Balanced Scorecard

Airline & FMCG -Implementation

Anand Subramaniam

To navigate a plane, looking at the fuel indicator is too limited other factors impact the success of a flight; a cockpit requires a balanced measuring system !!
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Implementation Highlights
Challenges around Strategy Execution What is Balance Scorecard (BSC) and why firms implement it? My Clients (FMCG & Airlines) :
Challenges, Goals, Benefits Seeked, Critical Success Factors (CSF), Strategy Map Example themes, CSF, measures & targets, implementation roadmap including time frames, Project Organisation Chart Lessons Learned

Is this happening at your firm ?

STRATEGY

60% of organizations dont link strategy & budgets

update the strategy Strategic Learning Loop

test the hypotheses

85% of management teams spend less than one hour per month on strategy issues

BALANCED SCORECARD

BUDGET

78% of organisations lock budgets to an annual cycle 20% of organisations take more than 16 weeks to prepare a budget

funding

Management Control Loop

reporting

PERFORMANCE Input (Resources)

Initiatives & Programs

92% of organisations do not report on lead indicators

Output (Results) 4

Strategy Execution Challenges

We have a strategy, we just cant explain it that easily. Our employees dont have a clear understanding of what the strategy is and their role in it. Our strategic, operational, and financial plans are not aligned. We spend too much time and effort creating plans instead of getting value from the planning process Im not sure our resources are allocated against priorities and our best opportunities. We do not know if our strategy is working until it is too late. Our data is of poor quality and we have disparate systems to report on performance. We dont have the right measures. There are too many of them and were not sure which ones to use

Our leadership team does not agree on our key priorities.

We are a collection of silos that do not collaborate.

We are trying to do 100 things, rather than do 15 critical things well.

Recognition and rewards are not based on driving the change we need.

Unclear Vision Unclear Vision and Strategy and Strategy

Lack of Lack of Organisation Organisation Alignment Alignment

Disjointed Planning Disjointed Planning and Processes and Processes

5 Inability to Test and Inability to Test and Adapt Performance Adapt Performance

Vision to Outcomes Conceptual Overview

MISSION Why we exist VALUES Whats important to us VISION What we want to be STRATEGY Our game plan BALANCED SCORECARD Translate, Focus and Align STRATEGIC INITIATIVES What are the priorities TOTAL QUALITY MANAGEMENT What we must improve EMPOWERMENT / PERSONAL OBJECTIVES What I need to do

STRATEGIC OUTCOMES Satisfied SHAREHOLDERS Delighted CUSTOMERS Efficient & Effective PROCESSES Motivated & Prepared WORKFORCE

What is a Balance Scorecard (BSC)?

The Premise

Measurement Communicates Values, Priorities & Direction

The Conclusion

Measurement Must Be Linked To Strategy

Strategy

Balanced Scorecard

Measurement To Communicate, Not To Control

BSC Perspectives
Perspective Key Concept Key Questions Through the eyes of our customers and stakeholders, how will they judge our products and services? For businesses, how do we create value for owners? Customer/ Stakeholder Satisfaction

Financial Stewardship

Financial Performance

Internal Process

Efficiency

How can we improve internal processes to improve quality, timeliness, economics, and functionality? How can we continually get smarter, innovate, and improve?
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Organisational Capacity

Knowledge and Innovation

BSC

Why firms implement BSC?

To align corporate strategy with daily operations To make informed business decisions via defined reporting and analysis, to corporate best practices To comply with regulations by disclosing corporate information timely To achieve the vision by building rigor To help with innovation / new product development To adapt to changing technologies and markets To attract and retain talented people A management system or a check-up for the business
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My Clients BSC Implementation

Lessons Learned

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Challenges before BSC

Measures not aligned or changed with strategy and does not reflect critical success factors. Short-term focus rather than taking a long-term and the focus was on what is currently being done, not what should be done Failure to measure the impact on the overall organisation Much quantitative information could not be reduced to monetary amounts and some could not be quantified Some information provided feedback but no guidance Measures poorly designed and / or collected (eg. customer satisfaction, employee morale) Goals were arbitrarily determined, beyond the ability of the system Measures produced were irrelevant, redundant, questionable, confusing (not defined) and some were manipulated
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Goals seeked
To improve management effectiveness by having a shared and actionable view of the strategy To provide a generic framework to translate strategy into operational terms To create a systems approach or an integrated Strategic Management Process To provide a clear line of sight to the vision and strategy of the company, providing feedback and guidance To provide a tool for communicating the strategy and the processes and systems required for strategy implementation To draw a cause and effect roadmap to stakeholder value shareholder, customer, and employee. To provide a balance between current performance and longterm competitive abilities (financial & non-financial measures)
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Benefits achieved
Improved management effectiveness by having a shared and actionable view of the strategy Ensured strategic outcomes for a given set of resources Enabled employees to work in a coordinated, collaborative fashion towards organisational goals Provided timely information for informed decisionmaking on resource allocation Provided guidance on future operations & decisions BSC was utilised as an change agent, to translate the strategy into action, providing feedback and learning
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Lessons Learned / Success Criteria

Story of the firms strategy in actionable terms. Executive Involvement - strategic decision makers validated and owned the strategy and related measures Cause and Effect Relationships - every objective selected was analysed for cause and effect linkages and to the strategy Balance between outcome and leading measures there was a balance and facilitated anticipatory management Financial Linkage - every objective was ultimately linked to the financial results Linkage of Initiatives and Measures - each initiative was analysed for variance, between baseline and target.
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Strategy Map designed

Improve Shareholder Value Financial Perspective: drivers of shareholder value
Productivity Strategy
Improve Cost Structure Cost per Unit Market and Account Share Increase Asset Utilisation Asset Turnover Customer Acquisition Customer Retention Shareholder Value ROCE

Revenue Growth Strategy

Enhance Customer Value Customer Profitability Customer Satisfaction Product Leader Customer Solutions Create Value from New Products & Services New Revenue Sources

Customer Perspective: differentiating value proposition

Customer Value Proposition

Product/Service Attributes Price Quality Time Function Relationship Service

Low Total Cost Image Brand

Relations

Internal Perspective: how value is created and sustained

Operations Theme (Processes that Produce and Deliver Products & Services)

Customer Management Theme (Processes that Enhance Customer Value)

Innovation Theme (Processes that Create New Products & Services)

Regulatory and Society Theme (Processes that Improve the Environment and Communities)

Learning & Growth Perspective: role for intangible assets people, systems, climate and culture

Human, Information, and Organisational Capital

Strategic Competencies Strategic Technologies Climate for Action

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Example - Internal / Operations Themes

Objective Objective Statement Measure Initiatives Charter attrition work group. TBD Certification Rates of all course. % deploying BCT receiving Ensure health services assets of all three deployment training across components are trained and modular and all modules. cutting edge to support full spectrum operation and joint force requirements. Adherence to the (re) verification, (re) validation, and (re) accreditation process. Enhance accessibility of our products and services to our customers through innovative, cutting edge delivery. % of products available via online and traditional methods (hard copy, CDs)

Enhance Training & Development

Internal Perspective

Incorporate audit guidance. Market products and service.

Improve Access to Products and Services

Increase Organisational Survey employees Institutionalise processes that increase our % increase in updated policies Efficiency and concerning alignment and efficiency and get rid of those that dont. and procedures from baseline. Standardisation duplication of efforts.

Improve Joint Integration

Posture our organisation to optimise joint integration

Adherence to Schedule

Comprehensive and integrated program management plan.

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Example - Critical Success Factors

Success Factor Business-wide clarity on customer needs & concerns Effective internal communications Imp. 10 Cap. 3 Supporting Actions Customer Focus Groups 0800 complaint line System of Listening Posts Team Listening structure Intranet Web-sites for all projects 48 hour responses to all project queries Management workshop on I&P ideas Pilot participative event Staff design of business forums Regular business forums Team charters at all levels Open access to performance data Formal ownership guidelines Regular process owners forums Central process design repository
10 - Critical 10 - Best Practice
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Involvement and Participation (I&P) at all levels Demonstrable support for new culture / ethos

Process Ownership Infrastructure

Imp. - Importance Cap. - Current Capability

1- Minor Relevance 1 - Major Weakness

Measures & Targets - Example

Strategic Goals Strategic Goals Customer Customer
What do we have to do to get What do we have to do to get there? there? there?

Measures Measures
How do we know if we are How do we know if we are achieving our goals? goals? achieving our goals?

Targets Targets
What will we measure our What will we measure our progress against? against? progress against?

Initiatives Initiatives

targets? What activities are we doing to reach our targets?

Vision & Mission

Process Process Employee Employee

Financial Financial

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BSC - Airways
Strategy Map
Theme: Operating Efficiency
Financial
Profits & RONA Fewer Planes Attract & Retain More Customers Lowest Prices

Balanced Scorecard
Objective
Profitability Grow revenues Fewer planes Flight is on-time Lowest prices Attract and retain more customers Fast ground turnaround

Action Plan
Initiative Budget

Measurement
Market Value Seat Revenue Plane Lease Cost FAA On-Time Arrival Rating Customer Ranking # Repeat Customers # Customers

Target
30% CAGR 20% CAGR 5% CAGR #1 #1 70% Increase 12% annual 30 Minutes 90%

Grow Revenues

Customer

On-time Service

Customer Loyalty Program

$XXX

Internal

Fast Ground Turnaround

On Ground Time On-Time Departure

On Ground Cycle Time Optimisation Quality Management ESOP Ground Crew Training Crew Scheduling System Rollout CRM System Total Budget

$XXX $XXX

Learning

Ground Crew Alignment

Ground crew aligned with strategy

% Ground Crew Stockholders Strategic Awareness Strategic Job Readiness Info System Availability

100%

$XXX $XXX

Develop the necessary skills Develop the support system

100% Yr 1 - 0% Yr 3 - 90% Yr 5 - 100% 100%

$XXX

Strategic Systems Crew Scheduling

Strategic Job Ramp Agent

$XXX $XXXX 20

Communicate

Measure

Execute

Implementation Roadmap
Week
Step 1

10

12

14

16

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Step 3

Step 4

Step 5

Step 6

Define and Clarify Mission & Vision Develop Strategic Goals

Step 2

Draft Strategic Map with linkages & themes Develop Baseline

Define Measures Set Targets

Identify Initiatives Allocate Resources

Get Buy-in! Plan & Implement

Identify Unit Objectives/ Critical Success Factors / Architecture

Ongoing Management

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Implementation - Steps 1 ~ 3
Week Step 1 Develop a Business Case Draft a Strategy Map With Linkages And Themes Step 2 Step 4 Build Strategic Architecture Determine Measures and Targets Step 6 Plan and implementation 2 4 Step 3 Step 5 Select Strategic Initiatives 6 8 10 12 14 16 18

Work/Inputs Strategy Documents Draft themes & linkages based on Strategic Destination Agree upon stretch targets Review and refine themes Refine and rework draft linkages

Outputs: Agreed upon stretch targets Finalised themes Strategy map

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Discuss next steps

Implementation - Step 4
Week Step 1 Develop a Business Case Draft a Strategy Map With Linkages And Themes Step 2 Step 4 Build Strategic Architecture Determine Measures and Targets Step 6 Plan and implementation 2 4 Step 3 Step 5 Select Strategic Initiatives 6 8 10 12 14 16 18

Work/Inputs Refined strategy Existing measures assigned to objectives Draft measures developed Refine and validate linkages Review draft measures Design new measures Begin targets discussion Plan for measures development

Outputs: 90% complete linkages Complete measures Measures development 23 plan in place

Implementation - Step 5 & 6

Week Step 1 Develop a Business Case Draft a Strategy Map With Linkages And Themes Step 2 Step 4 Build Strategic Architecture Determine Measures and Targets Step 6 Plan and implementation 2 4 Step 3 Step 5 Select Strategic Initiatives 6 8 10 12 14 16 18

Work/Inputs: Refined linkages and measures Inventory of existing initiatives Proposed new initiatives Review and validate linkages and measures Align/ rationalise initiatives to themes

Outputs: Locked in on objectives and linkages Measures defined Initiatives defined Plan for initiatives review established 24 implementation

Review existing initiatives

Brainstorm new initiatives

Project Organisation
Vendor Engagement Manager (part-time) Executive Sponsor/ Steering Committee Overall project ownership Consultations/workshops as needed

Vendor Project Leader (full-time)

3 days/week Client Project Leader Executive Leadership Team

8 Half-day workshops One 90-minute briefing/ interview Consultations/ workshops as needed

Vendor Project Team 1-2 Consultants (full-time)

Client Core Team Staff knowledgeable of business strategies and organisation

2-4 staff 3- 5 days/week Briefings with others as needed

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Lessons Learned
Measures must relate to the strategy and interrelated
Must understand how the perspectives influence each other Organisation-wide view replaces local focus

Determine the critical success factors

Identify long-term and short-term business objectives and prioritise them based on business goals What must be achieved to survive, or what will cause the company to fail if it is not achieved? Determine success factors for each of the four perspectives Limit the number to items that are critical, not just interesting Must understand the linkages between the activities and the goals

Develop metrics to evaluate performance

Provide feedback and also indicate risk / opportunity areas Metrics may be financial, non-financial, trends, surrogates, internally or externally gathered Should include leading and lagging measures, not too much or little
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Lessons Learned (Contd.)

Requires teamwork and collaboration
Different perspectives and expertise are required No one individual has a complete view of the organisation Greater participation produces greater buy-in Employees have a sense of ownership in the resulting scorecard More likely to use the scorecard to guide their decisions

Identify owners and assign responsibilities Initiative must start with Senior Management
Who understand the overall strategy and have authority to make strategic decisions Their Commitment level will determine success or failure
The project may fail if senior management does not show continued interest and support in the design process The scorecard will be ignored if management does not promote its use for performance evaluation and guidance
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Lessons Learned (Contd.)

Requires teamwork and collaboration
Different perspectives and expertise are required

Link to databases and IT system

Modify information system if necessary to collect and report the metrics
What data is available / not available? The scorecard should determine what data is collected and the data available should not determine the scorecard

Determine reporting procedures

Who gets the information? How is it reported? How often is it reported?

Communicate to employees regularly - tactics, objectives, assumptions, timetables

What is being measured Why it is being measured What is expected of the employees How to use the information
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Lessons Learned (Contd.)

Develop scorecards for lower levels
For staff to understand what they must do to support the level above

Interview senior managers

Input on strategic objectives, critical success factors, possible measures

Periodic reviews and re-align

Has company strategy changed? Are the critical success factors still valid? Are the activities still valid? Are the metrics still valid? Analyse results

Pitfall to avoid
Senior management committed and there is consensus
29 Staff buy in and regular communication between staff and management

ROI & BSC

It may not be obvious to YOU or YOUR managers, how to increase sales, decrease costs, and decrease investments in a way that is consistent with the companys strategy. A well constructed balanced scorecard can provide YOU with a road map that indicates how YOUR company intends to increase ROI.
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Take Away
BSC not only supports management decisions, but also identifies possibilities for change and motivates people Reports on the performance against the corporate goals Supports management decisions & establishes priorities regarding human and other resources Identifies ways to improve performance Identifies the need for adjusting processes and the flaws in supporting systems and infrastructure Identifies the need for change in the organisational culture Motivates people in their work by giving signals about what is 31 important to the organisation

Good Luck
http://www.linkedin.com/in/anandsubramaniam http://www. linkedin. com/ in/
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