With A Balanced Scorecard Managing Private Sector ... · Chemical Bank-- increased profits almost...

Performance Counts…Performance Counts…Performance Counts…Performance Counts…

© 2001 by the U.S. Foundation for Performance Measurement. All rights reserved. Do not copy without permission.

Managing Private Sector Organizations Managing Private Sector Organizations With A Balanced ScorecardWith A Balanced Scorecard

Howard RohmDirector, U.S. Foundation for Performance Measurement President, Howard Rohm Consultants, LLC

Internet: www.netmain.com/usfpm Phone: (202) 251-7676



Briefing Objectives

� Explain the balanced scorecard

� Understand how balanced scorecard systems are constructed and implemented in private and public sector organizations

� Understand issues surrounding balanced scorecard performance systems

� Understand a nine-step methodology for building and implementing a balanced scorecard system



“People and their managers are working so hard “People and their managers are working so hard

to be sure things are done right, that they hardly to be sure things are done right, that they hardly

have time to decide if they are doing the right have time to decide if they are doing the right

things.”things.”Stephen R. CoveyStephen R. Covey



Focusing On Organization Strategy

Adapted from Kaplan & Norton

ExecutiveLeadership

ContinualStrategicChange

StrategyAlignment

PerformanceManagement

OperationalizeStrategy

Balanced ScorecardPerspective

Measure Target InitiativeObjective

IndividualizeStrategy



Understanding Balanced Scorecards



The Evolution Of Measurement

Double-entryBookkeeping

ManagementAccounting

ShareholderValue

Competencies/Capabilities

Balanced ScorecardBalanced Scorecard

15th Century

19th Century

Late20th Century

Financial Strategic Operational

OperationalImprovement

CompetitiveAdvantage

ComparativeBenchmarking

CustomerSatisfaction

Baldrige

Six Sigma

Business ProcessReengineering



Why Use a BSC? Address Organization Pain

“Burning Platforms”

• Non-competitive or low competitive position• New vision/mission; merger or acquisition• Poor mission and strategy execution• New technological advances• Changing labor markets• Employee shifts/downsizing• Low morale• Government reform• Over-emphasis on tactics and operations,

under-emphasis on strategy• Poor communications• Too many measures, too little information

“Burning Platform”



Balanced Scorecard Logic

GoalsGoals

VisionCustomers

Perspectives ThemesThemesSTRATEGYSTRATEGY

MeasuresMeasures

InitiativesInitiatives

ObjectivesObjectives

ThresholdsTargetsTargetsPerformance DriversPerformance DriversCritical Success FactorsCritical Success Factors

KPI’sKPI’s

MissionMission

Core ValuesCore Values



BSC History• 1990 - Nolan Norton Institute study:

–David Norton, study leader–Robert Kaplan, academic consultant from Harvard

• Harvard Business Review articles:–Jan-Feb 1992: balanced performance measures–Sep-Oct 1993: tie to strategic goals and objectives–Jan-Feb 1996: strategic management system

• BSC soon expected to be used by 40% of Fortune 1000 companies; increasingly being adopted by Federal agencies, by state and local organizations, and internationally



Advantages of the BSC

• Emphasizes achieving results and implementing strategy in shortest possible time frame

• Focuses on high-impact performance measures• Is easy to use and economical to maintain• Focuses on customers• Empowers process owners to make improvements• Allows comparisons to best-in-class performance• Facilitates communication• Accelerates cultural change in an organization



Balanced Scorecard Success Stories

• Mobil -- No 6 in profitability in early 1990s; No 1 in 1995, 1996, 1997, 1998

• Chemical Bank -- increased profits almost 20 times in three years

• Brown & Root Engineering -- went from losing money in early 1990s to No 1 in growth and profitability three years later

• Charlotte, NC -- voted in Top 5, Best cities to live in the U S , People Magazine

• Duke Children's Hospital – Achieved $30 million cost reduction and $50 million net margin increase



0 1 2 3 4 5

0 = Completely disagree (No)5 = Completely agree (Yes)

Employee Survey -- RSE Hospital (Switzerland)

Increases transparency

Is a useful management tool

Is not relevant for daily use

The Balanced Scorecard:

Serves managers only

Serves all employees

Is useful for daily work



Private Sector Balanced Scorecards



Private Sector Scorecard

MissionMissionStrategyStrategy

Objective Measure Target InitiativeFinancial

Adapted from Kaplan and Norton

Measure Target InitiativeInternal Business Process

Objective

Measure Target InitiativeObjectiveLearning & Growth

CustomerMeasure Target InitiativeObjective



Vision Vision MissionMissionStrategyStrategy

To succeed financially, how should we appear to

our owners?

To satisfy our customers, at what business processes

must we excel?

To achieve our vision, how will we sustain our ability to learn

and improve?

To achieve our vision, how should we appear

to our customers?



Key Questions


Objective





IncreaseCustomer Satisfaction

Through Superior Execution

Increase Customer Confidence in Our

Advice

Cross-Sell the Product

Line

Provide Rapid

Response

Develop New

Products

Understand Customer Segments

Minimize Problems

Shift to Appropriate

Channel

Financial

Customer

Internal Processes

Learning & Growth (Employees)

Improve Operating Efficiency

Improve Returns

Broaden Revenue Mix

Provide Access to Strategic

Information

Develop Strategic

Skills

IncreaseEmployee

Productivity

Align Personal

Goals

Private Sector Strategic Map



MissionMissionStrategyStrategy



Typical Performance Measures


Objective



•Shareholder value•Investment•Asset utilization•Resource allocation•Profitability

•Production efficiency•Cost•Bottlenecks•Workflow

•Skills coverage•Innovation•Employee development•Capacity building•Knowledge transfer

•Value proposition•Retention•Service quality•Satisfaction



Linking Scorecard Components

Broadenrevenue mix

Increase customersatisfaction

Develop newproducts

Developstrategic skills

Revenue mix

Customerretention

% Revenue fromnew products

Cross-train

10% Product A40% Product B50% Product C

95%

1999 -- 15%2000 -- 50%2001 -- 60%

90%

• Sales Promotions• New Channel

Marketing

• Frequent Buyers’Club

• R & D Program• Customer Mailing

• Custom Training• Knowledge Library

Objective Measure Target Initiatives

Lear

ning

&

Gro

wth

Inte

rnal

Cus

tom

erFi

nanc

ial

Performanceexpectation

Key action programs

required to achieve objectives

How success will be measured and

tracked

What strategy must be achieved

and what is critical to its

success



Building and Implementing A Balanced Scorecard: Nine Steps to Success



Assessment

Strategic Themes

Perspectives & Objectives

Strategic Map

Performance Measures

Initiatives

Computerize &Communicate

Cascade

Evaluate & Improve

Balanced Scorecard Methodology:Balanced Scorecard Methodology:Nine Steps To SuccessNine Steps To Success



Step One: Conducting an Organizational Assessment



Achieving Customer Satisfaction: Developing the Value Proposition

EconomicsTimelinessQualityFunction

Product (Service) Attributes Relationship Image++

Step One:

Product Attributes Relationship ImageXXX XXX XXXXXX XXX XXXXXX XXX XXXXXX XXX XXX

Strategy Focus1. Build the business2. Increase customer value3. Improve operational effectiveness4. Enhance the community

Step Two:



Step Two: Define Strategic Themes

Mission: Manage the Nation’s space program in a cost-effective manner, ensuring that safety and quality are never compromised

Strategic Themes:1) Develop safe launch and reentry vehicles2) Maintain a ground infrastructure3) Develop a scientific exploration and

research program4) Ensure a safe space crew environment

Vision: Place a man on the moon and return him safelyto the earth



Strategic Themes:1) Develop safe launch and reentry vehicles2) Maintain a ground infrastructure3) Develop a scientific exploration and

research program4) Ensure a safe space crew environment

Develop Business Strategies

Strategies:• Develop shuttle capable of sustaining multiple earth orbits and re-entries• Develop materials capable of surviving multiple earth re-entries• Test airframe properties of space shuttle at Langley test facility



Increase degree of satisfaction

Financial

Customer

Internal Business Process

Learning and GrowthImprove workforce

skills ModernizeIT infrastructure

Reducecycle time

Reducecosts

Step Three: Choosing Perspectives and Developing Objectives



Increased efficiency

Financial Lower costs Increased profits

Customer Increasedcustomersatisfaction

Internalprocesses

Fewer trucks Shorter turn-around time

Learningand growth

Employeetraining

Step Four: Build A Strategic Map



IncreaseBrand

Recognition• Branding studies• Promotions

Example: Wells Fargo Theme One –Increase High-Value Customers

DevelopNew

Products

ReduceTurnover

• Costing models• Test marketing• Brainstorming• Industry intelligence• Partnerships

• Random interviews• Mystery shopper• Surveys• Complaint analysis

• Individual training plans• Cross-training

Source: Wells Fargo Case Study, Harvard Business Publishing

IncreaseCustomer

Satisfaction



OutputOutput

Step Five: Defining Performance Measures

InputInput OutcomeOutcome

Input: Resources, including cost and workforceProcess: Activities, efforts, workflowOutput: Products and services producedOutcome: Results, accomplishments, impacts

Are We Doing The Right Things?Strategic Planning (What?)

Are We Doing Things Right?Business Planning (How?)

ProcessProcess

PerformanceMeasures



Output: Games played

Outcomes: Games won Win the pennant

Impacts: Increase attendance by xx percent and revenues byxx percent over last year Increase club recognition

Performance Runs scored Division RankingMeasures: Runs allowed Games won and lost

Inputs: Current players Player draftBudgeted payroll Trades

Goal: Play in the World SeriesExample: Finding the Right MeasuresExample: Finding the Right Measures

Strategies: Trade for quality playersBuild strong farm club

spend biglower cost

Players’ Composite Average

Copyright 2001 by Howard Rohm Consultants, LLC. All rights reserved. Do not copy without permission.



Candidate InitiativesMarketing campaignsPre-promotion studiesBusiness process re-engineeringProcess improvementTQM proposalsTraining coursesPolicy analysisR & D effortsBranding studiesWorkflow improvements

Prioritized Funded Initiatives

1.

2.

3.

4.

FILTER

Selection Criteria

Resources required

Impact potential ranking on strategy

Multiple objectives covered

Time required/needed

Step Six: Developing Initiatives



Implementing the BSCStrategic Direction

Planning

Management

Adapted from: Balanced Scorecard Collaborative

Balanced ScorecardPerspective

Measure Target InitiativeObjective

OutputOutputInputInput ProcessProcess

Programs & Operations

Budget Formulation & Costing



Step Seven: Computerizing & Communicating Performance Information

CustomerRequirements

CustomerRequirements

Plans

Plans

Mission&

Vision

Mission&

Vision

ProcessesProcesses

OUTCOMES

OutputsOutputs

Strategy,Goals,

&Objectives

Strategy,Goals,

&Objectives

PerformanceMeasures



Program Goals

Time

PerformanceMeasures

Customer's View

Corporate/Enterprise View(Ad Hoc)

Policy/PlanningView

Program Manager'sView

Visualizing Performance and Communicating Information



Example: Performance Views



Source: SAS Institute

Example: Balanced Scorecard Application Portal

“ Performance Counts …”



Step Eight: Cascading Scorecards Support Strategy

Goal Measure Target InitiativeLearning and GrowthGoal Measure Target Initiative

Learning and Growth

Goal Measure Target InitiativeFinancialGoal Measure Target Initiative

FinancialGoal Measure Target InitiativeFinancial

Goal Measure Target InitiativeCustomerGoal Measure Target Initiative

CustomerGoal Measure Target InitiativeCustomer

MissionStrategyMissionMissionStrategyStrategy Goal Measure Target Initiative

Internal Business ProcessGoal Measure Target InitiativeInternal Business ProcessGoal Measure Target Initiative

Internal Business Process

Goal Measure Target InitiativeLearning and Growth

Corporate

Business UnitsSupport Units

Team/Individual



Alignment from the Customer Downward

CustomerCustomer Products/Services

Products/Services

Effort/WorkflowEffort/

Workflow

EmployeesEmployeesDeliveryDelivery



Strategic Business Units

SBU1 SBU2 SBU××××

Support Units

SU1 SU××××

CorporateStrategicThemes

1.

2.

3.

.

.

Align Strategy and Work Processes

Teams/IndividualsTI1

TI××××

XX

X

XX X X

X

X



OBJECTIVESOBJECTIVES

Goal 1

Goal 2

Goal 3

Goal 4

Goal 5

Goal 6

Goal 7

Goal 8

Goal 9

PERFORMERSPERFORMERS

Suppliers

Contractors

Other

Program 3

BUDGET ITEMSBUDGET ITEMS

Program 5

Program 4

$ xx M

$ xx M

$ xx M

$ xx M

$ xx M

$ xx M

$ xx M

$ xx MProgram 1

Program 2 $ xx M

$ xx M

ComputerRequirements

PeopleResources

$ xx MProgram 6

OUTCOMES

Step Eight: Evaluate and Use Performance Step Eight: Evaluate and Use Performance InformationInformation



•• Measure performance of all strategic goalsMeasure performance of all strategic goals•• Maintain a balanced set of measuresMaintain a balanced set of measures•• Hold people personally accountable for resultsHold people personally accountable for results•• Develop solid baseline dateDevelop solid baseline date•• Use performance information to manageUse performance information to manage•• Match resources to goalsMatch resources to goals

Best Practices



Attributes of Good ScorecardPerformance Systems

Management commitment—senior executive buy-in to change management philosophy and to adopt performance-based management principles.Actionable strategies—realistic, "stretch" goals that are easily understood and workable.Linked objectives—clear, cause-effect relationships among strategies, objectives, measures, initiatives, and resources.Balanced measures—leading and lagging measures that help validate strategies and chart new directions.Employee involvement—good communications that enable everyone to contribute to dynamic changes to meet customer requirements.



Challenges of Building andImplementing a BSC

• Visions and strategies that are poorly defined and understood and not actionable

• Strategies and goals that are not linked to performance drivers, measures, initiatives, and individual goals and incentives

• Strategies that are not linked to resource allocation and budget

• Measures that are set independently of a complete BSC system

• Performance targets that are too high or too low• Feedback that is tactical rather than strategic• Lack of meaningful employee involvement



Typical BSC Cycle: One Iteration

2-4 weeks 1 week 2-8 weeks 6-24+ weeks 3-6+ weeks

Preparation Organization assessment

Build scorecard system

Implement scorecard system

Collect preliminary data and review results



“It’s about management and change first; measurement and technology

are second ”

“It’s about management and change first; measurement and technology

are second ”

Howard Rohm



Putting It All TogetherPutting It All Together——A NineA Nine--Piece PuzzlePiece Puzzle

MeasuresMeasures

AssessmentAssessmentAssessmentComputerize

& Communicate

Computerize&

Communicate

Strategic Themes

Strategic Themes CascadeCascade

Perspectives&

Objectives

Perspectives&

ObjectivesEvaluate

&Adjust

Evaluate&

AdjustInitiativesInitiatives

StrategicMappingStrategicMapping



Sir Josiah Stamp, 1880-1944, Head, Bank of England

"The government are very keen on "The government are very keen on amassing statistics. They collect them, amassing statistics. They collect them, add them, raise them to the Nadd them, raise them to the Nthth power, power, take the cube root and prepare take the cube root and prepare wonderful diagrams.wonderful diagrams.

But you must never forget that every But you must never forget that every one of these figures comes in the first one of these figures comes in the first instance from the village watchman, who instance from the village watchman, who just puts down what he damn pleases."just puts down what he damn pleases."

But, Beware The Watchman !!But, Beware The Watchman !!



“Mr. Rohm:“Mr. Rohm:I am new to BSC. Could you email me I am new to BSC. Could you email me a list of measures for each of the four a list of measures for each of the four perspectives?”perspectives?”

(Name withheld to protect the poor man!)(Name withheld to protect the poor man!)

The BSC Is Easy to Understand The BSC Is Easy to Understand –– Building and Building and Implementing A BSC Performance System Is NotImplementing A BSC Performance System Is Not

From the eFrom the e--mail bag:mail bag:



Acknowledgements• Performance Drivers, Niles-Goram Olve, Jan Roy and Magnus Wetter,

Wiley• The Strategy-Focused Organization, Robert Kaplan & David Norton,

Harvard Business School Press• The Balanced Scorecard, Robert Kaplan & David Norton, Harvard

Business School Press• Balanced Scorecard Functional Standards, The Balanced Scorecard

Collaborative• City of Charlotte and Wells-Fargo Online Financial Services, Case

Studies, Harvard Business School• Keeping Score, Mark Graham Brown, Quality Resources• How To Measure Performance: A Handbook of Techniques and Tools,

Performance-Based Management Special Interest Group, U.S. Department of Energy

• Various articles, Harvard Business Review



Thank you, and good luck on Thank you, and good luck on your balanced scorecard your balanced scorecard

journey!journey!

Howard RohmHoward Rohm

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