The Balanced Scorecard

Presented To
Adnan Alshiha
Presented By
Alaoula Board Member
Workshop Outline
Introduction to the Balanced Scorecard
What is it?
Why do it?

1-3
Brayer Break
Balanced Scorecard Fundamentals
The Four Perspectives
Measures, Targets and Initiatives
Roles and Responsibilities

Business Strategy
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.
1992 1996 2000
Balanced Scorecard History
Measurement
and
Reporting
Alignment and
Communication
Enterprise-wide
Strategic
Management
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 as
a Strategic Management System
January - February 1996
1996 2000
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.




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


The Strategy-Focused-Organization
Organizations Often Have A Gap
Between Strategy and Action
Strategy Is a Step In a Continuum
MISSION
Why we exist
VALUES
Whats important to us
VISION
What we want to be
STRATEGY
Our game plan
STRATEGIC OUTCOMES
Satisfied
SHAREHOLDERS
Delighted
CUSTOMERS
Efficient and Effective
PROCESSES
Motivated & Prepared
WORKFORCE
The Balanced Scorecard Is A
Bridge To Close That Gap
Strategy Is a Step In a Continuum
MISSION
Why we exist
VALUES
Whats important to us
VISION
What we want to be
STRATEGY
Our game plan
BALANCED SCORECARD
Implementation & Focus
STRATEGIC INITIATIVES
What we need to do
STRATEGIC OUTCOMES
Satisfied
SHAREHOLDERS
Delighted
CUSTOMERS
Efficient and Effective
PROCESSES
Motivated & Prepared
WORKFORCE
PERSONAL OBJECTIVES
What I need to do
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.
Measurement is the
language that gives
clarity to vague
concepts
Measurement is used
to communicate, not
simply to control
Financial Perspective
Profitability
Growth
Shareholder
Value
The Vision
Customer Perspective
Price
Service
Quality
Internal Perspective
Learning and Growth
New Skills
Continuous
Improvement
Intellectual
Assets
If we succeed,
how will we look
to our
shareholders?
To achieve our
vision, what
customer needs
must we serve?
To satisfy our
customers and
shareholders, at which
business processes
must we excel?
To excel in our
processes, what
must our
organization
learn?
Cycle Time
Productivity
Cost
The Balanced Scorecard Provides a Four Perspective
Framework to Translate Strategy Into Operational
Terms
The Revenue Growth Strategy
Improve 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
Improve
Operating
Efficiency
Broaden
Revenue
Mix
Increase
Customer
Confidence in
Our Financial
Advice
Increase
Customer
Satisfaction
Through Superior
Execution
Increase
Employee
Productivity
Access to
Strategic
Information
Develop
Strategic
Skills
Align
Personal
Goals
Financial
Perspective
Customer
Perspective
Internal
Perspective
Learning
Perspective
Cross-Sell
the Product
Line
Shift to
Appropriate
Channel
Provide
Rapid
Response
Develop
New
Products
Minimize
Problems
Understand
Customer
Segments
A Good Balanced Scorecard Strategy Map
Tells the Story of Your Strategy
A Good Balanced Scorecard Tells the Story of Your
Strategy Through A Set of Linked Cause and Effect
Hypotheses
F1 - Improve Returns
F2 - Broaden Revenue Mix

F3 - Reduce Cost Structure
C1 - Increase Customer
Satisfaction With Our
Products & People

C2 - Increase Satisfaction After
the Sale
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
L1 - Develop Strategic Skills
L2 - Provide Strategic Info
L3 - Align Personal Goals
Return on Investment
Revenue Growth

Deposit Service Cost Change
Share of Segment



Customer Retention


New Product Revenue

Cross-Sell Ratio

Channel Mix Change

Service Error Rate

Request Fulfillment Time
Employee Satisfaction
Revenue per Employee
Strategic
Objectives
Strategic Measurements
(Lag Indicators) (Lead Indicators)

Revenue Mix

Depth of Relation



Satisfaction Survey


Product Development Cycle

Hours with Customers
Strategic Job Coverage Ratio
Strategic Info Availability Ratio
Personal Goals Alignment (%)
F
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Objectives
Fast ground
turnaround
Statement of
what strategy
must achieve
and whats
critical to its
success
Target
30 Minutes
90%


The level of
performance
or rate of
improvement
needed
Cycle time
optimization
Key action
programs
required to
achieve
objectives
Initiative Measurement
On Ground Time
On-Time
Departure
How success
in achieving
the strategy
will be
measured and
tracked
Strategic Theme:
Operating Efficiency
Profitability
Financial
Learning
Increase
Revenue
Ground crew
alignment
Lowest
prices
Lower Costs
Customer
Internal
Fast ground
turnaround
Strategy Map: Diagram of the
cause-and-effect relationships
between strategic objectives
Flight
is on time
Theme Example from Southwest Airlines
Balanced Scorecard
The Balanced Scorecard Supports a Complete Strategic
Management System by Linking Long Term Strategy and
Measures to More Tactical Planning & Budgeting
Objectives Milestones
Promote
ABC Culture
Model
Employee
Satisfaction
Survey
Evaluate
survey
response

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Accountable
HR
Committee
$ xxxx
Resource Alloc. Targets Initiatives Measures Themes/ Goals Vision Mission
Meet access
expectations
3
rd
available
appointment
(% met)
02 xx%
03 xx%
04 xx%
Access
project
Meet monthly
target
Deadline
met
Mkg.
Team
$ xxxx
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Longer Term (3-5 year) View Shorter Term (Annual) View
Strategic
Tactical
% patient mix 02 = 39%
03 = 40%
04 = 41%
Mix Margins
Project
Dept. Chairs Complete by
2003
$ xxxx Assure
optimum
patient mix
02 xx%
03 xx%
04 xx%
F
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c
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a
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Grow
revenue
from patient
care
% patient
care revenue
growth
02 xx%
03 xx%
04 xx%
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.
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 didnt 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 dont overreact
nearly as much as we used to.
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 ages 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 isnt [bad strategy]. Its bad execution.
Why CEOs Fail
Ram Charan and Geoffrey
Colvin
Fortune (6/21/99)


The Results are Widespread
1993 $275 loss
1998 Top Quartile
$3b spin-off
Brown & Root Engineering (Rockwater)
Saint Marys/ Duluth Clinic Health System
Duke Childrens Hospital
Southern Citrus
CIGNA Property & Casualty Chemical Bank
ATT Canada
1993 Losing money
1996 # 1 in Niche (growth & profits)
1995 1998
Profits
1993 X
1998 20X
1995 $300M loss
1998 Customer base doubles
1999 $7b spin-off
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
Mobil US Marketing & Refining
Competitive Rank (out of 7,profit)
1993
1995
1996
1997
1998
#6
#1
#1
#1
#1
63 Readmission
Rate
25 Length of
Stay
11 Family
Satisfaction
25 Operating
Margin
% Improvement Measure
15% Overall
Hospital
Point
Satisfaction
Decrease 16 days Days in AR
$18M since BSC
implementation
Operating
Margin
Improvement Measure
Mission: What we do

Vision: What we aspire to be

Strategies: How we accomplish our goals

Measures: Indicators of our progress
The Strategy Focused
Organization
..the question..?

What is our strategy?
Environmental Scan
Strengths Weaknesses
Opportunities Threats
Values
Mission &
Vision
Strategic Issues
Strategic Priorities
Objectives, Initiatives, and Evaluation
A Model
for
Strategic
Planning
Business Strategy
Business Strategy
Corporate Culture
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
Peoples responses to energy use, community
involvement, absence, work ethic, etc.
How the organisation behaves to its
employees training, professional
development, etc.
Corporate Culture
May be driven by:
Vision where the organisation
wants to go in the future
Mission Statement summary
of the beliefs of the organisation and
where it is now

Corporate Culture
May be reflected in:
Attitude and behaviour of the leadership
Attitude to the role of individuals in the
workplace open plan offices, team based
working, etc.
Logo of the organisation
The image it presents to the outside world
Its attitude to change
Corporate Culture
What corporate
culture do you think
the following
businesses have
managed to develop?

Virgin Group
Copyright: Joshua2150,
http://www.sxc.hu
The Body Shop
Copyright: fadaquiqa,
http://www.sxc.hu
McDonalds
Copyright: alexallied
http://www.sxc.hu
Nike
Copyright: alexbol
http://www/sxc.hu
Strategic Planning
Strategic Planning
First Stage of Strategic
Planning may involve:
Futures Thinking
Thinking about what the
business might need to
do 1020 years ahead
Strategic Intents
Thinking about key
strategic themes
that will inform
decision making
The thicker the planning
document, the more useless
it will be
(Brent Davies: 1999)

Taking time to think and reflect
may be more important than many
businesses allow time for!
Copyright: Intuitives, http://www.sxc.hu
Strategic Planning
The Vision
Communicating to all staff where the
organisation is going and where
it intends to be in the future
Allows the firm to set goals
Aims and Objectives:
Aims long term target
Objectives the way in which you are going
to achieve the aim

Strategic Planning
Once the direction is identified:
Analyse position
Develop and introduce strategy
Evaluate:
Evaluation is constant and the results
of the evaluation feed back
into the vision
Analysis
SWOT
Strengths identifying existing
organisational strengths
Weaknesses identifying existing
organisational weaknesses
Opportunities what market opportunities
might there be
for the organisation to exploit?
Threats where might the threats
to the future success come from?
PEST
Political: local, national and international
political developments how will they affect the
organisation and in what way/s?
Economic: what are the main economic issues
both nationally and internationally that might
affect the organisation?
Social: what are the developing social trends
that may impact on how the organisation
operates and what will they mean for future
planning?
Technological: changing technology can impact
on competitive advantage very quickly!
PEST
Examples:
Growth of China and India as manufacturing centres
Concern over treatment of workers and the
environment in less developed countries who may be
suppliers
The future direction of the interest rate, consumer
spending, etc.
The changing age structure of the population
The popularity of fads like the Atkins Diet
The move towards greater political regulation of
business
The effect of more bureaucracy in the labour market
Five-Forces
Developed by Michael Porter: forces that shape and influence
the industry or market the organisation operates in.
Strength of Barriers to Entry - how easy is it
for new rivals to enter the industry?
Extent of rivalry between firms how competitive
is the existing market?
Supplier power the greater the power, the less
control the organisation has on the supply of its
inputs.
Buyer power how much power do customers
in the industry have?
Threat from substitutes what alternative products
and services are there and what is the extent
of the threat they pose?
Required Inputs
Changing strategy will impact on the resources
needed to carry out the strategy:
Specifically the impact on:
Land opportunities for acquiring land for
development green belt, brownfield sites,
planning regulations, etc.
Labour ease of obtaining the skilled and
unskilled labour required
Capital the type of capital and the cost of the
capital needed to fulfil the strategy
Evaluation
Evaluation
Data from sales,
profit, etc. used to
evaluate the
progress and
success of the
strategy and to
inform of changes
to the strategy in
the light of that data

Information from a wide variety of sources
can help to measure and inform the impact
and direction of the strategy.
Copyright: Mad7986, http://www.sxc.hu
Types of Strategy
Types of Strategy
Competitive Advantage something
which gives the organisation
some advantage over its rivals
Cost advantage A strategy to
seek out and secure a cost
advantage
of some kind - lower average
costs, lower labour costs, etc.


Types of Strategy
Market Dominance:
Achieved through:
Internal growth
Acquisitions mergers and takeovers
New product development: to
keep ahead of rivals and set the
pace
Contraction/Expansion
focus on what you are good at (core
competencies) or seek to expand
into a range of markets?

Types of Strategy
Price Leadership through
dominating the industry others
follow your price lead
Global seeking to expand
global operations
Reengineering thinking outside
the box looking at news ways of
doing things to leverage the
organisations performance




Types of Strategy
Internal business level strategies
Downsizing selling off unwanted parts of
the business similar
to contraction
Delayering flattening the management
structure, removing bureaucracy, speed up
decision making
Restructuring complete re-think
of the way the business is organised
The Five Principles

1. Translate the strategy to operational
terms.

2. Align the organization to the
strategy.
The Strategy Focused
Organization
Source: The Strategy Focused Organization, Norton & Kaplan
The Five Principles (cont.)

3. Make strategy everyones job.

4. Make strategy a continual process.

5. Mobilize change through executive
leadership
The Strategy Focused
Organization
Source: The Strategy Focused Organization, Norton & Kaplan
The Balanced Scorecard
and The Big Picture
Activity Based Costing
Economic Value Added
Forecasting
Benchmarking
Market Research
Best Practices
Six Sigma
Statistical Process Control
Reengineering
ISO 9000
Total Quality Management
Empowerment
Learning Organization
Self-Directed Work Teams
Change Management
Mission
and
Vision
Balanced
Scorecard
Strategic
Planning
Strategic Direction
Create Environment
For Change
Strategic
Performance
Management
System
Linking it all together.
Communicate Strategies
Define Objectives
Implement BSC
Balanced Scorecard
Measure Performance
Improve Processes
Evaluate and Adjust
Continuous Improvement
Redefine Initiatives

FINANCIAL/REGULATORY
To satisfy our constituents,
what financial & regulatory
objectives must
we accomplish?


CUSTOMER
To achieve our vision,
what customer needs must
we serve?


INTERNAL
To satisfy our customers and
stakeholders, in which business
processes must we excel?


LEARNING & GROWTH
To achieve our goals, how
must we learn, communicate
and grow?

THE BALANCED SCORECARD
Customer Perspective

o Customer Satisfaction (Average)
o Satisfaction Gap Analysis (Satisfaction vs.
Level of Importance)
o Satisfaction Distribution (% of each area scored)
Possible Performance Measures
To achieve our vision, what customer needs
must we serve?
Financial / Regulatory
Perspective
o Cost / Unit
o Unfunded Requirements or Projects
o Cost of Service
o Budget Projections and Targets
Possible Performance Measures
To satisfy our constituents, what financial and
regulatory objectives must we accomplish?
Internal Perspective
o Cycle Time
o Completion Rate
o Workload and Employee Utilization
o Transactions per employee
o Errors or Rework
Possible Performance Measures
To satisfy our customers, in which business
processes must we excel?
Learning and Growth
To achieve our goals and accomplish core activities,
how must we learn, communicate and work together?
Possible Performance Measures
o Employee Satisfaction
o Retention and Turnover
o Training Hours and Resources
o Technology Investment
Why Measure?
To determine how effectively and
efficiently the process or service
satisfies the customer.

To identify improvement opportunities.

To make decisions based on FACT and
DATA
Measurements Should:
Translate customer expectations into goals.

Evaluate the quality of processes.

Track our improvement.

Focus our efforts on our customers.

Support our strategies.


Targets

If you dont know where youre going,
youre probably not gonna get
there.
Forrest Gump
Targets
Targets need to be set for all
measures

Should have a solid basis

Give personnel something for which
to aim

If achieved will transform the
organization


Targets
Careful not to develop
measures/targets in
a fragmented approach:

i.e. Asking people to increase
customer satisfaction has to
be backed up with the
knowledge, tools, and means
to achieve that target.


Initiatives
Once measures and targets are
established, it is the responsibility of
management to determine HOW the
organization will achieve its goals.

Measures are used to determine the
effectiveness of strategic initiatives.
The Leadership Team
Develops the divisions vision,
strategy and goals
Develops organizational objectives
and targets
Provides leadership, endorsement
and vision for the project
Clears barriers to scorecard
progress
The Core Team

Drafts the strategy map and
scorecard

Works with employees to develop
measures supporting strategic
objectives

Works with the Leadership Team to
plan and implement the Balanced
Scorecard in the FAS Division
FY1999 CORPORATE LEVEL BALANCED SCORECARD
Financial Customer Operational People Technical
Indica-
tor
Tar-
get
FY99
Final
Indica-
tor
Target Stat
-us
Indica-
tor
Target Stat
-us
Indica-
tor
Target Stat
-us
Indica-
tor
Target Stat-
us
Adjusted
Discharges
23,890 23,592
Patient
Satis-
faction
Choose key
focus areas
for
improve-
ment
C
Arranging
Care
Determine outpatient
phone model,
conduct pilots
C
Cultural
Develop-
ment
Complete
communi-
cations
strategy
C
Quality
Improve-
ment
Implement
system-wide
governance
structure
C
Encounters
912,188 892,243
Employer
Satis-
faction
Complete
survey
develop-
ment in CY
1999
CY
Determine outpatient
model for
registration &
scheduling
C
Complete
physician
survey
C
Complete
external quality
report in CY
1999
CY
Cost per
Adjusted
Discharge
6,964 7,535
HEDIS
Indicators
Select
indicators
for
develop-
ment plan
M
Providing
Care
Determine model for
patient delivery
system for clinical
divisions
C
Complete
employee
survey
C
Meet or exceed
standards for
SMDC
accreditation
C
Cost per
Encounter
215 252
Com-
munity
Service
Complete
reporting
process and
inventory
C
Complete system
strategy for
ambulatory surgery
C
Complete
plan to
maintain
Catholic-
ity
C Informa-
tion
Technol-
ogy
Complete IT
strategic plan
in CY 1999
CY
Operating
Margin
2.0 1.3
Commun-
ity Aware-
ness
Complete
surve y in
CY 1999
CY
Docu-
menting
and
Tracking
Care
Complete plan for
decentralized coding
and charge entry
C
Employee
Relations
Strategy
Accom-
plish pay
equity
C
Complete Y2K
compliance by
12/99
CY
Excess
Margin
3.8 3.3
Market
Share
Complete
baseline
C
Innova-
tion and
Program
Develop-
ment
Complete feasibility
study for a womens
health center
C
Synchro-
nize
employee
benefits
C
Medical
Education
& Research
Complete
report of
funded grants
and
publications
C
Days Cash
on Hand
103.6 108.6 Complete plan for a
geriatrics program
C
Facilities
Planning
Complete
Perkins & Will
plan
M
Days in
Accounts
Receivable
77.7 82.8
Return on
Investment
3.4 2.9
C = task completed; CY = Calendar Year 1999 task; M = task modified
Finance section : Target met ; Target not met


Strategy Map
Finance and Administrative
Services
FINANCIAL





CUSTOMER
INTERNAL
PROCESS
LEARNING &
GROWTH
Hum. Rscrs. Univ. Police Facilities
Police Parking
Link it together.
Measure: Satisfaction Index
Current: 3.0 Target: 4.0
D
I
V
I
S
I
O
N

D
E
P
T
.

F
U
N
C
T
I
O
N

The Strategy Map: Cause and
Effect Relationships
What will drive margins?
Managed growth in high margin
programs/service lines
How?
Attract targeted patient
population through targeted
referring physicians who value
leading edge technology &
expertise
What will the internal focus be?
Ensure clinical excellence
through leading edge programs
and techniques in focused
specialty areas
Align research priorities to
support leading programs and
stay out front in treatment
methods
Will our people be prepared to
do that?
Yes, with appropriate
technology
Yes, by recruiting critical
expertise
Maximize High
Margin
Opportunities
Strong Financial
Base
Financial
Customer
Specialty Care Patients
Referring Providers
Leading Edge
Technology
Leading Edge
Expertise
Internal

Continually
Develop
Clinical
Excellence
Develop
Leading
Edge
Programs/
Techniques
Learning & Growth

Develop Critical
Staffing
Resource Plans

Align Research
Priorities
Implement
Technology
to Support
Processes
and Programs
Implement
Managed
Growth
The Balanced Scorecard
as a Management System
BSC reviewed regularly to enhance
operational decision-making
Success of initiatives assessed
based on DATA not opinions
Leading indicators evaluated to
confirm accuracy of assumptions



The Balanced Scorecard as a
Management System
The BSC is a Living Document that
requires regular revision of objectives,
measures and initiatives:
How are we doing?
Are we measuring the right things?
What initiatives do we need to get us
where we want to go?
Have our organizational goals changed?
Rapid Deployment Case Study: Major
Federal Organization
Need
Approach
Benefits
Definition of Corporate strategy
Rapid roll-out and broad reach
Develop internal capabilities to sustain momentum
Develop Corporate Balanced Scorecard
Define template for rolling out BSC
Train subordinate units
Streamline project management
Quality checks
Online education
Clear guidance from Corporate
Active involvement from client teams
Rapid deployment with minimal resources
Quality control
Advantages to this Approach
Simple to Use and Understand
Based on Vision and Strategy
Multidimensional
Quantitative and Qualitative Measures
Current and Future
Provides Measurement of and Method for
Improving our Services
Ties QI initiatives together
Serves as a Communication Tool
Thank You