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The restructuring of Chemical Bank with the merger of Chemical Bank and the
Manufacturers Hanover Corporation has transformed the processes in which the companys
strategies are implemented. In order to create the shareholders value (or profits), the company
must seek to increase revenue and reduce expenses through various perspectives: financial,
customer, internal-process, and learning-and-growth. With the help of these perspectives, the
company can create the balanced score card (BSC) and have a deeper understanding of its
The BSC translates an organizations mission and strategy into a set of performance
measures that provides the framework for implementing its strategy. It adds three more
perspective. The financial perspective may help a company ensure whether short-term goals are
satisfied, but it is not enough to capture the entire process. Thus, the other perspectives are
included to provide nonfinancial objectives. These objectives are used to measure the processes
and results of each managers performance, and decision rights are then allocated accordingly
using drivers and responsibility centers. Another reason for the BSC implementation is to tie
compensation to the nonfinancial aspects as well as the financial aspects to encompass the
Why does Chemicals Retail Bank, a financial institution with the bulk of its inputs and
outputs denominated in financial terms, need measures other than financial to motivate
Retail banking has emphasized efficient collections and processing of deposits. The
services bank provided were very limited. However, the customers preference and demand have
changed, requiring banks to provide broader product and service line. For that reasons,
Chemicals Retail Bank should find ways to develop new relationships with its customers. It
must shift its image from a provider of a narrow set of banking service to becoming a financial
advisor and service provider for targeted customer groups. Because of this complex competitive
market, nonfinancial BSC measures are more suitable for Chemicals Retail Bank. It can help
manager track and motive performance of all levels of the company easily. However financial
lacks of specific objectives and cannot reflect business strategy in this new competitive
environment in the long run, and it is not a good way to motivate and evaluate the performance
of Chemicals Retail Bank. When the bank uses measures other than financial to motivate and
evaluate its performance, it will be more efficient because of specific objectives and management
At year-end 1991, the process had begun with the merger of Chemical Bank and the
Manufacturers Hanover Corporation. Before this merger, Michael Hegarty was head of the Retail
realized that companies would face more competitors and changes in the future. By using
Balanced Scorecard, Michael Hegarty wanted to transform the bank into a market-focused
organization that would be the financial service provider of choice to targeted customer groups
successfully. Because his company was facing business culture combination, means two
companies, which have different business objectives and management methods need to work
together, he wanted to use Balanced Scorecard to soften these changes. The BSC can help all
levels of the company better understand the key drivers of the business. The performance of the
company will be tracked easily and specifically. Whats more, in the BSC, Shareholder,
Customer, Internal and Leaning& Growth (Exhibit 4), these four performance of drivers, can
help the company increases efficiency by motivating the performance of all levels of the
company. By using the BSC, Mike Hegarty wanted the company adapts and innovates to ensure
Comment on the BSC implementation process at Chemicals Retail Bank. What are the
Only portions of the BSC were implemented initially due to lack of any method to
measure hypothesized results. Thus, they were not able to implement the full BSC at one time
which could potentially impair the intended effects of the total realization of the strategy of the
brand new BSC. At the same time if the desired effects were not being seen in what was
available to the managers then it would help them update the BSC to better tailor the needs and
Additionally a very important part of the BSC is the managers outside the top level of the
organization implementing the BSC. The Chemical Bank did well consulting with managers
during the building of the initial BSC. This is key in the success of the initial implementation of
a BSC. Unfortunately Chemical Bank did not directly distribute their BSC to all of their
corporation knows that the goal is to increase revenue. Even without the completed measurement
metrics, the employees still need to know why they are being instructed in different methods in
order to see the big picture clearly. Due to this potential misunderstanding, employees may not
have the full understanding of the implications of new actions that the BSC generates for revenue
When the change was directed at the sales force, they had trouble understanding how the
change in performance measurement would effectively improve sales and therefore profits. This
is a perfect example of employees needing to know why they are being told to do something and
why the BSC needs to be fully known by all employees. With full knowledge of the BSC the
sales force would have had a better ability to provide feedback to management about the success
and their abilities in the new goals set for the sales force. The only results the sales force were
able to see were actual changes over time such as the increase in product sales
The example set in the sales force by its managers is excellent. Although it would be
ideal to sell the employees on the BSC, management was able to motivate the sales force without
the big picture by getting them to first realize they were serious and then secondly by backing
(a) Name and evaluate the major strategic themes of the BSC at Chemicals Retail Bank.
(b) Please carefully describe the integration of the ABC concept in the BSC at
Chemicals Retail Bank. (c) Classify the strategic objectives according to the strategic
themes.
(a) The Chemical Bank has identified three core strategic ideas from their former
strategies on page four, which are shifting the customer/profit mix, improving productivity, and
enable the organization. Shifting the customer mix will lead to better profit mix and this change
would be brought on by the training initiatives for employees as well as better understanding of
customer segments. Resulting from these efforts will also allow time to be used more
productively as a result of new efficiency from training. All of these are enabling factors for the
organization.
(b) ABC was used to determine where true costs where coming from. The bank knew that
certain accounts were more profitable than the others were. However, upon the completion of
ABC analysis they discovered that many accounts not only were unprofitable, but also in fact
were a net loss for the bank. By using this newly discovered fact that the BSC could be tailored
in order to favor objectives that would take advantage of this newfound knowledge. This
specifically addresses the internal perspective of understanding customer segments that leads
(c)
Differentiators (what is valued by the Focus of resources (aligning Create the Product
customer and the value of meeting organization in a way in which
new propositions and how to target all strategies are best met)
those customers)
action point in which improvement of each item will lead to one of the strategic themes which
constitute the BSC. By meeting these objectives, the BSC will then in turn result in the
What are the strengths and weaknesses of the BSC built at the bank?
The BSC built at the bank had a number of strengths, one of them being the fact that it
forced the bank to examine itself in a more competitive market. It more specifically provided a
more cohesive strategy with the manufacturers at Hanover Corporation given the merger that had
recently occurred. As pointed out by the head of the bank, the BSC helped improve
communication and reinforce strategy when dealing with the large staff of about 8000 people at
the bank. It gave everyone measures that needed to be followed rigorously in order to boost
performance while at the same time clarifying and communicating the overall vision of the bank.
The BSC emphasized focus on some essential measures and strategic objectives such as quality
delivery of products and services to customers. In addition, it helped develop a cause-effect
beneficial and facilitates achieving strategic aims. Several new internal processes that could help
the organization develop better capabilities had been identified thanks to the BSC. Dave Mooney,
who in the case was part of designing the BSC, noted two particular advantages: The great
value of the BSC was that it articulated the key levers of performance and reduced these to a few
important drivers. In addition, its both motivating and obligating. The BSC forced us to stay
on track and to follow up. However there are some weaknesses to also denounce.
While the scorecard was good in theory and clearly laid out, it was not reviewed
adequately, had not been implemented correctly, and employees were not familiar with it. Under
said scorecard, customer representatives had to expand their skills in order to better advice the
customers. However, this also carried a requirement, which was for the BSC to be properly
communicated to the representatives, which was not done. The BSC, in fact, was only being
experienced by 27 top-level managers. Clearly, this was a weakness in the scorecard and had to
change. In the newsletter, the executives had promisedthat, "profitability and segment
information will be available on-line" so that "branch staff will be able to improve their sales
efforts by customer segment or profit score." It remained to be seen if this measure would be
successful. Hegarty admitted that he had no idea how good his sales force was- the BSC was not
evaluating this. In addition, under the BSC, they were only just beginning to rethink training, and
would have to find new measures to evaluate it. Indeed, they experienced problems with a
number of their measures, such as customer retention. Clearly, the objectives, which had been
Provide a detailed evaluation of the strategy maps of the BSC at Chemical Bank.
When banks are facing stiff competition in the market from various players, the BSC
proved out to be a very useful tool for chemical bank in developing sound strategic measures as
well as objectives. The various strategy maps are all tied and linked together to contribute to a
better understanding and fulfillment of the company vision. With regards to finance, chemical
banks BSC illustrates that the objective is to improve the profitability of the bank while at the
same time keeping the risk factor relatively low. This is done by following the various trends in
the market and adapting various products and finance strategies towards that objective.
The managers were smart enough to notice the various segments that were forming in the
customer-based market and decided to focus on a number of them in order to get competitive
advantage in these markets. These market segments are the result of changing trends in the way
customers want to carry their financial activities as well as their needs and as a result, the bank
had to develop a strategy whereby it develops more products with varying characteristics in order
Internally, the focus which used to be directed solely towards sale activities has been
directed now towards research and innovation too as a result of the new strategy in place. The
aim is to study the market and better understand the customer in order to deliver them the best
product possible in the best way possible. And this is tied to the learning and growth objectives
on the balance scorecard where it would be necessary to provide all staff new training and guide
them towards the new strategy being put in place so the staff can better focus on said strategy to
objectives and (b) a strategy map of measures of the BSC at Chemical Bank. Please
While the Balanced Scorecard is an important tool for management to help in long term
strategy, there are a few common pitfalls that should be avoided. The three most prevalent
pitfalls are: identifying goals and drivers that are not actionable or critical, top management has
to to be committed to see the BSC being successful and the BSC has to be communicated
upon. Some of these measures are too broad or do not reach the heart of the issue. Lee Wilson
describes a situation at Chemical Bank demonstrating this problem. One of the large goals of the
company was to have quality customer service. However, their internal measure that aggregated
customer service data only alerted the company of the customer service issue without describing
why or how to fix it. Just knowing there is a problem isnt good enough. A company needs to
have measures that accurately link to a goal and can show areas where the company needs to
improve to reach it. These measures need to be critical to reaching the goal and they need to
Another common pitfall for the BSC project is not having a management team being fully
committed to seeing the Balanced scorecard succeed. At the end of the day, measures dont
manage, and a company needs to have management that will commit to seeing the BSC succeed.
Many managers can get accustomed to the way company life used to be and become reluctant to
change to fit the BSC model. This reluctance will travel down through the rest of the employees
and be reflected in the outcome of the project. However, a management team showing employees
the BSC is not just going to go away is a powerful message that will motivate performance.
To be successful, the BSC needs to be communicated. The last pitfall companies fall into
when implementing the BSC is failing to effectively communicate the strategy throughout the
company down to every last employee. Most companies use the BSC as a way for top
management to narrow down objectives they find critical to value creation. However, to be most
effective, everyone in the company needs to know about and understand how their actions can
By knowing the common pitfalls, companies can work to avoid them and use the
balanced scorecard in the way it was intended, and yield impressive results.
of a BSC project.
The hardest part of any company strategy is the implementation. To help get the strategy
going and to keep it effective, managers use Management Control Systems or MCS. While MCS
can be an important management tool, it is most helpful when it is connected to the Balanced
Scorecard. The Balanced Scorecard helps the use of Management control systems by providing
non-financial aspects to allocating decisions, measuring performance and through linking that
The Balanced Scorecard helps in providing non-financial measures for managers to work
towards. Many times, Management Control Systems measure performance of managers through
solely financial indicators. This can be helpful to a degree, but may also cause managers to
neglect longterm goals in exchange for short term results. Managers wont understand the impact
of a decision on a company in the long term when they are only looking at a financial number.
However, if a company identifies non-financial areas that are important to long-term growth for
the company, then a manager can work towards improvements in all categories, including
financial.
A manager needs to be motivated to work towards company growth. They need to know
that it benefits them as well. The Balanced Scorecard just provides more avenues for linking a
managers compensation to his work. Instead of applying compensation to the bottom line, or
some other financial indicator that a manager might not have full control over, a company can
link compensation to both financial and non-financial measures that will motivate them to work
Management Control Systems are a good way to implement a companys strategy. If the
control system is to be used for long-term strategy or for improving the company in non-
financial objectives, a Balanced Scorecard must be used. In addition, communicating the BSC
strategies and measures to all the employers and employees as well as implementing them.