Slide Deck for The Balanced Scorecard - Implementing Strategy Webinar conducted by BMGI India Consultants in Feb 2010. For More Quality Content from BMGI India, visit http:/www.bmgindia.com, visit our blog at http://bmgindia.wordpress.com, or join the BMGI India group on LinkedIn. We would love to hear from you, feel free to write to us at info@bmgindia.com

1. The Balanced Scorecard -
Implementing Strategy
Webinar
February 2, 2010

2. Agenda
• Driving growth: need for strategy and effective
deployment
• Understanding the Balanced Scorecard (BSC) and
its benefits
– The four perspectives of the BSC
• Building the BSC: Steps of the BSC process
• Cascading the BSC in the organization

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4. Webinar – Ground Rules
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5. Growth: Need for Strategy and
Effective Deployment

6. Where Do We Want to Be in 5 Years?
Vision Statements – Do they really provide the direction needed?

7. Strategy Is
Intended Strategy Deliberate Strategy Realized Strategy
Intended = Realized?
Unrealized Strategy
Emergent Strategy

8. Strategy fails if it is little more than…..
Hope Extrapolation
Fabrication
Vision? Rationalization
Paper Exercise Self-Defense

9. Strategic Vs Operational Management
STRATEGIC MANAGEMENT OPERATIONAL MANAGEMENT
• Long term future horizons • Short to medium term
• Building sustainable • Seeking operational
competitive advantage improvements
• External focus • Internal focus
• Thinking Strategically • Fire fighting

10. The Ambidextrous Nature of Business
Managing Create the
Current Business Future Business
Selectively
Abandon the Past
Focus: Doing things Focus: Doing things
Better Different
10

11. The Ambidextrous Apple
Managing Finding the Future
Current Business
11

12. Preservation and Evolution
Phase 3
Maturity
Phase 2
Growth
Phase 4
Improving Reinventing
the Future
Growth
Phase1
Innovation
Time
12

13. Channels for Growth
Growth is #1 agenda for almost every CEO
Primary Vehicle for Growth is through Organic Growth or
Mergers & Acquisitions (M&A)
Several Studies have shown that most M&A fail (One
study showed that over 62% of the time M&A destroy
shareholders wealth)
However delivering Organic Growth consistently and
repeatedly has been challenging due to poor success
rates with implementation of strategy
13

14. Forbes List of 100 Largest Companies
• To celebrate the 70th anniversary, in 1987 Forbes
published its “Forbes 100” list of largest American
companies and then compared it to its original list from
1917.
• However, only 18 of the original companies managed
to stay in “Top 100” list through 1987. Sixty one of
them no longer existed and twenty one fell off the “Top
100” list.
• The overall long-term return to the shareholders from
this is group of 18 companies was 20% less than that
of the overall market.
• Only two companies, General Electric and Kodak
performed better than the overall market. Since then
Kodak’s performance deteriorated significantly.
14

15. Can We Beat The Odds?
Current Business Future Business
• 80% of all venture capital investments fail
• Over 90% of companies fail to sustain above-average
shareholder return for longer term
• 75% of all new products that established companies
put into their markets fail
15
Sustaining Growth is Difficult in the Long Term

16. Classical Management Control System
Strategy & Focus on Financial
Vision
Measures
Personal Review &
Incentives Budget Reorient
Planning &
Capital
Allocation
Designed Around Short-term Control Oriented Financial Framework

17. The Alignment Paradox
Only 5% of the work
force understands
the strategy
85% of executive
Only 25% of 9 of 10
teams spend less
managers have Companies Fail
than one hour per
incentives linked to to Execute
month discussing
strategy Strategy
strategy
60% of
organizations don’t
link budgets to
strategy
You Can’t Manage Strategy With a System Designed for Operational Control
Source: Fortune Magazine Survey

18. Strategy Implementation – Need of a Framework
Vision
Long Term Goals
Balanced Framework: End Strategy Everyone’s
Results and Drivers of Job
Performance

19. Benefits of BSC – Evidence?
• Survey conducted with the US Institute of
Management Accountants’ members in 2006, the
results of which included:
– 88% of members from organizations regularly using the
Balanced Scorecard reported improvements in
performance; and
– 66% stated that they also achieved increase in profits

20. The Balanced Scorecard
Strategy Implementation
Using
Measurement
To
Communicate, Focus, Review And Align

21. Background
Conceived In 1991
Robert Kaplan: Harvard Professor
David Norton: Management Consultant
Several insights into the process based
on work done

22. Balanced Scorecard: Evolved Framework
The Vision & Strategy
The Vision & Strategy
Financial
To satisfy our shareholders,
Effect what financial objectives must
we accomplish?
Customer
To achieve our financial goals, Results
what customer needs must we
satisfy?
Internal Business Process
Cause To satisfy our customers, in which
internal business processes must
we excel?
Innovation, Learning & Growth
Actions
To achieve and maintain a
competitive position, how must the
organization learn and improve?

23. The Strategy Map

24. Constructing The Scorecard

25. BSC Addresses Barriers to Strategy Implementation
Translating Vision & Strategy
Translation Through
Objectives and
measures
Communicating & Linking Feedback & Learning
Aligning
Organization, Review Strategy In
Departmental and Balanced The Light Of Recent
Individual Scorecard Performance
Objectives
Planning &
Resource Allocation
Driven By Strategy
Business Planning
A Management System Built On Strategy: Goal is to enable effective corporate
management

26. Benefits of Implementing BSC
• It makes strategy operational
• Translates strategy into performance measures
and targets
• Brings to focus drivers of future performance
– Focused measurement for “success”
• Umbrella/filter for a variety of diverse corporate
programs
• Aligns employees to strategy execution

27. Keeping Up With Change
Sustaining mechanisms
to build on success
Benefit of
Balanced
Change Scorecard
Failure of change
Ongoing business management systems
to exploit benefits

28. The Four Perspectives of BSC

29. The Financial Perspective
“Results”

30. The Financial Perspective
Return On Investment
Revenue Strategy Productivity Strategy
Asset Utilization
Cost Strategy
Strategy
Consideration of risk management strategies is critical

31. Financial Objectives – Examples
• Increase product portfolio
• Establishing new services
• Reduce cost
• Improve asset utilization
• Increase revenue (organic/ inorganic)
• Improve productivity

32. The Customer Perspective

33. The Customer Perspective
Market Share
Customer Customer Customer
Acquisition Profitability Retention
Customer
Satisfaction

34. Enhancing Customer Value
Functionality
Quality
Customer Product / Service Attributes
Value
Price
Schedule
Image
Relationship
Basic Differentiators

35. Customer Objectives – Examples
• Increase geographical reach
• Increase customer base
• Enhance brand image
• Build end to end solutions
• Enhance client relationships
• Providing value-added services

36. The Internal Process Perspective

37. Internal Process Perspective
Innovation Customer Supply Chain Regulatory
Management Management Management Management
Product
Customer Operational Good
Service
Intimacy Excellence Neighbor
Leadership
% New Product Sales
Target Segment
Share Quality Regulatory
New Product Intro.
Vs Competitors’
Contact Cost Legal / Ethical
Management
Process Capability
Schedule Community
Complaints
Time to Market

38. Internal Process Objectives – Examples
• Improve supply chain performance
• Reduce waste
• Improve value creation
• Improve regulatory compliance
• Improve technology absorption
• Improve NPD performance (time to market/
success rate)

39. The Learning & Growth Perspective

40. Learning & Growth Perspective
Employee capability
Information systems Technology
capability Infrastructure
Motivation, empowerment
and alignment

41. Learning & Growth Objectives – Examples
• Enhance employee morale
• Develop leadership
• Improve knowledge management
• Build key/strategic competencies
• Improve communication
• Build required infrastructure
• Institutionalize strategic thinking

42. Building the Balanced Scorecard: Steps

43. Building the BSC
Translating the Mission and Vision into Desired Outcomes
Mission
Why we exist
Vision
What we want to be
Core Values
What we believe in
Strategy
Our game plan
Balanced Scorecard
Implementation and focus
Strategic Initiatives
What we need to do
Personal Objectives
What I need to do
Strategic Outcomes
Strategic Delighted Effective Motivated and
Shareholders Customers Processes Prepared Workforce

44. Step 1: LT Goals – Definition
• Long Term Goals (LT Goals)
– Statements (quantitative/ qualitative) that give tangible
shape to aspirations based on the Vision
• 3 to 5 year time horizon
• Directional
• Will not include aspects of actions/ how to
– Example
• Achieve revenues of 1000 cr
• Be a global player/ number one in market
– Not a LT Goal
• Increasing sales
• Improve market share
• Enter a new market

45. Step 2: Strategic Objectives – Definition
• Strategic Objectives
– Provide a direction for meeting the Long-Term goals
– They are high level how's which can hold in there
umbrella a series of strategic initiatives
• Example
– Expanding geographical reach
– Entering into strategic alliances
This assumes that
– Deliver first time on time the strategy of the
• Not Objectives organization is
articulated based
– Open an office on which the
objectives can be
– Appoint an agent
defined.
– Change a vendor

46. Step 3: Strategic Metrics – Definition
• Finalization of Strategic Metrics and Targets
– For each strategic objective
• The targets associated with each metric will need
to be finalized based on baseline performance
which will need to be ascertained

47. Types Of Strategic Measures
Strategic Objective
Outcome Measures Performance Drivers
Common Measures Strategy Dependent
Across The Industry Unique Measures
Lagging Measures Leading Measures
To Gauge Outcomes Of To Understand processes
Strategy And Activities

48. Selecting Measures
• Caution
• Do not select what “can” be
measured: select what “should” be
measured
• Counter balance the measures to
prevent strategy distortion
• Restrict the number of measures to
the level of control / action
Lag / Lead Existing / Strategic Measure Degree Of Cultural Change
New Impact Cycle Diff Shift Quantum

49. Step 4: Strategic Initiatives – Definition
• Strategic Initiatives
– Specific actions which help realize the strategic objective
and achieve associated target
– Operationalize objectives on a daily work / project level
basis
– One or more initiatives will be typically needed for
achieving an objective
• Example
– Objective is: Improve project management
– Initiatives could be:
• Create project planning templates
• Establish method for tracking risks
• Establish method for interdependency management

50. LT Goals – Objective – Initiatives
Quality Organization
Sales – 1.5 bn USD LT Goals & International
Standards on QHSE
Customer Deliver first time on Process
Increase win-rate Objective Objective
time
• Hiring people from
customer/competition • Set up interdependency
• Influence design of tender Initiatives management
document so that it favours USP • Reduce execution defects in
of Organization process

51. Prioritizing Strategic Initiatives
Development
Quality Projects,
Projects, Activities, etc.
–1– Activities, etc. Corporate
Identify Marketing Projects,
Projects, Activities, etc.
Initiatives Activities, etc.
Financial
Perspective
–2–
Screen Customer
Perspective
Initiatives
Internal
Perspective
Organization
Learning
Output: Short List of Strategically Aligned Initiatives

52. Managing Dependencies

53. XYZ Strategy Map
LT Goals
Financial
Initiative 1
Objective 1 Objective 2 Objective 3 Initiative 2
Perspective
Customer
Objective 1 Objective 2 Objective 3 Objective 4
Process
Internal
Objective 1 Objective 2
& Growth
Learning
Objective 1 Objective 2 Objective 3

54. XYZ Group Strategy Map
Financial Enhance Long-term
Shareholder Value
Double Sales In 4 Yrs No. 1, 2 or 3 Market Player Double Profits In 3 yrs
Customer loyalty / value
New Customers / Markets
Brand Equity
Customer
Business Review Process Finance Review Process
Business Reputation Management Business Excellence
Processes
Learning & Growth Leadership Talent Retention / Company / Employee
Development Mobilization Alignment
Strategic Thinking Code Of Conduct Internal Communication

55. BSC – Example
Objective Initiative Owne Lead Target Lag Metric Target
r& Metric
Team
Industry wise Identifying and a) % sales a) 15% a) No of new a) 5 /
focused selling developing increase / b) 25 % applications industry
industrial specialist industry hit rate > developed / / annum
(Pilot in one area- b) No of 1L Industry b) No b) 100
Power/ Defense ) application business of applications % where
s shown for applicabl
transplante transplant/ e
d/ Industry
industry
Enhance product Identification and Business > 100 L / a) No of a) 10 /
portfolio through finalization of generated annum agencies month
new agencies agencies (> 100L through interacted / b) 2/
potential business ) new month b) No of annum
agency agencies
identified and
launched
Enhance business Formation of JVs % increase Rs 50 L / No of JVs / 1/Annu
by JV workshops in turnover JV / Division / Year m
from JVs annum

56. Cascading the BSC

57. Align All Levels Of The Organization
Step 2.
Step 1. Each SBU develops
A Corporate Scorecard Corporate / Group a long-range plan
defines overall strategic and BSC consistent with the
priorities and context corporate strategic agenda
SBU SBU
SBU C
A B
Support Functions
Step 4.
Step 3.
Departments, teams
Each Support Unit
and individuals develop
develops a scorecard to Teams and scorecards consistent
support the internal
with their organization’s
customers Individuals strategy

58. Org Strategy Map Final Draft
Target 2012 Target 2012
•XY bn USD Turnover •Major Player in rrr regions
•12% + PBIT /Year •International standard on QHSE
•ROCE – 40% •New products - mnp
Financial
F1 - Increase
revenue F2 - Cost
(international & competitiveness
domestic)
Perspective
Customer
C1 - Focus on new
products, services and
regions
Process
Internal
P3 - Reduce cost and
time over-run
& Growth
Learning
Indicate cause and effect linkage

59. Sample SBU - Strategy Map: Target 2012
Cascaded from Corporate •ZZ Bn USD Turnover
•8% + PBIT /Year
•Best regional service provider
(MENA)
Financial
F1 - Establish the
F3 – Cost
presence in the segment
Competitiveness
(grow revenue)
Perspective
Customer
Process
Internal
P3 - Improve
adherence to internal
project milestones
& Growth
Learning

60. Example of Strategic Initiatives for Procurement
1. Identify and source from low cost countries (including India)
P F1 Enable Cost for competitive sourcing, and establish and implement the
Competitiveness for process
Organization 2. Create the infrastructure to make skids in-house
3. Develop alternate vendors in single source situation

61. Performance Appraisal Aligned to BSC
Performance
Planning for Development
Appraisal Planning
Strategic Other Skill
Strategic KRAs Routine KRAs
Competencies Gaps
BSC Routine Job
based on JD

62. BSC Tracking

63. BSC – Performance Tracking
Corporate BSC
Objectives
Initiatives
SBU/ JV/ BE BSC SBU/ JV/ BE BSC
Objectives Objectives
Initiatives Initiatives

64. Validation of Assumptions
• Collect information on actual status on
assumptions made at the time of defining each
Objective/ initiative
• Ratify assumption
– Assumption incorrect
• Possibility of initiative failure

65. BSC – Performance Tracking
• Review mechanism
– Integrated with business review
– Coordinated by BSC coordinators
– Use of defined templates and presentations
– Compilation prior to review meet
• Outcomes
– Mid-course corrections