Building Strategy Focused Organizations with the Balanced Scorecard Dr Robert S Kaplan Marvin Bower Professor of Leadership Development HARVARD BUSINESS SCHOOL and Chairman BALANCED SCORECARD COLLABORATIVE The Balanced Scorecard: A Good Idea in 1992 Balanced Scorecard in 1992 “The Balanced Scorecard – Measures that Drive Performance” Harvard Business Review, 1992 ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved The Balanced Scorecard: A Great Idea by 2002 Balanced Scorecard by 2002 21 translations 17 translations 50% usage in Fortune 500 Harvard Business Review “Hall of Fame” 50,000+ BSC on-line members ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved Balanced Scorecard Hall of Fame Implemented Strategies and Achieved Breakthrough Results… Fast Mobil years Saatchi & Saatchi + $2b • Last to first • Cash flow +$1.2b • ROI 6% > 16% ATT Canada years + $7b 2-5 years Cigna Brown & Root 2-5 years years • #1 in growth & profitability + $3b City of Charlotte years Duke Children’s • Customer Satisfaction = 70% • Public Official Award • Customer Satisfaction #1 • Cost/Case 33% years Wells Fargo Southern Garden 3-5 years • # Customers 450% • Best Online Bank • Least Cost Producer years years Chemical Bank years • 99% Merged Target Asset Retention UPS Hilton Hotels • Customer Satisfaction • Market Revenue Index • Revenues • Net Income ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved 9% 33% years Question: Question: Answer: Answer: How Howcan cancomplex complexorganizations organizations achieve results like achieve results likethis thisininsuch such short periods of time? short periods of time? Alignment! Alignment! The Balanced Scorecard process allows an organization to align and focus all its resources on its strategy BUSINESS UNITS EXECUTIVE TEAM STRATEGY INFORMATION TECHNOLOGY HUMAN RESOURCES BUDGETS AND CAPITAL INVESTMENTS ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved A Gap Exists Between Mission-Vision-Strategy and Employees’ Everyday Actions MISSION Why we exist VALUES What’s important to us VISION What we want to be STRATEGY Our game plan TOTAL QUALITY MANAGEMENT What we must improve EMPOWERMENT / PERSONAL OBJECTIVES What I need to ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved The Balanced Scorecard Links Vision and Strategy to Employees’ Everyday Actions MISSION Why we exist VALUES What’s 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 STRATEGIC OUTCOMES Satisfied SHAREHOLDERS Delighted CUSTOMERS Efficient and Effective PROCESSES ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved Motivated & Prepared WORKFORCE The Principles of a Strategy-Focused Organization TRANSLATE STRATEGY • • • • • EXECUTIVE LEADERSHIP Mission / Vision Strategy Maps Balanced Scorecard Targets Initiatives BALANCED SCORECARD • • • • • ORGANIZATION ALIGNMENT • • • • CEO Sponsorship Executive Team Engaged “New Way of Managing” Accountable for Strategy A Performance Culture CONTINUAL PROCESS Corporate Role Corporate - SBU SBU - Shared Services External Partners EVERYONE’S JOB • • • • • Linked to Budgeting Linked to Ops Mgmt Management Meetings Feedback System Learning Process • Strategic Awareness • Goal Alignment • Linked Incentives ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved #1 Principles of the Strategy Focused Organization: TRANSLATE THE STRATEGY TO OPERATIONAL TERMS The Strategy Financial Perspective ‰ Measurement is the language that gives clarity to vague concepts "If we succeed, how will we look to our shareholders?” Customer Perspective ‰ Measurement is used to communicate, not to control "To achieve my vision, how must I look to my customers?” ‰ Building the scorecard develops consensus and teamwork throughout the organization ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved 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?” The Complete Balanced Scorecard Strategy Map Improve Shareholder Value Financial Perspective: the drivers of shareholder value Shareholder Value ROCE Productivity Strategy Improve Cost Structure Increase Asset Utilization ‰ Cost per Unit Internal Perspective: how value is created and sustained Learning & Growth Perspective: role for intangible assets – people, systems, climate and culture Enhance Customer Value ‰ Customer Profitability ‰ Asset Turnover Market and Account Share ‰ Customer Perspective: the differentiating value proposition Revenue Growth Strategy ‰ Customer Acquisition Customer Retention ‰ Create Value from New Products & Services ‰ New Revenue Sources Customer Satisfaction Product Leader Customer Solutions Customer Value Proposition Product/Service Attributes Price Quality Time Operations Theme (Processes that Produce and Deliver Products & Services) Low Total Cost Relationship Function Service Customer Management Theme (Processes that Enhance Customer Value) Image Relations Brand Innovation Theme (Processes that Create New Products and Services) Regulatory and Society Theme (Processes that Improve the Environment and Communities) Human, Information, and Organizational Capital Strategic Competencies Strategic Technologies ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved Climate for Action 10 The Principles of a Strategy-Focused Organization TRANSLATE STRATEGY • • • • • EXECUTIVE LEADERSHIP Mission / Vision Strategy Maps Balanced Scorecard Targets Initiatives BALANCED SCORECARD • CEO Sponsorship • Executive Team Engaged • “New Way of Managing” • Accountable for Strategy • A Performance Culture ORGANIZATION ALIGNMENT • • • • CONTINUAL PROCESS Corporate Role Corporate - SBU SBU - Shared Services External Partners EVERYONE’S JOB • Strategic Awareness • Goal Alignment • Linked Incentives ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved • Linked to Budgeting • Linked to Operational Improvements • Management Meetings • Feedback System • Learning Process 53 To Succeed, the Executive Leader Must be Engaged in the Strategic Change Process… Unfreeze Achieve commitment and momentum at the top “The Case for Change” Breakthrough and Sustain Change Align and focus the organization on change “Early Wins” Institutionalize capabilities and culture required for breakthrough results “Irreversible Momentum” “A successful Balanced Scorecard program is a transformation process not a “metrics” project.” ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved 54 Pitfalls • Middle Management Team: Lack of Senior Management Commitment (“Bacon and Eggs Breakfast”) • • • Done Only by One or Two Individuals Held at the Top: For Senior Management Only Too Long a Development Process: “Best Becomes the Enemy of the Good” “Just Do It!” • • Treating the Balanced Scorecard as a Systems Project Just a “checklist” for compensation purposes (the P’s) ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved 55 Typical Balanced Scorecard Project Schedule Week Task 1: Define Strategic Architecture Project Kickoff Task 2: Draft the Balanced Scorecard Workshop I Task 3: Develop Measures, High Level Targets & Initiatives Workshop II 10 11 12 13 14 15 16 Wks Wks Wks Task 4: Develop Implementation Plan Workshop III Wks ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved 56 An Effective Balanced Scorecard Development Process Encourages Focused Participation by Leadership Team and Leverages Knowledge Within the Organization The Balanced Scorecard Design Program Leadership Team Workshops Core Team Analysis & Preparation Workshop No • Establish executive consensus on strategic issues • Review draft Balanced Scorecard objectives and strategy map Workshop No • Finalize objectives and measures • Review strategic initiatives and high level targets Workshop No • Review implementation plan • Discuss implications on change management Task Task Task Task Define Balanced Scorecard Architecture Develop Objectives and Strategy Map Develop Measures, Targets and Initiatives Develop Implementation Plan ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved 57 Balanced Scorecard Project Team BSCol Engagement Officer/ Principal (part-time) BSCol Project Leader (full-time) BSCol Project Team 1-2 Consultants (full-time) Executive Sponsor/ Steering Committee • Overall project ownership • Consultations/pre-presents as needed • days/week Client Project Leader Client Core Team Executive Leadership Team • half- to full-day workshops • One 90-minute briefing/ interview • Consultations/ pre-presents as needed • 1-2 staff • 2-3 days/week • Briefings with others as needed Staff knowledgeable of business strategies and organization ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved 58 BSCol’s Framework for Building the SFO –6 Weeks Assessment Phase 12-16 Weeks Phase I: BSC Design and Mobilization - Years Phase II: Build the SFO •Rapid BSC Cascading and Deployment •Planning and Budgeting •Governance •Feedback and Learning •Performance Management 0.5 - Years Business Process Improvements Stream Order Fulfillment Stream Customer Service/CRM Stream Product Innovation Stream Infrastructure • HR • IT • Etc ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved 59 How are Organizations Doing on the Journey? A survey of online members of the BSCol: 500 responses; 250 reported, “Yes, we have BSC.” 50% of these: too early to tell about impact Of the 125 who had sufficient experience with the program: Achieved breakthrough results Some progress No or limited results 15% (n = 19) 64% (n = 80) 21% (n = 26) ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved 60 What Separates the Winners from the Losers? Executive Team has created a sense of urgency Strategy translated to a strategy map and Balanced Scorecard Corporate/Business Unit measures are linked & aligned Employees are aware of the strategy Individual and team goals are aligned with the strategy The BSC is an integral part of the strategic planning process The budget is driven by the strategy Breakthrough Results Some Progress No Results 84% 53% 20% 84% 41% 0% 72% 39% 0% 56% 32% 0% 42% 26% 0% 100% 40% 0% 42% 29% 0% ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved 61 Based On What You Have Learned in This Conference, Rate Your Organization’s Readiness to Execute Its Strategy EXECUTIVE LEADERSHIP • • • • • ORGANIZATION ALIGNMENT CEO Sponsor TRANSLATE STRATEGY Executive Team Engages “New Way of Managing” Accountable for Strategy A Performance Culture • • • • • • • • Corporate Corporate – SBU SBU – Shared Services Mission / Vision Strategy Maps Balanced Scorecard Targets Initiatives EVERYONE’S JOB • • • Strategic Awareness CONTINUAL PROCESS Rate Yourself E “Best Practice” Goal Alignment D We’re OK Linked Incentives C Moving Slowly B Thinking About It A Clueless ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved • • • • • Linked to Budgeting Linked to Ops Mgmt Management Meetings Feedback System Learning Process 62 The SFO Readiness Profile: Plot Yourself E TRANSLATE STRATEGY EXECUTIVE LEADERSHIP D Develop strategy maps and Balanced Scorecards Mobilize the organization C B IT CONTINUAL PROCESS Feedback systems to facilitate learning Budg e Ops ting & Mgm t port Sup SBU Cascade the scorecard to create linkage BU -S Corp ORGANIZATION ALIGNMENT Mee Corp tings A Communicate Personal Scorecard Incentives EVERYONE’S JOB Mobilize Change through Executive Leadership ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved A B C Thinking Clueless D E OK Moving Slowly Best Practice 63 Building the SFO: Some Thoughts on Priority and Sequence TRANSLATE STRATEGY EXECUTIVE LEADERSHIP CONTINUAL PROCESS port Sup SBU Budg e Ops ting & Mgm t IT BU -S Corp ORGANIZATION ALIGNMENT Mee Corp tings #1 Communicate Personal Scorecard Incentives EVERYONE’S JOB A B Thinking Clueless ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved C D E OK Moving Slowly Best Practice 64 Building the SFO: Some Thoughts on Priority and Sequence TRANSLATE STRATEGY EXECUTIVE LEADERSHIP Top-down #2 #1 #2 Mee Corp #2 CONTINUAL PROCESS port Sup SBU Budg e Ops ting & Mgm t IT BU -S Corp ORGANIZATION ALIGNMENT tings First Wave of Results Communicate Personal Scorecard Incentives EVERYONE’S JOB A B Thinking Clueless ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved C D E OK Moving Slowly Best Practice 65 Building the SFO: Some Thoughts on Priority and Sequence TRANSLATE STRATEGY EXECUTIVE LEADERSHIP Top-down #2 #1 #2 #2 #4 port Sup SBU #3 #4 #4 Personal Scorecard Budg e Ops ting & Mgm t #5 Communicate Sustained Results CONTINUAL PROCESS IT BU -S Corp Bottoms-up Mee Corp ORGANIZATION ALIGNMENT tings First Wave of Results Incentives EVERYONE’S JOB A B Thinking Clueless ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved C D E OK Moving Slowly Best Practice 66 For further information, visit www.bscol.com Our Mission: “To facilitate the worldwide awareness, use, enhancement, and integrity of the Balanced Scorecard as a value-added management process” Conferences Membership Research Consulting Training Networking Publications Certification ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved 67 [...]... Principles of the Strategy Focused Organization: MAKE STRATEGY EVERYONE’S EVERYDAY JOB 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 • EDUCATION • PERSONAL GOAL ALIGNMENT Bottom-Up Process to Internalize & Execute the Strategy • BALANCED PAYCHECKS The Strategy Focused Workforce ©2002 Balanced Scorecard. .. across diverse organizational units becomes formalized through the Scorecard ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved 28 The Principles of a Strategy- Focused Organization TRANSLATE STRATEGY • • • • • EXECUTIVE LEADERSHIP Mission / Vision Strategy Maps Balanced Scorecard Targets Initiatives BALANCED SCORECARD • • • • • ORGANIZATION ALIGNMENT • • • • CEO Sponsorship... communicate, and and work work together?” together?” The Mission, rather than the financial / shareholder objectives, drives the organization’s strategy ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved 13 Boston Lyric Opera Strategy Map Our mission is to ensure the long-term future of opera in Boston and New England by (1) producing the highest quality professional... ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved 21 The Principles of a Strategy- Focused Organization TRANSLATE STRATEGY • • • • • EXECUTIVE LEADERSHIP Mission / Vision Strategy Maps Balanced Scorecard Targets Initiatives BALANCED SCORECARD • • • • • ORGANIZATION ALIGNMENT • • • • CEO Sponsorship Executive Team Engaged “New Way of Managing” Accountable for Strategy. .. operational commanders and their staffs F-1b Cost of injury/illness driven claims ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved 17 Several Different Types of Balanced Scorecards” Have Emerged in Practice Strategy Card Stakeholder Card ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved KPI Card 18 A KPI Scorecard: The Four “P’s” • Profits... Achieved ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved 23 Principles of the Strategy- Focused Organization: LINK AND ALIGN THE ORGANIZATION AROUND ITS STRATEGY #3 #1 Each Support Unit develops a plan and BSC for “best practice” sharing to create synergies across SBUs A Corporate Scorecard defines overall strategic priorities CORPORATE LINE BUSINESSES CORPORATE SCORECARD. .. ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved Technology • Process Improvement T Systems Milestones 11 New Source of Revenues and Customer Loyalty Attractive Convenience Store ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved 12 The Balanced Scorecard Framework Is Readily Adapted to Non-Profit and Government Organizations The Mission... Incentives ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved 22 Principles of the Strategy- Focused Organization: LINK AND ALIGN THE ORGANIZATION AROUND ITS STRATEGY #3 #1 Each Support Unit develops a plan and BSC for “best practice” sharing to create synergies across SBUs A Corporate Scorecard defines overall strategic priorities CORPORATE LINE BUSINESSES CORPORATE SCORECARD. .. and Objectives Are Aligned to the Strategy A performance model provides the framework for cascading and aligning personal goals Customer Example A personal scorecard focuses individuals on the part of the performance model they can impact Financial Example Corporate Measures Corporate Parent • Customer Satisfaction • Operating Margin 1994 1995 100 120 160 1996 Balanced Scorecard 1997 • Operating Margin... ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved 19 What’s missing from the 4P’s KPI scorecard? • Where are the customers? • What is the value proposition? • How does ISO certification lead to increases in loan volume? • How does a more diverse work force lead to ISO certification? • Is there no role for information technology? • Is innovation not important? ©2002 Balanced .. .The Balanced Scorecard: A Good Idea in 1992 Balanced Scorecard in 1992 The Balanced Scorecard – Measures that Drive Performance” Harvard Business Review, 1992 ©2002 Balanced Scorecard. .. ©2002 Balanced Scorecard Collaborative, Inc and Robert S Kaplan All rights reserved #1 Principles of the Strategy Focused Organization: TRANSLATE THE STRATEGY TO OPERATIONAL TERMS The Strategy. .. communicate, and and work work together?” together?” The Mission, rather than the financial / shareholder objectives, drives the organization’s strategy ©2002 Balanced Scorecard Collaborative, Inc