Executing Strategy with the BSC Management System -...
Transcript of Executing Strategy with the BSC Management System -...
1
Executing Strategy with the BSC Management System
Dr. Robert S. KaplanBaker Foundation Professor, Harvard Business SchoolChairman, Professional Practice, The Palladium Group, Inc.
2
Even in troubled times, strategy execution remains the leading concern of executives world-wide.
3© 2008 Robert S. Kaplan and Palladium Group, Inc. - Confidential
HBS Cases:Chemical Bank (1994)Mobil (A)-(D) (1996)United Way (1997)Wells Fargo Online (1998)City of Charlotte (1999)New Profit, Inc (2000)Montefiore Hospital (2001)Boston Lyric Opera (2001)First Commonwealth (2004)Fulton County School System (2006)Amanco: Sustainability Scorecard (2007)
1992 20001996 20041993 2005 2006
22 translations 18 translations 13 translations 17 translations
8 Harvard Business Review articles
2008
14 translations
The Balanced Scorecard, originally introduced in 1992, as a performance measurement system, has become the premier management system for strategy execution.
4© 2008 Robert S. Kaplan and Palladium Group, Inc. - Confidential
Balance Sheet for Company A (US$ billions)
March 31, 2008
ASSETS LIABILITIES AND EQUITY
Cash 1.7 Miscellaneous accruals 1.0
Receivables 0.8
Advances 0.7
Current Assets 3.2
Property Plant & Equipment (net) 1.0 Shareholders Equity 3.4
Goodwill 0.2
Total Assets 4.4 Total Liabilities and Equity 4.4
2008 Net Income = $1.15 billion
5© 2008 Robert S. Kaplan and Palladium Group, Inc. - Confidential
The Power of Intangible Assets
“Our core corporate assets walk out every evening. It is our duty to make sure these assets return the next morning, mentally and physically enthusiastic and energetic.”
N. R. Narayana Murthy, Chairman and Chief Mentor, Infosys
Source: Page 1 of Infosys 2008 Annual Report
6
Why Measures Matter
If you can’t measure it, you can’t manage it. If you can’t manage it, you can’t improve it.
Kaplan & Norton (and many others)
7
Companies around the world are using a strategy execution system, based on the Balanced Scorecard, to deliver breakthrough results
Revenue up 310% EPS up 305%
Active clients rose from 293 to 500
Big accounts ($20M+) up from 6 to 27
Innovation (new product revenues) up 48%
Ranked #1 employer in IT sector (Dataquest)
Ranked India’s best managed company
Financial Perspective
Customer Perspective
Process Perspective
Learning & Growth Perspective
8© 2008 Palladium Group, Inc.
Telecom and Utilities
Palladium Balanced Scorecard Hall of Fame for Executing StrategyBy Industry 2005 – 2008
Health Care
Governmentand Military
Non-Profit
Financial Services
Consumer Products
Process Manufacturing
Discrete Manufacturing
9
The Management System for Strategy Execution Links Strategic Planning and Operational Excellence
results
performance measures
Process
Initiative
EXECUTION
performance measures
results
1
3
45
6
• Mission, Values, Vision • Strategic Analysis• Strategy Formulation
DEVELOP THE STRATEGY
• Strategy Map / Themes• Measures / Targets• Initiative Portfolios• Funding / Stratex
TRANSLATE THE STRATEGY
ALIGN THE ORGANIZATION
• Business Units• Support Units• Employees• Board of Directors
PLAN OPERATIONS
• Key process improvement• Sales planning• Resource capacity plan• Budgeting
• Profitability Analysis• Strategy Correlations• Emerging Strategies
TEST & ADAPT
• Strategy Reviews• Operating Reviews
MONITOR & LEARN
Strategic Plan
• Strategy Map• Balanced Scorecard• Stratex
Operating Plan• Sales Forecast• Resource Requirements• Dashboards• Budgets
2
10
Stage 1: Develop the Strategy
results
performance measures
Process
Initiative
EXECUTION
performance measures
results
1
3
45
6
• Mission, Values, Vision • Strategic Analysis• Strategy Formulation
DEVELOP THE STRATEGY
• Strategy Map / Themes• Measures / Targets• Initiative Portfolios• Funding / Stratex
TRANSLATE THE STRATEGY
ALIGN THE ORGANIZATION
• Business Units• Support Units• Employees• Board of Directors
PLAN OPERATIONS
• Key process improvement• Sales planning• Resource capacity plan• Budgeting
• Profitability Analysis• Strategy Correlations• Emerging Strategies
TEST & ADAPT
• Strategy Reviews• Operating Reviews
MONITOR & LEARN
Strategic Plan
• Strategy Map• Balanced Scorecard• Stratex
Operating Plan• Sales Forecast• Resource Requirements• Dashboards• Budgets
2
11
The mission describes the fundamental purpose of the entity, especially what it provides to customers and clients
“Organize the world's information and make it universally accessible and useful.”Google
The core values of a company prescribe the attitude, behavior, and character of the organization.
The vision is a concise statement that defines the 3 to 5 year goals of the organization.
Wells Fargo Online Financial Services (1997)“have one-million on-line customers by the end of the decade.”
University of Leeds“By 2015, our distinctive ability to integrate world class research, scholarship, and education will have secured us a place among the top 50 universities in the world.”
Before embarking on a transformational change program, leaders must re-affirm the organization’s fundamental goals and purpose
• Individuals who are treated with respect and given responsibility respond by giving their best. • We guard and conserve the company's resources with the same vigilance used to guard and conserve our own personal resources. • In all our dealings we will strive to be friendly and courteous, as well as fair and compassionate. • We feel a sense of urgency on any matters related to our customers. We own problems and we are always responsive.
12© 2008 Palladium Group, Inc. - Confidential
• Buyer Power• Supplier Power• Barriers to Entry• Threat of Substitutes• Industry Rivalry and
Intensity of Competition
External and internal analysis helps to identify the strategic opportunity
SWOT Analysis
• Political• Economic• Social• Technological• Environment• Legal
External Analysis Industry Analysis
Strengths Opportunity
Weaknesses Threats
Strategy Formulation• Objective
• Advantage• Scope
13
Companies can describe their strategy with the OAS framework
Objective (O): (similar to the Vision Statement) the ends that the strategy is designed to achieve; quantitative target and time frame
Advantage (A): the means by which the enterprise will achieve its objective what the enterprise will do differently, better or uniquely compared to competitors the value proposition the company will offer to attract customers the “strategy canvas” or value curve (Blue Ocean strategy)
Scope (S): the domain (niche) in which the enterprise intends to operate customer segment, product line breadth, technologies employed, geographic locations
served, or degree of vertical integration (which value chain activities it will perform)
M. Rukstad and D. Collis, “Can you say what your strategy is?” Harvard Business Review (April 2008)
© 2008 Robert S. Kaplan and The Palladium Group, Inc.
14
Wha
t the
com
pany
offe
rs cu
stom
ers
Dimensions of the company’s offering to customers
© 2008 Robert S. Kaplan and The Palladium Group, Inc.
15
An OAS strategy statement for a discount airline (such as US-based Southwest Airlines) in less than 40 words
Objective To remain the most profitable US-based airline
Advantage by offering the speed of airline travel at the price, frequency, and reliability of cars, buses and trains
Scope to price-sensitive travelers who value convenient flights
16
In summary, at the end of Stage 1, the company should have defined its mission, values, and vision, and have a clear statement of its strategy
The strategy communicates:• What the company is trying to achieve
• How the company will measure success
• The “sandbox” it is playing in
• The means (advantage) it will use to accomplish its goals.
17
• Mission, Values, Vision • Strategic Analysis• Strategy Formulation
Stage 2 of the Management System: Plan the Strategy
results
performance measures
Process
Initiative
EXECUTION
performance measures
results
1
3
45
6
DEVELOP THE STRATEGY
• Strategy Map / Themes• Measures / Targets• Initiative Portfolios• Funding / Stratex
PLAN THE STRATEGY
ALIGN THE ORGANIZATION
• Business Units• Support Units• Employees• Board of Directors
PLAN OPERATIONS
• Key process improvement• Sales planning• Resource capacity plan• Budgeting
• Profitability Analysis• Strategy Correlations• Emerging Strategies
TEST & ADAPT
• Strategy Reviews• Operating Reviews
MONITOR & LEARN
Strategic Plan
• Strategy Map• Balanced Scorecard• Stratex
Operating Plan• Dashboards • Sales Forecast• Resource Requirements• Budgets
2
18© 2008 Robert S. Kaplan and Palladium Group, Inc. - Confidential
MISSIONWhy we exist
VALUESWhat’s important to us
VISIONWhat we want to be
STRATEGYOur game plan
EMPOWERMENT / PERSONAL OBJECTIVES / GRIDMotivate employees
LEAN – SIX SIGMA – TQM – TQC – etc.Improve local processes
A gap often exists between the senior executive team’s description of mission, vision, and strategy and the understanding by front-line employees and middle managers.
WIIFM?
19© 2008 Robert S. Kaplan and Palladium Group, Inc. - Confidential
STRATEGY MAPDefine & communicate priorities and focus
BALANCED SCORECARDMeasure performance against priorities
MISSIONWhy we exist
VALUESWhat’s important to us
VISIONWhat we want to be
STRATEGYOur game plan
EMPOWERMENT / PERSONAL OBJECTIVESMotivate employees
INITIATIVE and PLANNING PROCESSManage actions and resources to drive change
STRATEGIC OUTCOMES
SatisfiedSHAREHOLDERS
Delighted CUSTOMERS
Efficient and EffectivePROCESSES
Motivated & PreparedWORKFORCE
Strategy Maps and the Balanced Scorecard bridge the strategy implementation gap: They link leadership at the top to management of initiatives, process improvements and employees’everyday actions.
20© 2008 Robert S. Kaplan and Palladium Group, Inc. - Confidential
#1. Financial performance, a lag indicator, measures the tangible outcomes from the strategy.
#2. The customer value proposition defines the source of value.
#3. Strategic processes create value for customers and shareholders.
Process Perspective
Financial Perspective
Customer Perspective
SustainedShareholder
Value
Operations Management
Processes
Customer Management
Processes
Innovation Processes
Productivity Revenue Growth
Price Quality Time Function Relation Brand
Product/Service Attributes Relationship Image
Regulatory and Social Processes
Learning & Growth Perspective
Human Capital
Information Capital
Organization Capital
#4. Aligned intangible assets drive improvement in the strategic processes
A Strategy Map and Balanced Scorecard provides the foundation for a new strategy execution system
21
Nemours Children’s Hospital Strategy Map Organized by Strategic ThemesVision: Freedom from disabling conditions
Mission: To provide leadership, institutions and services to restore and improve the health of children through care and programs not readily available, with one high standard of quality and distinction regardless of the recipient’s financial status
We will enable our
People
To deliver theStrategic Processes
Ensuring stewardship of the trust and assured financial strength
That supports Our Mission
Stewardship
S2 - Achieve growth through delivery of impactfulservices in Florida and the Delaware Valley
S3 - Manage costs/expenses through process efficiencies and resource decisions
S1 - Create sufficient cash flow and operating margins to achieve our strategic goals
CustomersC1 - Children and Families: “Create an environment where each child is treated as if
they were your own”
C2 - Communities: “Be a catalyst for change, as well as a trusted resource for improving
children’s health”
People & LearningL01 - Recruit & retain the right
people in the right seats
L04 - Value diversity and foster a culture of trust by living our
core values
L03 - Align, reward, and encourage our associates’
passion for excellence
L02 - Assure a highly skilled workforce
ProcessesService & Quality Efficiency & EnvironmentImpact & Community
P01 - Expand our reach in the Delaware Valley and Florida to ensure vitality and
viability
P02 - Create an integrated system of children’s health
P03 - Working with community partners and government, influence issues and drive
change relevant to child health and wellness
P04 - Improve children's health through research and education
P05 - Assure service excellence in order to provide a compassionate, personalized and
informed experienceP06 - Achieve exceptional outcomes
through coordinated, evidence-based care, health promotion and improved clinical
processes
P07 - Leverage technology for process improvement, enhanced quality, safety, and
service excellence
P08 - Partner with physicians and other care providers to create an efficient and effective
environment for care
P09 - Create and enhance physical environments that are patient-centered, and
support excellent care
P10 - Assure that operations are efficient and effective
P11 - Allocate financial and capital resources for efficiency and effectiveness
That provide a uniquely satisfying customer
experience
Core Values: *Excel *Respect *Serve *Honor *LearnCommitment: I will do whatever it takes to make every contact with Nemours a uniquely satisfying experience … for our patients,
parents, visitors, colleagues and business partners
Vision: Freedom from disabling conditionsMission: To provide leadership, institutions and services to restore and improve the health of children through care and programs not
readily available, with one high standard of quality and distinction regardless of the recipient’s financial status
We will enable our
People
To deliver theStrategic Processes
Ensuring stewardship of the trust and assured financial strength
That supports Our Mission
Stewardship
S2 - Achieve growth through delivery of impactfulservices in Florida and the Delaware Valley
S3 - Manage costs/expenses through process efficiencies and resource decisions
S1 - Create sufficient cash flow and operating margins to achieve our strategic goals
CustomersC1 - Children and Families: “Create an environment where each child is treated as if
they were your own”
C2 - Communities: “Be a catalyst for change, as well as a trusted resource for improving
children’s health”
People & LearningL01 - Recruit & retain the right
people in the right seats
L04 - Value diversity and foster a culture of trust by living our
core values
L03 - Align, reward, and encourage our associates’
passion for excellence
L02 - Assure a highly skilled workforce
ProcessesService & Quality Efficiency & EnvironmentImpact & Community
P01 - Expand our reach in the Delaware Valley and Florida to ensure vitality and
viability
P02 - Create an integrated system of children’s health
P03 - Working with community partners and government, influence issues and drive
change relevant to child health and wellness
P04 - Improve children's health through research and education
P05 - Assure service excellence in order to provide a compassionate, personalized and
informed experienceP06 - Achieve exceptional outcomes
through coordinated, evidence-based care, health promotion and improved clinical
processes
P07 - Leverage technology for process improvement, enhanced quality, safety, and
service excellence
P08 - Partner with physicians and other care providers to create an efficient and effective
environment for care
P09 - Create and enhance physical environments that are patient-centered, and
support excellent care
P10 - Assure that operations are efficient and effective
P11 - Allocate financial and capital resources for efficiency and effectiveness
That provide a uniquely satisfying customer
experience
Core Values: *Excel *Respect *Serve *Honor *LearnCommitment: I will do whatever it takes to make every contact with Nemours a uniquely satisfying experience … for our patients,
parents, visitors, colleagues and business partners
22© 2008 Robert S. Kaplan and Palladium Group, Inc. - Confidential
The Balanced Scorecard starts with the Financial Objectives: What are the financial drivers of long-term sustainable value creation?
Financial Perspective
Increase Shareholder Value
Increase Asset Utilization
Improve Cost Structure
Enhance Existing
Customer Value
Expand Revenue
Opportunities
Achieve Productivity Improvements Generate Revenue Growth
23
Productivity
Revenue
But a two-legged stool for value creation may not be a stable solution
24
Productivity
Revenue
Disasters in the US housing and financial sectors during 2007/08 toppled the strategic plans of almost all corporations (and households, and governments)
25
ProductivityRevenue
Risk Management
Companies must re-build their revenue growth and productivity strategies while paying far more attention to the risks in their strategies
26
Strategy maps need to incorporate Risk Management, the third driver of sustainable financial value creation.
Financial Perspective
Increase Shareholder Value
Increase Asset Utilization
Improve Cost Structure
Enhance Existing
Customer Value
Expand Revenue
Opportunities
Achieve Productivity Improvements Generate Revenue Growth
Manage Enterprise
Risk
27© 2008 Robert S. Kaplan and Palladium Group, Inc. - Confidential
SupplyProduceDistributeManage Risk
OperationsManagement
ProcessesProcess Perspective
Relationship Image
Customer Perspective
Customer Value Proposition
Price Quality Availability Selection Functionality Service Partnership Brand
Product / Service Attributes
Financial Perspective
Long-Term Shareholder Value
Productivity Strategy Growth Strategy
Enhance Customer Value
Improve Cost Structure
Increase Asset Utilization
Expand Revenue Opportunities
And risk management must be one of the key processes that the enterprise excels at for its strategy to be successfully executed
Identify New OpportunitiesSelect the R&D PortfolioDesign and DevelopLaunch
InnovationProcesses
Select CustomersAcquire New CustomersRetain Existing CustomersGrow Business with
Customers
Customer ManagementProcesses
EnvironmentSafety & HealthEmploymentCommunity
Regulatory & Social Processes
Information Capital
Organization CapitalCulture Leadership TeamworkAlignment
Learning & Growth Perspective
Human Capital
Manage Enterprise
Risk
28
The Strategy Map and Balanced Scorecard translate the OAS strategy statement into actionSouthwest Airlines: “To remain the most profitable US-based airline by offering price-sensitive travelers who value convenient flights the speed of airline travel at the price, frequency, and reliability of cars, buses and trains.”
$XXXX
Action Plan
Initiative Budget
• Customer Loyalty Program
• $XXX
• On Ground Cycle Time Optimization
• Quality Management
• $XXX
• $XXX
• ESOP
• Ground Crew Training
• Crew Scheduling System Rollout
• CRM System
Total Budget
• $XXX
• $XXX
• $XXX
• $XXX
Execute
Strategy Map
Theme: Operating Efficiency Objective
• Profitability
• Grow revenues
• Fewer planes
Financial Profits & RONA
Grow Revenues
Fewer Planes
• Flight is on-time
• Lowest prices
• Attract and retain more customers
CustomerAttract & Retain More Customers
On-time Service
Lowest Prices
Fast Ground Turnaround
Internal • Fast ground turnaround
• Ground crew aligned with strategy
• Develop the necessary skills
• Develop the support system
Learning
Strategic JobRamp Agent
Strategic SystemsCrew Scheduling
Ground Crew Alignment
Balanced Scorecard
Measurement Target
• Market Value
• Seat Revenue
• Plane Lease Cost
• 30% CAGR
• 20% CAGR
• 5% CAGR
• FAA On-Time Arrival Rating
• Customer Ranking
• # Repeat Customers• # Customers
• #1
• #1
• 70%• Increase
12% annual
• On Ground Time
• On-Time Departure
• 30 Minutes
• 90%
• % Ground Crew Stockholders
• Strategic Awareness
• Strategic Job Readiness
• Info System Availability
• 100%
• 100%
• Yr 1 - 0%Yr 3 - 90%Yr 5 - 100%
• 100%
MeasureCommunicate
29
Cur
rent
initi
ativ
e
Initiative Mapping Grid Example
Proc
urem
ent r
edes
ign
Emer
ging
mar
kets
str
ateg
y
Part
ner w
ith th
e w
inne
rs
Res
sec
and
W&
L an
d hu
rric
ane
Qua
lity
need
s id
entif
icat
ion
Qua
lity
proc
for r
oot c
ause
elim
Ref
orm
ulat
ion
SV c
omm
erci
aliz
atio
n/fa
cilit
ies
Cus
tom
er c
ompl
aint
trac
king
pro
Side
lam
VP/
part
ners
hips
IT e
nhan
cem
ent i
n va
lue
chai
n
SCO
P im
plem
enta
tion
Abm
Dev
elop
/cas
cade
BSC
Com
mun
icat
e vi
sion
Asi
a re
form
atio
n fa
cilit
ies
IT s
trat
egy
alig
nmen
t
Scra
p re
wor
k pr
oces
s im
prov
Yiel
d im
prov
emen
t pro
gram
Faci
litie
s up
grad
e
ISO
900
02 N
A re
sin
mfg
. Cer
Expe
rt s
yste
ms
Rew
ards
dev
elop
men
t/im
plem
Glo
bal c
omm
unic
atio
ns
Trai
ning
str
ateg
ic s
kills
ObjectivesPerspective
Financial
Economic value added
Be the lowest cost producer
Pick the winners globally
CustomerCreate new market demand
Price performance
Partnering
Integrate and align resources
ProcessSales and customer developmentFocused technology development
Perfect manufacturing
People and change management
Learning& Growth
Strategic competencies
Individual and team performance
Customer sensitive culture
No initiatives for the Financial
perspective
9 initiatives for 1 objective
No initiatives for this objective
2 initiatives serving no objectives
30
Strategic Fit and Benefit
Resource Demands:Cost to implement
FTEs requiredDuration
Organizational Capability (Risk):
Confidence on Ability to DeliverChange required
Output:Scored Project
Input:Candidate Projects
Scoring model:• Each initiative is ranked against all of the criteria• The rating is then multiplied by the criteria’s weight• The score for each criteria is added together for the total score
x5 x3 x2
Scoring each initiative facilitates comparison
31
Theme 3
Theme 2
Linking Strategy to the Budget through STRATEX
Strategy Map Balanced ScorecardMeasure Target
Action PlanInitiative Budget
Them
e: “
Cro
ss-S
ell t
he P
rodu
ct L
ine”
• Human Capital Readiness
• Strategic Application Readiness
• Goals Linked to BSC
• Cross-Sell Ratio
• Hours with Customer
• Revenue Mix
• Revenue Growth
100%
100%
100%
2.5
1hr/Q
New = +10%
+25%
• Relationship Management• Certified Financial Planner
• Integrated Customer File• Portfolio Planning Application
• MBO Update• Incentive Compensation
• Financial Planning Initiative
• Integrated Product Offering
$ XXX$ XXX
$ XXX$ XXX
$ XXX$ XXX
$ XXX
$ XXX
Total Budget $XXX
Broaden Revenue Mix
Cross-Sell the Product Line
Strategic Job
Financial Planner
Strategic Systems
Portfolio Planning
Create Organization Readiness
Strategic Job
Financial Planner
Strategic Systems
Portfolio Planning
Create Organization Readiness
• Share of Segment
• Share of Wallet
• Customer Satisfaction
25%
50%
90%
• Segmentation Initiative
• Satisfaction Survey
$ XXX
$ XXX
Increase Customer
Confidence in Our Financial Advice
Rolling Forecast (Budget)
Strategy• Strategy Map
• Targets• Accountability
• Themes• Objectives• Measures
Balanced Scorecard
Strategic Initiatives
$ XXTotal Strategic Investment
Revenue• Direct Expense
Gross Margin• Indirect Expense
– Sales– Prof. Dev.– G+A
Contribution• R&D• STRATEX
EBITDA• ITDA
Net Income
XX(XX)
XX
(XX)(XX)(XX)
XX(XX)(XX)
XX(XX)
XX
100%(40)
60%
(10)(5)
(15)
30%(5)(5)
20%(5)
15%
$$ %
Cost Management Investment Management
Integrated Strategic
Plan
Operational Plan/Budget
• OPEX • CAPEX
32
From 26 Strategic Initiatives
11 High Priority5 Low Priority
3 High Priority6 Medium Priority (or Already Underway)2 Low Priority
Line of Sightto Revenue & Expense Impact
Line of Sightto Strategic Impact
Productivity: Reduce Costs; Conserve CapitalReact to current environment and new conditions with
short-return productivity investments we can take immediately
Revenue EnhancementShort term revenue enhancement through strategic Initiatives with predictable, low-risk outcomes; non-
capital intensive, incremental transactions
Strategic TransactionsFurther our long term strategy through strategic,
attainable but meaningful transactions
6 High Priority
7 High Priority
1 High Priority
14 High Priority Initiatives based on Near Term Strategy
to
What is different about managing in a recession? One company used its BSC to re-prioritize its strategic initiatives.
33
Stage 3 of the Management System: Align the Organization
results
performance measures
Process
Initiative
EXECUTION
performance measures
results
3
45
6
• Mission, Values, Vision • Stretch Targets• Strategic Analysis• Strategy Formulation
DEVELOP THE STRATEGY
• Strategy Map / Themes• Measures / Targets• Initiatives• Funding / Stratex
TRANSLATE THE STRATEGY
ALIGN THE ORGANIZATION
• Business Units• Support Units• Employees• Board of Directors
PLAN OPERATIONS
• Key process improvement• Sales planning• Resource capacity plan• Budgeting
• Profitability Analysis• Strategy Correlations• Emerging Strategies
TEST & ADAPT
• Strategy Reviews• Operating Reviews
MONITOR & LEARN
Strategic Plan
• Strategy Map• Balanced Scorecard• Stratex
Operating Plan• Sales Forecast• Resource Requirements• Dashboards• Budgets
21
34
Alignment in Action
35
Alignment using individual BSCs
BSC Corporate
1 Corporate Strategy Map
iBSC iBSC
12 Support Area
Maps
Contribution Panels
6 Business Units
Maps
54 Contribution Panels
BSCBSC
19 Strategy Maps
Individual BSC
115 Contribution Panels with
publication in the Intranet
22.000 Individual BSCs
Contribution Panels
61 Contribution Panels
Individual BSC
36
Shared Objectives Example
Bankwide identical objective
Objective unique to GCBU
Shared objective
Global Corporate Banking Unit
(GCBU) Strategy Map
Global Corporate Banking Unit
(GCBU) Strategy Map
Grow Revenues Manage Risk Improve Productivity
Increase fee income
Maximize income from
core customers
Enhance cost
efficiency
Be #1 foreign wholesale bank in the Americas
Be a reliable source of credit
Provide global network banking
Provide speedy and accurate
service
Develop succession
plan
Provide training on credit and
product
Competitive environment:
teamwork, safe and fair
Competitive compensation
Segmentation and tier up
Increase net income
Enhance disaster recovery/business
continuity plan
Enhance risk management in Latin America
Strategically focus on opportunities in
Asia
Proactive risk management and
compliance
Execute major technology and
efficiency projects
Tie up between business strategy and risk appetite
FinancialPerspective
CustomerPerspective
InternalProcess
Perspective
HumanCapital
Perspective
Minimize credit costs
Ensure collaboration -Relationship &
Purchasing Managers
Streamline credit approval
process
Enhance collaboration throughout
supply chain
(Corporate and Units)
(Between Units)
37
Align Employees to Make Strategy Everyone’s Job
Create Strategic awareness : “Communicate seven times seven different ways” Personal relevance (WIIFM) brings the strategy to life Sustained communication uses different channels to get the message across
• Leadership meetings• CEO random visits to employees• Dear Colleague Quarterly Letter in Mellon News• Learning lunches & informal discussions• Intranet• Working groups facilitated by HR• Staff briefings
Source: Presented by Jack Klinck, Vice Chairman, Mellon Europe at BSCol European Summit, June 2005
38
Stage 4 of the Management System: Plan Operations
results
performance measures
Process
Initiative
EXECUTION
performance measures
results
1
3
45
6
• Mission, Values, Vision • Strategic Analysis• Strategy Formulation
DEVELOP THE STRATEGY
• Strategy Map / Themes• Measures / Targets• Initiative Portfolios• Funding / Stratex
TRANSLATE THE STRATEGY
ALIGN THE ORGANIZATION
• Business Units• Support Units• Employees
PLAN OPERATIONS
• Key process improvement• Sales planning• Resource capacity plan• Budgeting
• Profitability Analysis• Strategy Correlations• Emerging Strategies
TEST & ADAPT
• Strategy Reviews• Operating Reviews
MONITOR & LEARN
Strategic Plan
• Strategy Map• Balanced Scorecard• Stratex
Operating Plan• Sales Forecast• Resource Requirements• Dashboards• Budgets
2
39
1. IMPROVE KEY PROCESSES
(What business process changes does the strategy require?)
2. DEVELOP THE RESOURCE CAPACITY PLAN
Ensure that changes required by the strategic themes are translated to changes in operational processes
Ensure that resource capacity, operational plans and budgets reflect the directions and needs of the strategy
No alignment between strategic priorities and quality and continuous improvement programs
Forecasts, budgets and operating plans developed independently from strategic plan
• Total quality management• Business process
improvement• Key Success factors• KPIs / Dashboards
• Rolling Forecasts • Activity-Based Costing Model• Resource Planning• Budgeting (Opex / Capex)• Pro Forma Financials
STRATEGY EXECUTION PROCESS OBJECTIVE BARRIERS REPRESENTATIVE
ACTIVITIES
(How do we link strategy to operating plans and budgets?)
Link Strategy and Operations
40
Link Process Improvement Objectives to Local Dashboards
Business Unit Strategy Support Unit Strategy
Corporate Strategy
Store Dashboard
Store Operations Strategy
41
Identify operational processes key to executing strategy and manage those processes using analytical models rather than instincts
Analytical models identify drivers to the process and display these drivers on a dashboard accessible to managers that can make an impact
Strategy Map Cause-and-Effect Model of Each Key Process
Web-based Dashboard of metrics used to manage a
Key Process
THEME linked to PROCESS
PROCESS linked to METRICSMETRICS improve PROCESS
PROCESS supports THEME
Dashboards articulate the critical link between strategy management and operations management.
42
Stage 5 of the Management System: Monitor and Learn
results
performance measures
Process
Initiative
EXECUTION
performance measures
results
1
3
45
6
• Mission, Values, Vision • Strategic Analysis• Strategy Formulation
DEVELOP THE STRATEGY
• Strategy Map / Themes• Measures / Targets• Initiative Portfolios• Funding / Stratex
TRANSLATE THE STRATEGY
ALIGN THE ORGANIZATION
• Business Units• Support Units• Employees
PLAN OPERATIONS
• Key process improvement• Sales planning• Resource capacity plan• Budgeting
• Profitability Analysis• Strategy Correlations• Emerging Strategies
TEST & ADAPT
• Strategy Reviews• Operating Reviews
MONITOR & LEARN
Strategic Plan
• Strategy Map• Balanced Scorecard• Stratex
Operating Plan• Sales Forecast• Resource Requirements• Dashboards• Budgets
2
43
Operational Review Meetings: Role for KPI Dashboards Frequent (daily, twice weekly, weekly) Departmental and functional personnel (purchasing, sales, operations, finance, logistics,
etc.) Identify and solve operational problems (late deliveries, equipment downtime, supplier
problems) Promote continuous improvement (better, faster, cheaper)
Strategy Review Meetings: Role for Balanced Scorecard Monthly Management team; cross functional, multiple business units Discuss and solve problems with strategy implementation Manage product and customer profitability
Companies use strategy scorecards and operational dashboards to inform their different management meetings.
44
Identify Performance Issues: Focus on the performance of objectives NOT
measures.
What are the measures telling us? Are the measures driving change and adding focus?
Analyze Objective Performance:
Take Action: Discuss and agree on how to remedy issues. Assign accountability to ensure decisions are
implemented.
What are the root causes of what’s occurring? What are the expectations for the future? And, are current initiatives sufficient to close the performance gap?
What action steps – including additional or different initiatives - are required to improve performance going forward?
Are initiative on track to deliver expected value? If not, why and what can be done to remedy issues?
Use of a BSC Report in Strategy Review Meetings1
3
5
2
4
Objective:
Discussion/Update:
Recommendations/Required Actions:
Person(s) Responsible: Due Date: Priority (A, B, C):
Action Item Detail:1.2.3.
6
7
ILLUSTRATIVE
I03 Identify Adverse Trends
The leadership team uses the BSC to review performance, examine strategic initiatives, make informed decisions, and assign accountability.
45
Stage 6 of The Management System: Test and Adapt
results
performance measures
Process
Initiative
EXECUTION
performance measures
results
1
3
45
6
• Mission, Values, Vision • Strategic Analysis• Strategy Formulation
DEVELOP THE STRATEGY
• Strategy Map / Themes• Measures / Targets• Initiative Portfolios• Funding / Stratex
TRANSLATE THE STRATEGY
ALIGN THE ORGANIZATION
• Business Units• Support Units• Employees
PLAN OPERATIONS
• Key process improvement• Sales planning• Resource capacity plan• Budgeting
• Profitability Analysis• Strategy Correlations• Emerging Strategies
TEST & ADAPT
• Strategy Reviews• Operating Reviews
MONITOR & LEARN
Strategic Plan
• Strategy Map• Balanced Scorecard• Stratex
Operating Plan• Sales Forecast• Resource Requirements• Dashboards• Budgets
2
46
Analyze External, Competitive Information and Internal Information (Balanced Scorecard, ABC) Annually (perhaps quarterly for fast-moving industries) Senior management team; functional and planning specialists Test and adapt strategy based on causal analytics and product-line and
channel profitability Establish strategic and operational plans, authorize resource spending,
targets, and initiatives
Stage 6: Strategy Testing and Adapting Meetings
47
Managing in Turbulent Times
“In good times, companies expand their operations. They add product lines, expand into new geographic areas and customer segments, and even experiment with new business models. Then comes a downturn. The company can no longer do everything it once did, and the decisions about where to focus can be agonizing.
[The company needs to perform] a thorough inside-out analysis: Where is the company generating the best results, measured by profitability and growth? Which product lines, which markets, which customers segments?
Who are the customers that we love the most …?”
Darrell Rigby, Bain & company, Inc. Winning in Turbulence (Harvard Business Publishing, 2009, forthcoming)
48
Activity-Based Costing Reveals the Hidden Profit and Hidden Cost Customers
Revenues
Costs
Apparent Profits
Hidden C
osts
HiddenProfits
Customer
A
Traditional Costing Activity-Based Costing
Customer
B
Customer
A
Customer
B
49
Transforming unprofitable products and customers provide excellent short-term profit improvement opportunities
* Benchmark data across 100 companies, 400 facilities, 10 industries ranging from $25M to $20B
*
20% most profitable generate 180% of
profits
20% least profitable lose
80% of net profits
**
50
Actions from knowing customer (and product) profitability
Companies can improve customer profitability by:
o Process improvements that lower the cost of servicing customer demands (e.g., electronic ordering, electronic self-help and self-service)
o Menu-Based Pricing, allowing customers to choose the level and features of service they wish, and also to pay for them
o Managing customer relationships: minimum order size, standard packaging and shipping, small orders through distributors
o When all else fails, the company can suggest that its unprofitable customers attempt to find alternative suppliers
51© 2009 Palladium Group, Inc.
What is different about managing in a recession?Modify the Strategy to Focus on Short-Term while Protecting the Long-Term:
One Bank Hunkered Down to Focus on “The Three C’s”CONSUMER NATIONAL BANK
Create Outstanding Value for Shareholders
Fund Strategic Investments
Achieve XX% ROEGrow New Revenue
Sources Manage Risk
Improve the Financial Success of Our Customer
Provide Quality Products
Build High Value Relations
Provide Competitive Prices
Be Involved in the Community
Develop Human Capital to Support Strategy
Leverage Information Technology
Create a High Performance Culture
Drive Quality Growth
• Increase Fee Income• Build the Brand• Manage Risk
Deliver Distinctive Service
• Improve Convenience• Develop New Products• Increase Cross-Selling
Increase Quality & Productivity
• Streamline Processes• Maximize LOB Profitability• Optimize Capital & Taxes
Financial Perspective
Customer Perspective
Process Perspective
Learning & Growth Perspective
52© 2008 Palladium Group, Inc.
What is different about managing in a recession?
results
performance measures
Process
Initiative
EXECUTION
performance measures
results
1
3
5
6Strategic Plan
• Strategy Map• Balanced Scorecard• Stratex
Operating Plan
• Sales Forecast• Resource Requirements• Dashboards• Budgets
2
• Key process improvement• Sales planning• Resource capacity plan• Budgeting
PLAN OPERATIONS4
• Business Units• Support Units• Employees
ALIGN THE ORGANIZATION
• Strategy Reviews• Operating Reviews
MONITOR & LEARN
• Profitability Analysis• Strategy Correlations• Emerging Strategies
TEST & ADAPT
• Strategy Map / Themes• Measures / Targets• Initiative Portfolios• Funding / Stratex
TRANSLATE THE STRATEGY
• Mission, Values, Vision • Strategic Analysis• Strategy Formulation
DEVELOP THE STRATEGY
results
performance measures
Process
Initiative
EXECUTION
performance measures
results
1
3
5
6Strategic Plan
• Strategy Map• Balanced Scorecard• Stratex
Operating Plan
• Sales Forecast• Resource Requirements• Dashboards• Budgets
2
• Key process improvement• Sales planning• Resource capacity plan• Budgeting
PLAN OPERATIONS
• Key process improvement• Sales planning• Resource capacity plan• Budgeting
PLAN OPERATIONS4
• Business Units• Support Units• Employees
ALIGN THE ORGANIZATION
• Business Units• Support Units• Employees
ALIGN THE ORGANIZATION
• Strategy Reviews• Operating Reviews
MONITOR & LEARN
• Strategy Reviews• Operating Reviews
MONITOR & LEARN
• Profitability Analysis• Strategy Correlations• Emerging Strategies
TEST & ADAPT
• Profitability Analysis• Strategy Correlations• Emerging Strategies
TEST & ADAPT
• Strategy Map / Themes• Measures / Targets• Initiative Portfolios• Funding / Stratex
TRANSLATE THE STRATEGY
• Strategy Map / Themes• Measures / Targets• Initiative Portfolios• Funding / Stratex
TRANSLATE THE STRATEGY
• Mission, Values, Vision • Strategic Analysis• Strategy Formulation
DEVELOP THE STRATEGY
• Mission, Values, Vision • Strategic Analysis• Strategy Formulation
DEVELOP THE STRATEGY
The strategy management system promotes speed, flexibility and adaptability to change
• Focus on short-term• Protect long-term
• Shorten time horizon• Rapid response
• Communicate• Shift priorities• Re-align organization
• Analyze• Find new
opportunities
• Be clear about objectives and measures
• Re-prioritize investments• Manage Stratex
• Change the strategy
53
A Strategy Management Officer Coordinates the Six Stage Management System
results
performance measures
Process
Initiative
EXECUTION
performance measures
results
1
3
4
5
6
• Mission, Values, Vision
• Strategic Analysis• Strategy
Formulation
DEVELOP THE STRATEGY
• Strategy Map / Themes
• Measures / Targets• Initiative Portfolios• Funding / Stratex
TRANSLATE THE STRATEGY
ALIGN THE ORGANIZATION
• Business Units• Support Units• Employees
PLAN OPERATIONS• Key process
improvement• Sales planning• Resource capacity plan• Budgeting
• Profitability Analysis
• Strategy Correlations
• Emerging Strategies
TEST & ADAPT
• Strategy Reviews• Operating Reviews
MONITOR & LEARN
Strategic Plan
• Strategy Map• Balanced
Scorecard• Stratex
Operating Plan
• Sales Forecast• Resource
Requirements• Dashboards• Budgets
2
Plan the Strategy:Develop, Translate and
Align(Stages 1-3)
Execute the Strategy:Link to Operations,
Monitor, Learn and Test
(Stages 4-6)
SMO
54
Why do companies need an office of strategy management (OSM)?The typical management system is made up of many stand-alone subsystems that are not integrated or aligned with one another.
results
performance measures
Process
Initiative
EXECUTION
performance measures
results
1
3
5
6Strategic Plan
• Strategy Map• Balanced Scorecard• Stratex
Operating Plan
• Sales Forecast• Resource Requirements• Dashboards• Budgets
2
• Key process improvement
• Sales planning• Resource capacity plan• Budgeting
PLAN OPERATIONS4
• Business Units• Support Units• Employees
ALIGN THE ORGANIZATION
• Strategy Reviews• Operating Reviews
MONITOR & LEARN
• Profitability Analysis• Strategy Correlations• Emerging Strategies
TEST & ADAPT
• Strategy Map / Themes• Measures / Targets• Initiative Portfolios• Funding / Stratex
TRANSLATE THE STRATEGY
• Mission, Values, Vision • Strategic Analysis• Strategy Formulation
DEVELOP THE STRATEGY
• Strategy Map• Balanced Scorecard
• Resource-Based Strategy• Blue Ocean Strategy• Emergent Strategy
• Initiative Screening and Funding
• Lean Management• Reengineering• Six Sigma• Dashboards• Beyond Budgeting
• Customer and Product Profitability
• Analytics
• Meeting Management
• Knowledge ManagementActivity-Based
CostingStandard Process
• The Budget
• Cascading Corporate-Level Strategy
• Service level agreements
• Internal Communications
• Management by Objectives
• PESTEL/SWOT analysis• Five Forces Industry
Analysis• Strategic Positioning
55
The Office of Strategy Management is the process owner for several strategy execution processes.
Develop the Strategy: Help the CEO and Executive Team to formulate and adopt the strategy.
Translate the Strategy: Design the Strategy Map and Balanced Scorecard. Manage the reporting system.
Align the Organization: Ensure that all business and support units are aligned with thestrategy.
Plan & Fund the Initiatives: Link financial, HR, IT, and marketing plans to the strategy.
Review the Strategy: Shape the agenda for strategy review and learning meetings.
Define, develop and oversee execution of close-loop processes required to manage the strategy.
THE PROCESS
OWNER
56
Strategy Communications: Communicate and educate employees about the strategy.
Initiative Management: Identify and oversee the management of strategic initiatives.
The Office of Strategy Management coordinates with other functions to ensure their processes are aligned to the strategy
THE INTEGRATOR
Human Capital: Ensure that all employee’s goals, incentives and development plans link to the strategy.
Financial Resources: Insure that the expected impact of strategic investments are reflected in operating plans.
IT Resources: Insure that IT plans for applications and infrastructure are aligned with the strategy.
Key Business Processes: Insure that the design of key business processes reflects the strategic priorities and intent.
Insure that operational processes owned and run by other functional executives are linked to the strategy.
Quality Programs: Insure that quality management / six sigma programs focus on strategic objectives.
Best Practice Sharing: Facilitate a process to identify and share best practices.
Resource Management
Process Management
57
Executing Strategy to Drive Profitability
QUESTIONS?