Niven Balanced Scorecard Presentation

Executing Strategy with the Balanced Scorecard
January 30, 2006

Presented by Paul R. Niven
1
2006 The Senalosa Group, Inc. All Rights Reserved
Agenda
Introductions
Performance Measurement Background What led us to the BSC?
The Balanced Scorecard
Success Stories
Strategy Maps
Essentials of Implementing the Balanced Scorecard
Questions & Answers
2
Introduction to Paul
3
Paul Niven and the Balanced Scorecard

BSC Practitioner first, then consultant, and writer
Led a BSC project with large Canadian firm in mid-90s
Have consulted with Bearing Point (Chicago) and CSC (San
Diego)
Formed The Senalosa Group in 2001
Have written 3 books and many articles on the subject of Balanced
Scorecard
Speak at conferences and seminars around the world
Have worked with clients in many different sectors
Translated into
12 languages
Released June,
2003
Released April,
2005
4
Performance Measurement and Balanced

Scorecard Background
5
The Changing Landscape of Performance

Management
80% of respondents reported making changes in their PM
system
during the last 3 years. For 33% the change was described as a
major overhaul More than 50% of respondents indicated their
company is currently changing its PM system. (From Strategic
Finance Magazine)
More than 50% of the Fortune 1000 have turned to the Balanced
Scorecard. (Bain & Company study)
Hackett reported in their 2002 Benchmarking study that 96% of
the
2000 global companies surveyed either were using a BSC or
planned to implement it
The question is why???

6
Three Challenges
Riseof
of
Rise
Intangible
Intangible
Assets
Assets
Over-reliance
Over-reliance
onFinancial
Financial
on
Measures
Measures
Prominence of
the Balanced
Scorecard
Difficulty
Difficulty
Executing
Executing
Strategy
Strategy
7
Our Economy is Changing

They (knowledge workers) now account for a full third of
the American workforce, outnumbering factory workers
two to one. In another twenty years they are likely to make
up two-fifths of the workforces of all rich countries.
-Peter F. Drucker, The Economist, November 2001
1982
The increasing
value of
intangible assets
in organizations
1992
Today
75%
62%
38%
8
Financial Measures Dont Tell the Whole

Story
Not consistent with todays business
realities
Driving by rearview mirror
Tend to reinforce functional silos
May sacrifice long-term thinking
Not relevant to many levels of the
organization
The Alto
The Strategy Story
Only 10% of
organizations
execute their
strategy
Barriers to Strategy Execution
Vision Barrier
People Barrier
Only 5% of the
workforce
understands the
strategy
Only 25% of
managers have
incentives linked
to strategy
Management
Barrier
85% of executive
teams spend less
than one hour per
month discussing
strategy
Chart adapted from material developed by Robert S. Kaplan and David P. Norton
Resource Barrier
60% of
organizations
dont link budgets
to strategy
10
Clearly, A Change is Needed
Intangible Assets
Strategy
Financial Measures
11
Balanced Scorecard Fundamentals

Financial
"To succeed
Objectives
financially, how
should we appear
to our
shareholders?"
Customer
"To achieve our Objectives
vision, how should
we appear to our
customers?"
Measures Targets Initiatives
Vision
and
Strategy
Internal Business Process

"To satisfy our
Objectives
shareholders and
customers, what
business
processes must
we excel at?"
Learning and Growth

"To achieve our Objectives
vision, how will
we sustain our
ability to change
and improve?"
12
Source: Harvard Business Review, 1992

Financial Perspective
Represent the destination or end

in mind of your strategic story
Financial
Focus on shareholder value,

revenue growth, and productivity
"To succeed
Objectives Measures Targets Initiatives
financially, how
should we appear
to our
shareholders?"
Customer
"To achieve our Objectives Measures Targets Initiatives
vision, how should
we appear to our
customers?"
Vision
and
Strategy

"To satisfy our Objectives Measures Targets Initiatives
shareholders and
customers, what
business
processes must
we excel at?"
Example Measures:
Learning and Growth

vision, how will
we sustain our
abilityto change
and improve?"
Return on invested capital

Gross revenue
Revenue by segment
Asset utilization
13
Customer Perspective
Should answer three questions:
Who are our customers?
What is our value proposition in
serving them?
Financial
"To succeed
financially, how
should we appear
to our
shareholders?"
Customer
vision, how should
we appear to our
customers?"
Vision
and
Strategy
Operational Excellence

shareholders and
customers, what
business
processes must
we excel at?"
Learning and Growth

vision, how will
we sustain our
abilityto change
and improve?"
Product Leadership
Customer Intimacy
What do customers expect or
demand?
Example Measures:
Customer Loyalty
Market Share
Customer Retention
14
Customer Value Propositions

To attract and retain customers, different value propositions
are required based on your strategic choice.
Innovation/Product Leadership
A Product leadership company
pushes its products into the realm
of the unknown, the untried, or the
highly desirableSuperior
performance for customers.
Sony
Intel
Most Innovative Product
Customer Solutions (Customer

Intimacy)
A Customer Intimate company
builds bonds with customers; it
knows the people it sells to and
the products and services they
need
Lowest Total Cost (Operational

Excellence)
Operationally excellent companies
deliver a combination of quality,
price, and ease of purchase that no
one else can match
Nordstrom
Mobil (Early BSC adopter)
Best Solution
Costco
McDonalds
Dell Computer
Best Total Cost
The first three value propositions are based on Treacy & Wiersema, The Discipline of Market Leaders,
Addison Wesley, 1995
System Lock In
Lock in companies provide the best
platform for buyers and sellers to
meet
E-Bay
Microsoft
Yellow Pages
Best Exchange
15
Internal Process Perspective
Key processes we must excel at to

drive value for customers
Financial
Also focus on customer value

proposition
"To succeed
financially, how
should we appear
to our
shareholders?"
Customer
vision, how should
we appear to our
customers?"
Vision
and
Strategy

shareholders and
customers, what
business
processes must
we excel at?"
Normally contains the largest

number
of measures
Example Measures:
Learning and Growth

vision, how will
we sustain our
abilityto change
and improve?"
On-time delivery
Product development cycle time
Customer response time
16
Employee Learning & Growth Perspective
Often overlooked
Represent the enablers of the
other
three perspectives
Financial
"To succeed
financially, how
should we appear
to our
shareholders?"
Customer
vision, how should
we appear to our
customers?"
Vision
and
Strategy

shareholders and
customers, what
business
processes must
we excel at?"
Soft measures can drive hard

results
Example Measures:
Learning and Growth

vision, how will
we sustain our
abilityto change
and improve?"
Employee satisfaction
Strategic job coverage ratio
Internal communication rating
17
Employee Learning & Growth Perspective
Human Capital Understand

what competencies we need,
what we have, and how to
close the gap
Information Capital
Understand the IT applications
and infrastructure we need to
support the strategy
Organizational Capital Culture Build an organization that internalizes the

shared vision, strategy, and values required to execute
Leadership Develop leaders who can effectively
leverage human capital
Goal Alignment Encourage personal contribution
through goal and incentive alignment
Knowledge Sharing/Teamwork Share knowledge and
experience through teamwork
18
Who is Using Performance Measurement?
19
Everybody!
Can you guess the
country represented by
this flag???
20
Company Success Stories
21
Strategy Maps
22
Maps Get Us From A to B
Sydney
Antigonish
Truro
Halifax
23
Strategy is Also a New Destination
Landmark 2
Successfully
Executed
Strategy
Landmark 1
Formation of a
Strategy
24
A Good Balanced Scorecard Tells the Story of

Your Strategy on a Strategy Map
Illustrative Example: Southwest Airlines
Strategy Map
Financial
What will drive operating efficiency?
Increase Profitability
Attract More
customers
Fly Fewer planes

Customer
Offer on
time
flight
More customers on fewer planes

How will we do that?
Ensure Lowest
prices
Internal
Maintain Fast
ground
turnaround
Learning
Align
ground
crew
operations
Attract targeted customer segments who

value price and on time arrivals
What must the internal focus be?
Fast turnaround
Will our people do that?
Educate and compensate ground crew
regarding how they contribute to the firms
success
25
Maximize
Sustainable Value for
Our Shareowners
Profitable Growth
Operational Productivity
Financial Perspective
Achieve optimal
ROIC levels
Grow Revenue & Earnings
Customer Perspective
Build customer loyalty
Exceed customer
expectations in service
delivery
Offer superior
value in distribution and supply
chain services
Exercise
and outwardly communicate
business practices that drive
channel integrity
Introduce/enhance
Products and services
Provide
simple, consistent and
reliable processes
Leverage best practices

to achieve best in class
performance
Exercise best in class

governance/controls
Internal Process
Perspective
Learning & Growth

Perspective
Hire, develop,
and retain the
best performers
Leverage technology
to improve productivity
and drive customer
results
Foster a culture
that rewards
teamwork and
promotes
balance
26
26
Government I.S. Strategy Map

Increase customer satisfaction
Customer
Internal
Understand and
anticipate
customers business
needs
Continuously improve
and simplify
customer experience
Participate
knowledgably and
contribute to
meeting needs
Proactively provide
effective and
innovative solutions
Efficient delivery
through consensus
Keep system up and

running
Proof of concept
Get off the 3rd floor
Explore alternatives
and anticipate use
of new technology
Continuously review
and simplify internal
practices and
procedures
Build it right, keep

it healthy
Skills & Training: Hire, develop and retain solid performers

Information & Communication: Share information, listen more, and respond
Employee
Learning
and
Growth
Culture:
Foster an environment that encourages, recognizes, and rewards contribution

Create accountability and ownership
Ensure teamwork that fosters mutual respect, support, and learning
Be consistent
Get more bang for our buck!
Financial
Customer Focus
Know Our Business
Keep Pace With Technology
Work Smarter
Always On
27
Aliant Inc. Strategy Map

Financial
Increase Shareholder Value
Grow Aliant
Profitably
Customer
Everything Begins With The Customer
Serve Customers on Their

Terms With Passion and
Integrity to Build Loyalty
Deliver More Value Through

Integrated Offerings
Internal Process
Innovate, Collaborate,and Allocate
Continuously Improve and
Simplify End to End Customer
Experiences
Allocate All Aliant Resources

Effectively
Stimulate New Product and

Service Development &
Adoption
Employee Learning
& Growth
Create a Workforce that
is Informed, Developed,
Engaged and Inspired
Build an Environment Where

People Feel Valued and
Maximize Their Potential
Share Information, Listen More

and Respond
Create a Safe & Healthy

Environment That Respects the
Balance in Peoples Lives
28
28
29
29
Brother Industries (USA)
30
30
31
The BSC has gained wide acceptance, but

problems exist
More than 50% of the Fortune 1000 have turned to the Balanced
Scorecard. (Bain & Company study)
Hackett reported in their 2002 Benchmarking study that 96% of
the
2000 global companies surveyed either were using a BSC or
planned to implement it
Harvard Business Review calls the BSC one of the 75 most
influential business ideas of the 20th century
But as many as half of all BSC users arent achieving the
results
they hoped for
Its all about Implementation practices!!!

32
Balanced Scorecard Implementation Essentials
33
Overview of Implementation Essentials

A guiding rationale for the BSC
Executive Sponsorship
An effective team
A Balanced Scorecard Champion
Training, Education, and
Communication
Strategy Maps
Measures
Cascading the Balanced Scorecard
Reporting Results
Linkage to Management Processes
Living It!
Lets examine a few of these in more detail..
34
Executive Sponsorship
To make initiatives work it took passionate, allconsuming commitment from the topEvery
leadership action must demonstrate total
commitment to the initiative.
-Jack Welch, Jack: Straight From the Gut
No BSC initiative will survive without
active executive sponsorship
Executives hold key knowledge for BSC
success
Everyone watches what the boss
watches
You can influence executive sponsorship
35
Balanced Scorecard Reporting

Can be high-tech or low-tech
Key point is to begin
discussing results soon!
36
Balanced Scorecard Reporting
Hold strategy centered management meetings

Most meetings suffer from serious faults*:
Lack of drama
Lack of contextual structure
The Discipline of Getting Things Done
* Based on Death by Meeting by Patrick Lencioni
37
Cascading the Balanced Scorecard
Mission, Values, Vision

Strategy
Internal Processes
Customer
Financial
Objectives
Objectives
Objectives
Objectives
Objectives
Objectives
Emp. L. & G.
Objectives
Objectives
Objectives
Emp. L. & G.
Objectives
Internal Processes
Customer
Financial
Internal Processes
Customer
Financial
Objectives
Emp. L. & G.
Objectives
Team and Personal Balanced Scorecards
Allows everyone
to demonstrate
how they
contribute to
overall goals
Creates a
consistent
language through
measurement
Achieves a laserlike focus on
strategy
38
Cascading Example
City Scorecard
Perspective
Objective
Customer
Provide safe,
convenient
transportation
Measure
Increase in average
ridership of public
transportation
Target
10%
Department of Transportation Scorecard

Perspective
Objective
Customer
Provide safe,
convenient
transportation
Measure
Percentage of fleet
available
Target
90%
Maintenance Department Scorecard

Perspective
Objective
Measure
Target
Customer
Provide safe,
convenient
transportation
Percentage of
vehicle repairs
completed within
24 hours
75%
39
Questions???
Thank you for your time. If you have any other questions, please feel
free to contact me at: (760) 789-2449 or pniven@senalosa.com
www.senalosa.com
40

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Executing Strategy with the Balanced Scorecard

January 30, 2006

Paul Niven and the Balanced Scorecard

Performance Measurement and Balanced

The Changing Landscape of Performance

The question is why???

Our Economy is Changing

Financial Measures Dont Tell the Whole

The Strategy Story

Barriers to Strategy Execution

Clearly, A Change is Needed

Balanced Scorecard Fundamentals

Measures Targets Initiatives

Measures Targets Initiatives

Internal Business Process

Measures Targets Initiatives

Learning and Growth

Measures Targets Initiatives

Source: Harvard Business Review, 1992

Represent the destination or end

Focus on shareholder value,

Internal Business Process

Learning and Growth

Return on invested capital

"To satisfy our Objectives Measures Targets Initiatives

Learning and Growth

2006 The Senalosa Group, Inc. All Rights Reserved

Customer Value Propositions

Most Innovative Product

Customer Solutions (Customer

Lowest Total Cost (Operational

Best Total Cost

2006 The Senalosa Group, Inc. All Rights Reserved

Internal Process Perspective

Key processes we must excel at to

Also focus on customer value

Internal Business Process

Normally contains the largest

Learning and Growth

Employee Learning & Growth Perspective

Internal Business Process

Soft measures can drive hard

Learning and Growth

Employee Learning & Growth Perspective

Human Capital Understand

Organizational Capital Culture Build an organization that internalizes the

Who is Using Performance Measurement?

Company Success Stories

Maps Get Us From A to B

Strategy is Also a New Destination

A Good Balanced Scorecard Tells the Story of

What will drive operating efficiency?

Fly Fewer planes

More customers on fewer planes

Attract targeted customer segments who

2006 The Senalosa Group, Inc. All Rights Reserved

Grow Revenue & Earnings

Build customer loyalty

Leverage best practices

Exercise best in class

Learning & Growth

Government I.S. Strategy Map

Keep system up and

Build it right, keep