The Balanced Scorecard

Lab Case . . .

• Client acquires company with hidden $5M business

• Issue: How can we develop a growth plan• Discovery: Business and Management Is A

Disaster• How to Organize The Problem• How to Organize Potential Solutions

– Use the Balanced Scorecard for Organization

Scorecard Perspective On Lab Business

Financial

Customer Systems

KnowledgeHave Capable People

Lacking Skill DevelopmentNot Bringing In Key SkillsNo Knowledge Alliances

NeedVision

&Strategy

Low Margin ProjectsLosing Repeat BusinessFixed Contract BidsShort Capitalization

Don’t See Emerging NeedsHigher Cost Custom ProjectsNot Attracting Best Projects

Sales System Out Of ControlInadequate QC and CSLosing Key People

Your Assignment

Figure out how to organize this into a cause-effect definition of the

problem.

Strategic Learning as Leadership

LearnStrategyCreation

Focus

Align

Execute

StrategyImplementation

Focus = Strategic Choices & Vision

Customer FocusWhich customer will we serve?

What is their hierarchy of needs?What will we offer them?

The Winning PropositionWhat will we do differently

or better than our competition?

GreaterCustomer

Value

SuperiorProfits

Five Key Priorities

Align the Organization

Measures and Rewards

Structure and ProcessPeople

Culture

STRATEGY

Most Strategies Fail! . . . Why?

• 45% Failures in Implementation

• 26% Failures in Concepts Used To Formulate

• 21% Inadequate Info / Poor Assumptions

• 8% Failures in Analysis

Issues In Implementation

• Human Side Of Managing Complex Change– Altering Perceptions

– Organizational Learning

– Assumes People Want To Perform If Guided

• Change Metrics– Altering Behavior Based On Reward Systems

– Chaos Management (feedback loops)

– Assumes People Follow Self-Interest

Most Companies Go Both Ways Simultaneously

Be Careful What You Ask For … You Might Just Get It!

Anonymous

We Have Always Had Metrics

• Financial Measures– Revenue / Revenue Growth– Profit (Return on Net Assets BIT)– Cash Flow– EVA (Economic Value Added)

• Market Measures– Customer Perceived Quality / Satisfaction– Market Share

Lets Explore This Further . . .

Return on Net Investment(Before Interest & Taxes)

• Net Investment– Includes Depreciated Assets

• Does Return Cover Replacement of Assets?

• Would You Want To Replace Assets?

• A ‘70’s / 80’s Problem That Led To Business Apathy

• Profit – Financial Focus on Past– Not Linked To Strategy and Operations– Can Be Very Short-Term Focused

Cash Flow

• Net Income minus Change In Net Investment• Used Heavily In Portfolio Analysis Models

– BCG Growth-Share Matrix

– Explore Portfolio Investment Balance• Guide who Generates, Who Holds, Who Can Use Cash

• Discounted CF Used To Judge Investments– Problem: What Discount Rate?

– Problem: Different Assumptions Give Wildly Different Calculations ( Who can calculate future?)

EVA: Economic Value Added

• Market Price / Net Book Value– Management of Balance Sheet

• Market Price determined by:– Overall Market Valuation– Growth In Income – Growth In Investment

• CEO’s Love This Measure In An Up Market• Is IT Real Or Is It ________?

Market Share

• Your Sales Value Relative To Competition

• Can’t Deposit MS In The Bank!– So Why Do We Want It?– It Leads To Profit . . . So We Believe!

ROI

MS

Customer Perceived Quality

• A ‘Soft’ Measure (Perception/Belief)• Again . . . Can’t Be Deposited• Importance

– Research Shows It’s Tied To Price– Research Shows It’s Tied To Purchase Intent– Research Shows It’s Tied To ‘ Brand Loyalty’

• Note the term “Brand Equity”

– Research: Quality Ultimately Related To Profit

Measures of Success

• From Financial To Market

• From Abstract To Actionable

• From Centralized Management To Distributed Management

• From Historical To Predictable

What is a Balanced Scorecard?

• Strategic Management System• Focus on Mission / Vision• Maps What Objectives Are Consistent With

Attaining Mission / Vision• Sets Objectives to Meet Mission / Vision• Sets Metrics To Measure Success• Aligns Everyone / Every Process To

Mission/ VisionLet’s look at alignment . . .

The Balanced Scorecard: A Framework For Strategic Management

FinancialHow we look

to shareholders

CustomerHow we look

to our customers

ProcessesWhat activities

must we excel at

KnowledgeHow do we learn & grow

Vision&

Strategy

The Balanced ScorecardShould

Tell The StoryOf

Your Strategy

Balanced ScorecardPuts Strategy -Not Control

At The Center Of Measurement Systems

Criteria for a good scorecard:  1. Recognition that BSC is not just a "metrics" project; it's a change project.

Communicate New Strategic DirectionDevelop Stretch Targets

Transform functional specialists into cross-functional, problem-solving teams 2. The Balanced Scorecard strategic management system works best when used tocommunicate vision and strategyChain of Cause and Effect Relationships that Represent StrategyGood Mix of Lead and Lag Indicators–Lead indicators indicate what is different about the strategyPrograms (Quality, Customer Satisfaction, Innovation Goals) Linked To Financials  3. Successful BSC leaders felt that their most important challenge was communication

For Each Perspective:

FinancialObjectives Measures Targets Initiatives Responsibility Budget1.

2.3.

CustomerObjectives Measures Targets Initiatives Responsibility Budget

1.2.3.

Case Example

FinancialFinancial

CustomerCustomer

Internal Internal ProcessesProcesses

Learning/ Learning/ GrowthGrowth

NTS Strategic ThemesNTS Strategic ThemesHelping Customers Navigate a Short Course to Global MarketsHelping Customers Navigate a Short Course to Global Markets

Lev

erag

e T

hru

Syn

ergy

(G

row

th)

Incr

ease

Val

ue T

o C

usto

mer

Per

form

ance

& P

roce

ss

Lea

der

Mar

ket L

eade

r: E

xter

nal

Foc

us

NTS Strategy MapNavigate a Short Course to Global Markets

Fin

anci

alF

inan

cial

Cus

tom

erC

usto

mer

Pro

cess

esP

roce

sses

Lear

ning

Lear

ning Align CultureAlign Culture

Develop Pipeline For Technical Ideas & Market Scanning

Develop Pipeline For Technical Ideas & Market Scanning

Personal & Professional Growth

& Development

Personal & Professional Growth

& Development

Best In Class PerformanceBest In Class Performance

Improve Understanding of Customer Future

Needs

Improve Understanding of Customer Future

Needs

Outstanding Customer Service

Processes

Outstanding Customer Service

Processes

Best Practices via

Tech Utilization

Best Practices via

Tech Utilization

Total Solutions Provider (Synergy)

Total Solutions Provider (Synergy)

New Services/ Revenue Streams

New Services/ Revenue Streams

Outstanding Customer Service

Outstanding Customer Service

Increase RevenuesIncrease Revenues Increase Operating MarginsIncrease Operating Margins

Increase Market Value of NTSIncrease Market Value of NTS

Leverage Through Leverage Through SynergySynergy

Market CentricMarket Centric Customer ServiceCustomer Service Performance Performance (Process) Leadership(Process) Leadership

Key Concepts• Business Ecosystem• Strategic Business Unit• Benefit Segmentation• Porter’s Five Forces• Types of Assets• Capabilities• Competencies• Sustainability of Intangible Investments• Value Chain (components and use)• Business Model• SWOT Analysis• Key Success Factors• Growth Modes• Internal Growth Options• Economies of Scale• Economies of Scope• Balanced Scorecard