The Balanced Scorecard

1. The Balanced Scorecard Presented To Alaoula Board Member Presented By Adnan Alshiha

2. Workshop Outline

3. The Balanced Scorecard What is it? Definition: The Balanced Scorecard is a management tool that provides stakeholders with a comprehensive measure of how the organization is progressing towards the achievement of its strategic goals.

4. 2000 1992 1996 • Articles in Harvard Business Review: • “The Balanced Scorecard — Measures that Drive Performance” January - February 1992 • “Putting the Balanced Scorecard to Work” September - October 1993 • “Using the Balanced Scorecard asa Strategic Management System” January - February 1996 • Acceptance and Acclaim: • “The Balanced Scorecard” is translated into 18 languages • Selected by Harvard Business Review as one of the “most important management practices of the past 75 years.“ 1996 2000 Balanced Scorecard History Enterprise-wide Strategic Management Measurement and Reporting Alignment and Communication

5. The Strategy-Focused-Organization • The Balanced Scorecard is the main management tool that has been used by successful organizations in various fields • Private and Public Sector • For- Profit and Not For- Profit • Different industries • These successful organizations placed their strategies at the centre of their operations. Their strategies, guided Their day- to- day activities • In this workshop, we will learn more about strategy- focused organizations, and how to develop Balanced Scorecards

6. Organizations Often Have A Gap Between Strategy and Action Strategy Is a Step In a Continuum MISSION Why we exist VALUES What’s important to us VISION What we want to be STRATEGY Our game plan STRATEGIC OUTCOMES SatisfiedSHAREHOLDERS Delighted CUSTOMERS Efficient and EffectivePROCESSES Motivated & PreparedWORKFORCE

7. MISSION Why we exist VALUES What’s important to us VISION What we want to be STRATEGY Our game plan BALANCED SCORECARD Implementation & Focus STRATEGIC INITIATIVES What we need to do PERSONAL OBJECTIVES What I need to do STRATEGIC OUTCOMES SatisfiedSHAREHOLDERS Delighted CUSTOMERS Efficient and EffectivePROCESSES Motivated & PreparedWORKFORCE The Balanced Scorecard Is A Bridge To Close That Gap Strategy Is a Step In a Continuum

8. The Balanced Scorecard What is it? The Balanced Scorecard: • Balances financial and non-financial measures • Balances short and long-term measures • Balances performance drivers (leading indicators) with outcome measures (lagging indicators) • Should contain just enough data to give a complete picture of organizational performance… and no more! • Leads to strategic focus and organizational alignment.

9. The Balanced Scorecard Provides a Four Perspective Framework to Translate Strategy Into Operational Terms The Vision Financial Perspective • Profitability • Growth • Shareholder Value “If we succeed, how will we look to our shareholders?” • Measurement is the language that gives clarity to vague concepts • Measurement is used to communicate, not simply to control Customer Perspective “To achieve our vision, what customer needs must we serve?” • Price • Service • Quality Internal Perspective “To satisfy our customers and shareholders, at which business processes must we excel?” • Cycle Time • Productivity • Cost Learning and Growth • New Skills • Continuous Improvement • Intellectual Assets “To excel in our processes, what must our organization learn?”

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

11. A Good Balanced Scorecard Tells the Story of Your Strategy Through A Set of Linked Cause and Effect Hypotheses Strategic Measurements StrategicObjectives (Lag Indicators) (Lead Indicators) • Return on Investment • Revenue Growth • Deposit Service Cost Change • Revenue Mix F1 - Improve Returns F2 - Broaden Revenue Mix F3 - Reduce Cost Structure Financial C1 - Increase Customer Satisfaction With Our Products & People C2 - Increase Satisfaction “After the Sale” • Share of Segment • Customer Retention • Depth of Relation • Satisfaction Survey Customer I1 - Understand Our Customers I2 - Create Innovative Products I3 - Cross-Sell Products I4 - Shift Customers to Cost-Effective Channels I5 - Minimize Operational Problems I6 - Responsive Service • New Product Revenue • Cross-Sell Ratio • Channel Mix Change • Service Error Rate • Request Fulfillment Time • Product Development Cycle • Hours with Customers Internal • Strategic Job Coverage Ratio • Strategic Info Availability Ratio • Personal Goals Alignment (%) L1 - Develop Strategic Skills L2 - Provide Strategic Info L3 - Align Personal Goals • Employee Satisfaction • Revenue per Employee Learning

12. Strategy Map: Diagram of the cause-and-effect relationships between strategic objectives Statement of what strategy must achieve and what’s critical to its success How success in achieving the strategy will be measured and tracked Strategic Theme: Operating Efficiency The level of performance or rate of improvement needed Key action programs required to achieve objectives Financial Profitability Lower Costs Increase Revenue Customer Flight is on time Lowest prices Objectives Measurement Target Initiative Internal • On Ground Time • On-Time Departure • 30 Minutes • 90% • Cycle time optimization • Fast ground turnaround Fast ground turnaround Learning Ground crew alignment Theme Example from Southwest Airlines’ Balanced Scorecard

13. The Balanced Scorecard Supports a Complete Strategic Management System by Linking Long Term Strategy and Measures to More Tactical Planning & Budgeting Longer Term (3-5 year) View Shorter Term (Annual) View Vision Mission Themes/ Goals Objectives Initiatives Milestones Accountable Targets Measures Resource Alloc. • Grow revenue from patient care • % patient care revenue growth • ‘02 xx% • ‘03 xx% • ‘04 xx% Financial • Meet access expectations • 3rd available appointment (% met) • Access project • Meet monthly target • Mkg. Team • $ xxxx • ‘02 xx% • ‘03 xx% • ‘04 xx% Customer 1. Strengthen innovation 2. Improve customer satisfaction 3. Assure consistent high quality 4. Provide operational excellence ABC Hospital System will provide excellent care in our selected specialty areas while maintaining margin and growing share Serve the needs of patients excellently • Assure optimum patient mix • % patient mix • ’02 = 39% • ’03 = 40% • ’04 = 41% • Mix Margins Project • Complete by 2003 • Dept. Chairs • $ xxxx Internal • Promote ABC Culture Model • Employee Satisfaction Survey • ‘02 xx% • ‘03 xx% • ‘04 xx% • Evaluate survey response • Deadline met • HR Committee • $ xxxx Learning Tactical Strategic

14. The Balanced Scorecard Why do it? • To achieve strategic objectives. • To provide quality with fewer resources. • To eliminate non-value added efforts. • To align customer priorities and expectations with the customer. • To track progress. • To evaluate process changes. • To continually improve. • To increase accountability.

15. The Balanced Scorecard Why do it? It works! In just 90 days, Sandia Labs was able to redirect $190,000 in savings by dropping initiatives that didn’t fit their overall strategy. “The BSC has forced our management team to focus beyond financial measures… too often in the past we would get sucked into short-term thinking.” “The BSC dramatically improved our data analysis… we don’t overreact nearly as much as we used to.”

16. Execution of Strategy Has Become the Corporate Challenge of Our Times! • “Strategy has never been more important” Business Week • “Less than 10% of strategies effectively formulated are effectively executed” Fortune Magazine • “The problem is that our age’s fascination with strategy and vision feeds the mistaken belief that developing the right strategy will enable a company to rocket past competitors. In reality, strategy is less than half the battle. .. In the majority of cases – we estimate 70% – the real problem isn’t [bad strategy]…. It’s bad execution.” Why CEO’s Fail Ram Charan and Geoffrey Colvin Fortune (6/21/99)

17. The Results are Widespread CIGNA Property & Casualty Chemical Bank 1993 – $275 loss 1998 – Top Quartile – $3b spin-off Profits 1993 – X 1998 – 20X Brown & Root Engineering (Rockwater) ATT Canada 1993 – Losing money 1996 – # 1 in Niche (growth & profits) 1995 – $300M loss 1998 – Customer base doubles 1999 – $7b spin-off Saint Mary’s/ Duluth Clinic Health System Southern Citrus 1995 1998 Measure Improvement • Shipments on Spec • On Time Delivery • Rework • Absenteeism • Employee Turnover • Cost per Pound (¢) 70% 89% 6% 10% 100 28.8 97% 98% 2% 1% 31 18.9 Operating Margin $18M since BSC implementation Days in AR Decrease 16 days Overall Hospital Point Satisfaction 15% Duke Children’s Hospital Mobil US Marketing & Refining Measure % Improvement Competitive Rank (out of 7,profit) Operating Margin 25 1993 1995 1996 1997 1998 #6 #1 #1 #1 #1 Family Satisfaction 11 Length of Stay 25 Readmission Rate 63

18. The Strategy Focused Organization Mission: What we do Vision: What we aspire to be Strategies: How we accomplish our goals Measures: Indicators of our progress

19. ..the question..? What is our strategy?

20. Environmental Scan Strengths Weaknesses A Model for Strategic Planning Opportunities Threats Values Mission & Vision Strategic Issues Strategic Priorities Objectives, Initiatives, and Evaluation

21. Business Strategy

22. Business Strategy

23. Corporate Culture

24. Corporate Culture • The beliefs and values shared by people who work in an organisation • How people behave with each other • How people behave with customers/clients • How people view their relationship with stakeholders • People’s responses to energy use, community involvement, absence, work ethic, etc. • How the organisation behaves to its employees – training, professional development, etc.

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