Master Sun Consulting

1. Master Sun Consulting • Balanced Scorecard - Tool for Value Creation • Business Audit: Agenda for Scorecard Led Transformation • Strategy Maps to Individual Scorecard • Caselet Service Industry : ICICI Bank • Caselet Manufacturing : Texmaco Jakarta • Caselet Marketing & Sales : Tata Steel Wire Division

2. Why Need a Balanced Scorecard? The Source of Value Has Shifted From Tangible to Intangible Assets percentage of market value related to… Intangible Assets 85% 38% 62% Tangible Assets 62% 38% 15% 1982 19921 20002 1. Brookings Institute 2. Baruch Lev analysis of S&P500 companies

3. Value Creation: Intangible Assets Training Service Quality Customer Confidence Customer Retention Revenue InformationTechnology • Intangible Assets Do Not Have A Direct Impact on Financial Results — They Have Second- or Third-Order Impacts • Conventional approach to managing financial & operational indicators insufficient • Balanced Approach to Strategy Implementation should includes focus on customer/stakeholder & learning, growth & innovation • Understanding & managing/leveraging inter-relationships between the above areas necessary for value creation

4. Balanced Scorecard as a Tool for Business Excellence Malcolm Baldrige Balanced Scorecard Leadership Learning & Growth Perspective Human Resource Capital Learning & Growth Perspective Business Results Targets, Financial Perspective Process Management Internal Process Perspective Strategic Planning Strategy Map Customer Focus Customer Perspective

5. Balanced Scorecard Balanced Scorecard’s key theme is not about Measurement as the term would outwardly convey Its about Value creation -Execution of Strategy

6. Balanced Scorecard : Synonym for Managing Performance Introduced in 1992, by Robert Kaplan and David Norton, the Balanced Scorecard is the most commonly used framework for ensuring that companies execute their strategies Today, about 70% of the Fortune 1,000 companies utilize the Balanced Scorecard to help manage performance.

7. BALANCED SCORECARD Translate, Focus and Align TRANSFORMATION OBJECTIVES What we must improve STRATEGIC OUTCOMES SatisfiedSHAREHOLDERS Delighted CUSTOMERS Efficient and EffectivePROCESSES Motivated & PreparedWORKFORCE Balanced Scorecard Links Vision & Strategy to Personal Objectives VISION What we want to be STRATEGY Our game plan PERSONAL OBJECTIVES What I need to do

8. Master Sun Consulting • Balanced Scorecard - Tool for Value Creation • Business Audit: Agenda for Scorecard Led Transformation • Strategy Maps to Individual Scorecard • Caselet Service Industry : ICICI Bank • Caselet Manufacturing : Texmaco Jakarta • Caselet Marketing & Sales : Tata Steel Wire Division

9. Business Health Check Design Process Rollout Institutionalization Strategy Implementation Process Stage Identification & definition of areas of improvement Development of solution and testing Implementation of solution across all units Institutionalization of the process Activity Output Strategic Direction Strategic Guidelines Strategy Sustained Strategy

10. Business Audit Areas • Business Health Check • Depending on the critical needs of a business , at a point of time, the Business Health Check will focus on some or all of the following areas • Business Performance Analysis • Strategy Planning Analysis • Organization Culture Analysis • Process & Systems Analysis • Operations Analysis • Marketing Analysis • Sales & Distribution Analysis • Customer satisfaction analysis • Audit sets an agenda for transformation & also outlines the strategic thrusts for scorecard implementation

11. Master Sun Consulting • Balanced Scorecard - Tool for Value Creation • Business Audit: Agenda for Scorecard Led Transformation • Strategy Maps to Individual Scorecard • Caselet Service Industry : ICICI Bank • Caselet Manufacturing : Texmaco Jakarta • Caselet Marketing & Sales : Tata Steel Wire Division

12. Scorecard Design & Rollout Mobilize change through executive leadership Integrate improvement programmes with scorecard Translate the strategy to operational terms BALANCED S T R A T E G Y SCORECARD Change people, make strategy everyone’s everyday job Align the organization to create synergies

13. Scorecard Design & Rollout Translate the strategy to operational terms BALANCED S T R A T E G Y SCORECARD

14. Vision and Strategy Financial Perspective Customer Perspective Internal Perspective Learning and growth Perspective Translate : Strategy into 4 Components What are the financial objectives for growth and productivity? What are the major sources of growth? Who are the target customers that will generate the revenue growth? What are the objectives and how do we measure success with them? Brand / product development, sales, service, operations, logistics.. Activities needed to create the required customer value proposition and differentiation and the desired financial outcomes Organization infrastructure, skills, capabilities, knowledge of employees, working climate.. The ability to execute internal business processes in new differentiated ways

15. Translate : Terminator Zero Unhappiness Mission To ensure that the all causes of Unhappiness for Customer are Terminated in order for the bank to vie for Service Leadership • Customer Complaints • Customer Feedback Scores • Repeat Contacts • Request Closure beyond 24 Hours Customer • Cost of Complaints • % of Business through Cross Selling • Average Revenue Per Customer Financial • Performance within TATs • Quality • Productivity • % Complaints to Transactions • Branch Contacts with Customers, Delivery Success Rate % Internal Processes • Patent Score for Process Improvements • SWIFT Training to Branches, Terminator Workshops Research, Education & Teaching

16. Translate: Types of Measurements Definition Measure Type Example Intermediate outcomes that predicts or drive bottom-line performance results Leading Employee turnover rate Bottom-line performance results resulting from actions taken Lagging Employee satisfaction rating Amount of Investments, assets, equipment, labor hours, or budget dollars used Input Number of cashiers Units of a product or service rendered - a measure of yield Output Number of Value Meal orders fulfilled Resulting effect (benefit) of the use or application of an output Outcome Customer satisfaction rating Objective / Quantitative Empirical indicators of performance Wait time Perceptions and evaluations of major customers and stakeholders Customer complaints received as a % of total customers served Subjective / Qualitative

17. Scorecard Design & Rollout BALANCED S T R A T E G Y SCORECARD Align the organization to create synergies

18. Align: Use Strategy Map to Build Cause & Effect Relationships Improve ROCE Financial Perspective Revenue Growth Strategy Productivity Strategy Build the Franchise Increase Customer Value Improve Cost Structure Improve Asset Utilization • New Revenue Sources • Customer Profitability • Cost per Unit • Asset Utilization • Customer Acquisition • Customer Retention • Market Share Product Leadership Customer Value Proposition Customer Perspective Operational Excellence Product/Service Attributes Relationship Image Price Quality Time Function Service Relations Brand • Customer Satisfaction “Build the Franchise” “Increase Customer Value” “Achieve Operational Excellence” Internal Perspective (Customer Management Processes) (Innovation Processes) (Operations & Logistics Processes) Learning & Growth Perspective A Motivated and Prepared Workforce Strategic Competencies Strategic Technologies Climate for Action

19. Align : Flow of the Scorecard AlongThe Organization Plant Head :Weekly Value Loss Scorecard & Analysis Department Weekly Scorecard Maintenance Weekly Scorecard PC/QC Weekly Scorecard Review Review Review Production Daily Scorecard Packing Daily Scorecard Maintenance Daily Scorecard PC/QC Daily Scorecard Review Review Review Review Production Shift Scorecard Packing Shift Scorecard Review Review

20. Align :KPI Roll Down – Oil Refinery Equipment Constraint Hours Other Hours (Outside of Maintenance Engineering Services) Equipment constraint Man Hour Categories Man Hours is not a constraint Risk Constraint Hours Risk constraint Contractor Hours Turnaround Hours (Outside of current scope) Skills Constraint Hours Skills constraint Manpower Index (SMI) Man Hours Unit of Hardware Profit Constraint Hours Profit constraint Standard Hours Shell Hours Shell hours constraint Non Constraint Hours Unit of Hardware is a constraint Backlog Hours = Sigma [Job in queue x standard time] Planning Accuracy = Actual Hours/Estimated Hours Crew Utilization = Total earned hrs x 100 Actual available hrs Contractor Costs Non Energy Cash Costs (NECC) Operating Costs Response Time = Sigma [Job Time Raised – Job Time Closed] No. of Jobs Maintenance Schedule Adherence PM Index = No. of m/c for which PM is carried out No. of m/c due for PM Cost = Actual Job Cost + Lost Opportunity Maintenance Capex RCA Planned % Turnaround Cost (Outside of current scope) Reliability (MTBF) = (Total m/c hrs) - (m/c downtime hrs) No. of Breakdowns RCA Preventative % Availability = (Total m/c hrs) - (m/c downtime hrs) x 100 (Total m/c hrs) Turnaround Index (MI) RCA Installation/ Repair % Routine Costs Maintenance Index (MI) Maintainability (MTTR) = (m/c downtime hrs) No. of Breakdowns RCA Utilization % Plant transformations Maintenance Costs Routine Index (MI) RCA Design % Extraordinary Costs MTBF = Mean Time Between Failures Versus MTBM = Mean Time Between Maintenance? MMTR = Mean Time To Repair Inspection Costs

21. Align : Lowest Organism in the Food Chain • Mobil – Truck Drivers • Truck drivers were initially skeptical about how they could affect any of the corporate strategic themes. They knew that their job was to deliver to customers • By driving safely and avoiding accidents truck drivers could improve performance on all internal measures that were identified… lower costs, reliable, on time, environmentally friendly • ICICI-Fire in the Branch • Every single mistake by a branch added up to a lot of failures countrywide • Single complaint in a branch will bring the branch to a standstill • Would track to one activity not being done by a single person • Refer to Drawer syndrome

22. Align : Balanced Scorecard with Organizational Design • Job based on the Scorecard Matrices rather than on position descriptions, reporting relationships, and title transformations? • To what extent does your organization encourage individuals, regardless of job description, to search for innovation & growth ? • Brief on how your job impacts the KPIs of other department? • Extent you feel you receive a sufficient amount of feedback from internal and external sources to help you improve what you do? • Extent balanced scorecard tied to the transformation initiative? • Extent performance appraisal system integrated with balanced scorecard KPIs? • Extent does your current compensation/promotion system support/promote balanced scorecard KPIs? • Extent do you understand what you must do to satisfy the customer’s needs?

23. Complaints All complaints to be resolved with root fix Root Cause Analysis & Review Reduce Service Failure Flow Delivery Failure Close SR Within TAT Good Closure Quality Service Requests Ensure First Contact Resolution Contacts Get it right first time. Call up a customer if error is noticed Transactions Align :Mission Zero Unhappiness

24. Scorecard Design & Rollout BALANCED S T R A T E G Y SCORECARD Change people, make strategy everyone’s everyday job

25. Incompetent Competent Conscious Understanding Usage Unconscious Culture Compliance Change : Minds Path Matrix …No shortcuts possible... The Four States of Mind! Minds Path Matrix Incompetent Competent Conscious Support Coach Unconscious Delegate Direct

26. People understand that they are“being told” to do something new. • God knows why because they don’t see the use of it !! • This is normally viewed as extra non-value added responsibility. • If you stop checking, they will stop trying. • Recording this new or extra data and working in a new way has now become a fact of life. Process compliance is high • They now start using (read : analyzing) the scorecards. • Meetings are held to review the data. The wheel starts turning! • People start realising why the data recorded in the system might be of use to them and the business in the future. Process transformation begin to inspire confidence • There is some light at the end of the tunnel. • You still need to keep them on close track however. Change : Minds Path Matrix Understanding Usage Culture Compliance

27. People understand that they are“being told” to do something new. • God knows why because they don’t see the use of it !! • This is normally viewed as extra non-value added responsibility. • If you stop checking, they will stop trying. • People don’t think about the new system& processes anymore. It is THEIR system now. • They fully optimize the usage of data gathered at all levels. • They use the Scorecards to drive improvements in business performance. • They improve details of the systems as per the requirements. • Recording this new or extra data and working in a new way has now become a fact of life. Process compliance is high • They now start using (read : analyzing) the scorecards. • Meetings are held to review the data. The wheel starts turning! • People start realising why the data recorded in the system might be of use to them and the business in the future. Process transformation begin to inspire confidence • There is some light at the end of the tunnel. • You still need to keep them on close track however. Change: Minds Path Matrix Understanding Usage Culture Compliance

28. Change Management The Mind’s Path To Success Success Hope Pain Problem Definition Solution Development Solution Implementation Culture Change

29. Change : Keep Scorecards Focused • At least one objective/measure per perspective • No more than 15 measures • Personal scorecard must support supervisor’s scorecard • Every supervisor must have an objective and measure for coaching and employee development • Scorecard must include an objective and measure that supports another part of the business

30. Change : RCA Deliverables Not Received • Key Issue: RTO returns would sit at the branches, waiting for customer to collect them • Solution: Outbound Calling • Every deliverable cleared resulted in a happy customer, lesser rework & cost savings • Average Contact Ratio:65% Data :Nov04-Jun 05

31. Change Management : Link to Incentives • ICICI • Zero Unhappiness Branches • VNC • Incremental Performance over Base Performance is rewarded • Sales Reps often make incentive over and above salary • Performance observed over a quarterly period to avoid monthly manipulations

32. Change : Assessment Management System • “ If you can’t measure it, you can’t manage it.” • The secret to successful change management is to be able to assess and measure your progress through the ‘minds path’ • Change Management Assessment System • The four mindsets must be measured by Auditing.Auditing is a quantitative measure of a qualitative

33. Change :Assessment Management System (CAMS) • Audit questionnaires are developed to assess the mindset levels using a structured approach: • Closed ended questions for compliance. • Open ended questions for understanding. • Demonstrative questions for usage. • The audit questionnaire answers get converted into a scoring scheme… • 0 for wrong or not done. • 1 for partially right or partly done. • 3 for correct or demonstrated. • The percentages of each system performance category are plotted • The target is 100%.

34. System Utilization Status 100% 80% 60% Achievement 40% 20% 0% -5 -4 -3 -2 -1 Current Period Mechanical Understanding Usage Change : Assessment Management System(CAMS) Installation Status Installation Status 100% 90% 80% 70% 60% Achievement 50% 40% 30% 20% 10% 0% -5 -4 -3 -2 -1 0 Current Period Installed Partially Installed Not Installed

35. Change : Training & Communication Ask the Head Bulletin Boards Company Intranet Newsletters Classes Training Workshops

36. Change : Training in Problem Solving –Decision Making • Objective:     • The Program intends to provide an insight to the participants into the techniques for confronting the issues and arrive at alternatives toresolve them effectively using various tools and techniques. The program isstructured to provide an exposure to the systematic approach to logicaldecision making for attaining most optimal use of resources and enhanceeffectiveness. • Proposed Program Contents:    • Problem Solving • A conscious, systematic approach for analyzing situations and articulatingproblems, underlying assumptions and expected outcomes • Root Cause Analysis: A structured investigation that aims to identify the true cause of a problem and the actions necessary to eliminate it. Covers tools & techniques for problem understanding, cause generation, data collection, cause-and-effect analysis • Six Hat Thinking: Harness lateral thinking capabilities to unearth the resources available and make optimal use of them to gain expected outcomes. Avoiding ten mental creative locks • Force Field Analysis: Identifying potential risks and opportunities inherent in the situations • 80-20 Analysis or Pareto Principle: Prioritizing & focusing problem solving exercise on key issues • Decision Making • Even Swaps : A rational method for analyzing decision options & making swaps • Hidden Traps of Decision Making & how to avoid them • Group Decision Making: Using group decision making techniques like consensus & NGT. Avoiding usual traps of decision making like Groupthink • Decision Implementation: Decision implementation plan, monitoring, feedback & change management

37. Scorecard Design & Rollout Integrate improvement programmes with scorecard BALANCED S T R A T E G Y SCORECARD

38. Scorecard’s Role in Transformation • Scorecard is an indispensable tool to manage & monitor a transformation/business performance improvement programme • Scorecard Implementation needs to be supported by functional/departmental initiatives • Scorecard supported by a Transformation Initiative drives Business Results

39. Integrate : Goals, Measurement & Improvement Initiatives

40. Integrate :Going from Output to Outcome When you first launch your Initiative, you probably want to use an Output Measurement. Once the Initiative is up and running, integrate your measurement to an Outcome to see if the Initiative is really having strategic impact.

41. Forecast Plan Control Report Review Review Segment Mgr Monthly Score Card Marketing Department Segment Sales Target Segment Manager Review Segment Mgr Weekly Score Card Segment Mgr Daily Score Card Review Territory Sales Target Retail Manager Contact Plan Retail Mgr Monthly Score Card Manager Retail Review Review Retail Mgr Weekly Score Card Direct Sales input Retail Mgr Daily Score Card Review Distributor Quarterly ROI Analysis Review Distributor Monthly Score Card Distributor Sales Target Distributor Coverage Target Distributor Review Distributor Weekly Score Card Distributor Daily Score Card Review Review DSM Monthly Score Card DSM Target Route plan DSM Weekly Score Card Review DSM DSM Daily Score Card Retailer / Customer Sales Plan Contact Plan Market Intelligence Retail Mgr Customer / Retail Card Marketing Ride with Retail Mgr Ride with Integrate: Retail Management Control System

42. Integrate : ICICI Transformation Control System Analysis & Review Planning Control Senior Management Fortnightly Review Zero Unhappiness Scorecard & RCA Budget for Key Metrics for Mar 05 Daily Measurement of Metrics:Alarm Express Improvement Implementation Plan Junior & Middle Management Daily Review & Course Correction Weekly comparison of Budget vs. Actual Root Cause Analysis Focus on Short Interval Measurement, Analysis &Review

43. Scorecard Design & Rollout Mobilize change through executive leadership BALANCED S T R A T E G Y SCORECARD

44. Mobilize : Top Management Commitment 1.Creating the Climate for Change Unfreeze the organization Show the need for change 2. Creating the Leadership Team Breaking down functional bias 3. Creating the Vision and Strategy BSC as a “visioning process” BSC to clarify the strategy 4. Creating Team Accountability Accountability for cross-functional strategic themes at Executive Team level A successful Balanced Scorecard program starts with a recognition that it is not a “metrics” project, it’s a “change” process.

45. Mobilize :Tight Focus & Extensive Review STRATEGY 60% of organizations don’t link strategy & budgets 85% of management teams spend less than one hour per month on strategy issues update the strategy test the hypotheses Strategic Learning Loop BALANCED SCORECARD BUDGET 78% of organizations lock budgets to an annual cycle 20% of organizations take more than 16 weeks to prepare a budget reporting funding Management Control Loop 92% of organizations do not report on lead indicators PERFORMANCE Input(Resources) Output(Results) Initiatives & Programs

46. Mobilize : Red Buttons to Avoid • Middle Management Team: Lack of Senior Management Commitment • Done by One or Two Individuals • Held at the Top: For Senior Management Only • Too Long a Development Process: “Best Becomes the Enemy of the Good” • Treating the Balanced Scorecard as a Systems Project • Done Only for Compensation • Not Treated as a Change Management Project

47. Master Sun Consulting • Balanced Scorecard - Tool for Value Creation • Business Audit: Agenda for Scorecard Led Transformation • Strategy Maps to Individual Scorecard • Caselet Service Industry : ICICI Bank • Caselet Manufacturing : Texmaco Jakarta • Caselet Marketing & Sales : Tata Steel Wire Division

48. Context • Focus on Top line. ICICI Bank perceived to be very aggressive on sales , very poor on service. • For bottom-line to improves it was important for the bank to be a service leader. • Improved Service • Leads to improved productivity & profit • Generates a positive word of mouth. Attracts new customers • Provides a competitive advantage. • More difficult and slower for a competitor to respond to service improvement than to price change. • Help us retain customers. • Cheaper to retain customers than to acquire new ones

49. Terminator : Zero Unhappiness Mission To ensure that the all causes of Unhappiness for Customer are fully Terminated in order for the bank to vie for Service Leadership • Customer Complaints • Customer Feedback Scores • Repeat Contacts • Request Closure beyond 24 Hours Customer • Cost of Complaints • % of Business through Cross Selling • Average Revenue Per Customer Financial • Performance within TATs • Quality • Productivity • % Complaints to Transactions • Branch Contacts with Customers, Delivery Success Rate % Internal Processes • Patent Score for Process Improvements • SWIFT Training to Branches, Terminator Workshops Research, Education & Teaching

50. Zero Unhappiness Scorecard Branches-Sample Sample Scorecard • Scorecard presented & reviewed in fortnightly reviews • All variances are linked to RCA • Comparison of Monthly Performance Vs. Budget • Focus on Top Service Failures • Key Indicators Focused On : Number of Service Failures, Quality, Service Request Closed within TAT