The Balanced Scorecard Lab Case . . .
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Transcript of The Balanced Scorecard Lab Case . . .
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