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An Introduction to the BalancedScorecard and the Strategy FocusedOrganizationMarch 6, 2009 Balanced Scorecard Collaborative - Teacher Farias Souza – @FariasSouza
Why Do Organizations Struggle So Hard WithStrategy? 1 in 10 organizations execute their strategies successfully Fortune Magazine, 1998 72% of CEOs believe that executing their chosen strategy is more difficult than developing a good strategy Malcolm Baldrige CEO Survey, 2002
#5 MAKE STRATEGY A CONTINUAL PROCESS The Problem: The Strategic Management Process Is Missing in Most Organizations STRATEGY 60% of organizations don’t link strategy & update the test the 85% of management budgets strategy hypotheses teams spend less than Strategic Learning Loop one hour per month on strategy issues BALANCED SCORECARD BUDGET78% of organizations lockbudgets to an annual cycle funding Management Control Loop reporting 92% of organizations do20% of organizations take not report on lead more than 16 weeks to PERFORMANCE indicators prepare a budget Input Initiatives & Output Programs (Resources) (Results)
Strategy Development or Strategy Execution?Organizations Need Both Strategic success requires going beyond successful 1 strategy formulation to successful strategy execution Sound Strategy Formulation Missed Strategic Opportunity Success Flawed Doomed From At Risk The Start Flawed Sound Strategy ExecutionSource: 1Execution: The Discipline of Getting Things Done, by Larry Bossidy, 2002.
Strategy Execution Challenge There are generally accepted tools to manage finances, customers, processes, and people. But what about strategy? Financial Management Tools EVA Balance Sheets Process Management Tools Income Statements Six Sigma Shareholder Value Analysis Supply Chain Integration Strategy Management Tools Cycle Time Reduction TQMCustomer Management ToolsCustomer Satisfaction Measurement ? People Management ToolsCustomer Relationship Management Core Competencies Segmentation Analysis Knowledge Management One-to-One Marketing Pay for Performance HRIS The Balanced Scorecard is the vehicle that fills the Strategy Management Gap
Balanced Scorecard Organizations Are AchievingBreakthrough Results BREAKTHROUGH RESULTS Private Sector Public Sector Shareholder Mobil Value SMDC Health System • From last to first in industry • Profitability up $23m • ROI 6% --> 16% • Customer Satisfaction Profitable Wendy’s Growth City of Charlotte International • Mkt. Cap $2.5 --> $4b • Customer Satisfaction = • Stock Price up 75% 70% Customer • Public Official Award Satisfaction UPS Duke Children’s Hospital • Revenues 9% • Customer Satisfaction #1 • Net Income 33% • Cost/Case 33% Organizational Alignment Defense Logistics Hilton Hotels Agency • Customer Loyalty 5% • $130MM in Savings in FY2002 • EDITDA margins 3% above • Processed $2.2B more requisitions average Cost for its customers Reduction
How Did They Do It?They Created “Strategy-Focused Organizations” STRATEGY: They made strategy the central organization agenda FOCUSED: They created incredible focus on the STRATEGY strategy ORGANIZATION: They mobilized their employees to act in fundamentally different ways, guided by the strategy The Balanced Scorecard Is a Performance Management Program That Puts Strategy at the Center of the Process
…Reflecting a “Natural Cause and Effect Logic”of Business Performance And Realize the Vision Financial To Drive Financial Results Success... Customer Benefits Needed to Deliver Unique Sets of Benefits to Customers... Internal To Build the Strategic Capabilities.. Capabilities Knowledge, Skills, Systems, and Tools Equip our People...
The Balanced Scorecard Should Tell the Storyof the Strategy Illustrative Example: Southwest Airlines Strategic Theme: Operating Efficiency Financial Profitability What will drive operating efficiency?” Fewer planes More • More customers on fewer planes customers Customer How will we do that? Flight Lowest Is on time prices • Attract targeted customer segments who value price and on time arrivals Internal What must the internal focus be? Fast ground turnaround • Fast turnaround Learning Will our people do that? Ground crew alignment • Educate and compensate ground crew regarding how they contribute to the firm’s success • Employee stockholder program
Let’s Take a Minute to Agree Upon SomeCommon VocabularyDiagram of the cause and effect Statement ofrelationships between strategic what objectives (Strategy Map) strategy How success must in achieving The level of Key action Strategic Theme: achieve and the strategy performance programs Operating Efficiency what’s will be or rate of required to Financial critical to its measured and improvement achieve Profitability success tracked needed objectives More Fewer planes customers Customer Flight Lowest Is on time prices Objectives Measurement Target Initiative Internal • Fast ground • On Ground Time • 30 Minutes • Cycle time Fast ground turnaround • On-Time • 90% optimization turnaround Departure Learning Ground crew alignment
ASME Balanced Scorecard Strategy Map Young Engineers Industry / F1 Grow revenue through new productsCustomer Continue Government C1 Become C2 Enhance and global growth Financial to serve our core indispensable to relevance to Industry customers, such as Young Engineers & Government Academia F2 Sunset F3 Run a cost C3 Identify and effective lower-value Address Future Markets operation programs and Applications Build Communities Build Content / Knowledge Advocate and Communicate I1 Enable self- I3 Increase & I6 Provide I7 ImproveInternal forming communities Expand Market- effective coordination of interest Relevant Content representation and and advocacy effectiveness of for the corporate engineering communication I2 Stimulate individual profession s membership growth I4 Digitize & I5 Accelerate with different repackage time to market membership models content Learning & Growth L2 Develop future L1 Develop new product and business volunteer leaders development capabilities through a culture that is adaptive, continually L3 Strengthen evolving (risk taking), entrepreneurial environmental L4 Share best and agile scanning and practices and competitive lessons learned intelligence V 3.0 11/11/03