Creating Strategy-Focused Organizations using the Balanced Scorecard Presentation to NCC-AIIM

1. Creating Strategy-Focused Organizations using the Balanced Scorecard Presentation to NCC-AIIM December 14, 2000 For further information please contact: Robert Wise, Ph.D. 781.402.1121 rwise@bscol.com Balanced Scorecard Collaborative, Inc. • 55 Old Bedford Road • Lincoln, MA 01773 • Tel: 781.259.3737 • Fax: 781.259.3389 • www.bscol.com

2. “Helping Companies Build Strategy Focused Organizations.” Mission: To facilitate the world-wide awareness, use, enhancement, and integrity of the Balanced Scorecard as a value-added strategic management process • Services • SFO Consulting • Education and Training • Publications • Action Research • Vendor Programs • Offices • Lincoln, Massachusetts USA • London, England • Sydney, Australia • Gothenberg, Sweden

3. 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

4. But Few Organizations Execute Strategy Well • “Strategy has never been more important” Business Week • “Less than 10% of strategies effectively formulated are effectively executed” Fortune Magazine • “In the majority of failures – we estimate 70% – the real problem isn’t (bad strategy)…. It’s bad execution.” “Why CEO’s Fail”,Fortune Magazine

5. Four Barriers to Strategic Plan Deployment 1. Vision and Strategy not actionable 2. Strategy not linked to Division/Team Goals 3. Strategy not linked to Resource Allocation 4. Feedback is Tactical, not Strategic

6. Ultimate Goal, to Become a: STRATEGY-FOCUSED ORGANIZATION 1 2 5 3 4

7. Principles of the Strategy Focused Organization:EXECUTIVE TEAM LEADERSHIP TO MOBILIZE STRATEGIC CHANGE #1 Leadership Roles • 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 • 5. Change the Culture A successful Balanced Scorecard program starts with a recognition that it is not a “metrics” project, it’s a “change” process.

8. Principles of the Strategy Focused Organization:TRANSLATE THE STRATEGY TO OPERATIONAL TERMS #2 The Strategy Financial Perspective • Measurement is the language that gives clarity to vague concepts. • Measurement is used to communicate, not to control. • Strategy can be described as a series of cause and effect relationships "If we succeed, how will we look to our shareholders?” Customer Perspective "To achieve my vision, how must I look to my customers?” Internal Perspective "To satisfy my customers, at which processes must I excel?” Organization Learning "To achieve my vision, how must my organization learn and improve?”

9. The Balanced Scorecard Adoptedfor a Government Organization Stakeholder Perspective The Mission of the organization is to fulfill Public Policy expectations Budget / Financial Perspective Customer Perspective “To achieve our mission, how must we look to our customers?” “If we succeed, how will we look to our financial donors?” “To satisfy our customers, financial donors and mission, what business processes must we excel at?” Internal Perspective “To achieve our mission, how must our people learn, communicate, and work together?” Learning & Growth Perspective Meeting the Expectations of Customers While Maintaining Financial Viability Constitutes Meeting Mission Objectives

10. Objectives • Fast ground turnaround Basic Scorecard Terminology(Southwest Airlines Example) Strategy Map Measures: How success or failure (performance) against objectives is monitored Targets: The level of performance or rate of improvement needed Initiatives: Key action programs required to achieve targets Objectives: What the strategy is trying to achieve Strategic Theme: Operating Efficiency Profits and RONA Financial Grow Revenues Fewer planes Attract & Retain More Customers Customer On-time Service Lowest prices Measures Targets Initiatives Internal Fast ground turnaround • On Ground Time • On-Time Departure • 30 Minutes • 90% • Cycle time optimization Learning Ground crew alignment

11. A Complete Scorecard is a Program for Action Strategy Map Objectives Measures Targets Initiatives Strategic Theme: Operations Excellence Strategic Theme:Operating Efficiency Profits and RONA Financial • 30% CAGR • 20% CAGR • 5% CAGR • Profitability • Grow Revenues • Fewer planes Grow Revenues Fewer planes Attract & Retain More Customers • # Customers • FAA On Time Arrival Rating • Market Survey • 12% growth • Ranked #1 • Ranked #1 • Customer loyalty program • Quality management • More Customers • Flight is on -time • Lowest prices Customer On-time Service Lowest prices Internal • On Ground Time • On-Time Departure • 30 Minutes • 90% • Cycle time optimization • Fast ground turnaround Fast ground turnaround • % Ground crew trained • % Ground crew stockholders • yr. 1 70%yr. 3 90%yr. 5 100% • Ground crew training • ESOP • Ground crew alignment Learning Ground crew alignment

12. Principles of the Strategy Focused Organization:LINK AND ALIGN THE ORGANIZATION AROUND ITS STRATEGY #3 #3. Each Support Unit develops a plan and BSC for “best practice” sharing to create synergies across Subordinate Commands. #1. A Corporate Scorecard defines overall strategic priorities on a Balanced Scorecard (BSC). CORPORATE AMEDD EXTERNAL PARTNERS SUPPORT UNITS CORPORATE SCORECARD (Shared Strategic Agenda) Major Subordinate Commands SBU A SBU B SBU C SBU D Themes Measures 1. Financial Growth 2. Delight the Consumer 3. Win-Win Relationships 4. Safe & Reliable 5. Competitive Supplier 6. Good Neighbor 7. Motivated & Prepared 8. Quality xxx xxx xxx xxx xxx xxx xxx xxx xx xx xx • Finance • Marketing • Distribution • Procurement • Purchasing • Safety • Human Resources • Information Technology • Customer Scorecards • Distributor Scorecard • Joint Venture Scorecard • Vendor Scorecard • New Venture Scorecard • Outsourcer Scorecard xx #2. Each Division develops a BSC consistent with corporatestrategic BSC. Strategies Are Executed Through Business Units. The Strategies of the Business Units Must Be Integrated If Organization Purpose and Synergies Are to Be Achieved.

13. Principles of the Strategy Focused Organization:MAKE STRATEGY EVERYONE’S JOB #4 CORP SBU Top-Down “Bridging Process” To Share the Strategy & Align the Workforce Bottom-Up Process to Internalize & Execute the Strategy • EDUCATION • PERSONAL GOAL ALIGNMENT • BALANCED PAYCHECKS The Strategy Focused Workforce

14. #5 Principles of the Strategy Focused Organization:MAKE STRATEGY A CONTINUOUS PROCESS 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 92% of organizations do not report on lead indicators reporting funding Management Control Loop PERFORMANCE Input(Resources) Initiatives & Programs Output(Results)