The Balanced Scorecard

Presented To

Alaoula Board Member

Presented By

Adnan Alshiha

Workshop Outline
Introduction to the Balanced Scorecard What is it? Why do it? Brayer Break Balanced Scorecard Fundamentals The Four Perspectives Measures, Targets and Initiatives Roles and Responsibilities

1-3

Business Strategy

The Balanced Scorecard What is it?

Definition: The Balanced Scorecard is a management tool that provides stakeholders with a comprehensive measure of how the organization is progressing towards the achievement of its strategic goals.

Balanced Scorecard History

Measurement and Reporting
1992 Articles in Harvard Business Review:

Alignment and Communication

1996

Enterprise-wide Strategic Management

2000

Acceptance and Acclaim:

The Balanced Scorecard Measures that Drive Performance January - February 1992 Putting the Balanced Scorecard to Work September - October 1993 Using the Balanced Scorecard as a Strategic Management System January - February 1996 1996

The Balanced
Scorecard is translated into 18 languages

Selected by Harvard
Business Review as one of the most important management practices of the past 75 years.

2000

The Strategy-Focused-Organization
The Balanced Scorecard is the main management tool that has been used by successful organizations in various fields Private and Public Sector For- Profit and Not For- Profit Different industries These successful organizations placed their strategies at the centre of their operations. Their strategies, guided Their day- to- day activities In this workshop, we will learn more about strategy- focused organizations, and how to develop Balanced Scorecards

Organizations Often Have A Gap Between Strategy and Action

Strategy Is a Step In a Continuum
MISSION Why we exist VALUES Whats important to us VISION What we want to be STRATEGY Our game plan

STRATEGIC OUTCOMES
Satisfied SHAREHOLDERS Delighted CUSTOMERS Efficient and Effective PROCESSES Motivated & Prepared WORKFORCE

The Balanced Scorecard Is A Bridge To Close That Gap

Strategy Is a Step In a Continuum
MISSION Why we exist VALUES Whats important to us VISION What we want to be

STRATEGY Our game plan

BALANCED SCORECARD Implementation & Focus STRATEGIC INITIATIVES What we need to do PERSONAL OBJECTIVES What I need to do

STRATEGIC OUTCOMES
Satisfied SHAREHOLDERS Delighted CUSTOMERS Efficient and Effective PROCESSES Motivated & Prepared WORKFORCE

The Balanced Scorecard What is it?

The Balanced Scorecard:
Balances financial and non-financial measures Balances short and long-term measures Balances performance drivers (leading indicators) with outcome measures (lagging indicators) Should contain just enough data to give a complete picture of organizational performance and no more! Leads to strategic focus and organizational alignment.

The Balanced Scorecard Provides a Four Perspective Framework to Translate Strategy Into Operational Terms The Vision
Financial Perspective If we succeed, how will we look to our shareholders?
Profitability Growth Shareholder Value

Measurement is the language that gives clarity to vague concepts Measurement is used to communicate, not simply to control

Customer Perspective To achieve our vision, what customer needs must we serve?
Price Service Quality

Internal Perspective
To satisfy our Cycle Time customers and shareholders, at which Productivity business processes Cost must we excel?

Learning and Growth To excel in our processes, what must our organization learn?
New Skills Continuous Improvement Intellectual Assets

A Good Balanced Scorecard Strategy Map Tells the Story of Your Strategy
The Revenue Growth Strategy Improve stability by broadening the sources of revenue from current customers The Productivity Strategy Improve operating efficiency by shifting customers to more cost-effective channels of distribution
Improve Returns Broaden Revenue Mix Improve Operating Efficiency

Financial Perspective

Increase Customer Confidence in Our Financial Advice

Increase Customer Satisfaction Through Superior Execution

Customer Perspective

Internal Perspective
Understand Customer Segments Develop New Products Cross-Sell the Product Line Shift to Appropriate Channel Provide Rapid Response

Minimize Problems

Increase Employee Productivity

Learning Perspective

Develop Strategic Skills

Access to Strategic Information

Align Personal Goals

A Good Balanced Scorecard Tells the Story of Your Strategy Through A Set of Linked Cause and Effect Hypotheses
Strategic Objectives
Financial
F1 - Improve Returns F2 - Broaden Revenue Mix F3 - Reduce Cost Structure

Strategic Measurements
(Lag Indicators) Return on Investment Revenue Growth Deposit Service Cost Change (Lead Indicators) Revenue Mix

Customer

C1 - Increase Customer Satisfaction With Our Products & People C2 - Increase Satisfaction After the Sale

Share of Segment

Depth of Relation

Customer Retention

Satisfaction Survey

I1 - Understand Our Customers I2 - Create Innovative Products

New Product Revenue

Product Development Cycle

Internal

I3 - Cross-Sell Products
I4 - Shift Customers to CostEffective Channels I5 - Minimize Operational Problems I6 - Responsive Service

Cross-Sell Ratio
Channel Mix Change Service Error Rate Request Fulfillment Time

Hours with Customers

Learning

L1 - Develop Strategic Skills L2 - Provide Strategic Info L3 - Align Personal Goals

Employee Satisfaction Revenue per Employee

Strategic Job Coverage Ratio Strategic Info Availability Ratio Personal Goals Alignment (%)

Theme Example from Southwest Airlines Balanced Scorecard

Strategy Map: Diagram of the cause-and-effect relationships between strategic objectives

Strategic Theme: Operating Efficiency

Financial Profitability Lower Costs Increase Revenue

Statement of what strategy must achieve and whats 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 required to achieve objectives

Customer
Flight is on time Lowest prices

Internal Fast ground turnaround

Objectives

Measurement

Target

Initiative

Fast ground
turnaround

On Ground Time On-Time

Departure

30 Minutes 90%

Cycle time
optimization

Learning Ground crew alignment

The Balanced Scorecard Supports a Complete Strategic Management System by Linking Long Term Strategy and Measures to More Tactical Planning & Budgeting

Longer Term (3-5 year) View

Mission Vision Themes/ Goals Objectives

Shorter Term (Annual) View

Measures
% patient care revenue growth Targets 02 xx% 03 xx% 04 xx% Initiatives Milestones Accountable Resource Alloc.

ABC Hospital System will provide excellent care in our selected specialty areas while maintaining margin and growing share

Serve the needs of patients excellently

Customer Financial

Grow revenue from patient care

1. Strengthen innovation 2. Improve customer satisfaction 3. Assure consistent high quality 4. Provide operational excellence

Meet access expectations

3rd available appointment (% met)

02 xx% 03 xx% 04 xx%

Access project

Meet monthly target

Mkg. Team

$ xxxx

Internal

Assure optimum patient mix

% patient mix

02 = 39% 03 = 40% 04 = 41%

02 xx% 03 xx% 04 xx%

Mix Margins Project

Complete by 2003

Dept. Chairs

$ xxxx

Learning

Promote ABC Culture Model

Employee Satisfaction Survey

Evaluate survey response

Deadline met

HR Committee

$ xxxx

Strategic

Tactical

The Balanced Scorecard Why do it?

To achieve strategic objectives. To provide quality with fewer resources. To eliminate non-value added efforts. To align customer priorities and expectations with the customer. To track progress. To evaluate process changes. To continually improve. To increase accountability.

The Balanced Scorecard Why do it?

It works!
In just 90 days, Sandia Labs was able to redirect $190,000 in savings by dropping initiatives that didnt fit their overall strategy. The BSC has forced our management team to focus beyond financial measures too often in the past we would get sucked into short-term thinking. The BSC dramatically improved our data analysis we dont overreact nearly as much as we used to.

Execution of Strategy Has Become the Corporate Challenge of Our Times!

Strategy has never been more important Business Week Less than 10% of strategies effectively formulated are effectively executed Fortune Magazine The problem is that our ages fascination with strategy and vision feeds the mistaken belief that developing the right strategy will enable a company to rocket past competitors. In reality, strategy is less than half the battle. .. In the majority of cases we estimate 70% the real problem isnt [bad strategy]. Its bad execution. Why CEOs Fail Ram Charan and Geoffrey Colvin Fortune (6/21/99)

The Results are Widespread

CIGNA Property & Casualty
1993 1998 $275 loss Top Quartile $3b spin-off

Chemical Bank
Profits

1993 1998

X 20X

Brown & Root Engineering (Rockwater)

1993 1996 Losing money # 1 in Niche (growth & profits)

ATT Canada
1995 1998 1999 $300M loss Customer base doubles $7b spin-off

Saint Marys/ Duluth Clinic Health System

Southern Citrus
1995 1998

Measure Improvement Operating $18M since BSC Days in AR Decrease 16 days Margin implementation Overall 15% Hospital Point Duke Childrens Hospital Satisfaction Measure % Improvement Operating 25 Family 11 Margin Length of 25 Satisfaction Readmission 63 Stay Rate

Shipments on Spec On Time Delivery Rework Absenteeism Employee Turnover Cost per Pound ()

70% 89% 6% 10% 100 28.8

97% 98% 2% 1% 31 18.9

Mobil US Marketing & Refining

Competitive Rank (out of 7,profit)

1993 1995 1996 1997 1998

#6 #1 #1 #1 #1

The Strategy Focused Organization

Mission: What we do
Vision: What we aspire to be Strategies: How we accomplish our goals Measures: Indicators of our progress

..the question..?

What is our strategy?

Environmental Scan
Strengths Weaknesses Threats

A Model for Strategic Planning

Opportunities Values

Mission & Vision

Strategic Issues Strategic Priorities Objectives, Initiatives, and Evaluation

Business Strategy

Business Strategy

Corporate Culture

Corporate Culture
The beliefs and values shared by people who work in an organisation
How people behave with each other How people behave with customers/clients How people view their relationship with stakeholders Peoples responses to energy use, community involvement, absence, work ethic, etc. How the organisation behaves to its employees training, professional development, etc.

Corporate Culture
May be driven by: Vision where the organisation wants to go in the future Mission Statement summary of the beliefs of the organisation and where it is now

Corporate Culture

May be reflected in:

Attitude and behaviour of the leadership Attitude to the role of individuals in the workplace open plan offices, team based working, etc. Logo of the organisation The image it presents to the outside world Its attitude to change

Corporate Culture
What corporate culture do you think the following businesses have managed to develop?

Virgin The McDonalds Nike Body Group Shop

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Strategic Planning

Strategic Planning
First Stage of Strategic Planning may involve: Futures Thinking
Thinking about what the business might need to do 1020 years ahead

Strategic Intents
Thinking about key strategic themes that will inform decision making
The thicker the planning document, the more useless it will be
(Brent Davies: 1999)

Taking time to think and reflect may be more important than many businesses allow time for!
Copyright: Intuitives, http://www.sxc.hu

Strategic Planning
The Vision
Communicating to all staff where the organisation is going and where it intends to be in the future Allows the firm to set goals

Aims and Objectives:

Aims long term target Objectives the way in which you are going to achieve the aim

Strategic Planning
Once the direction is identified: Analyse position Develop and introduce strategy Evaluate:
Evaluation is constant and the results of the evaluation feed back into the vision

Analysis

SWOT
Strengths identifying existing organisational strengths Weaknesses identifying existing organisational weaknesses Opportunities what market opportunities might there be for the organisation to exploit? Threats where might the threats to the future success come from?

PEST
Political: local, national and international political developments how will they affect the organisation and in what way/s? Economic: what are the main economic issues both nationally and internationally that might affect the organisation? Social: what are the developing social trends that may impact on how the organisation operates and what will they mean for future planning? Technological: changing technology can impact on competitive advantage very quickly!

PEST
Examples:
Growth of China and India as manufacturing centres Concern over treatment of workers and the environment in less developed countries who may be suppliers The future direction of the interest rate, consumer spending, etc. The changing age structure of the population The popularity of fads like the Atkins Diet The move towards greater political regulation of business The effect of more bureaucracy in the labour market

Five-Forces
Developed by Michael Porter: forces that shape and influence the industry or market the organisation operates in. Strength of Barriers to Entry - how easy is it for new rivals to enter the industry? Extent of rivalry between firms how competitive is the existing market? Supplier power the greater the power, the less control the organisation has on the supply of its inputs. Buyer power how much power do customers in the industry have? Threat from substitutes what alternative products and services are there and what is the extent of the threat they pose?

Required Inputs
Changing strategy will impact on the resources needed to carry out the strategy: Specifically the impact on: Land opportunities for acquiring land for development green belt, brownfield sites, planning regulations, etc. Labour ease of obtaining the skilled and unskilled labour required Capital the type of capital and the cost of the capital needed to fulfil the strategy

Evaluation

Evaluation
Data from sales, profit, etc. used to evaluate the progress and success of the strategy and to inform of changes to the strategy in the light of that data

Information from a wide variety of sources can help to measure and inform the impact and direction of the strategy.
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Types of Strategy

Types of Strategy
Competitive Advantage something which gives the organisation some advantage over its rivals Cost advantage A strategy to seek out and secure a cost advantage of some kind - lower average costs, lower labour costs, etc.

Types of Strategy
Market Dominance:
Achieved through:
Internal growth Acquisitions mergers and takeovers

New product development: to

keep ahead of rivals and set the pace

Contraction/Expansion
focus on what you are good at (core competencies) or seek to expand into a range of markets?

Types of Strategy
Price Leadership through dominating the industry others follow your price lead Global seeking to expand global operations Reengineering thinking outside the box looking at news ways of doing things to leverage the organisations performance

Types of Strategy
Internal business level strategies

Downsizing selling off unwanted parts of the business similar to contraction Delayering flattening the management structure, removing bureaucracy, speed up decision making Restructuring complete re-think of the way the business is organised

The Strategy Focused Organization

The Five Principles
1. Translate the strategy to operational terms. 2. Align the organization to the strategy.
Source: The Strategy Focused Organization, Norton & Kaplan

The Strategy Focused Organization

The Five Principles (cont.)
3. Make strategy everyones job. 4. Make strategy a continual process.

5. Mobilize change through executive leadership

Source: The Strategy Focused Organization, Norton & Kaplan

The Balanced Scorecard and The Big Picture

Activity Based Costing Economic Value Added Forecasting Benchmarking Market Research Best Practices Six Sigma Statistical Process Control Reengineering ISO 9000 Total Quality Management Empowerment Learning Organization Self-Directed Work Teams Change Management

Strategic Planning Mission and Vision Balanced Scorecard

Strategic Direction Create Environment For Change

Communicate Strategies Define Objectives Implement BSC

Strategic Performance Management System

Balanced Scorecard Measure Performance Improve Processes

Linking it all together.

Evaluate and Adjust Continuous Improvement Redefine Initiatives

THE BALANCED SCORECARD

FINANCIAL/REGULATORY To satisfy our constituents, what financial & regulatory objectives must we accomplish? CUSTOMER To achieve our vision, what customer needs must we serve?

INTERNAL To satisfy our customers and stakeholders, in which business processes must we excel?

LEARNING & GROWTH To achieve our goals, how must we learn, communicate and grow?

Customer Perspective

To achieve our vision, what customer needs must we serve?

Possible Performance Measures
o Customer Satisfaction (Average) o Satisfaction Gap Analysis (Satisfaction vs. Level of Importance)

o Satisfaction Distribution (% of each area scored)

Financial / Regulatory Perspective

To satisfy our constituents, what financial and regulatory objectives must we accomplish?
Possible Performance Measures
o Cost / Unit o Unfunded Requirements or Projects o Cost of Service

o Budget Projections and Targets

Internal Perspective

To satisfy our customers, in which business processes must we excel?

Possible Performance Measures
o Cycle Time
o Completion Rate o Workload and Employee Utilization o Transactions per employee o Errors or Rework

Learning and Growth

To achieve our goals and accomplish core activities, how must we learn, communicate and work together?
Possible Performance Measures
o Employee Satisfaction o Retention and Turnover o Training Hours and Resources

o Technology Investment

Why Measure?
To determine how effectively and efficiently the process or service satisfies the customer.

To identify improvement opportunities.

To make decisions based on FACT and DATA

Measurements Should:
Translate customer expectations into goals. Evaluate the quality of processes. Track our improvement. Focus our efforts on our customers.

Support our strategies.

Targets

If you dont know where youre going, youre probably not gonna get there. Forrest Gump

Targets
Targets need to be set for all measures Should have a solid basis Give personnel something for which to aim If achieved will transform the organization

Targets
Careful not to develop measures/targets in a fragmented approach: i.e. Asking people to increase customer satisfaction has to be backed up with the knowledge, tools, and means to achieve that target.

Initiatives
Once measures and targets are established, it is the responsibility of management to determine HOW the organization will achieve its goals. Measures are used to determine the effectiveness of strategic initiatives.

The Leadership Team

Develops the divisions vision, strategy and goals Develops organizational objectives and targets Provides leadership, endorsement and vision for the project Clears barriers to scorecard progress

The Core Team

Drafts the strategy map and scorecard Works with employees to develop measures supporting strategic objectives Works with the Leadership Team to plan and implement the Balanced Scorecard in the FAS Division

FY1999 CORPORATE LEVEL BALANCED SCORECARD

Financial
Indicator Target FY99 Final

Customer
Indicator Target Stat -us

Operational
Indicator Target Stat -us

People
Indicator Target Stat -us

Technical
Indicator Target Status

Adjusted Discharges

23,890

23,592

Patient Satisfaction Employer Satisfaction HEDIS Indicators

Encounters 912,188 892,243

Cost per Adjusted Discharge Cost per Encounter

6,964

7,535

215

252

Community Service Community Awareness

Choose key focus areas for improvement Complete survey development in CY 1999 Select indicators for development plan Complete reporting process and inventory Complete survey in CY 1999

Arranging Care

Determine outpatient phone model, conduct pilots Determine outpatient model for registration & scheduling

Cultural Development

Complete communications strategy Complete physician survey Complete employee survey Complete plan to maintain Catholicity Accomplish pay equity

Quality Improvement

Implement system-wide governance structure Complete external quality report in CY 1999 Meet or exceed standards for SMDC accreditation

CY

CY

Providing Care

Determine model for patient delivery system for clinical divisions Complete system strategy for ambulatory surgery Complete plan for decentralized coding and charge entry

Information Technology

Complete IT strategic plan in CY 1999 Complete Y2K compliance by 12/99

CY

Operating Margin

2.0

1.3

CY

Excess Margin

3.8

3.3

Market Share

Complete baseline

Documenting and Tracking Care Innovation and Program Development

Employee Relations Strategy

CY

Complete feasibility study for a womens health center

Synchronize employee benefits

Medical Education & Research

Facilities Planning

Complete report of funded grants and publications Complete Perkins & Will plan

Days Cash on Hand Days in Accounts Receivable Return on Investment

103.6 77.7

108.6 82.8

Complete plan for a geriatrics program

3.4

2.9
C = task completed; CY = Calendar Year 1999 task; M = task modified Finance section: Target met; Target not met

Finance and Administrative Services

Strategy Map

Link it together.

DIVISION

FINANCIAL

CUSTOMER

INTERNAL PROCESS

LEARNING & GROWTH

DEPT.

Hum. Rscrs.

Univ. Police

Facilities

FUNCTION

Police

Parking Measure: Satisfaction Index Current: 3.0 Target: 4.0

The Strategy Map: Cause and Effect Relationships

What will drive margins?
Managed growth in high margin programs/service lines Attract targeted patient population through targeted referring physicians who value leading edge technology & expertise Ensure clinical excellence through leading edge programs and techniques in focused specialty areas Align research priorities to support leading programs and stay out front in treatment methods

Financial
Maximize High Margin Opportunities Implement Managed Growth

Strong Financial Base

How?

Customer
Leading Edge Technology

Specialty Care Patients Referring Providers

Leading Edge Expertise Continually Develop Clinical Excellence

What will the internal focus be?

Internal
Develop Leading Edge Programs/ Techniques

Align Research Priorities

Will our people be prepared to do that?

Yes, with appropriate technology Yes, by recruiting critical expertise

Learning & Growth

Implement Technology to Support Processes and Programs
Develop Critical Staffing Resource Plans

The Balanced Scorecard as a Management System

BSC reviewed regularly to enhance operational decision-making Success of initiatives assessed based on DATA not opinions Leading indicators evaluated to confirm accuracy of assumptions

The Balanced Scorecard as a Management System

The BSC is a Living Document that requires regular revision of objectives, measures and initiatives: How are we doing? Are we measuring the right things? What initiatives do we need to get us where we want to go? Have our organizational goals changed?

Rapid Deployment Case Study: Major Federal Organization

Need Definition of Corporate strategy Rapid roll-out and broad reach Develop internal capabilities to sustain momentum

Approach

Develop Corporate Balanced Scorecard Define template for rolling out BSC Train subordinate units Streamline project management Quality checks Online education

Benefits

Clear guidance from Corporate

Active involvement from client teams Rapid deployment with minimal resources Quality control

Advantages to this Approach

Simple to Use and Understand
Based on Vision and Strategy Multidimensional Quantitative and Qualitative Measures

Current and Future

Provides Measurement of and Method for Improving our Services Ties QI initiatives together Serves as a Communication Tool

Thank You