The Balanced Scorecard

Presented To

Alaoula Board Member

Presented By
Adnan Alshiha
Workshop Outline
Introduction to the Balanced Scorecard
1- 3
What is it?
Why do it?

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
managementt tool
t l that
th t provides
id
stakeholders with a
comprehensive
h i measure off howh
the organization is progressing
t
towardsd the
th achievement
hi t off its
it
strategic goals.
Balanced Scorecard History

Measurement Enterprise-wide
Alignment and
and Strategic
Communication
Reporting Management

1992 1996 2000

Articles in Harvard Business Review: Acceptance and Acclaim:

The
The Balanced Scorecard The
The Balanced
Measures that Drive Performance Scorecard is translated
January - February 1992 into 18 languages
Putting the Balanced Scorecard to Selected by Harvard
Work September - October 1993
Work Business Review as
one of the most
Using the Balanced Scorecard as
important management
a Strategic Management System
practices of the past 75
January - February 1996
years.
1996 2000
The Strategy-
Strategy-Focused
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
For-- Profit and Not For-
For- Profit
Different industries
These successful organizations placed their
strategies
t t i att the th centre
t off their
th i operations.
ti
Their strategies, guided Their day-
day- to
to-- day
activities
In this workshop, we will learn more about
strategy-- focused organizations, and how to
strategy
develop Balanced Scorecards
Organizations Often Have A Gap
Between Strategy
gy 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 Delighted Efficient and Effective Motivated & Prepared

SHAREHOLDERS CUSTOMERS PROCESSES 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
PERSONAL OBJECTIVES
What I need to do

STRATEGIC OUTCOMES

Satisfied Delighted Efficient and Effective Motivated & Prepared

SHAREHOLDERS CUSTOMERS PROCESSES WORKFORCE
The Balanced Scorecard
What is it?

The Balanced Scorecard:

Balances financial and non-

non-financial measures

Balances short and long-

long-term measures

B l
Balances performance
f drivers
di (l
(leading
di iindicators)
di t ) with
ith outcome
t
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.

The Balanced Scorecard Provides a Four Perspective
Framework to Translate Strategy Into Operational
Terms

The Vision
Financial Perspective
If we succeed, Profitability
how will we look Growth
to our Shareholder

Measurement is the shareholders? Value

language that gives Customer Perspective

To achieve our Price
clarity to vague vision, what
customer needs
Service
Quality
must we serve?
serve?
concepts t
Internal Perspective
To satisfy our
customers and Cycle Time
Measurement is used shareholders, at which Productivity
business pprocesses Cost
must we excel?
to communicate, not
Learning and Growth
simply to control To excel in our New Skills
Continuous
processes, what
must our Improvement
organization Intellectual
learn? Assets
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 Improve operating efficiency by shifting customers to
of revenue from current customers more cost-effective channels of distribution
Improve
Returns Financial
Improve P
Perspective
ti
Broaden Operating
Revenue Efficiency
Mix

Increase Increase
Customer Customer Customer
Confidence in Satisfaction Perspective
Our Financial Through Superior
Advice Execution

Internal
Perspective

Understand Develop Cross-Sell Shift to Provide

Minimize
Customer New the Product Appropriate Rapid
Problems
Segments Products Line Channel Response

Increase
Employee
Productivity
Learning
Perspective

Develop Access to Align

Strategic Strategic Personal
Skills Information Goals
A Good Balanced Scorecard Tells the Story of Your
Strategy Through A Set of Linked Cause and Effect
Hypotheses
Strategic Strategic Measurements
Objectives (Lag Indicators) (Lead Indicators)
F1 - Improve Returns Return on Investment

cial
F2 - Broaden Revenue Mix Revenue Growth Revenue Mix
Financ
F3 - Reduce Cost Structure Deposit Service Cost Change

C1 - Increase Customer Share of Segment Depth of Relation

Satisfaction With Our
Products & People
er
Custome

C2 - Increase Satisfaction After Customer Retention Satisfaction Survey

the Sale

I1 - Understand
U d t dO Our CCustomers
t
I2 - Create Innovative Products New Product Revenue Product Development Cycle

I3 - Cross-Sell Products Cross-Sell Ratio Hours with Customers

Internal

I4 - Shift Customers to Cost- Channel Mix Change

Effective Channels
I5 - Minimize Operational Service Error Rate
Problems
I6 - Responsive Service Request Fulfillment Time

L1 - Develop Strategic Skills Strategic Job Coverage Ratio

Employee Satisfaction Strategic Info Availability Ratio
Learning

L2 - Provide Strategic Info

L3 - Align Personal Goals Revenue per Employee Personal Goals Alignment (%)
Theme Example from Southwest Airlines
Balanced Scorecard
Strategy Map: Diagram of the
cause-and-effect relationships
between strategic objectives

Strategic Theme:
Operating Efficiency Statement of How success
what strategy in achieving The level of Key action
Financial
Profitability must achieve the strategy performance programs
and whats will be or rate of required to
Increase critical to its measured and improvement achieve
Lower Costs
Revenue
success tracked needed objectives
Customer
Flight
g t Lowest
is on time prices

Objectives Measurement Target Initiative

Internal
Fast gro
ground
nd Fast ground On Ground Time 30 Minutes Cycle time
turnaround turnaround On-Time 90% optimization
Departure
Learning

Ground crew
alignment
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

Mission Vision Themes/ Goals Objectives Measures Targets Initiatives Milestones Accountable Resource Alloc.
Grow % patient 02 xx%
Financial
excellent

revenue care revenue

as while

03 xx%
argin and growing share

from patient growth

04 xx%
ently

care
Serve the needs of patients excelle

Customer F
ABC Hospital Sysstem will provide e
care in our seleccted specialty area

Meet access 3rd available Access Meet monthly Mkg. $ xxxx

appointment 02 xx%
expectations project target Team
al excellence
2. Improve customer ssatisfaction
high quality

(% met) 03 xx%
04 xx%
1. Strengthen innovattion

Assure % patient mix 02 = 39% Mix Margins Complete by Dept. Chairs $ xxxx
3. Assure consistent h

al

optimum 2003
maintaining ma

P j t
Project
Interna
4. Provide operationa

patient mix 03 = 40%

04 = 41%
Learning

Promote Employee 02 xx% Evaluate Deadline HR $ xxxx

ABC Culture Satisfaction 03 xx% survey met Committee
Model Survey response
04 xx%
04

Strategic Tactical
The Balanced Scorecard
Why do it?

To achieve strategic objectives.

To provide quality with fewer resources
resources.
To eliminate non-value added efforts.
To align
g customer priorities
p and
expectations with the customer.
To track progress.
To evaluate process changes.
To continually improve.
To increase accountability.
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.

Th BSC h
The has fforced
d our managementt tteam tto ffocus b
beyond
d financial
fi i l
measures too often in the past we would get sucked into short-
short-term
thinking.

The
The BSC dramatically improved our data analysis we don
dontt overreact
nearly as much as we used to.
Execution of Strategy Has
Become the Corporate
Challenge of Our Times!
Strategy
Strategy has never been more important
important
Business Week

Less
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
l
less th
than h
half
lf the
th bbattle.
ttl .. IIn th
the majority
j it off cases we estimate
ti t
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

CIGNA Property & Casualty Chemical Bank

1993 $275 loss Profits
1998 Top Quartile 1993 X
$ spin-off
$3b 1998 20X

Brown & Root Engineering (Rockwater) ATT Canada

1993 Losing money 1995 $300M loss
1996 # 1 in Niche (g
(growth & p
profits)) 1998 Customer base doubles
1999 $7b spin-off

Saint Marys/ Duluth Clinic Health System Southern Citrus

1995 1998

Measure Improvement Shipments on Spec 70% 97%

On Time Delivery 89% 98%
Operating $18M since BSC
Rework 6% 2%
Days in AR
Margin Decrease 16 days
implementation Absenteeism 10% 1%
Overall 15% Employee Turnover 100 31
Cost per Pound () 28.8 18.9
Hospital
Point
Duke Childrens Hospital Mobil US Marketing & Refining
Satisfaction
Measure % Improvement Competitive Rank (out of 7,profit)

Operating 25 1993 #6
1995 #1
Family
Margin 11 1996 #1
Length of
Satisfaction 25 1997 #1
Readmission 63
Stay 1998 #1
Rate
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

..the question..?

Wh t is
What i our strategy?
t t ?
 Environmental Scan

Strengths Weaknesses

A Model Opportunities Threats

for
Strategic V l
Values
Planning
Mission &
Vision

Strategic Issues
Strategic Priorities
Objectives, Initiatives, and Evaluation
Business Strategy
Business Strategy
Corporate Culture
Corporate Culture

The beliefs and values shared by people

who
h work k in
i an organisation
i ti
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,
p , etc.
Corporate Culture

May be driven by:

Vision where the organisation
wantst to
t go in
i the
th future
f t
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
L off the
th organisation
i ti
The image it presents to the outside world
Its attitude to change
Corporate Culture

What corporate
culture do you think
the following
b i
businesses have
h
managed to develop?

Virgin
The
McDonalds
NikeBody
Group
Shop
Copyright: alexbol
Joshua2150,
alexallied
fadaquiqa,
http://www.sxc.hu
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 10
1020 years ahead
Strategic Intents
Thinking about key
strategic themes
that will inform
decision making
The
The thicker the planning Taking
g time to think and reflect
document, the more useless may be more important than many
it will be businesses allow time for!
(Brent Davies: 1999) Copyright: Intuitives, http://www.sxc.hu
Strategic Planning

The Vision
Communicating to all staff where the
organisation
g is going
g g and where
it intends to be in the future
Allows the firm to set goals
Aims and Objectives:
Aims long term target
Objectives
Obj ti the
th way in
i which
hi h you are going
i
to achieve the aim
Strategic Planning

Once the direction is identified:

9 Analyse position
9 Develop and introduce strategy
9 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
li
The future direction of the interest rate, consumer
spending, etc.
The
Th changing
h i age structure
t t off the
th population
l ti
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
Five
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
g 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
S ifi ll the
th impact
i t on:
Land opportunities for acquiring land for
development green belt, brownfield sites,
planning regulations, etc.
Labour ease of obtaining the skilled and
unskilled
kill d labour
l b required
i d
Capital the type of capital and the cost of the
capital needed to fulfil the strategy
Evaluation
Evaluation

Data from sales

sales,
profit, etc. used to
evaluate the
progress and d
success of the
strategy and to
inform of changes
to the strategy in
th light
the li ht off that
th t data
d t 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 g over its rivals
Cost advantage A strategy to
seek out and secure a cost
advantage
of some kind - lower average
costs,
t lower
l labour
l b costs,
t etc.
t
Types of Strategy

Market Dominance:
Achieved
A hi d through:
th h
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
g of markets?
Types of Strategy

Price Leadership through

dominating the industry others
follow y
your p
price lead
Global seeking to expand
global operations
g p
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
D i i selling
lli off
ff unwanted d parts off
the business similar
to contraction
Delayering flattening the management
structure, removing bureaucracy, speed up
decision making
Restructuring complete re-
re-think
of the way the business is organised
The Strategy Focused
Organization

The Five Principles

1. Translate the strategy to operational

terms.

2. Align
g the organization
g to the
strategy.

Source: The Strategy Focused Organization, Norton & Kaplan

The Strategy Focused
Organization

The Five Principles (cont.)

3. Make strategy everyones job.

4. Make strategy a continual process.

5. Mobilize change through executive

leadership
p
Source: The Strategy Focused Organization, Norton & Kaplan
The Balanced Scorecard
and The Big Picture

Activity Based Costing

Economic Value Added
Forecasting
Forecasting
Strategic Benchmarking
Planning Market Research
Best Practices
Mission
Six
Si Sigma
Si
and
Vision Statistical Process Control
Reengineering
Balanced ISO 9000
Scorecard Total Quality Management
Empowerment
Learning Organization
Self Directed Work Teams
Self-Directed
Change Management
 Strategic Direction
Strategic
Create Environment
For Change
Performance
Management
Communicate Strategies System
Define Objectives
Implement
p BSC

Balanced Scorecard
Measure Performance
Improve Processes

Evaluate and Adjust

Linking it all together. Continuous Improvement
Redefine Initiatives
THE BALANCED SCORECARD
FINANCIAL/REGULATORY
CUSTOMER
To satisfy our constituents,
To achieve our vision,
what financial & regulatory
what customer needs must
objectives
bj ti mustt
we serve?
we accomplish?

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?
Customer Perspective

To achieve our vision, what customer needs

must we serve?

Possible Performance Measures

o Customer Satisfaction (Average)
o Satisfaction Gap Analysis (Satisfaction vs.
Level of Importance)
o Satisfaction Distribution (% of each area scored)
Financial / Regulatory
Perspective

To satisfy our constituents, what financial and

regulatory
g y objectives
j must we accomplish?
p

Possible Performance Measures

o Cost / Unit
o Unfunded Requirements or Projects
o Cost of Service
o Budget Projections and Targets
Internal Perspective

To satisfy our customers, in which business

processes must we excel?
Possible Performance Measures
o Cycle Time
o Completion Rate
o Workload and Employee Utilization
o Transactions per employee
o Errors or Rework
Learning and Growth

To achieve our goals and accomplish core activities,

how must we learn,, communicate and work together?
g
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
customer.

To identify improvement opportunities.

To make decisions based on FACT and

DATA
Measurements Should:

Translate customer expectations into goals

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
b bl nott gonna gett
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
ag e ted approach:
app oac
i.e. Asking people to increase
customer satisfaction has to
be backed up with the
knowledge tools,
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

division s vision
vision,
strategy and goals
Develops
D l organizational
i ti l objectives
bj ti
and targets
Provides leadership, endorsement
and vision for the project
Clears barriers to scorecard
progress
p g
The Core Team

Drafts the strategy map and

scorecard

Works with employees to develop

measures supporting strategic
j
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- Tar- FY99 Indica- Target Stat Indica- Target Stat Indica- Target Stat Indica- Target Stat-
tor get Final tor us
-us tor us
-us tor us
-us tor us

Adjusted 23,890 23,592 Patient Choose key C Arranging Determine outpatient C Cultural Complete C Quality Implement C
Discharges Satis- focus areas Care phone model, Develop- communi- Improve- system-wide
faction for conduct pilots ment cations ment governance
improve
improve- strategy structure
ment
Encounters 912,188 892,243 Employer Complete CY Determine outpatient C Complete C Complete CY
Satis- survey model for physician external quality
faction develop- registration & survey report in CY
ment in CY scheduling 1999
1999
Cost per 6,964 7,535 HEDIS Select M Providing Determine model for C Complete C Meet or exceed C
Adjusted
j Indicators indicators Care patient delivery employee standards for
Discharge for system for clinical survey SMDC
develop- divisions accreditation
ment plan
Cost per 215 252 Com- Complete C Complete system C Complete C Informa- Complete IT CY
Encounter munity reporting strategy for plan to tion strategic plan
Service process and ambulatory surgery maintain Technol- in CY 1999
inventory Catholic- ogy
ity
Operating 2.0 1.3 Commun-
Commun Complete CY Docu-
Docu Complete plan for C Employee Accom-
Accom C Complete Y2K CY
Margin ity Aware- survey in menting decentralized coding Relations plish pay compliance by
ness CY 1999 and and charge entry Strategy equity 12/99
Tracking
Care
Excess 3.8 3.3 Market Complete C Innova- Complete feasibility C Synchro- C Medical Complete C
Margin Share baseline tion and study for a womens nize Education report of
Program health center employee & Research funded grants
benefits and
Develop
Develop-
publications
ment
Days Cash 103.6 108.6 Complete plan for a C Facilities Complete M
on Hand geriatrics program Planning Perkins & Will
plan
Days in 77.7 82.8
Accounts
Receivable
Return on 34
3.4 29
2.9
Investment
C = task completed; CY = Calendar Year 1999 task; M = task modified
Finance section: Target met; Target not met
Finance and Administrative
Services

Strategy Map
Link it together.
DIVISION

CUSTOMER INTERNAL LEARNING &

FINANCIAL
PROCESS GROWTH
DEPT.

Hum. Rscrs. Univ. Police Facilities

ON
FUNCTIO

Police Parking

Measure: Satisfaction Index

Current: 3.0 Target: 4.0
The Strategy Map: Cause and
Effect Relationships
What will drive margins? Financial Strong Financial
Implement
p Base
Managed growth in high margin
Maximize High Managed
programs/service lines Margin Growth
How? Opportunities

Attract targeted patient

population through targeted Customer
Specialty Care Patients
referring
f i physicians
h i i who
h value
l Referring Providers
leading edge technology &
Leading Edge Leading Edge
expertise Technology Expertise
What will the internal focus be?
Continually
Ensure clinical excellence Internal Develop
through leading edge programs Clinical
and techniques in focused Excellence
specialty areas Develop
Leading
Align research priorities to Edge Align Research
support leading programs and Programs/ Priorities
stay out front in treatment Techniques
methods
Will our people be prepared to Learning & Growth
do that?
Implement
Yes, with appropriate Technology
Develop Critical
technology to Support
Staffing
Processes
Yes, by recruiting critical and Programs
Resource Plans
expertise
The Balanced Scorecard
as a Management System
BSC reviewed regularly to enhance
operational decision-
decision-making
Success
S off initiatives
i iti ti assessed
d
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
Living Document
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?
g
Have our organizational goals changed?
Rapid Deployment Case Study: Major
Federal Organization
g
Definition of Corporate strategy
Need
Rapid roll-out and broad reach
Develop internal capabilities to sustain momentum

Approach Develop Corporate Balanced Scorecard

Define template for rolling out BSC
Train subordinate units
Streamline p
project
j management
g
Quality checks
Online education

Benefits 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
Th k Y
Thank You