. According to Michael Porter, the three methods for creating a sustainable competitive advantage are
through: 1. Cost leadership - Cost advantage occurs when a firm delivers the same services as its competitors but
at a lower cost; [1]
2. Differentiation - Differentiation advantage occurs when a firm delivers greater services for the same price of its competitors. They are collectively known as positional advantages because they denote the firm's position in its industry as a leader in either superior services or cost; [2]
3. Focus (economics) - A focused approach requires the firm to concentrate on a narrow, exclusive competitive segment (market niche), hoping to achieve a local rather than industry wide competitive advantage. There are cost focus seekers, who aim to obtain a local cost advantage over competition and differentiation focuser, who are looking for a local difference. [3]
Many forms of competitive advantage cannot be sustained indefinitely because the promise of economic rents invites competitors to duplicate the competitive advantage held by any one firm.
A firm possesses a sustainable competitive advantage when its value-creating processes and position have not been able to be duplicated or imitated by other firms, [4]. Sustainable competitive advantage results, according to the resource-based view theory in the creation of above-normal (or supranormal) rents in the long run..
The primary factors of competitive advantage are innovation, reputation and relationships. Competitive advantage occurs when a organization acquires or develops an attribute or combination of
attributes that allows it to outperform its competitors. These attributes can include access to natural resources, such as high grade ores or inexpensive power, or access to highly trained and skilled personnel human resources. New technologies such as robotics and information technology either to be included as a part of the product, or to assist making it
Discipline of Market Leaders Discipline of Market Leaders
Operational Excellence
Customer Intimacy
Product leadership
Adapted from Kaplan & Norton (2000)
Price Consistent Quality Speed
Service Relationship Flexibility
Features Innovation Speed to Market
The idea is to be excellent at one and very good at the other two !!!!The idea is to be excellent at one and very good at the other two !!!!
Competitive AdvantageCompetitive Advantage
Operations Strategy
Sustainable Competitive Advantage
Marketing Strategy
HumanResourceStrategy
FinancialStrategy
InnovationStrategy
Hyundai BMW
Competitive Advantage Exercise Competitive Advantage Exercise Hyundai ( price & volume)
BMW /Mercedes( quality)
Marketing Market on TV and mass newspapers to their their age segments
Market in business magazines, prestige events, selective TV shows and CRM
Operations Located in low cost countries with high volume highly mechanised production
Germany is benchmark & replicate in South Africa, USA highly mechanised production
Innovation Copy Lead innovation
Human Resource Strategy
Low cost with selective areas of expertise
Highly qualified workforce – engineers etc
Finance Lowest cost Huge innovation budget – lead the world
Step 2: Sustainable Competitive Step 2: Sustainable Competitive AdvantageAdvantage
ABILITY TO BEAT COMPETITORS
VA
LU
E T
O C
US
TO
ME
RS
DEVELOP YOUR SCA
Low 0
High 10
5
5 10 High
Step 3: Sustainable Competitive AdvantageStep 3: Sustainable Competitive Advantage
PERVASIVENESS SCORE
1. ___________________2. ___________________3. ___________________4. ___________________5. ___________________
_______________________________________________________________________________________________
TOP 5 ITEMS
How will you WIN?
Use attached Success Factors Template
A simple way to think about what is your A simple way to think about what is your Sustainable Competitive Advantage Step 1Sustainable Competitive Advantage Step 1
ITEMS THAT ARE CRITICAL TO THE SUCCESS OF YOUR BUSINESS
1. ___________________2. ___________________3. ___________________4. ___________________5. ___________________6. ___________________7. ___________________8. ___________________9. ___________________10. ___________________
11. ___________________12. ___________________13. ___________________14. ___________________15. ___________________16. ___________________17. ___________________18. ___________________19. ___________________20. ___________________
Porter’s 5 Forces Nature of CompetitionPorter’s 5 Forces Nature of Competition
Industrycompetitors
Rivalry amongexisting firms
Substitutes
Potential newEntrant
Suppliers Buyers
Threat of new entrants Bargaining power
of buyers
Threat of substitute products
Bargaining powerof suppliers
Source: Michael E Porter Competitive Advantage: Creating and Sustaining Superior Performance Free Press 1985
The Customer Value Proposition The Customer Value Proposition Private SectorPrivate Sector
What Benefits Are We Offering to Customers?
Product & Service Attributes Image Relationship+ +
• Brand• Status• Reputation
• Empathy• Personal• Membership• Intimacy
• Price• Features• Build and Dynamic Quality• Accessibility and Convenience• Speed and Consistency• Self-Managed and Reach• Error-Free• Safety• Comfort• Choice and Flexibility
The challenge is to identify whateach customer segment prefersand to deliver those preferences.
What Benefits Are We Offering to Customers?
Product & Service Attributes Image Relationship+ +
• Brand• Status• Reputation
• Empathy• Personal• Membership• Intimacy
• Price• Features• Build and Dynamic Quality• Accessibility and Convenience• Speed and Consistency• Self-Managed and Reach• Error-Free• Safety• Comfort• Choice and Flexibility
The challenge is to identify whateach customer segment prefersand to deliver those preferences.
Strategy Canvas ExampleStrategy Canvas Example
price
meals
lounges
seating choices hub
connectivity
friendly service speed
frequentdepartures
low
high
Offerings
The Strategy Canvas of the Short-Haul Airline Industry
Factors Of Competition
Other Airlines
Southwest
Car
See reference page
Case Study - Southwest AirlinesCase Study - Southwest Airlines
No seatassignments
No baggagetransfers
Limitedpassenger
service
Short-haul, point-to-pointroutes betweenmidsize cities
and secondary airports
Frequent,reliable
departures
Very lowticket prices
Lean, highlyproductiveground & gate crews
Highaircraft
utilisation
Nomeals
Highcompensationof employees
15 - minutegate
turnarounds
Flexibleunion
contracts
High levelof employee
stockownership
Limited use of travelagents
Noconnectionswith other
airlines
Standardisedfleet of 737
aircraft
Automaticticketingmachines
“Southwestthe low-fare
airline”
Porter’s Activity MapSource: Porter on Competition
PositioningPositioning
Short-haul, point-to-pointroutes betweenmidsize cities
and secondary airports
Frequent,reliable
departures
Very lowticket prices
Standardisedfleet of 737
aircraft
“Southwestthe low-fare
airline”
Leunig View
The positioning of Southwest is multiple in the sense that it is serving part of the needs of some customers (ie. getting them to the target city at a convenient time) who use other airlines, whilst it may be serving all of the needs of other customers who can only pay low fares and are not fussed about landing at a secondary airport. If I had to pick it I would say that the positioning is a mixture of Variety and Access-based positioning. It is broadly targeted in that it ignores the more idiosyncratic needs of particular customer groups. (The Model T Ford of air travel!)
No seatassignments
No baggagetransfers
Limitedpassenger
service
Short-haul, point-to-pointroutes betweenmidsize cities
and secondary airports
Very lowticket prices
Nomeals
Limited use of travelagents
Noconnectionswith other
airlines
Standardisedfleet of 737
aircraft
Trade-offsTrade-offs
Leunig View
No seatassignments
No baggagetransfers
Limitedpassenger
service
Short-haul, point-to-pointroutes betweenmidsize cities
and
secondary airports
Frequent,reliable
departures
Lean, highlyproductiveground & gate crews
Highaircraft
utilisation
Nomeals
Highcompensationof employees
15 - minutegate
turnarounds
Flexibleunion
contracts
High levelof employee
stockownership
Limited use of travelagents
Noconnectionswith other
airlines
Standardisedfleet of 737
aircraft
Automaticticketingmachines
Enabling StrategiesEnabling Strategies
Leunig View
Objectives/GoalsObjectives/Goals
WHAT ARE THE KEY OBJECTIVESYOU ARE TARGETTING?
01/02 02/03 03/04 04/05 05/061. __________________________________________2. __________________________________________3. __________________________________________4. __________________________________________5. __________________________________________6. __________________________________________
Business Plan Business Plan
Critical Issues Strategies Initiatives – Action Plans Strategic Accountabilities – Who When Budgets – how much Balanced Scorecard & Strategy Map Measurements & KPIs
HOWHOW
What are the critical issues and how What are the critical issues and how do we determine them?do we determine them?
Critical Issues: Critical issues are issues identified that will impact a businesses ability to implement its strategy. These issues cover all areas/processes of the business plus culture, politics, customers, suppliers. In a business planning context they all need to be addressed for the following reasons
1. They are interlinked: Interconnectivity is a concept that can be summarized as that all parts of a system interact with and rely on one another simply by the fact that they occupy the same system, and that a system is difficult or sometimes impossible to analyze through its individual parts considered alone.
2. Prioritisation: Once all the critical issues have been identified and in the “How” part of the business plan we describe how to address them i.e.. critical issue (CI)>strategy to address CI > Action Plan > Who > When > How Much > Measures > Links to other CI’s, we can then determine the priority
3. Determining the critical issues allows one to address resourcing and budgetary issues i.e. We do not have enough recourses or money to address all the CI , which ones go first, how do we sequence
Determining critical issues Step 1: Take the issues list compiled from management and staff
questionnaires and list in category/process i.e. Management, marketing etc Review the list of issues in each category to determine critical issues –
remember there will be several issues that are similar that identify an issue/theme identified by several people through the questionnaire
What are the critical issues and how What are the critical issues and how do we determine them? ( continued)do we determine them? ( continued)
Determining critical issues Step 1: Take the issues list compiled from management and staff
questionnaires and list in category/process i.e. Management, marketing etc Step 2: Review the list of issues in each category to determine critical issues
– remember there will be several issues that are similar that identify an issue/theme identified by several people through the questionnaire
Step 3: List in Critical issue summary
Exercise: Take issue list template and work out what the critical issues are
There are normally 2 or 3 Critical Issues per Category
PlanningTip
Critical Issues Exercise Critical Issues Exercise AnswersAnswersManagement Brand & Marketing Senior job roles Bringing on & empowering middle management Review organisational structure of x division
Competitor reviews Brand & marketing strategy review Lack of penetration in x segment
Sales Operations Leveraging sales & marketing across the channel Develop the sales culture Sales Strategy Lack of sales process Key account management Leverage our resources
File management, protocol & storage Review and update our processes in line with new technology Project Management of IT integration Supply chain review (printing, telco, stationary, freight/couriers) Making the key supplier relationship work effectively Gross Margin
Critical Issues Exercise answersCritical Issues Exercise answersFinance Innovation Review general ledger requirements Review management reporting Early warning key performance indicators Cash and cash management Shareholder communication Review key supplier reporting Quantify capital requirements going forward
Review how we innovate Develop an innovation culture
Human Resources Technology Career Path Development HR Job Role clarification and interaction with managers Communication Look at High Performance Team Process Training (team training, project mgt, leadership, HR training, sales & key account mgt, KPI training, technology, mentoring)
Smooth implementation of new technology SAP Look at our IT resource (internal vs. Outsourcing) Printer, copier & outsourcing / productivity Intranet Server
Critical Issues Critical Issues
Management Marketing
1. Sales / Channel 1. Customers
1. Competitors 1. Suppliers
Critical Issues Critical Issues
Technology Culture
1. Human Resources 1. Operations
1. Finance 1. Innovation
Critical Issue Action Plan TemplateCritical Issue Action Plan TemplateCritical Issue Action Plan
Critical Issue Description:
Strategy:
Action Plans:
Who:
When:
How Much:
How to measure the results:
Action Comments
1
2
3
4
Example Critical Issue/Action PlanExample Critical Issue/Action Plan
NO ISSUE STRATEGY / ACTIONS
1.1 Management team development
ISSUE:
The business plan calls for 25% growth over the next 3years. We need to develop a top management team capable of operating with more complexity in a challenging enviroment
STRATEGY:
We need to review HO capabilities and resourcing requirements for the next 3 years and determine the capabilities required to run this size business and when should we be recruiting and or developing internal staff.
The same would apply for middle managers and supervisors
ACTIONS:
1.Eight of the top 10 key roles have been filled
2.Communicate the business plan in 1 or 2 day offsite and get others input – include leadership development program on second d ay.
3.Allocate action plans to members of the team as a way of testing and developing them
4.Develop and or source leadership and skill programs for all staff including coaching, effective communication and working as a team
WHO: CEO & HR Director
WHEN: March 2010
COST: $55,000
Benefits of a Business PlanBenefits of a Business Plan
Lead to better management and superior business performance
Help you win the war against your competitors
Lead to better decision making Result in better management Offset uncertainty brought about
change Lead to better control (keeping
the business ‘on track’) Help people work smarter Help to build confidence about
the business
Help to integrate personal and business goals
Enhance any funding needs Improve efficiency Help identify emerging problems
and threats Facilitate the coordination of work
activities Increase the focus on results Put you in charge of your
business
Operational and Strategic BudgetingOperational and Strategic Budgeting
Strategic Initiatives
Enhancement
Maintenance
Operations
Infrastructure
10%ManageStrategically
65%
25%
ImproveOperating Efficiency &Effectiveness
Why Is Strategy Execution So Difficult?Why Is Strategy Execution So Difficult?
Only 5% of the work force
understands the strategy
85% of executive teams spend less
than one hour per month discussing
strategy
60% of organizations don’t
link budgets to strategy
Only 25% of managers have
incentives linked to strategy
STRATEGY
The Vision Barrier
Strategy is not understood by those who must implement it
The Management BarrierManagement systems are designed for operational control and little time is spent on strategy
The Operational BarrierBudgeting process is separated
from strategic planning
The People BarrierPersonal goals, incentives and
competencies are not linked to strategy
ImplementationImplementation
People First Leadership Balanced Scorecard/Strategy Mapping Corrective Action Middle Management / Team Leader High Performance Teams Emerging Issues Reporting Performance Management
ACTIONACTION
Balanced Scorecard - Strategy MapsBalanced Scorecard - Strategy Maps
“The formulation of great strategies is an art,and it will always remain so. But the description of strategy should not be an art. If people can describe strategy in a more disciplined way, they will increase the likelihood of its successful implementation.”
Kaplan & Norton
DefinitionDefinition From Wikipedia, the free encyclopedia The Balanced Scorecard (BSC) is a strategic performance management tool for measuring whether the
smaller-scale operational activities of a company are aligned with its larger-scale objectives in terms of vision and strategy.
By focusing not only on financial outcomes but also on the operational, marketing and developmental inputs to these, the Balanced Scorecard helps provide a more comprehensive view of a business, which in turn helps organizations act in their best long-term interests.
Organizations were encouraged to measure, in addition to financial outputs, those factors which influenced the financial outputs. For example, process performance, market share / penetration, long term learning and skills development, and so on.
The underlying rationale is that organizations cannot directly influence financial outcomes, as these are "lag" measures, and that the use of financial measures alone to inform the strategic control of the firm is unwise. Organizations should instead also measure those areas where direct management intervention is possible. In so doing, the early versions of the Balanced Scorecard helped organizations achieve a degree of "balance" in selection of performance measures. In practice, early Scorecards achieved this balance by encouraging managers to select measures from three additional categories or perspectives: "Customer," "Internal Business Processes" and "Learning and Growth.“
Strategy Maps: measures are selected based on a set of "strategic objectives" plotted on a "strategic linkage model" or
"strategy map With this modified approach, the strategic objectives are distributed across the four measurement perspectives, so as to "connect the dots" to form a visual presentation of strategy and measures.
To develop a strategy map, managers select a few strategic objectives within each of the perspectives, and then define the cause-effect chain among these objectives by drawing links between them. A balanced scorecard of strategic performance measures is then derived directly from the strategic objectives. This type of approach provides greater contextual justification for the measures chosen, and is generally easier for managers to work through.
The Balanced Scorecard Strategy MapThe Balanced Scorecard Strategy MapKaplan and NortonKaplan and Norton
Product Leadership
Customer Intimacy
FinancialPerspective
Customer Perspective
Internal ProcessPerspective
Learning &Growth Perspective
Customer ValueProposition
Improve Shareholder Value
Revenue Growth Strategy
Productivity Strategy
Build the franchise
Increase value
to customers
Improve use of assets
Improve cost structure
Employee competencies Corporate cultureTechnology
Process No 1New ProductDevelopment
Process No 2Brand Development
Process No 3Retail & OutletManagement
Process No 4Operations
Operational Excellence
Components of a Balanced ScorecardComponents of a Balanced Scorecard
Strategic Objectives Measures Targets Initiatives
Lea
rnin
gIn
tern
alC
ust
om
er
Fin
anci
al F1 - Improve ReturnsF2 - Broaden Revenue Mix
F3 - Reduce Cost Structure
C1 - Increase Customer Satisfaction With Our Products & People
C2 - Increase Satisfaction “After the Sale”
I1 - Understand Our CustomersI2 - Create Innovative Products
I3 - Cross-Sell Products
I4 - Shift Customers to Cost-Effective Channels
I5 - Minimize Operational Problems
I6 - Responsive Service
L1 - Develop Strategic SkillsL2 - Provide Strategic InfoL3 - Align Personal Goals
Return on Investment Revenue Growth
Deposit Service Cost Change
Share of Segment
Customer Retention
New Product Revenue
Cross-Sell Ratio
Channel Mix Change
Service Error Rate
Request Fulfillment Time
Skills Coverage Employee Satisfaction Revenue per Employee
15% +10%
-5%
20%
95%
10%
9%
TBD
<1%
<2 days
100% 80%
Finance 2000
Global Re-Engineers
Sales & marketing Reorganization & Training
QFD Project
Customer Database
Global Service Training Program
HRMS Knowledge
Management System
THEME THEME
FinancialPerspective
CustomerPerspective
InternalPerspective
Learning Perspective
Strategy Map Scorecard
Mobil NMA&R’s Strategy MapMobil NMA&R’s Strategy Map (Kaplan & Norton (2000), The Strategy-Focused Organization)(Kaplan & Norton (2000), The Strategy-Focused Organization)
• Aligned• Personal Growth
• Functional Excellence• Leadership Skills• Integrated View
• Process Improvement• Y2K
• Personal Scorecard• Employee Feedback
• Strategic SkillCoverage Ratio
• Systems Milestones
Climate for Action Competencies Technology
A Motivated and Prepared Workforce
Create Nongasoline Products & Services
• New Product ROI• New Product
Acceptance Rate
UnderstandConsumerSegments
• Share of Target Segment
Best-in-ClassFranchise
Teams
• Dealer Quality Rating
ImproveHardware
Performance
• Yield Gap• Unplanned Downtime
On SpecOn Time
• Perfect Orders
UnderstandConsumerSegments
• Inventory Levels• Run-out Rate
Industry Cost Leader
• Activity Cost vs. Competition
ImproveEnvironmental, Health & Safety
• Environmental Incidents
• Safety Incidents
“Build the Franchise” “Increase Customer “Achieve Operational “Be a Good Value” Excellence” Neighbor”
“Delight the Consumer”
Recognize
Loyalty• Clean• Safe• Quality Product• Trusted Brand
Friendly,Helpful
Employees
SpeedyPurchase
Basic Differentiators
“Win-Win Dealer Relations”
Help
Develop Business
Skills
MoreConsumerProducts
• Mystery Shopper Rating
• Share of segment
• Dealer Profit Growth
• Dealer Satisfaction
New Sources of Nongasoline
Revenue
Increase Customer Profitability through
Premium Brands
Become Industry Cents Leader
• Nongasoline Revenueand Margin
• Volume vs. Industry• Premium Ratio
• Cash Expense (Cost per Gallon) vs. Industry
Maximize Use of Existing Assets
• Cash Flow
Revenue Growth Strategy Productivity Strategy
Increase ROCE to 12%
• ROCE• Net Margin (vs. Industry)Financial
Perspective
CustomerPerspective
Internal Perspective
Learning &GrowthPerspective
Mobil NMA&R’s Balanced ScorecardMobil NMA&R’s Balanced Scorecard (Kaplan & Norton [2000], The Strategy-Focused Organization)(Kaplan & Norton [2000], The Strategy-Focused Organization)
Financial Financial Growth F1 Return on Capital EmployedF2 Existing Asset UtilisationF3 ProfitabilityF4 Industry Cost LeaderF5 Profitable Growth
• ROCE• Cash Flow• Net Margin Rank (vs. Competition)• Full Cost per Gallon Delivered (vs. Competition)• Volume Growth Rate vs. Industry• Premium Ratio• Non-gasoline Revenue and Margin
Customer Delight the Consumer C1 Continually Delight the Targeted Consumer
Win-Win Dealer Relations C2 Build Win-Win Relations with Dealer
• Share of Segment in Selected Key Markets• Mystery Shopper Rating
• Dealer Gross Profit Growth• Dealer Survey
Internal Build the Franchise I1 Innovative Products and Services
I2 Best-in-Class Franchise Teams
Safe and Reliable I3 Refinery Performance
Competitive Supplier I4 Inventory Management
I5 Industry Cost Leader
Quality I6 On Spec, On Time
Good Neighbour I7 Improve EHS
• New Product ROI• New Product Acceptance Rate
• Dealer Quality Score
• Yield Gap• Unplanned Downtime
• Inventory Levels• Run-out Rate
• Activity Cost vs. Competition
• Perfect Orders
• Number of Environmental Incidents• Days Away from Work Rate
Learning Motivated and Prepared L1 Climate for ActionAnd Growth L2 Core Competencies and Skills
L3 Access to Strategic Information
• Employee Survey• Personal Balanced Scorecard (%)• Strategic Competency Availability• Strategic Information Availability
Strategic Themes Strategic Objectives Strategic Measures
Mobil NMA&R’s Educational BrochureMobil NMA&R’s Educational Brochure (Kaplan & Norton (2000), The Strategy-Focused Organization)(Kaplan & Norton (2000), The Strategy-Focused Organization)
NAM&R Strategic Themes
Will guide us to our vision and are defined above each graph.
NAM&R Strategic Measures
Will keep us focused on achieving NAM&R’s strategic themes. They are explained in the graphs and the bulleted text accompanying them.
Win/Win RelationshipImprove Dealer/Wholesale Marketer profitabilitythrough customer-driven products and servicesAnd by developing their business competencies.
Total profit earned at Mobil outlets and splitbetween our dealers/wholesaler marketers and Mobil
Dealer/Mobil Gross Profit
1993 1994 Target
Good NeighborProtect the health and safety of our people, the communities in which we work, and the environment we all share.
Composite of:• Reportable
releases to airand water
• Reportable spills• Community
reported incidents
Environmental Index
1993 1994 Target
On Spec On TimeProvide quality products supported by quality business processes that are on time and done right the first time.
Composite of:• Product off spec• Order shipped late• Business process
errors• Customer
complaints• Cost of rework
Quality Index
1993 1994 Target
Motivated & PreparedDevelop and value teamwork and the ability to think Mobil, act locally.
Survey of employees to measure how people perceive the Mobil workplace environment
Climate Survey
1993 1994 Target
Delight the ConsumerUnderstand our consumers’ needs better than anyone and offer them products and services with exceed their expectations.
The Mystery Shopper program rates how well each of our stations is delivering the “best buying experience.”
Mystery Shopper
1993 1994 Target
Financially StrongReward our shareholders by providing a superior long-term return which exceeds that of our peers.
Income divided by capital employed including all allocations
ROCE
1993 1994 Target
7%
8%
12%
Safe & ReliableMaintain a leadership position in safety while keeping our refineries fully utilized.
Manufacturing Reliability
1993 1994 Target
Days Away from Work
1993 1994 Target
Competitive SupplierProvide product to our terminals at a cost equal to or better than the competitive market maker.
Our cost to deliver product to the terminal vs. lowest cost provider.
Activity Cost vs. Competition
1993 1994 Target
“LINE OF SIGHT” ALIGNMENT
High
Low
Knowledgeof Strategy
High
Low
Knowledge of Work & Processes
Executive Middle Management
Individual
Bus. Unit Strategy
Corporate Strategy
Individual’sPerformance Plan
Leadership DevelopmentLeadership is about Change
KPI and PerformanceReport Back
Balanced Scorecard IdentifiesStrategic Initiatives and
Emerging Issues
Corrective Action
High Performance Culture
Capabilities Required Leadership
Team Leader High Performance Teams
Identification and Testing Leaders at all levels though
Strategy implementation
Strategic Objectives Measures Targets Initiatives
Le
arn
ing
Inte
rna
lC
us
tom
e
r
Fin
an
cia
l
F1 - Improve ReturnsF2 - Broaden Revenue Mix
F3 - Reduce Cost Structure
C1 - Increase Customer Satisfaction With Our Products & People
C2 - Increase Satisfaction “After the Sale”
I1 - Understand Our CustomersI2 - Create Innovative Products
I3 - Cross-Sell Products
I4 - Shift Customers to Cost-Effective Channels
I5 - Minimize Operational Problems
I6 - Responsive Service
L1 - Develop Strategic SkillsL2 - Provide Strategic InfoL3 - Align Personal Goals
Return on Investment Revenue Growth
Deposit Service Cost Change
Share of Segment
Customer Retention
New Product Revenue
Cross-Sell Ratio
Channel Mix Change
Service Error Rate
Request Fulfillment Time
Skills Coverage Employee Satisfaction Revenue per Employee
15% +10%
-5%
20%
95%
10%
9%
TBD
<1%
<2 days
100% 80%
Finance 2000
Global Re-Engineers
Sales & marketing Reorganization & Training
QFD Project
Customer Database
Global Service Training Program
HRMS Knowledge
Management System
THEME THEME
FinancialPerspective
CustomerPerspective
InternalPerspective
Learning Perspective
Strategy Map Scorecard
Balanced Scorecard
Linking Performance ManagementLinking Performance ManagementTo ChangeTo Change
Understanding Process Flow vs Understanding Process Flow vs Organisational StructureOrganisational Structure
Business Processes Cut Across Departments
Department
ADepartment
BDepartment
C
Customer Customer
Michael Porter’s Value ChainMichael Porter’s Value Chain
Generate Revenues
Develop Markets
Build Relationships
Manage Operations
Coordinate Logistics
Conduct R & D
CUSTOMERS
Primary Activities = Generic Core ProcessesPrimary Activities = Generic Core Processes
Michael Porter’s - Support Activities Michael Porter’s - Support Activities Infrastructure & Management ProcessesInfrastructure & Management Processes
Manage Human Resources
Manage Information
Administer the Business
Manage the Finances
Manage the Assets
Manage Risks
CORE
PROCESSES
Example - Manufacturing Company Example - Manufacturing Company
New Product Development
Core Processes
Order Generation and Fulfilment
Integrated Logistics
Example - Consumer Goods CompanyExample - Consumer Goods Company
New Product Development
Brand Development
Retail Outlet Management
Integrated Logistics
Eg. - Government Agencies in the USAEg. - Government Agencies in the USA
Establish [Agency's] Direction
Core Processes
Acquire Necessary Resources
Provide Capabilities
Execute the [Agency's] Mission
www.va.gov/fedsbest/www.va.gov/fedsbest/
Example - The Dupont Company Example - The Dupont Company
Planning
Core Processes
Deliver the Current Offering
Renewal
Identifying Core Processes - Guidelines Identifying Core Processes - Guidelines
They should face the customer.
Core processes represent core business. They do not have to cover 100% of all things the business does.
The management team should nominate core processes. A single person should not be tasked with the job.
The processes need to be defined at levels high enough so that major improvements are visible to everyone in the organisation or unit.
Identifying Core Processes - Guidelines Identifying Core Processes - Guidelines (continued)(continued)
They should be recognisable as the platform around which strategy is developed.
They should capture the major workflows, which result in something very quantifiable being offered to the customer. These workflows typically involve more than one function.
There should be minimum overlap between the core processes. The skills, technologies and sub-processes should be substantially different for each.
Identifying Core Processes - Guidelines Identifying Core Processes - Guidelines (continued)(continued)
It should be clear that measures of quantity, quality, cost, revenue, and time, applied to these processes would form the backbone of the organisation's performance measurement system.
It should be clear that all strategic contact points with the customer are covered.
Vagueness should be avoided. For example Manage the Business seems to say it all, but is at too high a cognitive level to work with.
Elevating a small process to core status puts it under the spotlight at management reviews. Forces it to be resourced and managed.
A subsidiary of a multinational manufacturing company that needed to increase their gross margin from 49% to 62% or close manufacturing operation and source from overseas.
Worst-in-class in inter-company benchmarking
Culture resistant to change with silo mentality
Top-heavy management
Case Study 1Case Study 1
Global FMCG Subsidiary
BACKGROUND
Set Vision of “best-in-class” and 62% Gross Margin within 15 months
Developed implementation plan and communicated it and restructured quickly
Focused on process across silos using Value Stream Analysis
Implemented high performance team culture and multi-skilling
Re-trained workforce ($0.75M)
Case Study 1Case Study 1
STRATEGY
Global FMCG Subsidiary
Introduced MRPII solution and performance measurement
Activity Based Costing to identify customer and product profitability
Co-ordination with marketing and customers to improve manufacturing velocity by standardisation of packaging
Re-equipment program ($4M)
Case Study 1Case Study 1
STRATEGY
Global FMCG Subsidiary
Case Study 1Case Study 1
Improved gross margin by 13% to 62% “Best-in-class” Reduced workforce from 150 to 75 and increased output
by 40% Reduced stock levels from 120 days to 45 days Reduced out-of-stocks from 30% to 5% Used some of the cost saving (part of the negotiation
with marketing dept for using consistent bottle shapes) to increase advertising budget by $3M and increased sales revenue by 20%
Developed a multi-skilled high performance team culture
RESULTS (15 MONTHS)
Global FMCG Subsidiary
Case Study 2Case Study 2
INTRODUCING SALES FORCE RE-ENGINEERING AND CRM TECHNOLOGY
2200 customers of which
Top 200 = 92% of total revenue
Top 24 customers = 80% of total revenue
98 sales force & customer service
Operating in a mature market with no perceived opportunity for growth
BACKGROUND
Case Study 2Case Study 2INTRODUCING SALES FORCE RE-ENGINEERING
AND CRM TECHNOLOGY
Introduced new CRM system with a sales process upgrade
Develop consultative/solution selling capability model Assessed all sales force personnel and restructured
sales force Activity Based Costing to identify customer and
product profitability Migrated 2000 customers to lower cost customer
service / call centre model or increased prices to get rid of unprofitable customers
Refocused sales team on generating sales growth from top 200 customers
STRATEGY
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