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Using the Balanced Scorecard to

Create the Strategy-Focused Asset


Management Organization

Robert S. Kaplan
Marvin Bower Professor of Leadership Development
HARVARD BUSINESS SCHOOL

Chairman
BALANCED SCORECARD COLLABORATIVE
The Issue: Are Financial Measures Sufficient to Drive
Long-Term Performance?


• Occupancy cost per square foot
• Occupancy cost per person
• Square foot per person
• Property and occupancy costs:
% of total expenses
% of sales
• $ of vacant space
• Cost per move

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 2
The Balanced Scorecard – Financial and Nonfinancial
Measures Drive Long-Term Performance

January 1996 21 translations

January - February 1992 September 2000


18 translations

September 1993

10 translations
underway
60% usage in Fortune 500
December 2003
Harvard Business Review “Hall of Fame” February 2004
60,000+ BSC on-line members

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 3
Organizations Use the Balanced Scorecard to Align and
Focus All Their Resources on Strategy Implementation

BUSINESS UNITS EXECUTIVE TEAM


STRATEGY

HUMAN RESOURCES INFORMATION


TECHNOLOGY

BUDGETS AND CAPITAL


INVESTMENTS
©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 4
And It Works! Balanced Scorecard Users Successfully
Execute Their Strategies.

Financial Services

Engineering Polymers

North America
Marketing & Refining

National Reconnaissance Office

UK Ministry of Defence
Royal Norwegian Air Force Saatchi & Saatchi
Information and
Communication Mobile
Commercial Vehicle Business Unit

US Army

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 5
Balanced Scorecard Hall of Fame Organizations Implement
Strategies and Achieve Breakthrough Results … Fast

99% merged asset return #1 in growth & profitability


3 years 3 years

+ $7b
Customer satisfaction = 70%
5 years
Public Official award
3 years

#1 in customer satisfaction
+ $3b 33% reduction in cost/case
2-5 years 3 years

450% increase in # of customers


Increase in customer satisfaction Best on-line bank
Increase in market revenue index 3 years
2 years

Saatchi & Saatchi


+ $2b
Last to first
3 years
$1.2b increase in cash flow
10% increase in ROI

9% increase in revenues Least cost producer


33% increase in net income 3-5 years
2 years

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 6
We Know How They Do It:
SFO Best Practice Benchmarks
TRANSLATE STRATEGY TO MOBILIZE CHANGE THROUGH
OPERATIONAL TERMS EXECUTIVE LEADERSHIP
● Strategy refreshed Top leadership sponsorship

● Strategy map developed ● Case
for change clear
● Balanced Scorecard ● Leadership team engaged
● Targets established ● Vision and strategy clarified
● Initiatives rationalized ● New way of managing
● Accountability clear ● Change agent identified

STRATEGY-
ALIGN THE ORGANIZATION MAKE STRATEGY A
FOCUSED
TO THE STRATEGY CONTINUAL PROCESS
ORGANIZATION

●Corporate role defined ● Strategic review meetings


● Corporate – SBUs aligned ● BSC reporting system

● SBU – Human Capital aligned ● Link budgets and strategy

● SBU – Info Capital aligned ● Strategic investments managed separately

● SBU – Support units aligned ● HR and IT planning linked to strategy


MAKE STRATEGY
● SBU – Suppliers aligned ● Governance process linked to strategy
EVERYONE’S JOB
● Board of directors aligned ● Strategic Management Office
• Strategic awareness
• Comprehensive communications
• Personal goals aligned
• Personal incentives aligned
• Competency development aligned
• Accountable for results

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 7
Building your Strategy-Focused Organization starts
with a project; it evolves into a continual process.

Unfreeze Change Sustain

Mobilization Alignment Sustainment


Phase Phase Phase

3 - 6 month period devoted 6 month period in which new 12 - 24 month period where
to executive level momentum strategy is rolled out to top strategy is integrated into the
building levels of the organization day-to-day work and culture
of the organization

“The Case for Change” “Early Wins” “Irreversible Momentum”

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 8
Phase 1: Mobilization, Getting Started
A variety of situations suggest the need for
a new and better way to manage strategy

Mobilization Phase Triggers of Change

Get organization buy-in and Strategic Shift


leadership alignment around the √
 New CEO or senior executive

 New strategy
need for a new process to
manage strategy
Underperforming
 Value gap


 Poor quality or customer service
#1. Mobilize Change through √
 Operational execution
Executive Leadership
Managing Growth
 Post merger acquisition

Leadership Objective:
• Achieve commitment at the top √
 Global, regional expansion
• Build the executive team
• Build case for change Integration

 Integrating business units

 Integrating new product lines

These situations present an opportunity to introduce the Balanced Scorecard /


Strategy-Focused Organization framework as a “new way to manage”.

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 9
Phase 2: Alignment -- Design and Cascade Balanced
Scorecards
The Strategy Map and Balanced
Scorecard are the central organizing
framework of a Strategy Focused
Alignment Phase Organization

Investment CRM
Align the organization to the Strategy Strategy
Strategy Map
strategy through building,
cascading and communicating G r o w tthh S tr
t raa te g y
Lo n g -Te rm
P r o d u c tiv ity
it y S tr a te g y

the BSC
S h a re h o ld e r V a lu e

N ew R e ven u e In c r e a s e Im p ro v e C o s t Im p ro v e A s s e t
S o u rc e s C u s to m e r V a lu e S tru c t u re U t iliz a t io n

C u s to m e r V a lu e P ro p o s i ti o n

#2. Translate the Strategy Growth


q P ric e
q Q u a lity
q T im e li n e s s
q F e a t u re s
q S e rv ic e
q R e la t io n s h ip s
q B ran d
Supply
Chain
#3. Align the Organization Strategy
In c r e a s e C u s to m e r
Strategy
P ro v id e O p e ra ti o n a l
B u il d t h e F ra n c h i s e V a lu e B e a G o o d C iti z e n
E x c e l le n c e
I n n o v a t io n P ro c e s s C u s to m e r M a n a g e m e n t R e g u la t o ry P ro c e s s e s

Leadership Objective: O p e ra t io n a l P ro c e s s e s
P roce ss

• Define and clarify the strategy


• Align business and support units S tr a te g i c
C o m p e te n c i e s
S tr a te g i c
T e c h n o l o g ie s
C lim a t e fo r
A c ti o n

• Communicate to workforce
• Rationalize initiatives IT Strategy Human
Capital
Strategy

The Strategy Map creates a “shared mental model” that aligns everyone in the
organization

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 10
The Strategy Map Aligns Processes and Intangible
Assets to Customer and Financial Outcomes
Sustained Shareholder Value
Financial
Perspective Productivity Strategy Revenue Growth Strategy

Improve Cost Increase Asset Enhance Expand Revenue


Structure Utilization Customer Value Opportunities

Customer Value Proposition

Customer
Perspective Price Quality Availability Selection Functionality Service Partnership Brand

Product/Service Attributes Relationship Image

Operations Management Customer Management Innovation Regulatory & Social


Processes Processes Processes Processes
Internal
Perspective Processes that produce Processes that enhance Processes that create Processes that improve
and deliver products customer value new products and communities and the
and services services environment

CREATING CREATING
ALIGNMENT READINESS
Strategic Job Strategic IT Organization
Families portfolio Change Agenda

Learning & Human Capital + Information Capital + Organization Capital


Growth • Skills • Systems • Culture • Alignment
• Training • Databases • Leadership • Teamwork
• Knowledge • Networks

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 11
Customer Perspective: Who are your Targeted
Customers? Marine Construction Business Unit
Strategic Objective Measurement
Tier II C1-Pricing Index:
• Be price-competitive on all desirable Tier II tenders The percentage variance between our bid prices to
Tier II customers and those of our competitors

Tier I: C2-Market/Account Share:


• For Tier I customers, build long-term relationships Market share for Tier I clients and accounts
based on satisfying the following customer
objectives
C3-Customer Ranking Survey:
– Anticipate and solve customer’s emerging
Customer

Customer’s perception of client and rating of our


needs
services, relative to our competition
– High perceived value for money
– Hassle free relationships
– High performance professionals
– Innovative work approaches
C4-Customer Satisfaction Index:
To establish our customers specific aims, on an
individual project basis, to motivate and monitor our
efforts in those areas.

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 12
Defining the Customer Value Proposition:
Low Total Cost
“Deliver a combination of quality, price, and ease of purchase that
no one else can match”
Low Total Cost
Company Examples

Toyota
McDonalds
Dell Computer
Southwest Airlines
Vanguard Mutual Funds
Wal-Mart

Best Buy

Low Total
Cost Lowest cost Consistently Speedy, easy Appropriate
supplier high quality purchase selection
Customer
Objectives

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 13
Defining the Customer Value Proposition:
Product Leadership
“Continually develop products that offer superior performance for
customers”
Product Leadership
Company Examples

Sony
Mercedes
Merck, Johnson & Johnson
Intel

Best Product

Product
High performance Penetrate
Leadership products: speed, size,
First to
new product
Customer market
accuracy, weight, … segments
Objectives

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 14
Defining the Customer Value Proposition:
Complete Customer Solutions
“Build bonds with customers; provide them with the complete
bundle of products and services they need”
Customer Solutions
Company Examples

IBM (1960-80)
Goldman Sachs
Mobil

Best Total Solution

Customer Quality of Number of products/


Customer
Customer
Solutions solutions services per lifetime
retention
provided customer profitability
Objectives

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 15
Use Scorecards to Link And Align The Organization
Around Its Strategy
#3.
#1. Each Support Unit develops a
A Corporate Scorecard defines plan and BSC for “best
overall strategic priorities. practice” sharing to create
synergies across SBUs.

CORPORATE

CORPORATE SCORECARD LINE BUSINESSES SUPPORT UNITS EXTERNAL PARTNERS


(Shared Strategic Agenda)
SBU SBU SBU SBU
Themes Measures
A B C D

1. Financial Growth xxx • Finance

2. Delight the Consumer xxx • Marketing • Customer Scorecards


3. Win-Win Relationships xxx
• Distribution • Distributor Scorecard
4. Safe & Reliable xxx
• Procurement • Vendor Scorecard
5. Low Cost Supplier xxx

6. Good Neighbor xxx


• Asset Management

7. Motivated & Prepared xxx xx xx xx xx • Safety

8. Quality xxx • Human Resources

• Information Technology
• Outsourcer Scorecard
#2. #4.
Each SBU develops a Plans and BSC’s define
long-range plan and BSC relationships with external
consistent with corporate partners consistent with
strategic agenda. SBU strategy.

Strategies Are Executed Through Business Units. The Strategies of the Business Units
Must Be Integrated If Organization Purpose and Synergies Are to Be Achieved.
©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 16
Shared (Corporate) Services

“How does staff provide competitive advantage? Are


they offering low cost or differentiated services? If they
are offering neither, we should probably outsource the
function.”

Larry D. Brady
President FMC Corporation

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 17
Creating Value from Shared Services
SBU Shared Service Unit

3 Linkage Scorecard

• Define the SBU objectives and measures that the


support unit is expected to help achieve.

2
Shared Service Unit
Scorecard
“A Business In a Business”

1 Service
Customer

Agreement
Financial Mission Internal

Customer
Satisfaction L&G
Feedback
4

Shared Service Unit strategies and scorecards must reflect the linkage to
its “internal customers”
©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 18
A Strategy Map Template for a Real Estate/Facilities
Management Balanced Scorecard.
Business

Maximize
Results

Reduce Maximize
Reduce total
totalcost
cost of
of shareholder
Enhance
Enhanceemployee
employee
occupancy shareholderreturns
returns productivity
occupancy productivity

Competency
Competency Contribution
Contribution
Credibility
Customer
Values

Deliver
Deliverlow
lowcost
cost Deliver
Deliverquality
quality Create
Create facilities
facilities that
that
Do
Dothe
the right
right things
things
occupancy
occupancy service
service and
and enhance business
enhance business
at the right time
at the right time
solutions
solutions facilities
facilities unit
unitstrategies
strategies

Operational Excellence Business Unit Alliance Solutions Leadership


Optimize
Optimize occupancy
occupancy Improve
Improvebusiness
business Propose
Propose and
and deliver
deliver
internal
internalprocesses unit
unit productivity enabling
enablingsolutions
Internal Processes

processes productivity solutions

Realize
Realize Deliver
Deliver Understand
Understand
Manage
Manage Effectively
Effectively
scale
scale on
on emerging
emerging occupancy
occupancy
service
service quality
quality support
support users
users
economies
economies schedule
schedule needs
needs

Leverage
Leverage technology
technology Understand
Understand business
business
for facility management
for facility management unit strategies
unit strategies

Develop
Strategic

Develop
Enablers

Attract
Attract and
and Focus
Focus on
on Promote
Promote aa uniform,
uniform,
retain people
retain people career
career culture
culture of
of comprehensive
comprehensive
with
with key
key skills
skills development
development innovation
innovation data
databases
bases

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 19
Shared Services Strategy Map
Directors, Management, and Staff agree that we effectively support the Company’s work

Effective and Efficient Consultative Customer Relationships Innovative Services and


Operations Solutions
Customer

C1:
C1: “Maintains
“Maintains an
an Effective
Effective and
and C2:
C2: “Understands
“Understands Staff
Staff C3:
C3: “Is
“Is Easy
Easy to
to Do
Do C4:
C4: “Provides
“Provides New
New and
and
Efficient
Efficient Work
Work Environment”
Environment” and
and Company’s
Company’s Needs”
Needs” Business
Business With”
With” Innovative
Innovative Services”
Services”
Internal Processes

I1:
I1: Provide
Provide reliable
reliable and
and I3:
I3: Establish
Establish and
and maintain
maintain mutually
mutually agreed
agreed I5:
I5: Collaborate
Collaborate with
with customers
customers
consistent
consistent service
service upon
upon expectations
expectations to
to develop
develop new
new solutions
solutions

I6:
I6: Investigate
Investigate the
the potential
potential
I2:
I2: Deliver
Deliver specified
specified level
level of
of value
value of
of leading
leading edge
edge
service
service in
in the
the most
most cost-
cost- I4:
I4: Segment,
Segment, understand,
understand, and
and address
address technologies
technologies and
and work
work
effective
effective way
way possible
possible complex
complex customer
customer needs
needs practices
practices
Learning

Growth

L3:
L3: Provide
Provide the
the Appropriate
Appropriate Tools
Tools
L2:
L2: Nurture
Nurture aa Customer
Customer Focused,
Focused,
and

L1:
L1: Maintain
Maintain and
and Enhance
Enhance Skills
Skills and
and Information
Information to
to “Get
“Get the
the Job
Job
and
and Knowledge
Knowledge Solutions
Solutions Oriented
Oriented Culture
Culture Done”
Done”
Resources

F1:
F1: Strive
Strive to
to Maintain
Maintain aa Baseline
Baseline F2:
F2: Manage
Manage Expenses
Expenses versus
versus
Budget
Budget Plan
Plan

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 20
Shared Services Balanced Scorecard

Objectives Measures
EFFECTIVE AND EFFICIENT OPERATIONS

C1 “Maintains an Effective and M1 Favorable responses to the statement “Shared Services helps me be
Efficient Work Environment” effective in my job”

I1 Provide reliable and consistent M2 Share of services meeting performance thresholds


service

Deliver specified level of service in M3 Per capita overhead / cost per Institution staff member
I2 the most cost-effective way
possible M4 Cost per unit for core services

CONSULTATIVE CUSTOMER RELATIONSHIPS

C2 “Understands Staff and Company’s M5 Favorable responses to the statement “Shared Services understands what
Needs” I need to produce my work”

M6 Favorable responses to the statement “I have a clear understanding of


where and how to obtain services”
C3 “Is Easy to Do Business With”
M7 Favorable responses to the statement “Once I find it, I get what I expect
[accurate and in a timely manner]”

I3 Establish and maintain mutually M8 Share of core services with published service level expectations
agreed upon expectations

Core segments for which we have developed and are using a customized
I4 Segment, understand, and address M9 service plan
complex customer needs

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 21
Shared Services Balanced Scorecard

Objectives Measures
INNOVATIVE SERVICES AND SOLUTIONS

C4 “Provides New and Innovative M10 Favorable responses to the statement “Shared Services provides new
Services” or enhanced services, tools, and work methods”

I5 Collaborate with customers to develop new M11 Innovative services and solutions implemented
solutions

Investigate the potential value of leading New services and solutions


I6 edge technologies and work practices
M12
proposed
LEARNING AND GROWTH

M13 Training days per staff member


L1 Maintain and Enhance Skills and
Knowledge M14 Staff attending minimum training

M15 Favorable responses to the statement: “Shared Services nurtures a culture


L2 Nurture a Customer Focused, that enables me to make a full contribution to the Institution.”
Solutions Oriented Culture

M16 Favorable responses to the statement: “Shared Services provides


me with the tools and information I need to get the job done.”
L3 Provide the Appropriate Tools and
Information to “Get the Job Done”
M17 Progress on rolling hit list of Shared Services staff identified [tools
and information] items

FINANCIAL RESOURCES

F1 Strive to maintain a baseline budget M18 Success in executing divisional Work Plans

F2 Manage expenses versus Plan M19 Variance between allocated budget and projected out-turn

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 22
Leaders Use Strategy Maps and the BSC to
Communicate The Strategy

Ask the President

Bulletin Boards
Videos

ED IT O RI AL

THE PUNY

PAYOFF FROM

OFFICE COMPUTERS

S pec ial Repo rt

MA N AG EME NT'S

NE W E ST S TEP

C ove r Stor y

THE COMPUTER

SLUMP

Spe cial Re po rt

MA NAG EME NT DISC OVE RS

T HE HU MA N SID E OF AU TOM AT IO N

Newsletters
Classes Training Workshops

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 23
Royal Canadian Mounted Police V Division – Iqaluit
(Baffin Island)

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 24
Win/Win Relationship Good Neighbor
USM&R Strategic Themes ...
Improve Dealer/Wholesale Marketer profitability Protect the health and safety of our people, the
through customer-driven products and services communities in which we work, and the
will guide us to our vision and are defined
and by developing their business competencies. environment we all share.
above each graph. Environmental Index
• Composite of:
Dealer/Mobil Gross Profit
USM&R Strategic Measures ... • Total profit earned
- reportable
releases to air
at Mobil outlets and water
that will keep us focused on achieving and split between
- reportable spills
USM&R’s strategic themes are explained our
in the graphs and the bulleted text dealers/whole- - community
reported
accompanying them. sale marketers
incidents.
and Mobil. 1993 1994 Target

1993 1994 Target

Financially Strong Safe & Reliable On Spec On Time


Reward our shareholders by providing a superior Maintain a leadership position in safety while Provide quality products supported by quality
long-term return which exceeds that of our peers. keeping our refineries fully utilized. business processes that are on time and done
right the first time.
USM&R Days Away Manufacturing
ROCE Quality Index
From Work Reliability Index
• Income divided by • Composite of
12% incidents of:
capital employed
including all 8% - product off spec
allocations. 7% - order shipped late
- business process
errors
- customer complaints
- cost of rework.
1993 1994 Target 1993 1994 Target 1993 1994 Target 1993 1994 Target

Delight the Customer Competitive Supplier Motivated & Prepared


Understand our consumers’ needs better than Provide product to our terminals at a cost equal to Develop and value teamwork and the ability to
anyone and offer them products and services or better than the competitive market maker. think Mobil, act locally.
which exceed their expectations.

Mystery Shopper Laid-down Cost Climate Survey

• The Mystery Shopper • Our cost to deliver • Survey of


program rates how product to the employees to
well each of our terminal vs. lowest measure how
stations is delivering cost provider. people perceive the
the “best buying Mobil workplace
experience.” environment.

1993 1994 Target 1993 1994 Target 1993 1994 Target


©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 25
Employee Innovations: Mobil Speedpass™

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 26
Managers Use the Scorecard to Select and Manage
Initiatives
—1—
Identify All Potential
Candidates for Development
Strategic Initiative MIS Projects, Projects,
Consideration Activities, etc. Activities, etc.
Site Selection
Projects, Other Projects,
Activities, etc. Activities, etc.

Criteri
a
P r i m a r y S t r a t e g ic O b j e c t iv e :
In itia tiv e : S t r a t e g ic T h r u s t (s ) :
C o n t i n u e L e a d e r s h i p i n S u p e r io r
E -B ill P r e s e n tm e n t A C /IR /R C P ro d u c ts

—2— A re a S c o re P o in ts C o m m e n ts

Screen Candidates to S tr a t e g ic Im p o r t a n c e 8
• T h e “ k ille r ” a p p lic a t io n
•X

Identify Those That C ost -2 •$

Qualify as “Strategic” B e n e f it 4 •$

R e q u ir e d fo r O th e r
In i tia t iv e s /D e p e n d e n c ie s 1 •X

T i m e t o Im p le m e n t -2 • # m o n th s

O v e r a ll S c o r e 9 •X

Required for Other


Strategic Thrust(s) Strategic Overall
Ranking Initiiative Cost Benefit Initiatives/ Time to Implement Overall Score
and Objectives(s) Importance Dependencies Points

—3—
AC/IR/RC
E-Bill Cont. Leadership in
1 9
Presentment Superior Products

Prioritized List of
2 A 9

Select Strategic
3 B 8

4 C 8

Initiatives 5

6
D

E
7

7 Strategic Initiatives
7 F 7

N G X

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 27
Strategy Maps and the Balanced Scorecard provide the link
between vision and strategy and short-term planning and
initiatives

Longer Term (3-5 year) View Shorter Term (Annual) View

Mission Vision Strategy and Map Objectives Measures Targets Initiatives Milestones Accountable Resource Alloc.

C1 Customer • Understand • Customer • ‘04 xx% • Develop •


• Survey drafted Survey
company satisfaction organization- • $ xxxx
Be the shared service provider of choice

• ‘05 xx%
To provide top-notch facilities to our

by 6/04 Team
facility’s survey rating wide survey
C2 • ‘06 xx%
needs
Internal

• Segment • # of custom • $ xxxx


• ‘04 xx% • Develop • Teams • Facilities
customer service
organization

I1 • ‘05 xx% customer- designated Marketing


needs plans
focused by 5/04 Group
• ‘06 xx% teams
• Employee • Training • $ xxxx
Learning

• Enhance staff •
L1 • % jobs ‘04 xx% training Schedule by
skills and staffed with programs 3/04 •Facilities HR
L2 • ‘05 xx%
knowledge requisite skills Group
• ‘06 xx% • Courses
completed, 6/05
Resource

• Provide • % new • ‘04 xx% • Learning • Deadline • Facilities • $ xxxx


technology technology • ‘05 xx% assessment met IT Group
& resources used by staff project
R3 • ‘06 xx%

Strategy Tactics
“Leadership” “Management”

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 28
Building your strategic management process evolves
from a project to a process.
“The Case for Change” “Early Wins” “Irreversible Momentum”

Mobilization Phase Alignment Phase Sustainment Phase

SFO #1. Mobilize Change through #2. Translate the Strategy #4. Motivate the Staff
Principle Executive Leadership #3. Align the Organization #5. Govern the Organization

Leadership • Achieve commitment at the top • Define and clarify the strategy • Focus the staff
Objective • Build the executive team • Specify long-term targets • Align accountability / rewards
• Build case for change • Communicate to workforce • Develop human capital
• Link business and support • Redefine governance process
units to the strategy • Get results

Core The Catalyst The Project Team The Strategic


Competency Role: Missionary Role: Consultants and Change Agents Management Office
• Advocate, educate and sell a • Design Strategy Maps Role: “Chief of Staff”
new way of managing • Design Scorecards/Targets • Use it to manage
• Create Alignment/Cascade • Shape the executive agenda
• Overcome Resistance • Integrate governance processes

Methodology • Executive education (the need • Strategy Maps • Strategic job families
and Tools for strategic execution) • Balanced Scorecard • Personal scorecards
- Conference • Business unit and support • Competency development
- In-house group scorecards • Planning / governance process
- Readings • Communications program • BSC info system
• SFO Readiness Assessment • Initiative rationalization • New management meeting

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 29
Align Employees to the Strategy Through Personal
Scorecards and Incentive Programs

• Align Personal Objectives: all employees


learn how they fit into the overall game plan

• Align Incentive Compensation: develop


extrinsic motivation by explicitly tying reward
systems to achievement of individual and
organizational objectives

• Reinforces desired behavior and increase


intensity of awareness

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 30
Management by Strategic Objectives (MBSO)
Corporate

VP Region
Strategy
Director

Tactics
Manager

Activities
Associate

Scorecards, targets, and links to compensation should be cascaded throughout the


organization to create a common focus on and awareness of the strategy. Metrics must be
relevant to each employee for them to feel connected to the strategy. These connections
“Make Strategy Everyone’s Job” and enable rapid strategic execution.
©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 31
Link Compensation to the Balanced Scorecard
Experience with successful BSC users indicates that linking the BSC to
incentive compensation contributes to success

Executive Perspectives Supported by Research

“People got that scorecard out and did Mercer survey of compensation
the calculations to see how much practices in 214 companies
money they were going to get. We
could not have got the same focus on • 88% of responding companies
the scorecard if we didn’t have the link consider the use of balanced
to pay.” scorecard measures linked to
Brian Baker, Mobil reward systems to be effective.

“It would be hard to get people to


accept a totally different way of
measurement - which the BSC is - if
you don’t reinforce that change
through incentive compensation.”
Gerry Isom, CIGNA

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 32
Case Study: Making strategy everyone’s job at Hilton
Hotels
Education Personal Goals

Balanced Scorecard

Communication Incentive Compensation

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 33
A Balanced Scorecard Reporting System automates
data collection and reporting ...
Corporate Strategy Map

Corporate Measure

Corporate Initiatives

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 34
… and stimulates a new process of strategic learning at the
management meeting

Control Learning

What have you learned about


the strategy?
•Why have you What resources, or new
failed to achieve skills and technology would
be helpful?
your target?
How can you learn from the
experience of other units?

•Why are you Is an inter-departmental


initiative required?
over-budget?

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 35
In summary: A process of mobilization, alignment, and
sustainment produces breakthrough results

SFO Best Practices

Ø1 Ø2 Ø3 Ø4 Ø5
Mobilize Translate Align Motivate Govern


 Create case for √
 Refresh strategy √
 Corporate / SBU  Communicate √ √
 Monthly/Quarterly
change cascade to / educate strategic reviews
√ Create strategy
 workforce

 Develop vision
and strategy

map

 Create top-level

 Corporate / SBU
/ support unit
cascade objectives

 Align personal

 Develop info
system = $
BREAKTHROUGH

 Executive team scorecards √
 Link BSC to RESULTS
aligned √
 External √
 Align personal planning /

 Set targets / linkages development budgeting

 Create rationalize (customers / process
accountability initiatives suppliers) √
 Align incentives

 Link BSC to
operational mgmt.


 Learning/
Adapting

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 36
SFO Best Practice Benchmarks:
Mobilize, Align, Sustain
TRANSLATE STRATEGY TO MOBILIZE CHANGE THROUGH
OPERATIONAL TERMS EXECUTIVE LEADERSHIP
● Strategy refreshed Top leadership sponsorship

● Strategy map developed ● Case
for change clear
● Balanced Scorecard ● Leadership team engaged
● Targets established ● Vision and strategy clarified
● Initiatives rationalized ● New way of managing
● Accountability clear ● Change agent identified

STRATEGY-
ALIGN THE ORGANIZATION MAKE STRATEGY A
FOCUSED
TO THE STRATEGY CONTINUAL PROCESS
ORGANIZATION

●Corporate role defined ● Strategic review meetings


● Corporate – SBUs aligned ● BSC reporting system

● SBU – Human Capital aligned ● Link budgets and strategy

● SBU – Info Capital aligned ● Strategic investments managed separately

● SBU – Support units aligned ● HR and IT planning linked to strategy


MAKE STRATEGY
● SBU – Suppliers aligned ● Governance process linked to strategy
EVERYONE’S JOB
● Board of directors aligned ● Strategic Management Office
• Strategic awareness
• Comprehensive communications
• Personal goals aligned
• Personal incentives aligned
• Competency development aligned
• Accountable for results

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 37
Why Do Organizations Fail to Get Results from Their
Balanced Scorecard Programs?
#1. No Executive Ownership
(done by middle management team only;
long development process)

Using It
RIGHT
#2. Scorecard Not Linked to
NOT Using It Strategy (no strategy map - just KPIs
Using WRONG in 4 perspectives; mostly financial
BSC measures; done as a systems project;
done only for compensation)

#3. Scorecard Not Linked to


Management Processes
(Mobilize, Translate, Align, Motivate,
Govern)

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 38
For Further Information
Our Mission:
“To facilitate the worldwide awareness,
use, enhancement, and integrity of the
Balanced Scorecard as a value-added
management process”

Join Balanced Scorecard Online™ at www.bscol.com

Consulting Conferences Training Publications

Consortia Certification Partnerships Online Services

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 39
Creating the Strategy-Focused Asset Management
Organization
• QUESTIONS?

©2004 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 40