IMPLEMENTING THE BALANCED SCORECARD

Group 8 Arun Rana PGP/16/007 Bharat Wadhwa PGP/16/013 Jyotsna Gautam PGP/16/026 Priyank Bavishi PGP/16/037 Priyanka Siddharth PGP/16/038 Shuchi Garg PGP/16/047

BANKING SECTOR IN 1990S

Intense competition in the retail banking sector Number of banks reduced from 14000 to 10000 and further possibility of reduction to 4000-5000 Reasons:
New investment and insurance product demand Convenience in banking: telephone banking, ATMs with enhanced functionality Fewer deposits, withdrawals and check cashing transactions

Move towards higher value interactions with customers Technology was the key to new partnerships (insurance companies and brokerage firms), and strategies to identify, attract and retain more profitable customers

CHEMICAL BANK

Merger with Manufacturers Hanover Corporation in late 1991 Historically focused on efficient collection and processing of deposits Revenue growth was slow due to lower interest rates and deposits to non banking service providers like mutual funds

New York Markets Division: Managed $27 billion worth deposits, 300 branches and 800 ATMs #1 market share in small commercial companies Roughly 150000 accounts Referral source for Chemicals mortgages, credit cards, home loans, etc.

PROBLEM AT CHEMICAL BANK

Slow revenue growth Outflow of deposits to mutual funds Increased customer demand for value

Profitability Squeeze
Underlying growth in core expenses Occupancy Salaries and benefits FDIC

SUCCESS FACTORS FOR CHEMICAL BANK

Commit to business processes driven by service quality Implement a continuous process for understanding markets, segments and individual customers Develop a rapid, customer focused product management and development process Ensure flexible and market-responsive delivery channels Develop information management processes and platforms driven by business needs Implement an expense management process to streamline the cost base

NEED FOR CHANGE

Hegarty Transform the bank into a marketfocused organization Finance service provider of choice to target customer groups Major investment needs to understand customer needs and identify attractive customer segments Tailor new products like annuities, investment products and tech-based payments services Develop relationships with most desirable customers Increase the Share of Wallet

NEED FOR THE BALANCED SCORECARD (BSC)

Need for measures other than financial were required to motivate and value its importance in order to compete in an increasingly competitive banking industry Communicating the transformation process to around 15000 individuals Insistence on clear specification of strategic objectives and measures in four areas: financial, customer, internal business and learning and growth Gives measures to stay focused on performance and clarify and communicate Focus energies on change
Communicates vision Allows learning Renew Vision for change

DEVELOPMENT OF THE BSC

Started with middle management task force under Tony LoFrumento Even though various ideas were generated but it was difficult to push performance measures to senior management Commitment from Mike Hegarty was required Senior management divided into four sub groups, one for each of the BSCs objectives Measures for the objectives developed with assistance from middle-level managers Consensus for complete scorecard achieved in end 1993 Reduction of strategy from 5 dimension to three core strategic themes

DEVELOPMENT OF THE BSC

Original Statements Focus on attractive markets Increase fee revenue Improve service quality Improve Operating Efficiency Promote Continuous Learning and Improvement Create an enabled organization Learning and Growth Improve Productivity Internal Core Strategic Themes Shift the customer/profit mix BSC Perspective Customer

DEVELOPMENT OF THE BSC

Translating the Vision Communicating and Linking Business Planning

Feedback and Learning

TRANSLATING VISION & STRATEGY

TRANSLATING VISION & STRATEGY

a.
i. ii. iii. iv.

Financial
Improve Return on Spending Reduce Costs Increase Revenues Reduce Risk

c. Internal i. Innovation
1. Make

the Market 2. Create the product

ii. Delivery
1. Market

b.
i.

Customer
Differentiators

Customized value propositions Recognize and proactively satisfy customer needs

and Sell 2. Distribute and Service

d. Learning

ii.

Essentials
Consistent performance Expedient service

and Growth i. Strategic Information Assets ii. Re-skilling jobs & competencies iii. Accountability & Reward iv. Focus Resources

COMMUNICATING AND LINKING

Linking each stage of the Balanced Scorecard with the previous one:
Financial with customer Customer with Internal processes Internal Processes with Learning and Growth

Creation of cause and effect links between the stages Fulfilling the objectives set in one stage enhances the ability to achieve objectives of the succeeding stage

LINKING FINANCIAL WITH CUSTOMER

OBJECTIVES Revenue Growth and risk reduction were expected outcomes of shifting the customer/profit mix Shift from narrow set of banking services to becoming a financial advisor and service provider for targeted customer groups Objective of increasing customer confidence in financial advice Customer base split into 5 large segments based on various characteristics Cater to the needs of the top three segments considered to be more profitable for Chemical Bank

LINKING CUSTOMER WITH INTERNAL

OBJECTIVES

Chemical linked three internal objectives that employees must excel at for achieving its image as a broad financial service provider
Understand Customer Segments Develop new products Cross sell the product line

These were identified as vital to the banks broaden revenue mix strategy BSC started from financial and customer objectives and highlighted several internal processes for developing best-in-class capabilities

LINKING CUSTOMER TO LEARNING

OBJECTIVES

The internal objectives led to objectives of learning and growth

Expand skills to serve as customers financial counselor and communicate credibly and knowledgeably about and expanded set of financial products Ready access to information on banks relationship with each customer New incentive system to motivate employees aligned incentives

PUTTING IT TOGETHER

BUSINESS PLANNING

Forces companies to integrate their strategic planning and budgeting processes Helps determine which actions will drive them towards their targets After the merger, Chemical Bank had launched more than 70 different initiatives to produce a competitive and successful institution These were not integrated into the overall strategy adequately After developing the BSC, it dropped several initiatives. For e.g. marketing effort at HNIs It also consolidated those which better aligned with the strategic objectives retraining sales persons to become trusted financial advisers capable of selling a wide range of financial products

FEEDBACK AND LEARNING

Feedback system is able to test, validate and modify the hypotheses cause and effect relationships embedded in the businesss strategy This is done by establishing milestones within the business planning process and forecasting the relationship between performance drivers and specified goals At Chemical Bank, the amount of time required for improvement in training and availability of information systems before employees could sell multiple financial products effectively to existing and new customers was estimated The selling capacity was also estimated

IMPACT OF BSC

Considered as a valuable tool but needed to keep evolving The value of the BSC was that it could pull together two management teams Manufacturers Hanover was centralized while Chemical was decentralized Helped overcome differences in assumptions and styles Consensus was built on building the strategy of providing superior service to the targeted customer but no one knew how to implement Question on what superior service meant BSC gave specific and operational definitions of superior service and targeted customers

DIFFICULTIES IN IMPLEMENTATION
Several measures were difficult to measure BSC was confined only to the top 27 managers Although its themes had been communicated to the employees through the newsletter it was yet to be used as a new management tool Delays due to gaps in measurement system Data on customer share and retention by segment was not available Certain data did not exist at all Problem of bringing data together from diverse systems

MEASURING CUSTOMER PROFITABILITY

Need to get a more profitable mix of customers and retain and deepen relationship with best customers Traditionally believed that most small accounts were profitable An activity based cost study showed that only 55% small accounts were profitable on a fully loaded basis Need to know the defining characteristics of profitable and unprofitable customers

MEASURING CUSTOMER PROFITABILITY

Develop Offering Understand Customer Segments
Increase customer confidence in Financial Advice

Cross Sell the Product Line

STRENGTHS OF BSC

Helped to provide a more cohesive strategy with the Manufacturers Hanover Corporation after the merger The scorecard gave them the measures needed to stay focused on performance, while simultaneously clarifying and communicating the vision Gave a sense of direction for the business and highlighted the essentials Issues that would link improving capabilities with achieving long-term financial goals were kept to the forefront for senior management through the scorecard It articulated the key levers of performance and reduced these to a few important drivers Knowledge of customer segments and customer profitability through the scorecard was driving the pricing of some products BSC: its both motivating and obligating. The BSC forced us to stay on track and to follow up

WEAKNESSES OF BSC
Employees did not know the BSC by name, although it was envisaged that they would become very familiar with the concept in the future The BSC was not able to evaluate how good or bad the sales force was Problems with a number of their measures, such as customer retention which would lead to nonfulfilment of the set objectives The Trailway to Trolls measure was one that was not actionable this measure of customer dissatisfaction failed to highlight just how serious a problem was in this area

WAY FORWARD

Still a tool for senior and middle management Refine BSC, hoping to find better and fewer measures

Certain measures harder to get than anticipated

Customer retention rate

Evaluate Training

Well ahead of competition

Customer acquisition and retention Leverage to do cross cuts on 3 million accounts in database

Need to link senior executive compensation to scorecard measures Need to align Branch sales and service personnel with BSC Customer objectives

THANK YOU