Balanced Scorecard & Strategic Management

1. Balanced Scorecard& Strategic Management

2. Strategic Planning Model 1. Where are we now? 2. Where do we want to be? 3. How do we measure our progress? 4. How do we get there? AND 5.How do we track our progress?

3. Budgets & Resources Strategic Planning Model SWOT Analysis Vision& Mission Balanced Scorecard Strategic Objectives Key Performance Indicators Initiatives • Objectives & Measures • Outputs and Outcome

4. Strategic Plan

5. Chem-Pro Corporate Scorecard Kaplan and Norton, 1996

6. Strategy Map • A diagram describes how an organization creates value by connecting strategic objectives in explicit cause-and-effect relationship with each other in the four BSC perspectives. • All of the information is contained on one page; this enables relatively easy strategic communication.

7. Max. Profit Inc. Rev. Reduce Cost Financial Perspective Inc. rev New Cust Inc. rev per Cust Cust Acquisition Cust Satisfaction Customer Perspective On-time Delivery Fast Service Product Quality Internal Process Perspective Cust Mgt. Process Logistic Process Production Process Learning & Growth Motivated Culture Skill Personnel Excellent IT/IS Strategy Map

8. What are the main principles behind Strategy Maps? • Strategy balances contradictory forces. • Strategy is based on a differentiated customer value proposition. • Value is created through internal business processes. • Strategy consists of simultaneous, complementary themes. • Strategic alignment determines the value of intangible assets. www.valuebasedmanagement.net

10. Strategy map Kaplan and Norton, 2004

11. Strategic Alignment

12. Strategic Alignment“Alignment is the essence of management” (Smith, Chairman of Federal Express, cited in Labovitz and Rosansky, 1997) • Strategic Alignment—the process of linking strategy with corporate vision, goals, objectives, and actions—fit and integration • Using Balance Scorecard to create corporate synergies

13. Answer: Alignment! Question:How can complex organizations achieve results like this in such short periods of time? The Balanced Scorecard process allows an organization to align and focus all its resources on its strategy STRATEGY BUSINESS UNITS EXECUTIVE TEAM INFORMATION TECHNOLOGY HUMAN RESOURCES BUDGETS AND CAPITAL INVESTMENTS Kaplan and Norton, 2001

14. Strategy-focused Organizations • Operationalizing the strategy – use balanced scorecard and strategy to map and identify significant strategies for creating sustainable competitiveness. • Aligning the organization to the strategy – align both strategic units and shared service units with organizational strategy. • Making strategy everyone’s everyday job – facilitate top down communication that helps employees understand how their day-to-day jobs contribute to strategy. • Making strategy a continual process – build double-loop process to manage strategy by (1) linking strategy to the budgeting process, (2) making effective management meeting to reviewing strategy, and (3) learning and adopting strategies as they evolve. • Mobilizing the leadership for change – leaders must enable their staff to understand why change is needed and lead them through the stated vision to its accomplishment.

15. Translate the strategy to operational terms #1 The Strategy • Measurement is the language that gives clarity to vague concepts. • Measurement is used to communicate, not to control. • Building the scorecard develops consensus and teamwork throughout the organization Financial Perspective "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 customer, at which processes must I excel?” Organization Learning "To achieve my vision, how must my organization learn and improve?” Kaplan and Norton, 2001

16. Link and align the organization around its strategy #2 #3. Each Support Unit develops a plan and BSC for “best practice” sharing to create synergies across SBUs. #1. A Corporate Scorecard defines overall strategic priorities. CORPORATE EXTERNAL PARTNERS LINE BUSINESSES SUPPORT UNITS CORPORATE SCORECARD (Shared Strategic Agenda) 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 SBU develops a long-range plan and BSC consistent with corporatestrategic agenda. #4. Plans and BSC’s define relationships with external partners consistent with SBU strategy. Strategies Are Executed Through Business Units. The Strategies of the Business Units Must Be Integrated If Organization Purpose and Synergies Are to Be Achieved. Kaplan and Norton, 2001

17. Make Strategy Everyone’s Everyday Job #3 HR Processes Are Essential for Moving Strategy From the Top to the Bottom 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 Kaplan and Norton, 2001

18. Strategic Goals Strategic Goals Strategic Goals Strategic Goals Measures Measures Measures Measures Unit Team Individual Strategy DeploymentWho are responsible for the targets?

19. Issues on Strategy Deployment • Corporate/Department KPI Matrix • Cascade to department or staff • Mandatory KPI • How to Weight KPIs • Routine/Administrative Job

20. Making Strategy a Continual Process #4 Imbed the Strategy in Ongoing Management Processes • Establish stretch targets; Select initiatives, Align operational improvement programs (TQM, Six Sigma, Activity Based Management); Allocate resources to projects 1 Integrate Strategy with Planning and Budgeting 2 Introduce the New Reporting System • Develop systems for data collection, analysis, and reporting 3 Conduct the New Management Meeting • Open discussion of performance shortfalls; team problem-solving; adapting and learning Kaplan and Norton, 2001

21. To Succeed, the Executive Leader Must be Engaged in the Strategic Change Process… #5 Unfreeze Change Breakthrough and Sustain Achieve commitment and momentum at the top Align and focus the organization on change Institutionalize capabilities and culture required for breakthrough results “Early Wins” “Irreversible Momentum” “The Case for Change” “A successful Balanced Scorecard program is a transformation process not a “metrics” project.” Kaplan and Norton, 2001

22. Strategic Learning

23. Command & Control Learn & Adapt Learning as a new paradigm of control Ultimate intent of managing by measuring is not to control people but to influence them to make decisions and take actions that are likely to be consistent with organizational goals

24. Strategic Learning System Strategy map Financial Perspective Customer Perspective Internal Perspective Learning Perspective Update the Strategy Test the Hypothesis 2. Strategy Management Balanced Scorecard • Strategic Objectives • Financially Strong • Delight the Consumer • Win-Win Relationship • Safe & Reliable • Competitive Supplier • Motivated & Prepared • Strategic Measures • Return of Capital Employed • Mystery Shopper Rating • Dealer/Pioneer Gross Profit Split • Manufacturing Reliability Index • Days Away from Work Rate • Laid Down Cost vs. Best Competitive Ratable Supply • Strategic Competency Availability Financial Cust Reporting Internal L&G Review 1. Project Management Resource Managing Operations Loop OPERATIONS Output Inputs Kaplan and Norton, 2001

25. Max. Profit Inc. Rev. Reduce Cost Financial Perspective Inc. rev New Cust Inc. rev per Cust Cust Acquisition Cust Satisfaction Customer Perspective On-time Delivery Fast Service Product Quality Internal Process Perspective Cust Mgt. Process Logistic Process Production Process Learning & Growth Motivated Culture Skill Personnel Excellent IT/IS Strategy Map as a Learning Device

26. Double Loop Learning System • Strategic Management: Strategic Planning + Strategy Implementation • Monitoring and Learning • Strategy Content Management • Project Management

27. Management Cockpit • A Dashboard—Management Information System for effective making decision • Information will be updated regularly and presented in the clarity, summary, and predetermined and sequenced basis

28. Management Cockpit Source: Chulalongkorn University, Thailand

30. Suwit SrimaiFaculty of Technology & ManagementPrince of Songkla University, Thailande-mail : suwit.s@psu.ac.th