Strategy To Measures
Outline
What is Balanced Score Card Demand/Need for Balanced Score Card Recap some key concepts Performance measures and incentives
Long-term objectives BSC Perspectives Strategy Types of strategy cost leadership & differentiation Strategies Scorecard
Controllability and responsibility centers Attributes of a good performance measure Tension between control & planning
Key Concepts
Performance measures & Incentives What you measure is what you get
Key Concepts
Direct control: Costs Indirect control: Customer experience thru quality, on-time delivery (marketing activities) ??
Key Concepts
Attributes of a good performance measures Provide information that is relevant & reliable
Relevance, measure is influenced by actions Reliable, measure not influenced by factors beyond the control Measure can help prioritize actions Assists goal congruence
Key Concepts
Measure that is good for control may not be good for planning End-of-year spending spree (to exhaust budgets) Decision facilitating vs. Directing attention measures
Profitability Productivity Competitive position Employee development Employee relations Technological leadership Public responsibility
Suresh Radhakrishnan, Cost and Performance Management, June 2004 9
Acceptable
Flexible Measurable Motivating
Suitable
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Cost Leadership
Differentiation
Focused Differentiation
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Building efficient scale facilities Minimizing costs of sales, R&D and service State of the art manufacturing facilities Tight control of production costs and overhead Monitoring costs of activities provided by outsiders Simplification of processes
Suresh Radhakrishnan, Cost and Performance Management, June 2004 16
Firm Infrastructure
Support Activities
Systems and Procedures to find the Lowest Cost Products to Purchase Raw Materials
Frequent Evaluation Processes to Procurement Monitor Suppliers Performances Effective Product Installations to Reduce Frequency and Severity Products Priced to of Recalls Generate Sales Volume National Scale Advertising
Operations
Outbound Logistics
Suresh Radhakrishnan, Cost and Performance Management, June 2004 Primary Activities
Inbound Logistics
Service
Highly Efficient Systems to Link Suppliers Products with the Firms Production Processes
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Rapid innovation
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Requirements:
Constant effort to differentiate products through: Developing new systems and processes Shaping perceptions through advertising Quality focus Capability in R&D Maximize Human Resource contributions through low turnover and high motivation
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Firm Infrastructure
Extensive use of subjective rather than objective performance measures
A companywide emphasis on producing high quality products Superior personnel training Strong capability in basic research
Support Activities
Systems and procedures used to find the highest quality raw materials Superior handling of incoming raw materials to minimize damage and improve the quality of the final product Consistent manufacturing of attractive products
Operations
Outbound Logistics
Extensive Rapid and timely personal product deliveries relationships to customers with buyers Premium Pricing
Inbound Logistics
Service
Strong Coordin- Complete field ation among stocking of functions in R&D, replacement parts Marketing and Product Development
Primary Activities
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Heineken beer Steinway pianos Mercedes Benz autos Intel microprocessors Caterpillar tractors
Raw materials Raw materials & Workmanship Technology and Workmanship Constant Innovation
Service buyers needs quickly anywhere in the world Suresh Radhakrishnan, Cost and Performance Management, June 2004 23
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Recognize that the Integrated Low Cost/ Differentiation business level strategy involves a Compromise The risk is that the firm may become Stuck in the Middle lacking a strong commitment to or expertise with either type of generic strategy
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Southwest Airlines
Low Cost Use a single aircraft model (Boeing 737) Use secondary airports Fly short routes No meals 15 minute turnaround time No reserved seats Differentiation Focus on customer satisfaction
No travelSuresh Radhakrishnan, Cost and Performance Management, June 2004 agent reservations
Concentrated growth Market development Product development Innovation Horizontal integration Vertical integration Concentric diversification
Conglomerate diversification Turnaround Divestiture Liquidation Bankruptcy Joint ventures Strategic alliances Consortia
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Financial
Effect
To satisfy our shareholders, what financial objectives must we accomplish?
Customer
To achieve our financial goals, what customer needs must we satisfy?
Results
Actions
To achieve and maintain a competitive position, how must the organization learn and improve? Suresh Radhakrishnan, Cost and Performance Management, June 2004
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Executive interviews
Workshop #1
Workshop # 2
Workshop # 3
1-2 Weeks
2-3 Weeks
2-3 Weeks
2 Weeks
Key Outputs
Over-arching framework for performance measures
Consistent management team consensus and understanding
The timeline is event driven; executive time is typically the determining factor
Detailed implementation plan including technology and dependencies on other enablers e.g. rewards Education materials and communication strategy
Suresh Radhakrishnan, Cost and Performance Management, June 2004 32
Objectives Project and Interview Business Imperative Approach To Interview. Overall Strategic Positioning. The Four Balanced Scorecard Perspectives: Financial. Customer. Business Process. Improvement & Learning. An Illustrative Business Model: A Strawman For Discussion Only.
Suresh Radhakrishnan, Cost and Performance Management, June 2004 33
Business Process
Manage Supply Chain Complexity
Customer / Consumer
Provide Enhanced Value To Market x
Financial
Suresh through the How & Why Test! ValidateRadhakrishnan, Cost and Performance Management, June 2004
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Financial
Objective : Improve employee skill level in key areas of the business model, through training and recruitment
Critical Activities : Define required skills / competencies Assess current skill set Schedule training needs Define recruiting needs Follow training program Monitor skill level
Leading Measure : % managers with personal new personal development plan Lagging Measure : % managers with personal development plan on track
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Customer / Consumer
Provide enhanced value
Financial
Achieve organic value growth
Leading: growth in skus listing distribution percentage number of product facings out of stock Lagging: market share trend
Leading: percentage people with competence profile defined Lagging: percentage people with training program on track
Leading: number of running innovation projects Lagging: percentage sales from new products
Leading: number of targeted sources accessible Lagging: information system user satisfaction index
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A Strategic Scorecard
Lead indicators drivers of long term value Lag indicators feedback measures on current performance
Should include outcome measures as well as measures of the drivers of those outcomes
Suresh Radhakrishnan, Cost and Performance Management, June 2004 37
A strategic scorecard should link all measures with the overall strategy
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Measurement is valuable only if management can learn from and act on the results Causal linkages in a strategy map enable managers to make and test strategy hypotheses
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On-time Delivery
Internal Processes
Process Quality
Organizational Learning
Employee Skills
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Lead Indicators
On-time Delivery
On-time delivery
Customer Satisfaction Survey Customer Satisfaction Survey Customer Complaints Customer Complaints and and Returns Returns Cycle Time Yield, Variability Cycle Time
Yield, Variability Employee Teams Employee Training Employee Teams Employee Training
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Value Propositions
Operational excellence
(e.g., Dell)
Customer intimacy
(e.g. Nordstrom)
Product leadership
(e.g. Intel)
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Operational excellence
Customer intimacy
Product leadership
Strategy Maps
Provide a visual representation of the critical objectives and the crucial relationships that drive performance Clarify to employees how their jobs are linked to organizational objectives
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Efficiency/Cost Management
Customer Perspective
(Patients, Referring Physicians, Payers, Academic Community
Image/ Reputation
Relationship
Outcomes
Access
Planning
Innovation
Relationship Management
Care Delivery
Operating Efficiency