Balanced Scorecard An Integrated Approach to Performance Management Creating competitive advantage through our people

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Balanced Scorecard An Integrated Approach to
Performance Management Creating competitive
advantage through our people

• Presentation by
• M Nguwi
• Group Human Resources Manager

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BALANCED SCORECARD
LINKING STRATEGIES TO ACTIONS
LINKS FOUR PERSPECTIVES
Growth Profitability
Clients
Human Capital
Operational Excellence
SOURCE KAPLAN AND NORTON
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What is a Balanced Scorecard

• At the highest level, it is a framework that
  helps organisations translate strategy into
  operational goals/objectives that drive both
  behaviour and performance.
• ORIGIN
• Concept developed by Robert Kaplan David Norton
• Essentially A Strategic Management system
• Also a Corporate Performance Management System

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The Balanced Scorecard

• Aligns strategies, processes, resources and
  behaviour
• Defines what to measure
• Identifies lag and lead indicators metrics
• Defines how to measure
• Provides objective and feedback to each employee
• Operationalise the measures

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The Premise Behind the Balanced Scorecard Is that
Measurement Motivates Behavior
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The Balanced Scorecard Is Based on an
Understanding of the Basic Building Blocks of the
Strategy

• 1. The economic model of key levers driving
  financial performance

Financial Perspective
Return on Investment
Revenue Strategy
Productivity Strategy
Sources of Growth
Sources of Productivity
2. The value proposition of target customers
Customer Perspective
Value Proposition
Quality
Function
Image
Relatio-ship
Price
Time
Internal Process Perspective
3. The value chain of core business processes
Build the Brand
Make the Sale
Deliver the Product
Service Exceptionally
4. The critical enablers of performance
improvement, change and learning
Learning Growth Perspective
Technology Infrastructure
Staff Competencies


Climate for Action
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We Use the Scorecard to Articulate Strategic
Hypotheses in Cause-effect Terms
And Realize the Vision
Financial Results
To Drive Financial Success...
Customer Benefits
Needed to Deliver Unique Sets of Benefits to
Customers...
To Build the Strategic Capabilities..
Knowledge, Skills, Systems, and Tools
Equip our People...
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BSC Terminology
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Some of the Indicators of Good Balanced Scorecard
1. Executive InvolvementStrategic decision
makers must validate and own the strategy and
related measures
2. Cause-and-Effect RelationshipsEvery objective
selected should be part of a chain of cause and
effect linkages that represent the strategy
A good Balanced Scorecard will tell the story
of your strategy in actionable terms.
3. Balance between outcome and leading measures
There should be a balance of outcome measures and
leading measures to facilitate anticipatory
management
4. Financial LinkageEvery objective can
ultimately be related to financial results
5. Linkage of Initiatives and Measures Each
initiative should be based on a gap between
baseline and target.
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Some Goals of the Balanced Scorecard

• Provide a generic framework to translate strategy
  into operational terms
• Create a systems approach to form an integrated
  Strategic Management Process
• Provide a clear line of sight to the vision and
  strategy of the company
• Provide a tool for communicating the
• strategy, and
• processes and systems required for implementing
  the strategy
• Draw a cause and effect roadmap to stakeholder
  value shareholder, customer, and employee.

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How Does the Scorecard Benefit Your Organization?

• Improves management effectiveness by having a
  shared and actionable view of the strategy
• Optimizes and ensures strategic outcomes for a
  given set of resources
• Enables employees to work in a coordinated,
  collaborative fashion towards organizational
  goals
• Speeds time to value through faster more informed
  decision-making on time and resource allocation
• Accelerates the approach, and its accuracy to the
  strategic destination

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CONCEPT

• Imagine entering the cockpit of a jet airplane
  and observing that that there is only a single
  instrument
• ability to exploit intangible assets has become
  far more decisive than their ability to invest in
  and manage physical assets
• Most companies operational and management control
  systems are built around financial measures and
  targets
• The scorecard introduces four new management
  processes that contribute to linking long term
  strategic objectives with short term actions

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What is on the dashboard?

• The financial success of our organisation
• increasingly depends on intangibles-
• our relationship with clients
• our organisational effectiveness
• our ability to attract, leverage and retain the
  best people

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WHERE DO WE START?
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Guiding Principles of Performance Management

• Develop and Articulate a Clear Strategy
• Create a Continuous, Flexible Performance
  Management Process
• Actively Communicate Performance Goals and
  Targets
• Establish Specific, Ambitious Targets Based on
  Benchmarks
• Identify and Focus on the Vital Few
• Establish a Balanced Measurements Portfolio
• Monitor Results at Specific, Regular Intervals to
  Assess Progress
• Align Reward Systems with Measures to Reinforce
  Desired Behaviours

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Why is Performance Important?

• PERFORMANCE is about RESULTS measurable results
• Need for the organisation to benchmark
  performance against world class standards
• Enables efficient and effective use of resources
• Motivate high performers
• Identify inadequate performance early

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CREATING A WINNING STRATEGY

• Critical Questions
• Are we doing the right things?
• Are we doing it right.

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Plot your Value Chain First

• Identify your customers and what they want?
• What is the process to satisfy customers wants?
• What kind of input to the process do you need?
• And who supplies that?
• Everyone must understand who our customers are
  and what their requirements are.
•  

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What is our Value Proposition?

• Existence of our business relies on two important
  elements
• The value proposition that we offer different
  stakeholders(clients, shareholders, employees
  etc.)
• The ability to deliver that value, both in the
  short and long term

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If you dont know where you want to go, it does
not matter what root you take.
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Managing Strategy Four processes
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Four Barriers to Strategy

• Vision Barrier strategy not understood by those
  who must implement it and not translated into
  objectives/goals
• People Barrier personal goals are not linked to
  strategy implementation
• Management Barrier Management systems are
  designed for operational control and not strategy
• Operational Barriers key processes are not
  designed to leverage the drivers of business
  strategy

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Translate a Strategy into Operational Terms
Financial/Profit Growth
To satisfy our stakeholders, what financial
objectives must we accomplish?
Measures
Targets
Goals
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The Four Perspectives
Feedback / Results
Strategy Implementation
Financial or Profit Growth To satisfy our
stakeholders, what financial objectives must we
accomplish?
Strategy Deployment
Clients What is the customer Value
Proposition That will create the financial
rewards we are seeking
Operational Excellence In which internal business
processes must we excel in order to deliver our
value proposition as described in the client
perspective and finally reach the goals in the
financial perspective
Human Capital What do wee need to change in our
Infrastructure or intellectual capital to
achieve Our operational excellence goals
Actions
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• Balanced Scorecard Evolved Framework

The Vision Strategy
Financial
To satisfy our shareholders, what financial
objectives must we accomplish?
Effect
Customer
Results
To achieve our financial goals, what customer
needs must we satisfy?
Internal Business Process
Cause
To satisfy our customers, in which internal
business processes must we excel?
Innovation, Learning Growth
Actions
To achieve and maintain a competitive position,
how must the organization learn and improve?
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A Good Balanced Scorecard Tells The Story of
Strategy
Financial Perspective
Return on Investment
Reduce Costs / Improve Productivity
Increase Revenue Streams
Customer Perspective
Price
Quality
Time
Functionality
Image
Relations
Internal Process Perspective
Make the Sale
Setup the Service
Service the Customer
Build the Brand
Learning and Growth Perspective
Staff Competencies
Technology Infrastructure
Change Agenda
Critical Success Factors and Measures need to be
developed across the four perspectives
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Strategy Interpretation Simplified Business
Model of FSC
Figure 5.3
Management Actions - Cause
Business Results Required - Effect
Improvement Learning Perspective
Customer Perspective
Internal ProcessPerspective
Financial Perspective
Increase Employee skills and productivity
Cross - sell productsand services
throughlifetime relationships
Build up largecustomer portfoliowith more
salesand customers
Achieve dramaticsales goal
Technologyenabledrevenue growth
Dealing withmembers efficientlyand effectively
High CustomerSatisfaction
Achievelower cost ratiovs competition
Develop full rangeof competitive products
Increase value ofmembers fund in linewith all
share index
Learn and embedcompliance disciplines
Innovative approachto maximiseinvestment returns
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Balanced Scorecard Benefits

• Improved Long-Term Financial Performance
• Improved Level of Customer Satisfaction
• Focused Communications on Whats Important
• Improved Level of Employee Satisfaction Based on
  Better Understanding of Value of Individuals
  Contributions
• Improved Mechanism to Identify Performance
  Variances of Key Processes

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Financial Perspective

• This indicate if company strategy, implementation
  and execution are contributing to the bottom
  line.
• Measurement of operating income, returns on
  capital or more recently EVA.
• Strategic themes include revenue growth and mix,
  cost reduction and, asset utilisation and
  investment strategy.
• Our revenue normally grow from finding new
  sources or by increasing the client/customer
  value proposition
• Looks at things like
• Revenue growth
• Increase market share
• Improve cost structure
• Reduce admin costs

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Client Perspective

• This is the most important one because its the
  one that facilitates the funding of all others
• Some of the most valuable Customer Propositions
  are
• Product leadership
• Customer intimacy
• Measure performance in growth and identified
  market segments
• - customer satisfaction.
• - customer retention.
• - new customer acquisition.
• - fast credit approval.
• - market and account share in targeted segments.
• - specific measures on the value proposition
  that the company will deliver to customers in
  targeted market segments e.g.. short lead times,
  on time delivery, innovative products and
  services, anticipation of emergency needs, new
  products.

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Operational Excellence

• Identify critical internal process in which the
  business must excel to enable
• -delivery of the value proposition that will
  attract and retain customers in targeted market
  segments.
• -satisfy shareholder expectations of excellent
  financial returns.
• The measure should focus on internal processes
  that will have the greatest impact on customer
  satisfaction and achieving an organisations
  financial objectives.
• Traditional approaches attempt to monitor and
  improve existing business processes. The
  scorecard will usually identify new processes at
  which the organisation must excel to meet
  customer and financial objectives (innovation).

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Human Capital

• Identifies the infrastructure that must be built
  to create long term growth and improvement.
• Three principle sources
• people - reskilling
• Management skills compensation competitiveness
• systems - enhance IT (real time, accuracy)
• organisational procedures - retention, training,
  skill, satisfaction.
• Unlike buildings and machinery support
  functions are intangible assets worth nothing
  unless they succeed in their mission.

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Some examples of Key BSC themes measurements

• Financial/Profit Growth
• Return On Investment
• Revenue growth percentage
• Economic Value Added
• Market Share

• Client
• Customer satisfaction
• Customer Retention referrals
• maintaining highest reputation
• Value
• Customer payment patterns

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Key BSC themes measurementsExamples

• Operational Excellence
• Error, waste rework
• Reducing Cycle time
• Yield
• On-time delivery
• Project Deadlines

• Human Capital
• Core Competence deployment rates
• Employee Satisfaction
• Employee turnover
• Training
• Rewards, Recognition Compensation patterns
• Quality Improvement rates

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The Cause Effect Relationship in the BSC

• There is an important sequence between the four
  perspectives
• Financial/Profit and Growth (Make a profit)
• Clients(By satisfying your customers needs)
• Operational Excellence(through being able to
  deliver value)
• Human Capital (by having the necessary knowledge
  and tools available)

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Linkages to the Group Balanced Scorecard
Influences
Financial/Profit Growth
Financial/Profit Growth
Client Service
Client Service
Operational Excellence
Operational Excellence
Human Capital
Human Capital
Group BSC RFH
Business Unit BSC RBF, RFS, RDH,RSB
Support Functions
Teams Individuals
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Alignment using the Balanced Scorecard
SBUs
Corporate
Individual
Financial/Growth Profitability
Financial/Growth Profitability
Client
Client
Key Result Areas
Operational Excellence
Operational Excellence
Strategic Capability- Human Capital
Strategic Capability- Human Capital
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Translating Group Objectives for each Level

• Step 1 a group scorecard defines overall
  strategic priorities and context
• Step 2 Each SBU develops a develop BSC
  consistent with the corporate strategic agenda
• Step 3 Each support department develops a
  scorecard to support the internal customers
• Step 4 Teams and individuals develop scorecards
  consistent with their SBU and group strategy

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Linking

• Objectives/goals may cross over more than one
  perspective.
• We usually start at the top with outcomes and
  work our way down, looking at what enables
  (drives) the outcome.

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Strategic Goals

• Establishing strategic goals is the first step in
  building the Balanced Scorecard.
• Strategic goals establish direction in concrete
  terms. For example By the year 2003, we will
  grow revenues by 45.
• Strategic goals anchor the rest of the process.
• Strategic goals should fit with the vision and
  mission of the organization.

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Set Goals for Each Strategic Perspective
Strategic Perspective
Goals
Measures
Targets
Client Service delivery and demonstrating value
to our clients
Develop effective client care meetings
Client feedback
Average rating of 4
5 of the employees to have gone for customers
service training
Human Capital Develop and utilize resources
intelligently
Devote substantial time to people development
No of people trained in essential skills
Financial Achieving profitable revenue growth
Grow revenue
By 45
Revenue growth
Operational Excellence Developing and driving
improved common business processes
Time frame
Handover to be effected by end of March 2002
Ensure smooth handover of spectrum
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Strategic Goals

• Goals need to be expressed in concrete terms
• You can look at past performance or future
  performance to establish goals
• Goals need to be agreed upon and communicated
  within the organisation.

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If you dont know where youre going any road
will take you there.
Goals are Roadmaps to the Vision
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If you cant measure it, you cant manage it
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Measuring the success(or failure of your
strategy

• Measure - How performance against set goals is
  monitored
• For each strategic Goal, you need one
  measurement.
• Measurement provides us with feedback on meeting
  the strategic goals
• Most organizations will use many of their
  existing measurements.
• Organizations requiring major change should
  include driver type measurements.

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Measurements

• A good balanced scorecard should consists both
  outcome and driver measures
• Financial and Customer will have mostly outcome
  type goals
• Operational Excellence and Learning Growth may
  include several driver type goals

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Measurements

• Outcome measures
• Advantage - objective and easy to capture
• Disadvantage - focused on the past, not current
• Drivers
• Advantage - Predictive and leading the
  organisation
• Disadvantage - Difficult to drive and support

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Measures Lag/Lead Comparison
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Lead/Lad Measures

• Leading and lagging indicators only makes sense
  relative to one particular strategic goal. A
  lagging measure for one goal may therefore be
  used as a leading indicator for another objective

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Targets

• The term used to describe what is expected for
  the measured results/required level of
  performance
• Once you establish measurements, you need to set
  a target for each measurement.
• Targets push the organization to a required level
  of performance.
• Targets put focus on the goal, expressing the
  specifics of the goal.
• When an organization hits its targets, then it
  has successfully achieved its goals.

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Targets

• Establish financial related targets first
• Continuously review targets
• Target setting enables the organisation to
• - quantify the long term outcomes it wishes to
  achieve.
• -identify mechanisms and provide resources for
  achieving those outcomes.
• -establish short term milestones for the
  financial and non-financial measure
• on the scorecard.

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Sources for Determining Targets

• Strategic goals
• Industry benchmarks/best practice
• Incremental improvements to existing performance
  levels

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Reporting Issues

• How often should the Balanced Scorecard measures
  be collected?
• Who should collect?
• Collection process owner and collector
• Who should trend and analyse the Balanced
  Scorecard measures?
• How often should measures be changed?

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Best practice in global Corporations

• Use a balanced set of performance metrics
• Have quantifiable or verifiable (qualitative)
  goals
• Support the values of the organisation
• Align goals to strategy, and focus on development
• Use multi-rater feedback as part of the process
• Have a global philosophy/approach, but allow for
  local adaptation

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Everybody Wins

• Customers win because every employee understands
  the importance of customer satisfaction and the
  part they each play in delivering it.
• Senior management win because corporate
  performance is improved through the alignment of
  effort behind the strategy, and the visibility of
  the drivers for corporate performance.
• Middle management wins because there is better
  information at their fingertips to make resource
  allocation and prioritisation decisions, changes
  in priorities are communicated more rapidly and
  consistently, team management is easier and
  morale improved.
• All staff benefit because they see how they fit
  in and how to succeed, they know their
  contribution is recognised and valued and...
• We no longer expect a job for life - we do want
  employability for life!
• Skills and competencies of all staff are clearly
  valued, and can be updated and developed.
• The importance of personal development can be
  clearly recognised and valued, including personal
  development plans and tracking of progress, and
  the impact that skills development has on
  achieving objectives can be appreciated.

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Implementation

• Project Team
• GF Chinamasa
• E Chikaka
• L Mkuzvazva
• Dube
• T Samusodza
• C Vengesa
• M Nguwi
• Mapenzauswa

Presentation to Executive Management
Executive Senior Managers
Other Managers Employees
Perf Mgt Training Roll Out
Strategy Workshop Goal Setting
Contributions by Executives And Management
Design Meetings
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Implementation Issues Concerns

• Change management comes first
• Ensure all employees share in the understanding
  of our performance management strategy
• Employees need to know how the road looks ahead,
  which route to follow and how far we have come
• Pilot project ideal in big organisations
• Apart from BSC project team, involvement of Line
  managers is crucial
• Data collection in developed counties and big
  organisation software support used
• Involvement of both management and employees
  critical

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Pitfalls

• Getting bogged down in too many goals and
  measures
• Vocal, but not real commitment from management
  or simply no commitment as all
• Failing to realize that the scorecard like any
  management instrument is based on assumptions e.g
  if our strategy is based on the assumption that
  people want quality, and our measures assures us
  that we have that quality, but people still dont
  buy use our products then maybe its time to
  change the assumption.

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BENCHMARK INFORMATIONPerformance Ratios

• Financial Institutions

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Thank You
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QUESTIONS