Implementation of the Balanced Scorecard
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IMPLEMENTATION OF THEBALANCED SCORECARD
IN THE BANKING SECTOR
A METHODOLOGY
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Balanced Scorecard Methodology
Table of Contents
1. HOW TO USE THE METHODOLOGY .........................................................4
1.1 SETTHESCENEANDBACKGROUND ............................................................................4
1.2 COVERPERSPECTIVES, MEASURESANDSTAKEHOLDERS ..................................................41.3 GETTINGSTARTEDANDPLANNING .............................................................................41.4 DEFINITIONOFINDUSTRY + SWOT + BENCHMARKING ..................................................41.5 ESTABLISHINGVISION, MISSIONANDSTRATEGICAIMS ....................................................41.6 TRANSLATEVISIONINTOPERSPECTIVESANDFORMULATEGOALS + LINKTOGETHER .............51.7 DEVELOPMEASURES ...............................................................................................51.8 ESTABLISHTOPLEVELSCORECARD ............................................................................51.9 BREAKDOWNBYBUSINESSUNIT ................................................................................51.10 FORMULATEGOALSANDTARGETS ...........................................................................51.11 DEVELOPMENTANDIMPLEMENTATION + PUTTINGITTOGETHER .....................................51.12 AUTOMATIONOFTHESCORECARD ...........................................................................51.13 LINKCOMPENSATIONTOSCORECARD .......................................................................51.14 PLANNINGANDBUDGETING ....................................................................................5
1.15 FINALSTEPS.........................................................................................................5
2. BACKGROUND ......................................................................................6
2.1 INTRODUCTION ...................................................................................................... 62.2 WHEREMANYBANKSARETODAY ..............................................................................62.3 PROVEN BENEFITSOFTHE BALANCED SCORECARD........................................................72.4 KEYSTOGOODRESULTSMEASUREMENT .....................................................................7
3. DIFFERENT PERSPECTIVES OF STAKEHOLDERS.......................................9
3.1 A BANKS STAKEHOLDERS........................................................................................ 93.2 THE STAKEHOLDERS PERSPECTIVES...........................................................................93.3 THE FOUR PERSPECTIVESOF THE BALANCED SCORECARD............................................10
4. TRANSLATING BUSINESS STRATEGY INTO ACTION.................................124.1 KEY ISSUES..........................................................................................................124.2 LINKING STRATEGIC OBJECTIVESTO RELATED MEASURES..............................................124.3 MEASURES THAT ARE TYPICAL TO THE BANKING SECTOR.............................................12
5. GETTING STARTED..............................................................................14
5.1 OVERVIEWOFTHE SCORECARD BUILDING PROCESS.....................................................145.2 STEPSINTHESCORECARDOFBUILDINGPROCESS .......................................................14
6. DEFINE THE BANKING SECTOR IN WHICH THE BANK OPERATES .............16
6.1 PURPOSE.............................................................................................................166.2 DESCRIPTIONOFTHESECTORANDMARKET ...............................................................166.3 DESCRIPTIONOFTHEBANKSCURRENTPOSITION.........................................................16
6.4 BENCHMARKING ...................................................................................................166.5 SWOT ANALYSIS .................................................................................................166.6 CONSENSUSVIEWOFTHECURRENTSITUATION ..........................................................166.7 SAMPLEFORMATFORTHEASSESSMENTOFTHEBANKSCURRENTPOSITION .....................17
7. ESTABLISH THE BANKS VISION, MISSION AND STRATEGIC AIMS............19
7.1 WHYAVISIONISIMPORTANT ..................................................................................197.2 DEFINITIONS........................................................................................................197.3 REQUIREMENTSOFAGOODVISIONSTATEMENT...........................................................19
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7.4 REQUIREMENTSOFAGOODMISSIONSTATEMENT ........................................................207.5 STRATEGICAIMS .................................................................................................. 217.6 HOWMISSIONCASCADESDOWNTOOBJECTIVES .........................................................217.7 TRANSLATINGMISSIONINTODESIREDOUTCOMES ........................................................21
8. ANALYSE THE VISION BETWEEN PERSPECTIVES AND FORMULATESTRATEGIC GOALS..................................................................................22
8.1 FINANCIAL PERSPECTIVE.........................................................................................228.2 CUSTOMER PERSPECTIVE........................................................................................238.3 INTERNAL/BUSINESS PROCESS PERSPECTIVE...............................................................238.4 LEARNING & GROWTH PERSPECTIVE.........................................................................248.5 LINKINGTHEPERSPECTIVESANDSTRATEGIESTOGETHER...............................................24
9. IDENTIFY STRATEGIC OBJECTIVES........................................................26
10. DEVELOP MEASURES.........................................................................27
11. ESTABLISH A TOP LEVEL SCORECARD.................................................28
12. BREAK DOWN SCORECARD AND MEASURES BY BUSINESS UNIT............29
13. FORMULATE GOALS...........................................................................30
14. DEVELOP AN ACTION PLAN................................................................31
15. IMPLEMENTING THE SCORECARD.......................................................32
16. PUTTING IT ALL TOGETHER THE BALANCED SCORECARD PROJECT......33
17. AUTOMATING THE BALANCED SCORECARD.........................................34
18. LINKING COMPENSATION TO THE BALANCED SCORECARD...................35
19. THE BALANCED SCORECARD SOLUTION USING MICROSOFT OFFICE......36
19.1 ESTABLISHINGTHEBALANCEDSCORECARDIMPLEMENTATIONPROGRAM ........................3619.2 CLARIFYINGTHEVISION, MISSIONANDGOALSOFTHEORGANISATION ...........................3619.3 FOCUSINGINONTHESTRATEGYMAPANDTOPLEVELSCORECARD ...............................3619.4 PRIORITISINGMEASURES .....................................................................................3719.5 DESIGNINGTHEDATABASEANDOUTPUTREPORTS ...................................................37
20. THE BALANCED SCORECARD IN A WEEK..............................................38
20.1 MONDAY ..........................................................................................................3820.2 TUESDAY...........................................................................................................3820.3 WEDNESDAY .....................................................................................................3820.4 THURSDAY ........................................................................................................38
20.5 FRIDAY ............................................................................................................ 38
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Implementation of the Balanced Scorecard in the banking sector
A methodology
This document sets out a methodology, a step by step process for thedevelopment, implementation and ongoing utilisation of the Balanced
Scorecard. Its world-wide acceptance as key strategic and performancemeasurement tool has assured the long term success of the BalancedScorecard. The methodology and practical guidance set out in this clear andconcise handbook will assist financial institutions in benefiting from thisindispensable management tool.
1. How to use the methodology
1.1 Set the scene and background
See chapter 2 - Background, plus read related articles
1.2 Cover perspectives, measures and stakeholders
See chapters 3 and 4
Read Renaissance Article
o Criteria for good score card
o Linkages
o Cascading
o Definition of measures and targets
o Feedback
o Technology
1.3 Getting started and planning
Scene section 5 + 2 building chapters setting out the steps
1.4 Definition of industry + SWOT + benchmarking
See section 6
1.5 Establishing vision, mission and strategic aims
See section 7
Halifax case study
Metrobank perspectives
K. W. Access model
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1.6 Translate vision into perspectives and formulate goals + linktogether
See sections 8 and 9
+ linkages and strategy maps chapter
1.7 Develop measures
Chapter 10 + copy of lists of measures
Measures template from Renaissance
1.8 Establish top level scorecard
Look at Halifax
1.9 Breakdown by business unit
Refer to a Renaissance on cascading
1.10 Formulate goals and targets
Refer to Planning chapter
Renaissance goals and targets template
1.11 Development and implementation + putting it together
Refer to Planning chapters
+ copy of Building a scorecard
1.12 Automation of the scorecard
See articles behind a chapter 17
1.13 Link compensation to scorecard
Read chapter behind chapter 18
1.14 Planning and budgeting
Read chapter on this behind Compensation
1.15 Final steps
Alan Fell a consultants approach
+ training programs
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2. Background
2.1 Introduction
It is evident that if a bank wants to be successful in the long term itsmanagement needs to receive regularly high quality information on itsperformance which provides a complete picture of its activities. However, justwhen banks are beginning to think that have got on top of the managementinformation problems, the truth is that for many it is only a start.
Banks typically need to rethink what their management information is aboutand to focus that thinking on new horizons geared to the measurement ofbusiness and operational performance rather than just financial performance.
2.2 Where many banks are today
Traditionally most banks have concentrated on the measurement of theirfinancial performance and have focused on the key elements of their profitand loss account and balance sheet e.g. income margins, cost analysis,balance sheet growth, analysis of bad and doubtful debts. In these banks,developments have tended to centre on:
Getting the management accounting right, particularly as regards transfer
pricing and cost allocation
Improving the consistency between the financial and the managementaccounts
Enhancing the information at activity level on product and customerprofitability and on costs
Improving the availability of information on operational performance
Many banks came to the realisation that, having achieved the aims andobjectives that were the catalyst behind these developments, they needed tofocus on other areas of management information and performancemanagement outwith the scope of these developments.
There were two key drivers behind this:
An appreciation that different stakeholders have different perspectives ofa banks performance;
A sharpened awareness that banks must be able to translate their
business strategy into action , come up with a mechanism forcommunicating vision and strategy and provide a framework for doingthis.
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Performance management in general and the balanced scorecard inparticular attempt to address these key management issues, being the needto measure and manage key stakeholders interests and to focus ontranslating bank strategy into action.
2.3 Proven Benefits of the Balanced Scorecard
Traditional measurement systems concentrated almost exclusively onfinancial indicators. While these are undoubtedly extremely important, theytend to focus on past performance (such indicators commonly referred to aslagging indicators) rather than indicating future direction (leadingindicators).
The approach to the balanced scorecard is different in that, while financialindicators are included (and are the logical end point of any strategicobjective) the scorecard also targets leading indicators. The rationale for thisis that if the leading indictors are good, then the financial measures will
reflect this for future activity. The scorecard therefore focuses on the driversof the future rather than past profitability.
For performance measurement to really be effective, it must be linked tobusiness strategy and observations on achievement must be fed back to thestrategy. This feedback process is key to any successful performancemeasurement system and is fundamental to the balanced scorecard.
2.4 Keys to good results measurement
Results should be based on a balanced set of measures
Ask the question: to what extent do the banks results balanceacross the employees, organization, customers and investors?
There is evidence of a problem if results focus too much on onedimension.
The process will be successful if results balance across the fourdimensions
Results should be aligned with the strategy
Asked the question: to what extent do the banks results alignwith strategy by being linked to one of the following?
Business focus: products, customer, I. T., production capability
Customer value proposition: quality, speed, service, innovation
There is evidence of a problem if results connect loosely or not at all tothe strategy of the business or the results fail to create strategic clarity
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The process will be successful if results link strongly to the strategy ofthe business
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3. Different Perspectives of Stakeholders
3.1 A Banks Stakeholders
Banks acknowledge that there are numerous stakeholders with an interest inthe performance of the business, in particular:
Shareholders
Customers
Staff
Regulators
The community
3.2 The Stakeholders Perspectives
Examples of the different performance perspectives are:
Shareholders may want the bank to provide a return which is consistently
high;
Customers may want the bank to provide products which are geared to
their needs and are good value for money, efficient, accessible andfinancially secure;
Staff may want the bank to be a rewarding place to work and to allow
them to fulfil their potential
Examples of the different performance measures are set out in Figure 1.
Customers Staff
Satisfy customer needs Rewarding bank to work in
Market share
Products per customer
Closed accounts
Index bank salaries v market
Staff turnover rate
Staff attendance rate
Value for money Help staff achieve potential
Index banks prices v market
Customer satisfaction index
Training take up
Number of promotions
Efficiency/service Process efficiency
Queuing time Unit cost per transaction
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Transaction processing time
Complaints
Financially secure
Capacity adequacy
Liquidity
Transaction processing time
Product launch lead time
Systems down time
Error rates
Transactions per teller
Shareholders Regulators
Financial performance
Share price v banking sector
Earnings per share
Profitability (incl.
product/customer)
Risk adjusted return
Cost:income ratio
Fee Income:total income
Business performance
Market share
Customer satisfaction index
Business growth
Income per staff member
Financial security
Capital adequacy
Liquidity
Profitability
Positions and mismatches
Internal controls
Internal audit reports
Limit exceptions
Fraud cases
Treating customers fairly
Complaints
Compliance exceptions
Figure 1. Examples of the different performance measures of stakeholders
3.3 The Four Perspectives of The Balanced Scorecard
In the balanced scorecard the different types of performance indicators canbe broken down into what are commonly called perspectives and theseperspectives reflect the different views that can be taken of the organisation.
The Financial Perspective monitors the traditional monetary measuresfamiliar to most people (profitability, revenue growth, shareholder value).
The Customer Perspective looks at an organisation through the eyes of its
customers and measures indicators such as service levels, satisfactionratings etc.
The Internal Perspective reports on the efficiency of internal processes andprocedures and encompasses measures such as productivity, productdevelopment cycle time etc.
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The Organisation and Learning Perspective deals with employee issues andindicators here might contain items such as skills development, staff turnoveretc.
A summary of the four perspectives is set out in Figure 2.
The Balanced Scorecard
Financial Perspective Customer Perspective
Measures the ultimate results thatthe business provides to itsshareholders.
Focuses on customer needs andsatisfaction as well as market share.
Internal Perspective Organisation and Learning
Focuses attention on theperformance of the key internalprocesses which drive the business.
Directs attention to the basis of allfuture success the organisationspeople and infrastructure.
Figure 2. The four perspectives of the balanced scorecard, showing a global view of businessperformance.
The balance of measures across the four perspectives is what gives thebalanced scorecard its name. However the measures that make up ascorecard do not exist in isolation from each other and related to a set ofstrategic objectives that are themselves linked, the final link usually relatingto a financial result. In the following section we shall see how this processworks.
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4. Translating Business Strategy Into Action
4.1 Key Issues
It is a common finding that many banks discover that their senior managersdo not have a clear understanding of their banks strategy and many of thosewho do understand it do not believe that the strategy has been effectivelyimplemented.
The key issues that need to be addressed are as follows:
1. A clear strategic vision is not enough it requires communicating tothe entire organisation and needs to be understood.
2. When a strategic vision is in place , it typically has little or noimpact on the operating goals of departments and individuals itmust be tied to the goals and objectives of the departments concerned.
3. Organisations fail to collect the right information to monitorprogress towards their strategic goals it requires the right date tobe gathered and input to provide the effective measurement of objectives.
The balanced scorecard is a management approach that addresses theseissues, its express purpose being to translate strategy into measures thatcommunicate the vision to the organisation.
4.2 Linking Strategic Objectives to Related Measures
It is therefore essential that strategic objectives are linked to relatedmeasures. Financial improvement is usually the end objective of the linkedseries.
This is set out in Chapter 8
In this example, revenue growth, the ultimate financial objective, can bebacktracked to the objective of increasing market share, which requires ahigher customer retention. Having a good customer satisfaction rating helpstowards this goal and can have a positive effect on cross-selling ratios. Toimprove customer satisfaction we need perhaps to spend more time talking
and listening to our customers and therefore more face to face time startsthe whole process.
4.3 Measures That Are Typical To The Banking Sector
To determine the level of success in achieving strategic goals, a set ofmeasures, comprising the core of the scorecard, must therefore beestablished. As explained, these can be financial measures, such as return on
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equity, or non-financial measures (such as customer satisfaction or loyalty). Itis important to establish a reasonable number (but not to many) of relevantmeasures for the organisation.
Typical measures for the banking sector were set out in Figure 1 and we willrevisit them as we further develop the form and structure of the Balanced
Scorecard.
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5. Getting Started
Having set the scene and described how the balanced scorecard works andhow it addresses the various business perspectives, requirements of thestakeholders and links overall strategy to performance , we now have to getstarted with the process of building the scorecard.
5.1 Overview of the Scorecard Building Process
Before going through the detailed process of building the scorecard, it ishelpful to provide an overview of how the balanced scorecard is developedand this is set in figure 4 below.
Figure 4. Overview of the building process
5.2 Steps in the scorecard of building process
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Financial Internal/BusinessProcesses
Learning
and
Customer
Vision
What is our vision of the future?
Perspective
Strategic AimsIf our vision succeeds,
how will we differ?
Critical Success Factors
What are the critical successfactors for achieving our strategic
goals?
Strategic MeasuresWhat are the critical
measurements that indicateour strategic direction?
Action PlanWhat should be our
action plan to succeed?
To ourshareholders
To ourcustomers
With our internalmanagement
processes
With our abilityto innovate
& grow
BusinessPerformance
etc
CustomerSatisfaction
etc
ProcessEfficiency
etc
ManagementDevelopment
etc
Return onEquity
etc
CustomerSatisfaction
etc
Number ofKey
Controls
PlanningPerformance
etc
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The following are the key steps in the scorecard building process and thismethodology deals with each step in detail:
1. Define the banking sector in which the bank operates2. Establish the banks vision3. Analyze the vision between perspectives and formulate strategic goals
4. Identify strategic objectives5. Develop the measures6. Established top level scorecard7. Breakdown of scorecard and measures by business unit8. Formulate goals9. Develop an action plan10.Implement the scorecard
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6. Define the banking sector in which the bank operates
6.1 Purpose
The purpose of this step is to develop a foundation for establishing consensuson the characteristics and requirements of the banking sector to arrive at aclear definition of banks position within the sector. This will involveindividual interviews, primarily with top management and the most influentialpersons in the bank.
6.2 Description of the sector and market
Detailed descriptions should be prepared to describing the sector andmarketplace in which the bank is operating. Sources for this will includeavailable statistics, ratings agency reports, annual reports, analyst reportsetc.
6.3 Description of the banks current position
There should be a detailed description of the banks current position withinthe sector and market. Again available statistics, reduce reports, analystreports should be used. A detailed discussion should be held with uppermanagement to gain their view of the current position, and the market andcustomer perception should be gained through satisfaction surveys, presscomment and the like.
6.4 Benchmarking
A benchmarking exercise should be performed both on the banks recentfinancial performance and the main areas of business and products. Havingascertained details concerning financial performance and product offerings,both of the bank and the competition, a full benchmarking exercise shouldthen be prepared. Strengths and weaknesses can then be ascertained inorder to proceed to the next step
6.5 SWOT Analysis
A SWOT analysis (strengths, weaknesses, opportunities and threats) is likelyto be an essential part of this step.
This analysis will set the scene as to where the banks sits within its ownbanking sector, identifying the areas in which the bank excels and those inwhich it lags behind, showing various opportunities available to it and threatswhich it is likely to face.
6.6 Consensus view of the current situation
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At this point it is advisable that a seminar is held in order to create thenecessary consensus on what will matter to the bank in the future. This willinvolve a combination of research and interviews with stakeholders and staffat different levels in the bank. The seminar should be presented with acomprehensive picture of the situation as described by various participantswhich will provide an excellent basis for discussion both at the seminar and in
the subsequent steps of the scorecard construction process.
6.7 Sample format for the assessment of the banks current position
A sample format for the assessment of a banks current position appearsbelow and contains the following (with suggestions as to how the informationcan be obtained).
Overview of the sector
SWOT analysis of the bank within the sector
Benchmarking of the bank within the sector
Overall conclusions and recommendations
Industry Analysis and Sector Definition - A suggested outline
1. Describe the sector and market
Describe the competition
Use available statistics
Use ratings reports
Use annual reports
Use analyst reports
2. Describe where the bank is now
Use available statistics
Use ratings reports
Use analyst reports
Discuss with management
Review market/customer perception
3. Benchmarking
Describe the banks recent financial performance
Outline main areas of business and products
Benchmark results and products against competition
4. SWOT analysis
What factors are for or against us?
Internal
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o Strengths [positive]
o Weaknesses [negative]
External
o Opportunities [positive]
o Threats [negative]
5. Conclusions and recommendations
Draw conclusions from the above
Prepare recommendations
Commence outline of vision, strategy in light of the above
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7. Establish the banks vision, mission and strategic aims
7.1 Why a vision is important
Since the balanced scorecard model is based on the assumption that a clearvision is set out, it is essential to develop such a vision at an early stage. Asone of the key strengths of a scorecard is to give a bank a strong strategicfocus, the consequences of setting a vision incorrectly can have seriouseffects on the scorecard construction process.
7.2 Definitions
The following definitions are useful at this stage:
Vision
A picture of the future role and objectives of a bank, significantly goingbeyond its current environment and competitive position.
Mission statement
This defines the business that the bank is in or should be in, and incorporatesthe values and expectations of the shareholders.
Strategic aims
The principles that show how a banks major objectives or goals are to beachieved over a period of time, and are analyzed over the perspectives of the
scorecard.
Objectives, goals and critical success factors
These are synonymous and state how the strategic aims are to be achievedand when the results are to be accomplished.
7.3 Requirements of a good vision statement
Concise. The best vision statements are those that grab your attention andimmediately draw you in.
Appeals to all stakeholders. A vision statement that focuses on one groupto the detriment of others will not win lasting support. It must appeal toeveryone who has a stake in the success of the bank: employees,shareholders, customers, communities etc.
Consistent with missions and values: the vision is a further translation ofthe banks mission and the values of underlying importance to theorganization.
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Verifiable: the vision statement must be written so that you will know whenyou have achieved it.
Feasible: the vision should not be a dream of senior management, but musthave a foundation firmly fixed in reality.
Inspirational: the vision represents a word picture of the desired futurestate of the bank. The opportunity must be seized to inspire the team tomake the commitment necessary to reach the destination.
A vision statement has to be a realistic, stretching target but achievable. Thevision has to be owned not only by the senior executives in the bank, but byall staff. Everyone has to understand what it means and what they arecommitting to. This understanding is crucial because all strategic andoperational direction flows from the vision. The prime task with performancemeasurement is to demonstrate the rate at which the vision is becomingreality.
A typical vision statement for a bank could be as follows:
The bank wishes to be the first choice for customers in our chosenmarkets.
The bank would therefore have to study the markets in which it participatesto consider whether first choice could be realistically achieved. This enablesthe bank to focus strategic direction on the areas which fit with the visionstatement.
The bank can then study its core capabilities to assess which of those it
needs to focus attention upon not only to succeed but also to achieve thevision statement.
7.4 Requirements of a good mission statement
A mission statement defines the core purpose of the organization:
o It should inspire change
o It should be long term in nature
o It should be easily understood and communicated
A popular way to develop the mission statement is the 5 Whys approach.Define what the bank does and then ask the question why is it important?five times.
For example:
XYZ bank offers retail and corporate banking products and servicesto customers
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Why is this important? To provide them with the means to plan theirfinancial future effectively.
Why is this important? To provide companies with the finance to enablethem to achieve their business objectives.
And so on. By the end of the process a mission statement should becomeclear, can be refined and finalized.
7.5 Strategic aims
The strategic aims should cascade down from the vision and missionstatements and be analyzed between the four perspectives. Quantifymeasures can then be built around the strategic aims which will then drivethe bank towards achieving its objectives.
7.6 How mission cascades down to objectives
The diagram below shows how the various statements, aims, objectives andcritical success factors relate to each other to form the foundation of abalanced scorecard that we will develop. This will link into the followingchapters which cover the specifics in greater detail.
Chapter 8 will analyze the vision between the perspectives and formulatestrategic goals.
Chapter 9 will identify the critical success factors/strategic objectives
7.7 Translating mission into desired outcomes
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Mission Why weexist
Core Values What webelieve in
Vision What we want to be
Strategy Our game plan
Balanced Scorecard Implementation& Focus
Strategic Initiatives What we need to do
Personal Objectives What I need to do
Strategic Outcomes
SatisfiedCustome
rs
Delighted
Custome
EffectiveProcesse
s
Motivated
Workforc
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8. Analyse the vision between perspectives and formulatestrategic goals
As we have previously pointed out, the balanced scorecard is primarily a toolfor formulating and implementing strategy. The model translates an abstractvision and strategy into specific measures and goals. The purpose of the nextstep is therefore to translate the vision into tangible terms using the fourperspectives and to achieve the overall balance which is a unique feature ofthe scorecard model.
8.1 Financial Perspective
This perspective shows the results of the strategic choices made in the otherperspectives and also establishes several of the long term goals and most ofthe general ground rules and assumptions for the other perspectives. In the
financial perspective the description of what is expected of the organizationin terms of growth and profitability is set out. In the financial perspective onetends to find many of the traditional requirements of management control inthe form of financial measures and key ratios.
This perspective contains the principal themes of profit and revenue growth,cost reduction and improved productivity, investment strategy and the like.Some organizations define this perspective as the Shareholder andFinancial perspective since this clearly sets out that the shareholders are theprincipal stakeholders for this perspective.
Suggested strategic aims for the bank to be included within the financial
perspective may include the following:
Revenue growth mix
o Sales growth
o Growth in market share
Cost reduction and productivity improvement
o Reduce unit cost
o Improve the channel mix
o Reduce operating expenses
o Improve customer and product proftability
Asset utilization and investment strategy
o RORAC
o ROCE
o DCF
Risk management
o Increase fee income
o Reduce loss exposure
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8.2 Customer Perspective
This perspective describes the ways in which value is to be created for
customers, how customer demand is to be satisfied and the like. In manyways this is the heart of the scorecard. If the organization fails to deliver theright products and services to satisfy customer needs, revenue will not begenerated and the business will not grow.
Suggested strategic aims for a bank to be included within the customerperspective may include the following:
Improve market share
Improve customer retention
Customer acquisition
Customer satisfaction Customer value proposition
8.3 Internal/Business Process Perspective
This perspective will set out the processes needed to generate the rightforms of value for customers and lead to the fulfillment of shareholderexpectations. The value chain model is useful for this purpose whichdescribes those processes, from the analysis of customer needs through tothe delivery of the products and services.
Suggested strategic aims for a bank to be included within the
internal/business process perspective may include the following:
Innovation
o Identify market
o Create product & service
Operations
o Build products & services
o Deliver products & services
Post-sale service
o Service the customer
The value chain model can be used for this perspective.
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8.4 Learning & Growth Perspective
Suggested strategic aims for a bank to be included within the learning andgrowth perspective may include the following:
Employee capabilities
o Employee satisfactiono Employee retention
o Employee productivity
o Reskilling requirement
Motivation/empowerment/alignment
o Suggestion scheme
o Measures of improvement
o Team goals
8.5 Linking the perspectives and strategies together
The diagram on the following page shows an example for the banking sectorof how the strategies, perspectives and measures fit together and indicateslinkages. It is suggested that a bank prepares such a strategy map to verifythat the process is actually linking everything back to the strategy and doesnot become a mechanical exercise which loses sight of the overall objectivewhich is the achievement of the vision through the successful implementationof the strategic aims.
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StrategicObjecti
ves
Strategic MeasurementsLagging Indicators Leading Indicators
Financial
F1 Improve ReturnsF2 Broaden Revenue Mix
F3 Reduce Cost Structure
Return on Investment
Revenue Growth
Deposit Service CostCharge
Revenue Mix
Customer
C1 Increase CustomerSatisfaction with ourProducts and People
C2 Increase Satisfactionafter the sale
Share of Segment
Customer Retention
Depth of Relationship
Satisfaction Survey
Internal
I1 Understand OurCustomersI2 Create InnovativeProducts
I3 Cross-Sell ProductsI4 Shift Customers to Cost-Effective ChannelsI5 Minimise OperationalProblemsI6 Responsive Service
New Product Revenue
Cross-Sell Ratio
Channel Mix Change
Service Error Rate
Request FulfillmentTime
Product DevelopmentCycle
Hours with Customers
Learning
L1 Develop Strategic Skills
L2 Provide Strategic Info
L3 Align Personal Goals
Employee Satisfaction
Revenue per Employee
Strategic Job CoverageRatio
Strategic InfoAvailability Ratio
Personal GoalsAlignment (%)
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9. Identify strategic objectives
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10. Develop measures
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11. Establish a top level scorecard
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12. Break down scorecard and measures by business unit
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13. Formulate goals
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14. Develop an action plan
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15. Implementing the scorecard
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16. Putting it all together the balanced scorecard project
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17. Automating the balanced scorecard
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18. Linking compensation to the balanced scorecard
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19. The balanced scorecard solution using Microsoft Office
19.1 Establishing the balanced scorecard implementation program
Suggested plans are available and more or less generic. Using a projectmanagement software solution or even Excel, a GANTT should be builtshowing the various milestones. Alternatively, a task list using Word or Excelis a perfectly acceptable alternative.
19.2 Clarifying the vision, mission and goals of the organisation
A straightforward 15 to 20 page PowerPoint presentation should be sufficientto clearly set out the organisations strategy.
This should contain:
Mission - why are we in business? Values - what values must we possess?
Customer value proposition - how do we fundamentally deliver value to
our customers?
Vision - what do we want to achieve and by when?
Environmental, industry and market trends
SWOT analysis
Strategy map - visual simplification of the overall strategic plan
Top level balanced scorecard
19.3 Focusing in on the strategy map and top level scorecard
This will translate the strategic plan, as set out in the mission, values andvision above into a strategy map with tactical objectives. A PowerPointpresentation is again the ideal medium for this.
This will contain:
The four perspectives
The strategy objectives i.e. the desired business outcome
The measures to assess the level of achievement of the objectives
Initiatives, or action plans, to achieve the objectives.
Ensure that the strategy maps show the linkages of the objectives andperspectives and that each objective has a clearly defined initiative, or actionplan.
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19.4 Prioritising measures
An Excel or Word document should list out the measures that will be used inthe balanced scorecard. Since the number of measures should be limited, aprioritisation exercise should be done to ensure the key measures areincluded in the scorecard.
19.5 Designing the database and output reports
A combination of Microsoft Access and Excel can be used to build reports.
It is suggested that Access is used as follows:
Its hould hold all the business units
It should hold all of perspectives
It should hold all the strategic objectives
It should hold the library of measures
It should record performance statistics
It should produce the reports for input into Excel
It should contain all the initiatives and action plans and their status
It is suggested that Excel is used as follows:
It should import the Reports from Access
It should produce the various dashboards and graphs
The above systems can be refined with experience and various steps can beeliminated as increased automation takes place.
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20. The balanced scorecard in a week
20.1 Monday
Getting started and the things to get right
Get people together
Get the timing right
Sort out the strategy
Look at any political issues
Stress the benefits
Involve the management team
20.2 Tuesday
What to measure, deciding importance and clarifying business
objectives
Sort out the critical success factors and strategic objectives
Sort out the needs of the various stakeholders
Draw up the perspectives, objectives and measures
20.3 Wednesday
Designing measures
Think about the behaviour you want to encourage
Define precisely what you are measuring Make sure all the data is collected and is consistent
Measures must support objectives
Relate measures together through strategy maps
20.4 Thursday
Using the measures, tools and techniques to make them effective
Sort out how to display the data
Keep the measures up to date with regular monitoring
Be aware of the pitfalls
20.5 Friday
Practical issues of measurement
Review and update targets regularly
Update measures as performance improves
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Use the measures to monitor the success of your strategy