Tom Zalucha – OPERMGT380 (Training Presentation)

1. BALANCED SCORECARD Tom Zalucha – OPERMGT380 (Training Presentation) Balanced Scorecard

2. BALANCED SCORECARD What Will Be Covered Background and Definition How Can This Tool Be Used Nuts and Bolts – How It Works Building A Balanced Scorecard Examples and Exercises Summary / Reading List

3. BALANCED SCORECARD Background and Definition History of Balanced Scorecard Balanced Scorecard Defined Financial Perspective Customer Perspective Internal Process Perspective Employee Growth Perspective

4. BALANCED SCORECARD How Can This Tool Be Used (Exercise) What Is the Vision of the Future If Vision Succeeds, How Will We Differ What Are the Critical Success Factors What Are the Critical Measurements

5. BALANCED SCORECARD How Can This Tool Be Used (Answer) Forming vs Executing Strategy Balanced Scorecard Approach

6. BALANCED SCORECARD Nuts and Bolts – How It Works (Strategy Focused Principles) Translate Strategy Organization Alignment Strategy Is Everyone’s Job Strategy a Continual Process Executive Leadership

7. BALANCED SCORECARD Nuts and Bolts – How It Works (Strategy Focused Diagram)

8. BALANCED SCORECARD Building A Balanced Scorecard (Process Overview) Define Strategic Destination Build the Strategic Linkages Select Priority Initiatives Identify Key Themes Driving the Strategy Determine Measures and Targets Plan for Implementing Strategy Themes Objectives Measures& Targets Prioritized Initiatives Implementation Plan

9. BALANCED SCORECARD Building A Balanced Scorecard (Linking Measures to Strategy)

10. BALANCED SCORECARD Building A Balanced Scorecard (Translating Vision & Strategy)

11. BALANCED SCORECARD Building A Balanced Scorecard (Aligning Strategy) Using the Balance Scorecard at each level in a company helps to align the strategy throughout the organization. Corporate Division Location/Dept. Strategy Alignment Individual

12. Vision & Strategy Financial Perspective EVA Strategy Revenue Strategy Productivity Strategy Customer Perspective Customer Solutions Operational Excellence Product Leadership Internal Process Perspective Build the Brand Innovation Operations & Logistics Employee Growth Perspective Technology Infrastructure Employee Competencies Business Culture BALANCED SCORECARD Building A Balanced Scorecard (Scorecard Overview) • Balanced Scorecard Elements • Business Vision & Strategy • Strategic Themes • Four Business Perspectives • For each Perspective there are: • Objectives • Measures • Targets • Initiatives

13. BALANCED SCORECARD Building A Balanced Scorecard (Strategy to Operational Terms) Strategic Theme: Measurement Initiative Objectives Target

14. BALANCED SCORECARD Examples and Exercises (Exercise Steps) • Review business strategy and identify key strategic themes. • List all the strategic themes in your business strategy. • Select one strategic theme and create a strategy map. • Use the selected strategic theme to identify objectives, measures, targets, and initiatives for one key measure. • Identify the objectives, measures, targets, and initiatives for the other key measures. • If you have time, select another strategic theme and work through steps 1-4 again.

15. BALANCED SCORECARD Examples and Exercises (Step1 Review Strategy) Business is a stocking wholesale distributor of a broad line of building materials and related services to retail lumber yards and national distribution outlets. Your goal is to improve the company’s long-term EVA. Your strategy is to: Maintain or increase market share in existing trade areas by adding new products, improving marketing efforts with existing customers, and by focusing on value-added services Opportunistically expand into new markets. Continued emphasis on employee involvement to achieve operational efficiencies, cost reduction, and effective management of working capital in a safe operating environment.

16. BALANCED SCORECARD Examples and Exercises (Step2-3 Create Strategy Map) • Steps for creating a strategy map. • Insert your strategic theme at the top. • For each of the four key measures in the graphic on the left, identify a specific objective that will help your business support the strategic theme and overall business strategy. • After you have objectives identified for each key measure, draw arrows to describe the cause and effect relationships between the objectives. Strategic Theme: Financial Performance Customer Satisfaction Process Improvement Employee Satisfaction

17. Strategic Theme: Operational Efficiency Financial Profitability Fewer Trucks Increase Revenue Customer Reduced Cost Lower Prices Delivered on Date Promised Process Efficient Order Fulfillment Employee Sale/Operations Teamwork BALANCED SCORECARD Examples and Exercises (Step2-3 Create Strategy Map) • Steps for creating a strategy map. • Insert your strategic theme at the top. • For each of the four key measures in the graphic on the left, identify a specific objective that will help your business support the strategic theme and overall business strategy. • After you have objectives identified for each key measure, draw arrows to describe the cause and effect relationships between the objectives.

18. BALANCED SCORECARD Examples and Exercises (Step4 Identify Terms) Statement of what strategy must achieve and what’s critical to its success. How success in achieving the strategy will be measured and tracked. The level of performance or rate of improvement needed. Key action programs required to achieve objectives. Strategic Theme: Financial Performance Objectives Measurement Target Initiative Customer Satisfaction Process Improvement Blank Strategy Map with Objective, Measurement, Target, and Initiative for One Key Measure Employee Satisfaction

19. BALANCED SCORECARD Examples and Exercises (Step4 Identify Terms) Statement of what strategy must achieve and what’s critical to its success. How success in achieving the strategy will be measured and tracked. The level of performance or rate of improvement needed. Key action programs required to achieve objectives. Strategic Theme: Profitability Financial Performance Objectives Measurement Target Initiative Fewer Trucks Increase Revenue Efficient Staging and Loading of Customer Orders Number of Orders Pre-staged on Time for Loading 85% by June 2005 Optimize Order Pre-staging Process Customer Satisfaction Delivered on Date Promised Reduced Cost Lower Prices Process Improvement Efficient Order Fulfillment Employee Satisfaction Sale/Operations Teamwork

20. BALANCED SCORECARD Examples and Exercises (Step5 Complete Scorecard) Strategic Theme: Objectives Measurement Target Initiative Financial Performance Customer Satisfaction Process Improvement Employee Satisfaction

21. BALANCED SCORECARD Examples and Exercises (Step5 Complete Scorecard) Strategic Theme: Objectives Measurement Target Initiative Profitability Financial Performance Profitability More Customers Less Investment Market Value Truckload Rev. EVA Charge Increase Market Share by 5% Increase Truck Revenue by 10% Promote Delivery Service Fewer Trucks Increase Revenue Customer Satisfaction Orders Delivered On Time Lowest Prices Number of Orders Delivered on Date Promised Exceed Customer Expectations 95% Establish Specific Delivery Routes by Customer Delivered on Date Promised Reduced Cost Lower Prices Process Improvement Efficient Staging and Loading of Customer Orders Number of Orders Pre-staged on Time for Loading 85% by June 2005 Optimize Order Pre-staging Process Efficient Order Fulfillment Employee Satisfaction Improved Communication Channels Percent of Staff Trained in Teamwork 90% by June 2005 Teamwork & Communication Skills Training Sale/Operations Teamwork

22. BALANCED SCORECARD Summary and Reading List (Conclusion) Focus on Strategy not Tactics Define Strategy Implementation Allow Continuous Monitoring Emphasize Problem Solving & Growth A Tool Backed up by Leadership Alignment Across Entire Organization

23. BALANCED SCORECARD Summary and Reading List (Reference Material) Kaplan (2001: The Strategy-Focused Organization Kaplan (1996): The Balanced Scorecard Kaplan (1993): Putting Balanced Scorecard to work  

24. BALANCED SCORECARD Summary and Reading List (Definitions) Strategy: Our plan to add value to the corporation Principles: General guidelines for evaluating conduct Strategy Map: Diagram of cause-and-effect relationships between strategic objectives Themes: High-level “thrusts” designed to bring focus on key strategic priorities Perspectives: Dimensions against which we examine and translate the strategy Objective: Concise statement of what we are going to do. Note: verb-object structure Measure: Articulate what will be monitored to achieve objectives and drive performance Target: Defines amount of improvement required and when ‘success’ will be achieved Initiative: Discrete action programs with beginning and end designed to close a gap, support an objective, or achieve a specific set of outcomes