An Introduction to the Balanced Scorecard

and the Strategy Focused Organization

TEC March 6, 2005

Balanced Scorecard Collaborative, Inc. • 55 Old Bedford Road • Lincoln, MA 01773 • Tel: 781.259.3737 • Fax: 781.259.3389 • bscol.com
 Why Do Organizations Struggle So Hard With
Strategy?

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

BSCol – 01497 COE Document – 02/18/03 ©2003 Balanced Scorecard Collaborative, Inc. • bscol.com 2
 #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

BUDGET

78% of organizations lock

budgets to an annual cycle funding Management Control Loop reporting
92% of organizations do
20% of organizations take not report on lead
more than 16 weeks to PERFORMANCE indicators
prepare a budget
Input Initiatives &
Output
(Resources) Programs (Results)

BSCol – 01497 COE Document – 02/18/03 ©2003 Balanced Scorecard Collaborative, Inc. • bscol.com 3
 Strategy Development or Strategy Execution?
Organizations Need Both

Strategic success requires going beyond successful 1strategy

formulation to successful strategy execution
Sound

Missed Strategic
Strategic
Strategy Formulation

Opportunity Success
Success
Flawed

Doomed
Doomed From
From
At Risk
The
The Start
Start

Flawed Sound
Strategy Execution

Source: 1
Execution: The Discipline of Getting Things Done, by Larry Bossidy, 2002.

BSCol – 01497 COE Document – 02/18/03 ©2003 Balanced Scorecard Collaborative, Inc. • bscol.com 4
 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
Six Sigma
Income Statements
Supply Chain Integration
Shareholder Value Analysis Strategy Management Tools
Cycle Time Reduction

?
TQM

Customer Management Tools

Customer Satisfaction Measurement
People Management Tools
Customer 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
BSCol – 01497 COE Document – 02/18/03 ©2003 Balanced Scorecard Collaborative, Inc. • bscol.com 5
 Balanced Scorecard Organizations Are Achieving
Breakthrough 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

BSCol – 01497 COE Document – 02/18/03 ©2003 Balanced Scorecard Collaborative, Inc. • bscol.com 6
 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

BSCol – 01497 COE Document – 02/18/03 ©2003 Balanced Scorecard Collaborative, Inc. • bscol.com 7
 …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...

BSCol – 01497 COE Document – 02/18/03 ©2003 Balanced Scorecard Collaborative, Inc. • bscol.com 8
 The Balanced Scorecard Should Tell the Story
of the Strategy
Illustrative Example: Southwest Airlines
Strategic Theme:
Operating Efficiency
Financial
Profitability What will drive operating efficiency?”
More • More customers on fewer planes
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
BSCol – 01497 COE Document – 02/18/03 ©2003 Balanced Scorecard Collaborative, Inc. • bscol.com 9
 Let’s Take a Minute to Agree Upon Some
Common Vocabulary
Diagram of the cause and effect Statement of
relationships 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

BSCol – 01497 COE Document – 02/18/03 ©2003 Balanced Scorecard Collaborative, Inc. • bscol.com 10
 ASME Balanced Scorecard Strategy Map

Young Engineers Industry / F1 Grow revenue

Government through new products
Customer

Continue and global growth

C1 Become C2 Enhance

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 Improve

Internal

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
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