IMPLEMENTING THE BSC IN YOUR HIGH TECH COMPANY

1. IMPLEMENTING THE BSC IN YOUR HIGH TECH COMPANY

2. Decide Evaluate Convert Implement Craft BSC and the Strategic Planning Cycle • Decide on a what businessyou want to be in (Mission-Vision) • Convert that vision into goals, and articulate the goals into measurable objectives/targets • Craft a strategy to achievethe desired results • Implement it effectivelyand efficiently • Evaluate performance andtake corrective actions

3. SCORECARD READINESS ASSESSMENT TOOL EXAMPLE Criteria Score (Out of 10) Weight Total Points Rationale Strategy Sponsorship Need Support of Participants Scope Data Resources 10 9 5 7 8 4 4 30% 30% 15% 10% 5% 5% 5% 3 2.7 0.75 0.7 0.4 0.2 0.2 This unit has recently completed a new strategy plan for the next five years. New unit president has successfully utilized the Balanced Scorecard with two other organizations before joining us. Results for this group have been excellent, and they may not see the need for this tool to sustain future errors. Young, energetic management group willing to experiment with new approaches. This unit produces, markets, and sells a distinct group of products. Despite their success they have not utilized sophisticated performance measurement system in the past. Unit is understaffed and will have difficulty finding resources for this project. Total 100% 7.95

4. SCORECARD READINESS ASSESSMENT TOOL: EXPLAINED RATIONALE Criteria Score (Out of 10) Weight Total Points Rationale Does the company have an explicit strategy? How aware the personnel is about the strategy? How committed is top management to the implementation of the scorecard, specially at the beginning? Given the current strategy implementation tools existing in the company, how much is the scorecard needed in the company? How willing are the personnel to do the required effort to elaborate the Scorecard in the company? How many products/services does the company provide, and how wide is the business scope? How experienced is the company in collecting and processing information for strategy implementation/performance measurement systems? How much resources (time, money, documentation) can the company afford for the Scorecard (specially at the beginning)? Strategy Sponsorship Need Support of Participants Scope Info Collection Resources 30% 30% 15% 10% 5% 5% 5% Total 100%

5. SCORECARD READINESS ASSESSMENT TOOL Criteria Score (Out of 10) Weight Total Points Rationale Strategy Sponsorship Need Support of Participants Scope Info Collection Resources 30% 30% 15% 10% 5% 5% 5% Total 100%

6. Strategic Goals • Strategic goals are priority ”action pillars” that the firm aims to achieve during the year, in coherence with the stated vision • Goals are • Broad by definition • Quick to understand • Corporate Level • Quantitative or Qualitative • Functional (marketing, strategic, financial...) • Main directives for developing more accurate objectives to arrive to that goal • Priority in the action plan, but not always comprehensive

7. Corporate Goals: Anheuser-Busch • To make all our companies leaders in their industries in quality while exceeding customer expectations. • To achieve half of the market share of the U.S. beer market. • To establish and maintain a dominant leadership position in the international beer market. • To provide all our employees with challenging and rewarding work, and opportunities for personal development, advancement, and competitive compensation. • To provide our shareholders with superior returns by achieving double-digit annual earnings per share growth

8. DEVELOPING OBJECTIVES • From the Strategy Plan, ask the following questions: • Customer Perspective • What is the “value proposition” being offered to the customer as a result of the strategy? • Identify the elements that make this value proposition possible • Internal Process • What are the specific aspects of our internal process at which we must excel for implementing our strategy? • Financial Perspective: • What are the financial implications when implementing each step of the strategic plan • Implications for revenue growth, costs, productivity, profitability, debt structure, share value... • Employee learning and growth: • What are the skills/competences/development path that our employees need in order to implement the strategy?

9. Short-Range andLong-Range Objectives • Short-Range objectives • Targets to be achieved in the current year • Serve as stair steps for reaching long-range performance • Indicate them explicitly in the Scorecard • Long-Range objectives • Objectives to be achieved within 3 to 5 years • Slice them into sub-objectives to be achieved for each of the 5 years • Indicate in the Scorecard only this year’s objective • Keep the rest of the information as background information in the scorecard (for continuity in further years)

10. Examples: Financial Objectives • Achieve revenue growth of 10% per year for product A • Increase Net income by 11% annually • Increase dividends per share by 3% per year • Increase net profit margins from 2% to 4% • Reduce the manufacturing costs by 8% • Reduce the long-term debt by 5% • Increase EBIT in Estonian operations by 3% • Recognition as a strong performing company • A more diversified revenue base

11. Examples: Non-Financial Objectives • A bigger market share • Quicker design-to-market times than rivals • Higher product quality than rivals • Lower costs relative to key competitors • Broader product line than rivals • A stronger reputation with customers than rivals • Better customer service than rivals • Recognition as a leader in technology • Wider geographic coverage than rivals • More innovative products than rivals

12. Customer Perspective:Key Aspects of Customer Value Focus on key attributes to avoid Negative Differentiation Value Positive Differentiation Value Focus on key attributes to enhance Total Economic Value Reference Value

13. Customer Perspective:Value Proposition in Retail Banking Value Proposition Product/Service Attributes Image Relationship Breadth of Offering Error Free User-friendly Services Expertise Convenient Personal Adviser Responsive Measures Objectives • Develop new financial solutions for middle class • Market penetration of current services in Eastern Germany regions • Improve error-free level of our services • Increase user-friendliness of services through Internet • Improve our customer image • Number of new services developed for middle class • Market share in Eastern Germany region X and Y • Error-reduction rates • Ease-of-use rates (through an internet survey) • Image ratings

14. TYPICAL CUSTOMER MEASURES • Win rate (sales closed/sales • contacts) • Customer visits to the company • Hours spent with customers • Marketing cost as a percentage • of sales • Numbed of ads placed • Number of proposals made • Brand recognition • Response rate • Number of trade shown attended • Sales volume • Share of target customer spending • Sales per channel • Average customer size • Customers per employee • Customer service expense per • customer • Customer profitability • Frequency (number of sales • transactions) • Customer satisfaction • Customer loyalty • Market share • Customer complaints • Complaints resolved on first • contact • Return rates • Response time per customer • request • Direct price • Price relative to competition • Total cost to customer • Average duration of customer • relationship • Customers lost • Customer retention • Customer acquisition rates • Percentage of revenue from • new customers • Number of customers • Annual sales per customer

15. Process Perspective: Understand your Business Model SUPPORT ACTIVITIES Infrastructure Human Resource Management Technology Development Procurement R&D Prod Design PRIMARY ACTIVITIES Inbound Logistics Operations Marketing/Sales Service

16. Internal Process PerspectiveUnderstand the Whole Industry Value Chain Supplier Value Chain Firm Value Chain Channel Value Chain Buyer Value Chain

17. INTERNAL PROCESS MEASURES • Average cost per transaction • On-time delivery • Average lead time • Inventory turnover • Environmental emissions • Research and development • expense • Community involvement • Patents pending • Average age of patents • Ratio of new products to total • offerings • Stockouts • Labor utilization rates • Response time to customer • requests • Defect percentage • Rework • Customer database availability • Breakeven time • Cycle time improvement • Continuous improvement • Warranty claims • Lead user identification • Products and services in the • pipeline • Internal rate of return on new • projects • Waste reduction • Space utilization • Frequency of returned purchase • Downtime • Planning accuracy • Time to market of new products/ • services • New products introduces • Number of positive media • stories

18. SUPPLY CHAIN MEASURES • Time • On-time delivery receipt • Order cycle time • Order cycle time variability • Response • Forecasting/planning cycle time • Planning cycle time variability • Quality • Overall customer satisfaction • Processing accuracy • Perfect order fulfillment • - On-time delivery • - Complete order • - Accurate product selection • - Damage free • - Accurate invoice • Forecast accuracy • Planning accuracy • Schedule adherence • Costs • Finished goods inventory turns • Days sales outstanding • Cost to serve • Cash to cash cycle time • Total delivered costs • - Cost of goods • - Transportation costs • - Inventory carrying costs • - Material handling costs • - All other costs • - Information system • - Administrative • Cost of excess capacity • Cost of capacity shortfall • Other/Supporting • Approval exceptions to standard • - Minimum order quantity • - Change order timing • Availability of information

19. Learning and Growth Perspective:Identifying the Skills/Competences Gap WHERE YOUR COMPANY SHOULD BE GAP WHERE YOUR COMPANY IS

20. LEARNING AND GROWTH PERSPECTIVE: USEFUL TOOL FOR SKILL SELECTION LOW REQUIREMENT BASIC REQUIREMENT KEY REQUIREMENT The skills inside the thicker squares will be prioritized for building the program content. LOW CURRENT MODERATE CURRENT HIGH CURRENT SKILL LEVEL SKILL LEVEL SKILL LEVEL

21. LEARNING AND GROWTH PERSPECTIVE: USEFUL TOOL FOR SKILL SELECTION LOW REQUIREMENT BASIC REQUIREMENT KEY REQUIREMENT The skills inside the thicker squares will be prioritized for building the program content. LOW CURRENT MODERATE CURRENT HIGH CURRENT SKILL LEVEL SKILL LEVEL SKILL LEVEL

22. LEARNING-GROWTH MEASURES • Employee participation in professional • or trade associations • Training investment per customer • Average years of service • Percentage of employees with advanced • degrees • Number of cross-trained employees • Absenteeism • Turnover rate • Employee suggestions • Employee satisfaction • Participation in stock ownership plans • Lost time accidents • Value added per employee • Motivation index • Outstanding number of applications for • employment • Diversity rates • Empowerment index (number of • managers) • Quality of work environment • Internal communication rating • Employee productivity • Number of scorecards produced • Health promotion • Training hours • Competency coverage ratio • Personal goal achievement • Timely completion of performance • appraisals • Leadership development • Communication planning • Reportable accidents • Percentage of employees with • computers • Strategic information ratio • Cross-functional assignments • Knowledge management • Ethics violations

23. Financial Perspective:Types of Financial Ratios • Ratios can be classified as: • 1.Ratios that measure the company’s ability to pay current liabilities (LIQUIDITY) • 2.Ratios that measure the company’s ability to sell inventory and collect receivables (OPERATING AND WORKING CAPITAL MANAGEMENT) • 3.Ratios that measure the company’s ability to pay long-term debt (SOLVENCY) • 4.Ratios that measure the company’s success in its earnings (PROFITABILITY) • 5.Ratios used to analyze the company’s stock as an investment (VALUATION RELATED RATIOS)

24. Financial Perspective:Remember the Cash Dynamics!! Payments to suppliers Collections from customers Operating Activities Payments to employees Receipts of interest and dividends on investments Payments of interest and income tax Other operating receipts Other operating disbursements Acquisition of plant assets Sale of plant assets Investing Activities Purchase of investments that are not cash equivalents Sale of investments that are not cash equivalents Making loans Receipts on loans receivable Payment of dividends Issuing stock Financing Activities Purchase of treasury stock Selling treasury stock Payment of principal amounts of debts Borrowing money

25. Financial Perspective:How will your objectives/actions change the company’s financial structure? Current liabilities Current Assets LIABILITIES Non – current or Long – Term liabilities ASSETS Fixed or Non – current assets Share Capital SHAREH. EQ. Reserves Retained earnings

26. Financial Perspective:How will your objectives/actions change this year’s costs and profitability? SUMMARIZED INCOME STATEMENT SALES OR TOTAL OPERATING REVENUES (minus) Cost of Goods Sold = GROSS MARGIN (minus) Selling, General and Administrative Expenses = EBITDA (minus) Depreciation and Amortization Expense = EBIT OR OPERATING INCOME (minus) Interest Expense (minus) Income Tax Expense =NET INCOME

27. TYPICAL FINANCIAL MEASURES • Total assets • Total assets per employee • Profits as a % of total assets • Return on net assets • Return on total assets • Revenue/total assets • Gross margin • Net income • Profit as a % of sales • Profit per employee • Revenue • Revenue from new products • Revenue per employee • Return on equity (ROE) • Return on capital employed (ROCE) • Return on investment (ROI) • Economic value added (EVA) • Market value added (MVA) • Value added per employee • Compound growth rate • Dividends • Market value • Share price • Shareholder mix • Shareholder loyalty • Cash flow • Total costs • Credit rating • Debt • Debt to equity • Times interest earned • Days sales in receivable • Accounts receivable turnover • Days in payables • Days in inventory • Inventory turnover ratio

28. ROCE Customer Loyalty On-time Delivery Process Quality Process Cycle Time Employee Skills VERY BASIC STRATEGY MAP Financial Customer Internal/Business Process Learning and Growth

29. ANOTHER STRATEGY MAP return on capital employed (+) (-) accounts receivable operating expenses Financial customer satisfaction (-) (+) Customer Quality (+) (+) Internal Business Processes employee morale employee suggestions (+) Learning and Innovation

30. MORE COMPLETE MAP The Revenue Growth Strategy “Improve the stability by broadening the sources of revenue from current customers.” The Productivity Strategy “Improve operating efficiency by shifting customers to more cost-effective channels of distribution.” Improve Returns Financial Perspective Broaden Revenue Mix Improve Operating Efficiency Customer Perspective Increase Customer Satisfaction Through Superior Execution Increase Customer Confidence in Our Financial Advice Internal Perspective Shift to Appropriate Channel Minimize Problems Provide Rapid Response Understand Customer Segments Develop New Products Cross-Sell the Product Line Learning and Growth Perspective Increase Employee Productivity Align Personal Goals Develop Strategic Skills Access to Strategic Information

31. STRATEGY MAP TEMPLATE Perspective

32. ASSESSING MEASURES APPROPRIATENESS Balanced Scorecard Project – Measure Selection Worksheet Linkage to Ability to Ease of Counter- Common Total Measures Strategy Quality Accessibility Understanding Balanced Relevance Definition Points Comments Financial Measure 1 Measure 2 Measure 3 Customer Measure 1 Measure 2 Measure 3 Internal Process Measure 1 Measure 2 Measure 3 Emp. L & G Measure 1 Measure 2 Measure 3 Overall:

33. CREATING A MEASURE DICTIONARY Perspective: Customer Measure Number/ Name: C01/ Customer Loyalty Rating Owner: D. Ferguson, VP Marketing Strategy: Revenue growth Objective: Increase customer loyalty Description: The customer loyalty rating measures the percentage of surveyed customers stating they prefer our products to Competitor offerings, and will purchase our products again. Our research indicates that loyal customers make more frequent purchases and tend to recommend our brands to others. Therefore, we believe increasing customer loyalty will help us achieve our strategy of revenue growth. Lag/ Lead: Lag Frequency: Quarterly Unit Type: Percentage Polarity: High values are good Formula: Number of quarterly survey respondents answering yes to survey questions 5: “Do you prefer our products to competitor offerings?” and #6: “Will you purchase our products again?” divided by the total number of surveys received. Data Source: Data for this measure is provided by our survey company, “SST.” Each quarter they perform a random survey of our customers and provide the results electronically to our marketing department. Data is contained in the form of MS Excel Spreadsheets (MKT SURVEY.xls, lines 14 and 15). Data is available the 10th business day following the end of each quarter. Data Quality: High-received automatically from third-party vendor Data Collection: I. Hashem, Marketing Analyst Baseline: Our most recent data received from SST Target: Q1 2001: -65% Q2 2001: 68% Q3 72% Q4 2001: 75% indicates a customer loyalty percentage of 59%. Target Rationale: Achieving customer loyalty is critical to our revenue growth strategy. The quarterly increases we’re targeting are higher than in past years but reflect our increased focus on loyalty. Initiatives: 1. Seasonal promotions 2. Customer relationship management project 3. Customer service training

34. MEASURE TEMPLATE Perspective: Measure Number/ Name: Owner: Strategy: Objective: Description: Lag/ Lead: Frequency: Unit Type: Polarity: Formula: Data Source: Data Quality: Data Collection: Baseline: Target: Target Rationale: Initiatives

35. Lagging Hard Objective Outcome Control Stability Tactical Bottom up measures Leading Soft Subjective Learning and Growth Leadership Change Strategic Top down measures Getting the right balance of measures

36. FINANCIAL “To succeed financially, how should we appear to our shareholders?” CUSTOMER INTERNAL BUSINESS PROCESSES “To achieve our vision, how should we appear to our customers?” “To satisfy our shareholders and customers, what business processes must we excel at?” Objectives Objectives Objectives Objectives Measures Measures Measures Measures Targets Targets Targets Targets Initiatives Initiatives Initiatives Initiatives Vision & Strategy INNOVATION AND LEARNING “To achieve our vision, how will we sustain our ability to change and improve?” THE SCORECARD AND MEASURE TYPES Lagging Hard Leading Soft

37. Business Unit Mission and Strategy Strategic Objectives and Measures Departmental Business Plans Team Business Plans Individual Performance Measures Cascading the Scorecard The Process of developing the BSC, andcascading it down the organisation,ensures that everyone understands the business unit’s long-termobjectives, as well asthe strategy forachieving them. OBJECTIVES at all levels should fall into the four perspectives • Financial • Customer • Internal Business Processes • Learning and Innovation

38. CASCADING THE BSC Mission, Values, Vision Strategy Financial Customer Internal Processes Employee L&G Objective Measure Targets Initiatives Objective Measure Targets Initiatives Objective Measure Targets Initiatives Objective Measure Targets Initiatives Highest Level Scorecard Financial Customer Internal Processes Employee L&G Objective Measure Targets Initiatives Objective Measure Targets Initiatives Objective Measure Targets Initiatives Objective Measure Targets Initiatives Business Unit Level, etc. Financial Customer Internal Processes Employee L&G Objective Measure Targets Initiatives Objective Measure Targets Initiatives Objective Measure Targets Initiatives Objective Measure Targets Initiatives Department, Group Level Team and Personal Balanced Scorecard

39. LINKING ACTIONS TO OBJECTIVES Benchmarking Maintenance overhaul ISO 9002 Frequent purchase program IT tools and training 360 Feedback Global communication Partner program Just-in-time Mfg. Decision training Facility beautification New pricing programs Actions Perspective Financial Customer Internal Process Employee Learning and Growth Objectives Grow revenue Increase asset utilization Increase partnering Build loyalty Grow market share Develop customer information Reduce downtime Develop core competencies Increase empowerment

40. LINKING ACTIONS TO OBJECTIVES Actions Perspective Financial Customer Internal Process Employee Learning and Growth Objectives

41. PERSONAL SCORECARD TEMPLATE Department Manager –Personal Balanced Scorecard Perspective Objective Measure Weight Threshold Midpoint Stretch Actions Customer Customer Loyalty Presentations to local 40% 10 15 20 Develop 5 new professional 25% trade groups contacts this year Join 2 trade associations Outage reliability Plant visits 60% 20 30 50 Employee Safety Departmental 60% 2 1 0 Attend safety training Learning and injuries course Growth 25% Develop skill sets % Employees 15% 80% 90% 100% Complete facilitator completing education training Develop skill sets Complete Personal 10% - - - Complete PDP by mid-year Development Plan Employee Departmental 15% 75 80 85 Support employee Commitment Commitment rating volunteer efforts Internal Meter reading % on-time readings 50% 90% 95% 100% Process 25% and meter changes System Conducts plant audits 50% 25 40 45 maintenance Financial Minimize administrative Local costs 55% Budget Budget Budget Complete 2 courses in 25% spending less 1% less 2% finance Grow revenue Increase departmental 45% 5% 10% 25% Lead departmental miscellaneous revenue brainstorming session on revenue enhancement

42. Personal Balanced Scorecard Perspective Objective Measure Weight Threshold Midpoint Stretch Actions

43. Articulate Communicate Align Balanced Scorecard and Strategy

44. THE SCORECARD TEAM Executive sponsor • Assumes ownership for the Balanced Scorecard project • Provides background information to the team on strategy/methodology • Maintains communication with senior management • Commits resources (both human and financial) to the team • Provides support and enthusiasm for the Balanced Scorecard throughout the organization Balanced Scorecard champion • Coordinates meetings; plans, tracks, and reports team results • Provides thought leadership on the Scorecard methodology to the team • Ensures that all relevant background material is available to the team • Provides feedback to the executive sponsor and senior management • Facilitates the development of an effective team: coaching and support

45. THE SCORECARD TEAM Team members • Provide expert knowledge of business unit or functional operations • Inform and influence their respective senior executives • Act as Balanced Scorecards ambassadors within their unit or department • Act in best interests of the business as a whole Organizational change expert • Increases awareness of organizational change issues • Investigates change-related issues affecting the Scorecard project • Works with the team to produce solutions to change-related risks

46. SCORECARD TEAM COMMUNICATIONS TEMPLATE Audience Executive team Management All employees Project team • Gain commitment • Remove obstacles • Report progress • Prevent surprises • Convey purpose • Explain concepts • Report progress • Gain commitment • Convey purpose • Introduce concepts • Eliminate misconceptions • Report progress • Track progress • Assign tasks • Review expectations Purposes Frequency Biweekly Biweekly Monthly weekly Delivery Vehicle Communicator Direct contact Executive sponsor • E-mail • Management meetings Champion/team members • E-mail • Newsletter • General meetings Project team members • Team meeting • Team memos Champion

47. SCORECARD TEAM COMMUNICATIONS TEMPLATE Audience Purposes Frequency Delivery Vehicle Communicator