Balance Score Card

10/19/2008
Improve Financial Performance Using A Balanced

Scorecard To Link Non-Financial Drivers To
Financial Results
Financial Executives International – San Francisco Chapter
October 2008
Howard Rohm, President and CEO

the Balanced Scorecard Institute
©2008 Balanced Scorecard Institute, a Strategy Management Group company. All rights reserved. Do not copy without permission.
Agenda
Today’s presentation is designed to help you better

understand:
• How non-financial p
performance can drive financial
results – examples
• How to use a balanced scorecard as a framework for
understanding how non-financial actions “drive” financial
results
• The importance of aligning vision, strategy, and
operations to communicate strategic intent to all
employees and stakeholders
• The success factors and challenges of developing and
using balanced scorecard systems
©2008 Balanced Scorecard Institute, a Strategy Management Group company. All rights reserved. Do not copy without permission. 2
10/19/2008
“The Main Thing

is to Keep
The Main Thing,
The Main Thing”
Close Your Eyes And Concentrate
With your eyes closed, use your left index finger to

point to the North
10/19/2008
Vision Is The First Main Thing
Where We Are:
Where We Want To Be:
Vision (a “shared picture of the future”) leads to Strategy
Strategy Is The Second Main Thing
“People and their managers are working so

hard to be sure things are done right,
right, that
they hardly have time to decide if they are
doing the right things.
things
things.”
..”
Stephen R. Covey
10/19/2008
Traditional Strategic Planning

Key Question: “How can we justify our existing projects?”
Mission
Vision
Balanced
Scorecard
Strategic
Strategic Planning
Strategy Adds This:
Analysis
“Are We Doing
The Right Things
Goals Right?”
Projects\
Initiatives
Metrics
Goal: Align Strategy And Operations
Cascade the corporate scorecard to business units and individuals
Organization-Wide
• Profitability
• Customer
Retention
Business/Support Units
•Operating Margin
•On time Individuals

delivery
•Scrap Rate
• Quality
• Schedule
10/19/2008
Understand The Balanced

Scorecard
“Balanced Scorecard” Means Different

Things to Different People
Integrated Strategic Planning & Management System:

• Integrates strategic planning, management, and budgeting into
a holistic system
• Includes “changing hearts and minds” (change management)
• Communicates vision and strategy, and makes them actionable
• Owned by everyone in the business
Strategic Management Scorecard:
• Starts with existing strategy and builds a scorecard dashboard
• Owned
O d by
b a strategic
t t i managementt officeffi
KPI (Key Performance Indicator) Scorecard:
• Measures (mostly operational, lagging measures) scorecard
• Developed and owned by the planning/evaluation office
10/19/2008
“Balanced Scorecard” Means Different

Things to Different People
Integrated Strategic Planning & Management System:
Professional Grade
Strategic Management Scorecard:
Medium Duty
KPI (Key Performance Indicator) Scorecard:
Light Duty
Where Are Balanced Scorecard Systems Used?
10/19/2008
A Balanced Scorecard System

Serves Several Organizational Needs
Translate
Vision Into
Strategy
Make
Communicate Strategy
With Actionable
Clarity
Balanced
Scorecard
System
Measure &
Improve Manage
Accountability Results
Align The
Organization
The Logic Of Balanced Scorecard

Strategic Planning & Management
Strategic
Altitude
30,000 ft. What is our purpose? What
Mission do we do?
Customer/
Stakeholder
Needs
Vision What is our picture of the future?
Strategic What performance lenses should we use

25,000 ft. Perspectives to evaluate results?
Strategic Themes & What are our main focus areas (“Pillars of
Excellence”)? What results do we need to
Results achieve?
What continuous improvement activities are
Objectives needed to get results?
15,000 ft. How do we create and improve value for
St t
Strategy M
Map customers?
Performance Measures How will we know if we are achieving the
& Targets results we want?
Specifically, what projects and
Ground Strategic Initiatives programs will contribute to the
desired results?
10/19/2008
Building A Scorecard System Is Like

Building A Custom House
Mission
Vision
Customer Needs
Enablers Challenges
Strategic Results
Perspectives
Financial/
Stewardship
Partnerships
Operationall
Excellence
Customer/
Excellence
Strategic
Change
Culture
Service
Stakeholder
Internal
Processes
Organization
s
Capacity
Engaged Leadership Interactive Communications
High-Performance Organization = Shared Vision + Bold, well-executed Strategy

+ Efficient Communications and Processes + Motivated Staff
Critical Step: View Strategy Through Different

Perspectives
Perspective Key Concept Key Questions
Through the eyes of the
Financial/
“Financial Performance” owners of the business, how
Stewardship will they judge financial
success?
Through the eyes of our

customers, how will they judge
Customer “Satisfaction” the value of our products and
services? How will we
differentiate ourselves in the
market?
How can internal processes be
Internal
Business improved, to improve product,
“Efficiency”
Efficiency program and service quality
quality,
Processes
timeliness, economics, and
functionality?
Organization “Knowledge How can our employees
Capacity/ continually get smarter,
Knowledge/ &
Learning Innovation” innovate, and improve?
10/19/2008
Critical Step: A Strategy Map Shows How Financial

And Non-Financial Results Are Connected
Financial Improve
Profitability
Increase
Lower costs
Revenue
Customer
More
On-time Customers
flights
Lowest
Prices
Internal
Process Improve
Turnaround
Time
Learning
Align
Ground
Crews
• Understand how value is created for customers and stakeholders

• Link Strategic Objectives in cause-effect relationships to create a
Strategy Map
Measurement Is The Third Main Thing
“How will we know success when we see

it?” ……. We need to measure
10/19/2008
“Too often measurement systems are

driven by what is available, rather than
what is needed.”
Robert Kaplan
Find The Right Measures
Goal: Play in the World Series
Inputs: Current players Player draft

Budgeted payroll Trades
Strategies: Trade for quality players Spend big – quick team

Build strong farm club Lower cost – takes time
Output: Games played
Outcomes: Games won Win the pennant
Impacts: Increase attendance by xx percent and revenues by

xx percent over last year
Increase club recognition
Performance Runs scored Division Ranking Players’ Composite Average

Measures: Runs allowed Games won and lost
10/19/2008
Critical Step: Measure What Matters
Are We Doing Things Right? Are We Doing

The Right Things?
Inputs
People
Financial & Customer
Work Flow Results
Systems Process Process Process Output Outcome
Information Process Result

Measures Measures
Input
Measures
Performance
Measures
Prioritizing The Work We Do Is The Fourth

Main Thing
“How can we optimize our resources?“…….

We need to prioritize
10/19/2008
Example: Airline Balanced Scorecard

Mission: Dedication to the highest quality of Customer Service delivered with a sense of
warmth, friendliness, individual pride, and Company Spirit.
Vision: Continue building on our unique position -- the only short haul, low-fare, high-
frequency, point-to-point carrier in America.
Simplified Strategy Map Objectives Metrics Targets Initiatives
Financial
• Profitability • Market Value •25% per year • Optimize
Profitability
• Fewer planes • Seat Revenue •20% per year routes
Lower costs
Increase • Plane Lease Cost •5% per year • Standardize
Revenue • Increased planes
revenue
Customer
More • Increase on – • FAA On Time • First in • Quality
More time flights Arrival Rating industry management
Customers
On-time
Flights • Lowest prices • Customer • 98% • Customer
Lowest • More Ranking Satisfaction loyalty
Prices Customers • No. Customers • % change program
Internal • Improve groundd • On
O GGroundd Ti
Time •<25
2 Min.
i • Cycle
C l time
i
Improve turnaround time • On-Time •93% optimization
Turnaround Departure program
Time
Learning • Improve ground • % Ground crew •yr. 1 70% • Stock

crew alignment stockholders ownership
Better yr. 4 90% plan
Align Ground • % Ground crew yr. 6 100%
Crews • Ground crew
trained training
Source: Adapted from Harvard Business School
Visualizing Performance Information

Views
Briefing Books Maps Reports Internet Publishing Links
Source: Actuate PerformanceSoft Views
10/19/2008
Example: Cascaded Strategic Objectives
Aligned Balanced
Scorecard Objectives:
SI 1: IT enhancement plan
Improve SI 2: Knowledge g library
ypprogram
g
Tier 1
Ease Of PM 1: % of processes
Customer Access Automated
Improve My
SI 3: Identify internal customer needs
SI 4: Develop report delivery standards
Tier 2
Department’s PM 1: % of on-time
Ability To Assist reports to
Customers
internal customers
SI 3:
3 Error
E id tifi ti
identification Tier 3
training course
Improve My
Customer Service PM 1: Change in test
Skills score after training
Tier 1 = Enterprise-wide
Tier 2 = Business and Support Units
Tier 3 = Teams & Individuals
Make Strategy Everyone’s Job
10/19/2008
Examples
Construction Company Strategy Map

Become One Go Deep Differentiate Expand
Increase
Earnings
Grow Fees Increase
Financial In Backlog Margins
Increase
Increase
Sole Source
Hit Rate
Improve Awards
Customer
Customer Satisfaction
Enhance
Service to the
Customer
Improve Improve Increase
Process Improve
Internal Process Alignment of Corp.
Information Flow Improve
Communication Discipline Shared Services
Risk Evaluation
Increase
Organizational Talent
& Leadership
Grow Business Grow Project
Unit Leaders Grow
Organization Superintendents Managers
Capacity
Improve Improve Improve
Rewards & Talent Succession
Recognition Development Planning
10/19/2008
Example: Retailing
Twenty Two Months Later:

Three Performance Indicators That Matter A Lot
Start Of
Analysis
Employee Customer Revenue
Over 70 Attitude Impression Growth
Possible (Satisfaction) (Satisfaction)
Performance
Indicators
5 unit 1.3
1 3 unit 0.5
05%
increase increase increase
15 months
Source: Harvard Business Review
Example: Health Care Center

Hypothesis: Learning Leads to Profitable Growth
Leads to a 2% increase
A 5 % growth in Training In Revenue per Patient Day
Leads to a 3% decrease Leads to a 1% increase

In Errors In Patient Referrals
10/19/2008
2007 Balanced Scorecard Institute Award for Excellence
Critical Success Factors and

Challenges
10/19/2008
Critical Success Elements For The

Balanced Scorecard – Managing Change
Actionable
Vision Capabilities + Incentives + Resources + Urgency Success
+ Strategy + =
Vision Actionable
C
Capabilities
biliti I
Incentives
ti + Resources
R U
Urgency = Confusion
C f i
Lacking + Strategy + + +
Actionable
Vision + Strategy + Capabilities + Incentives + Resources + Urgency = False Starts
Lacking
Actionable Capabilities
Vision Incentives + Resources + Urgency Anxiety
+ Strategy + Lacking + =
Actionable Incentives Restraint,

Vision Capabilities + Resources + Urgency
+ Strategy + Lacking + = Resistance
Actionable Resources
Vision Capabilities + Incentives + Urgency = Frustration
+ Strategy + Lacking +
Actionable Urgency
Vision Capabilities + Incentives + Resources +
Strategy + =
+ Apathy
Lacking
Source: Adapted from Performance Breakthroughs, Inc.
Lessons Learned
1: Vision starts the strategic thinking process
2: Use a Disciplined, Sustainable, Comprehensive

Approach to create a Strategy-Focused Organization
3: Leadership Matters A Lot – Visible and Engaged
4: Commit to Data-Driven Decision Making
5: Few Measures are Perfect
6: Initiatives make it real for Employees
7: Incentives Really make it real for Employees
8: Build a Strategic Budget
8: It’s a Marathon, not a Sprint
10: Change Management is not a Hood Ornament

10/19/2008
The Big Challenges
• Lack of engaged leadership • “Rush to judgments”:
• it’s
Thinking it s just about performance measures,
measures current projects, software
• Ignoring the history of • Not planning for and
strategic planning incentivizing desired change
• Using more than one sheet • Losing momentum and not
of music following through
• Communicating only with the

special few
It’s Hard Work To Make It Simple
“I apologize, Dear Mother, for the length of this

letter ……. but I didn’t have time to write a
shorter one.”
Winston Churchill,
from the war zone
10/19/2008
But, Beware the Watchman !!
“… governments are very keen on amassing

statistics They collect them
statistics. them, add them,
them raise
th
them to the N power, take the cube root and
prepare wonderful diagrams.
But you must never forget that every one of

these figures comes in the first instance from
the village watchman, who just puts down
what he damn pleases."
Sir Josiah Stamp, 1880-1944, Head, Bank of England

Do Your Employees Know Which Way

“North” Is?
10/19/2008
More information ?
Free Webinar ?
Visit the #1 site on the Internet:
www.balancedscorecard.org
Cary, North Carolina Washington, DC
(919) 460-8180 (202) 465-4253

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10/19/2008

Improve Financial Performance Using A Balanced

Howard Rohm, President and CEO

Today’s presentation is designed to help you better

“The Main Thing

Close Your Eyes And Concentrate

With your eyes closed, use your left index finger to

Vision Is The First Main Thing

Where We Want To Be:

Vision (a “shared picture of the future”) leads to Strategy

Strategy Is The Second Main Thing

“People and their managers are working so

Traditional Strategic Planning

Goal: Align Strategy And Operations

Cascade the corporate scorecard to business units and individuals

•On time Individuals

Understand The Balanced

“Balanced Scorecard” Means Different

Integrated Strategic Planning & Management System:

“Balanced Scorecard” Means Different

Integrated Strategic Planning & Management System:

Strategic Management Scorecard:

KPI (Key Performance Indicator) Scorecard:

Where Are Balanced Scorecard Systems Used?

A Balanced Scorecard System

The Logic Of Balanced Scorecard

Strategic What performance lenses should we use

Building A Scorecard System Is Like

Engaged Leadership Interactive Communications

High-Performance Organization = Shared Vision + Bold, well-executed Strategy

Critical Step: View Strategy Through Different

Through the eyes of our

Critical Step: A Strategy Map Shows How Financial

• Understand how value is created for customers and stakeholders

Measurement Is The Third Main Thing

“How will we know success when we see

“Too often measurement systems are

Find The Right Measures

Goal: Play in the World Series

Inputs: Current players Player draft

Strategies: Trade for quality players Spend big – quick team

Output: Games played

Outcomes: Games won Win the pennant

Impacts: Increase attendance by xx percent and revenues by

Performance Runs scored Division Ranking Players’ Composite Average

Critical Step: Measure What Matters

Are We Doing Things Right? Are We Doing

Information Process Result

Prioritizing The Work We Do Is The Fourth

“How can we optimize our resources?“…….

Example: Airline Balanced Scorecard

Simplified Strategy Map Objectives Metrics Targets Initiatives

Learning • Improve ground • % Ground crew •yr. 1 70% • Stock

Visualizing Performance Information

Briefing Books Maps Reports Internet Publishing Links

Source: Actuate PerformanceSoft Views

Example: Cascaded Strategic Objectives

Make Strategy Everyone’s Job

Construction Company Strategy Map

Twenty Two Months Later:

Source: Harvard Business Review

Example: Health Care Center