An Introduction to the Balanced

Scorecard and the Strategy Focused

Organization
March 6, 2009

Balanced Scorecard Collaborative - Teacher Farias Souza @FariasSouza

Why Do Organizations Struggle So Hard With

Strategy?

1 in 10 organizations
execute their strategies
successfully

Fortune Magazine, 1998

72% of CEOs believe that

executing their chosen
strategy is more difficult
than developing a good
strategy
Malcolm Baldrige CEO Survey, 2002

#5

MAKE STRATEGY A CONTINUAL PROCESS

The Problem:

The Strategic Management Process Is Missing in Most Organizations

STRATEGY

60% of organizations
dont link strategy &
budgets

update the
strategy

test the
hypotheses

85% of management
teams spend less than
one hour per month on
strategy issues

reporting

92% of organizations do
not report on lead
indicators

Strategic Learning Loop

BALANCED
SCORECARD

BUDGET

78% of organizations lock

budgets to an annual cycle

funding

20% of organizations take

more than 16 weeks to
prepare a budget

Management Control Loop

PERFORMANCE
Input
(Resources)

Initiatives &
Programs

Output
(Results)

Strategy Development or Strategy Execution?

Organizations Need Both

Sound
Flawed

Strategy Formulation

Strategic success requires going beyond successful 1strategy

formulation to successful strategy execution

Missed

Strategic

Opportunity

Success

Doomed From
The Start

Flawed

Sound
Strategy Execution

Source:

1Execution:

At Risk

The Discipline of Getting Things Done, by Larry Bossidy, 2002.

Strategy Execution Challenge

There are generally accepted tools to manage finances, customers,
processes, and people. But what about strategy?
Financial Management Tools
EVA
Balance Sheets

Process Management Tools

Income Statements

Six Sigma

Shareholder Value Analysis

Supply Chain Integration

Cycle Time Reduction

Strategy Management Tools

TQM

Customer Management Tools

Customer Satisfaction Measurement
Customer Relationship Management
Segmentation Analysis
One-to-One Marketing

People Management Tools

Core Competencies
Knowledge Management
Pay for Performance
HRIS

The Balanced Scorecard is the vehicle that fills the

Strategy Management Gap

Balanced Scorecard Organizations Are Achieving

Breakthrough Results
BREAKTHROUGH
RESULTS
Private Sector

Public Sector
Shareholder
Value

Mobil
From last to first in industry
ROI 6% --> 16%

Wendys
International

Profitability up $23m
Customer Satisfaction

Profitable
Growth

Mkt. Cap $2.5 --> $4b

Stock Price up 75%

Customer
Satisfaction

UPS
Revenues
Net Income

SMDC Health System

City of Charlotte
Customer Satisfaction =
70%
Public Official Award

Duke Childrens Hospital

9%
33%

Organizational
Alignment

Defense Logistics
Agency

Hilton Hotels
Customer Loyalty 5%
EDITDA margins 3% above
average

Customer Satisfaction #1
Cost/Case
33%

Cost
Reduction

$130MM in Savings in FY2002

Processed $2.2B more requisitions
for its customers

How Did They Do It?

They Created Strategy-Focused Organizations
STRATEGY:
They made strategy the central
organization agenda

STRATEGY

FOCUSED:
They created incredible focus on the
strategy
ORGANIZATION:
They mobilized their employees to act
in fundamentally different ways,
guided by the strategy

The Balanced Scorecard Is a Performance Management

Program That Puts Strategy at the Center of the Process

Reflecting a Natural Cause and Effect Logic

of Business Performance
And Realize
the Vision

Financial
Results

Customer
Benefits

Internal
Capabilities

Knowledge, Skills, Systems, and Tools

To Drive Financial
Success...

Needed to Deliver Unique

Sets of Benefits to Customers...

To Build the Strategic Capabilities..

Equip our People...

The Balanced Scorecard Should Tell the Story

of the Strategy
Illustrative Example: Southwest Airlines
Strategic Theme:
Operating Efficiency
Financial

What will drive operating efficiency?

Profitability

Fewer planes

More
customers

Customer

More customers on fewer planes

How will we do that?

Flight
Is on time

Internal

Lowest
prices

Attract targeted customer segments who

value price and on time arrivals
What must the internal focus be?

Fast ground
turnaround

Learning

Fast turnaround
Will our people do that?

Ground crew
alignment

Educate and compensate ground crew

regarding how they contribute to the firms
success
Employee stockholder program

Lets Take a Minute to Agree Upon Some

Common Vocabulary
Diagram of the cause and effect
relationships between strategic
objectives (Strategy Map)
Strategic Theme:
Operating Efficiency
Financial

Profitability

Fewer planes

Statement of
what
strategy
must
achieve and
whats
critical to its
success

How success
The level of
in achieving
performance
the strategy
or rate of
will be
measured and improvement
needed
tracked

Key action
programs
required to
achieve
objectives

More
customers

Customer
Flight
Is on time

Lowest
prices

Objectives
Internal

Fast ground
Fast ground
turnaround

Learning
Ground crew
alignment

turnaround

Measurement

Target

On Ground Time
On-Time

30 Minutes
90%

Departure

Initiative

Cycle time
optimization

Customer

Young Engineers
Continue
to serve our core
customers, such as
Academia

Industry /
Government

C1 Become
indispensable to
Young Engineers

C2 Enhance
relevance to Industry
& Government
C3 Identify and
Address Future Markets
and Applications

Internal

Build Communities
I1 Enable selfforming communities
of interest

Learning & Growth

I2 Stimulate individual
membership growth
with different
membership models

L1 Develop new product and business

development capabilities through a
culture that is adaptive, continually
evolving (risk taking), entrepreneurial
and agile

Build Content / Knowledge

F2 Sunset
lower-value
programs

F3 Run a cost
effective
operation

Advocate and Communicate

I6 Provide
effective
representation
and advocacy
for the
engineering
profession

I3 Increase &
Expand MarketRelevant Content

I4 Digitize &
repackage
content

F1 Grow revenue
through new products
and global growth

I7 Improve
coordination
and
effectiveness of
corporate
communication
s

I5 Accelerate
time to market

L2 Develop future
volunteer leaders
L3 Strengthen
environmental
scanning and
competitive
intelligence

L4 Share best
practices and
lessons learned

V 3.0 11/11/03

Financial

ASME Balanced Scorecard Strategy Map

Thanks!
Farias Souza
farias.souza@gmail.com
@FariasSouza