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Strategy Map & Balanced

ScorecardSession 15 and 16

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Agenda

2

1. Understanding the SM System2. Strategy Maps and Balanced Scorecard

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Strategy at various levels

3

Corporate

External Environment

Internal Environment

Stakeholders Expectations

Business

External Environment Internal Environment

Resource & Capability analysis

Functional

Financial Strategy

Marketing Strategy R&D Strategy

IT Strategy etc.

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4

Source: Kaplan & Norton, Using the Balanced Scorecard as a Strategic Management System, HBR, Jan-Feb 1996.

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5

Source: Kaplan & Norton, HBR, Jan 2008.

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Agenda

6

1. Understanding the SM System2. Strategy Maps and Balanced Scorecard

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What is the Balanced Scorecard (BSC)?

An alternative approach linking operational andstrategic control, developed by Robert Kaplan and

David Norton.

The balanced scorecard is a management system (not

only a measurement system) that enables companiesto clarify their strategies, translate them into action,

and provide meaningful feedback.

How is the BSC approach different from KPIs ? KPIs are a list of important things to measure

May not have relationship to strategic priorities

7

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Strategy Maps and BSC in the Strategy ContinuumMission

Why we existCore Values

What we believe inVision

What we want to beStrategy

Our Game plan

Strategy MapTranslate the Strategy

Targets and Strategic Initiatives

What we need to doPersonal Objectives

What I need to do

Strategic Outcomes

Satisfied

Shareholders

Delighted

Customers

Effective

Processes

Motivated

Workforce

8

Balanced Scorecard

Measure & Focus

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BSC complements traditional financial control perspective

Objectives Measure Targets Initiatives

FINANCIAL

To succeed financially, how

should we appear to our

shareholders?

Objectives Measure Targets Initiatives

INTERNAL PROCESS

To satisfy our shareholders andcustomers, what business

processes must we excel at?

Objectives Measure Targets Initiatives

LEARNING & GROWTHTo achieve our vision, how will wesustain our ability to change and

improve?

Objectives Measure Targets Initiatives

CUSTOMER

To achieve our vision, how

should we appear to our

customers?

Balanced View o fPerformance

in l ine with

Strategy and

Vision

9

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Strategy Map: Correlating the 4 perspectives

Source: Kaplan & Norton, Using the Balanced Scorecard as a Strategic Management System, HBR, Jan-Feb 1996.10

Accounts

receivables

ROCE

Operating

expense

Customersatisfaction

Rework

Employees

morale

Employees

suggestions

Financial

Custom

er

Internal

Learning

&Growth

( + )

( - )

( + )

( - )

( + )

( - )

( + )

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Strategy Map: Capture Cause Effect Relationships

Return on Capital

Lower Cost

at outlet

On Spec,On Time

Lower Mfg. Cost

Develop

Dealer/

Distributor

Develop

Products &

Services

DealerSatisfaction

CustomerSatisfaction

Cash FlowRevenue Growth

Leader in profitability

Access to Strategic

Information

Core

Competencies

& Skills

Org.

Involvement

Plant Performance

Inventory Mgmt.

Financial

Internal

Customer

Learning

and

Growth

12

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Some Techniques for Building Strategy Maps

13

Increasing

connects

Splitting thePerspective

General Rule of Thumb to ensure strategy map is developedboth vertically and horizontally

Way of pulling out both drivers and outcomes that match up

against the core competencies of the business model

Customer Growth Customer SatisfactionRetention Rate

Timely Delivery Pricing Quality Service Reputation

Customer Perspective

Outcomes

Drivers

Weak Strong

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Exercise 1: My Departments Simple Strategy Map

Please focus on any one non-financial

perspective and write down the mapelements

( Time: 5 minutes )

14

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Fin

Customer

Inte

rnal

L&G

Extending the Strategy Map to BSC

15

Strategy Map Balanced Scorecard Action Plan

Objectives Measures Targets Initiative

Profits

Revenues

Less assets

Mkt. Value

Prod. Rev

Ast.Cost

50% cagr

20% cagr

10% cagr

Customer

Quality

Price

No. Cust

Rating

Ranking

25% cagr

1

1

CRM system

Loyalty

programme

Fast and low

error

production

Time

Error

20% dec

6 sigma

Cycle time

reduction

TQM

Skill

development

Capability

measure

ment

100% Training

Communicati

on

Alignment and

skilling

Process and ValueMap Analysis

Lean

Processes

QualityLow price

Attract & Retain

Revenue GrowthFewer assets

Profits

Source: Adapted from Kaplan & Norton, Strategy Maps, p53

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Some Tools for Determining What to Measure

InputsProcess/System Output

IntermediateOutcomes

EndOutcome

Program Logic Model

Desired

Outcome

Causal Analysis

Process Flow

Results

Of

Testing

Not AcceptableAcceptable

Prototype

Product

Back to

LaboratoryTo Market

16

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Cascading the balanced scorecard

17

Corporate

Business

Division

Sub-Division

Objective Measures Targets Initiatives Budget

0

1

2

3

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Aligning the scorecard objectivesAn example

18

Adopt bestpractices

Lean

processes

Processefficiency

Streamlineprocesses

Expand globalreach

Improve Asian

footprint

Grow marketshare

Expand range

Expand skillbase

Develop the

workforce

Highly skilledworkers

Improveemployee

competencies

Corporate

Business

Division

Sub-Division

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Suggestions for successful BSC implementation

19

Identify cause effect relationships Ensure full top management support

Determine key objectives

Translate objectives into measures and targets

Plan initiatives

Install a simple and fast tracking system

Link performance measures to rewards

Link balanced scorecards at all levels Communicate the balanced scorecard effectively

Link strategic planning, BSC and budgeting process

Source: Pandey I.M., Balanced Scorecard: Myth and Reality, Vikalpa

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Example BSC Development Timeline

20

1 4 8 12 16 20 24 26

ClarifyVision

Communicate

to middlemanagers

Eliminate non-strategic

investments

Launch Corporate

change programs

Develop SBU

scorecards

Review SBU

scorecards

Refine VisionCommunicate

across

company

Establish

individual

performance

objectives

Update long

range plan &

budget

Conduct monthly

and quarterlyreviews

Conduct annual

strategy reviews

Link everyone'sperformance to

the balanced

scorecard

Months

Source: Kaplan & Norton, Using the Balanced Scorecard as a Strategic Management System, HBR, Jan-Feb 1996.