Post on 12-Jan-2016
description
Implementing a Balanced Scorecard
Approach for Small/Mid-sized
Manufacturers
Balanced Scorecard Overview with XPP™
Presented by Leo Gilroy Kaplan-Norton Balanced Scorecard Certified Graduate
o General Information
o The Four Perspectives & Strategy Maps
o Execution Premium Process™ (Six stages)
o Leadership, Change and Support
o Certification
Balanced Scorecard w/ XPP™
© Palladium Group, Inc.
a framework that translates an organization's
strategy into a set of objectives and measures and
aligns the organization to them through its
planning and control processes.
© Palladium Group, Inc.
Balanced Scorecard w/ XPP™
1992 - Performance measurement tool
1993 - Connection between performance metrics and strategy
1996 - Performance management system (1st book)
2000 - Strategic management and control system
2004 - Strategy Maps
2005 - Office of Strategic Management
2008 - Integration between strategy and operations
© Palladium Group, Inc.
Balanced Scorecard w/ XPP™
1. Nine out of 10 organizations fail to execute their strategies
2. Research has shown that 70% of organizations that use a formal
process to manage strategy out-perform their peers by:
o Growing Revenue
o Gaining Customer Loyalty
o Strengthening Employee Commitment
o Optimizing Resource Allocation
o Reducing Cycle Times
o Managing Risk
Balanced Scorecard w/ XPP™
© Palladium Group, Inc.
Balanced Scorecard w/ XPP™
Balanced Scorecard w/ XPP™
Strategy Maps
&
the Four Perspectives
Perspectives
Strategy Maps & the Four Perspectives
1. FINANCIAL performance, a lag indicator, measures the tangible
outcomes from the strategy.
2. CUSTOMER value proposition defines the source of value.
3. PROCESSES create value for customers and shareholders.
4. LEARNING and GROWTH: intangible assets that drive
improvement in the strategic processes.
© Palladium Group, Inc.
Financial Perspective
New Product Sales
Use the preferred
method of selling Develop New
Services
Improve brand
perception
Improve client
satisfaction
Net Income
Gross Profit
Learning & Growth Perspective
Process Perspective
Customer Perspective
Improve core
processes
Promote a culture of
innovation
Attract & retain
people w/key skills
Enhance staff
competencies &
satisfaction
Create new
partnerships aligned
with Core
Ou
tco
mes
Ou
tco
mes
Dri
vers
Dri
vers
Strategy Maps & the Four Perspectives
Strategic Themes Articulate the Strategy
Help to focus the organization on arriving at the strategic destination
Are usually limited to 3 – 5 major business thrusts
Include a stream of linked objectives
The Execution Premium Process™ (XPP)
Financial
Customer
Internal
Learning & Growth
Op
era
tio
na
l M
an
ag
emen
t P
roce
sses
Cu
sto
mer
Ma
na
gem
ent
Pro
cess
es
Inn
ov
ati
on
Pro
cess
es
Reg
ula
tory
& S
oci
eta
l P
roce
sses
© 2010 Palladium Group, Inc.
Strategic Themes Articulate the Strategy
© Palladium Group, Inc.
Strategy Maps & the Four Perspectives
Strategic Themes Articulate the Strategy
© Palladium Group, Inc.
Strategy Maps & the Four Perspectives
The Execution
Premium Process™
(XPP)
The Execution Premium Process™ (XPP)
© Palladium Group, Inc.
XPP – a management process that describes how the
strategy will be executed.
Stage 1: Develop the Strategy
Stage 2: Translate the Strategy
Stage 3: Align the Organization
Stage 4: Plan Operations
Stage 5: Monitor and Learn
Stage 6: Test and Adapt
The Execution Premium Process™ (XPP)
© Palladium Group, Inc.
Stage 1: Develop the Strategy - an integrated set of
choices that position a firm to earn superior returns over the long run.
The Execution Premium Process™ (XPP)
© Palladium Group, Inc.
1. What will our economic model look like?
2. Which customers will we serve, where, and what will we
provide them?
3. How can our organization serve these customers?
4. What skills do we need to have in our organization?
5. What is the portfolio of initiatives and their timing that we
need to execute?
Stage 1: Develop the Strategy
Affirm Mission and Values & Quantify the Vision
Perform Strategic Analysis
Formulate the Strategy
Develop Value Gap
Implement Planning Cycle
Enhance Vision with Themes
The Execution Premium Process™ (XPP)
© Palladium Group, Inc.
Stage 2: Translate the Strategy
Design Strategy Map
Define Measures
Define Targets
Prioritize Strategic Initiatives
Authorize and Protect Strategy Funding
Assign Accountability
Identify Key Risk Indicator
The Execution Premium Process™ (XPP)
© Palladium Group, Inc.
The Execution Premium Process™ (XPP)
Theme: operating efficiency Objective Measurement Target Initiative Budget
∙ Profitability
∙ Grow revenues
∙ Fewer planes
∙ Market value
∙ Seat revenue
∙ Plane lease cost
∙ 30% CAGR
∙ 20% CAGR
∙ 5% CAGR
∙ Flight is on-
time
∙ Lowest prices
∙ Attract &
retain more
customers
∙ FAA on-time arrival
rating
∙ Customer ranking
∙ # Repeat customers
∙ # Customers
∙ #1
∙ #1
∙ 70%
∙ Increase
12% annually
∙ Customer
loyalty program
∙ $XXX
∙ Fast ground
turnaround
∙ On ground time
∙ On-time departure
∙ 30 minutes
∙ 90%
∙ On ground
cycle time
optimization
∙ Quality Mgmt
∙ $XXX
∙ $XXX
∙ Ground crew
aligned with
strategy
∙ Develop the
necessary skills
∙ Develop the
support system
∙ % ground crew
stakeholders
∙ Strategic awareness
∙ Strategic readiness
∙ Info systems
available
∙ 100%
∙ Yr 1 - 0%
∙ Yr 3 - 90%
∙ Yr 5 - 100%
∙ 100%
∙ ESOP
∙ Ground crew
training
∙ Crew
scheduling
system rollout
∙ CRM system
∙ $XXX
∙ $XXX
∙ $XXX
∙ $XXX
Total Budget
Strategy Map Balanced Scorecard Action Plan
Communicate Measure Execute
Profit
Grow RevenuesFewerPlanes
Atract & Retain More Customers
Lowest pricesOn-time Service
Fast Ground Turnaround
Ground Crew Alignment
Strategic Systems Crew Scheduling
Strategic Job Ramp agent
© Palladium Group, Inc.
The Execution Premium Process™ (XPP)
© Palladium Group, Inc.
The Execution Premium Process™ (XPP)
© 2010 Palladium Group, Inc.
Stage 3: Align the Organization
Align Business Units to Corporate Strategic Priorities
Align Support Units
Communication Strategy
Align Individual Goals
Align Key Customers
Align Key Suppliers
Align Board
Align Compensation
The Execution Premium Process™ (XPP)
© Palladium Group, Inc.
applies to large organizations
Stage 3: Align the Organization
The Execution Premium Process™ (XPP)
Identical Cascading Method - objectives and measures are Transferred "One for One" Where They Apply.
© Palladium Group, Inc.
Stage 3: Communication Strategy
The Execution Premium Process™ (XPP)
Statement of intent
Scope - could include
sequence (Corporate, SBU’s,…)
Purpose and objectives
Communications measures
and targets:
Overall nature and tone of
delivery (e.g., formal or
informal)
Communicate that organization will use the BSC Communicate the strategy
Corporate and cascaded scorecards
North America region first
Get commitment from the organization to execute
the strategy
Process: multiple feedback channels to check understanding of the BSC and of the organization's strategy: Test understanding among executives in the short-term Periodically survey the organization for understanding
in the long term - 90% Understanding of Strategy
Tailored messages: tone will vary based on who is receiving the message and through what medium
Message tone should confirm the fact that the BSC is not optional
© Palladium Group, Inc.
Stage 3: Communication Strategy The Execution Premium Process™ (XPP)
Executive Sponsor/Champion Leadership Team/Rollout Champion(s) BSC Communications Lead Managers/Supervisors All Employees
Takes visible role as primary BSC champion including
obtaining budget approval
Approves the final communications plan and materials
Provides information about target audiences within their
organization
Validates the viability of proposed plans for their
organization
Actively participates in communications
Visible champion and point-person for ongoing scorecard
Coordinates process of ongoing communications effort Ensures that project milestones are achieved (drives the execution of the plan) Presents ideas/materials to Executive Sponsor for review Presents and supports a consistent message Takes primary responsibility for communicating departmental strategy and role of the individual
Provide timely feedback on the effectiveness of
communications program
Role Responsibilities
© Palladium Group, Inc.
Stage 3: Align the Organization
The Execution Premium Process™ (XPP)
A One-Up Review - Ensures Alignment of the Unit/Group Strategy Map, Measures, Targets and Next Steps
Describe contribution to
corporate objectives
Identify objectives that are
not relevant to the unit's
strategy
Recommend additional
objectives relevant to the unit
Confirm contribution to
corporate objectives
Reconcile objectives not
thought relevant to the unit's
strategy
Approve new objectives
relevant to the unit
Unit/Group will: Corporate Group will:
© Palladium Group, Inc.
Stage 3: Align the Organization (Compensation)
The Execution Premium Process™ (XPP)
Questions - when designing a balanced paycheck program
1. What is the current compensation philosophy?
2. Is it compatible with the Balanced Scorecard?
3. Will the compensation program be a team or individual based?
4. Will it be an incentive pay program or base pay program?
5. What will be the payout frequency - long term, annual, quarterly, …?
6. How will the compensation be tied to the achievement of the BSC?
© Palladium Group, Inc.
Gain 1-2 years experience with BSC before linking to compensation
Stage 4: Plan Operations: What process change
does the strategy require?
Integrate Financial and Resource Capacity Planning w/the Strategy
Use Process/Driver Models to Operationalize the Strategy
Perform HR Planning
Perform IT Planning
Create Operational Dashboards
Develop Risk Mitigation Initiatives
The Execution Premium Process™ (XPP)
© Palladium Group, Inc.
The Execution Premium Process™ (XPP) Stage 4: Use Process Models to Operationalize the Strategy
© Palladium Group, Inc.
The Execution Premium Process™ (XPP) Stage 4: Use Process Models to Operationalize the Strategy
© Palladium Group, Inc.
The Execution Premium Process™ (XPP) Developing the Driver Relationships and Validating the Models is an
ITERATIVE PROCESS!!
© Palladium Group, Inc.
Stage 4: Plan Operations - Create Operational Dashboards
The Execution Premium Process™ (XPP)
The Organizational struggle to explicitly link Strategy and Operations
manifests itself in numerous ways:
Organization lacks a standardized framework for reporting, analyzing, and
executing proactive action plans
Tendency to "manipulate the numbers" vs. "manage the business“
Limited "institutional" knowledge about the operational levers (business
drivers) and causal relationships impacting strategic objectives
Leading organizations embrace best practices and deploy
strategic and operational dashboards as an integral
component of a world class performance management
© Palladium Group, Inc.
Stage 4: Plan Operations - Create Operational Dashboards
The Execution Premium Process™ (XPP)
© Palladium Group, Inc.
Stage 5: Monitor and Learn
Conduct Strategy Review Meetings
Manage Initiatives
Review Risk Management Plans and Processes
The Execution Premium Process™ (XPP)
© Palladium Group, Inc.
Conduct Strategy Review Meetings
1. Focus on big picture – long term horizon
2. Balanced Scorecard report
3. Strategic themes
o Objectives
o Measures (RYG)
o Initiatives (RYG)
5. Strategic Issue Review
6. Strategic Risks Review
The Execution Premium Process™ (XPP)
© Palladium Group, Inc.
Stage 5: Leader's Role in Strategy Review Meeting
The Execution Premium Process™ (XPP)
Leadership Focus
Comprehend root cause of performance
issues
Test the hypothesis that underpins your
strategy - are we still doing the right
things?
Promote cross-functional problem
solving - how can we resolve this issue as
a TEAM?
Management Focus
Provide an early warning system
Generate action plans
Create a record of next steps
© Palladium Group, Inc.
Stage 5: Manage Initiatives
The Execution Premium Process™ (XPP)
© Palladium Group, Inc.
Stage 5: Initiatives Link Strategy to Tactical Planning & Budgeting
The Execution Premium Process™ (XPP)
OBJECTIVE: Develop Spandex Manufacturing
INITIATIVE: Joint Venture Program
Executive Sponsor: John Smith
Project Duration: January - August
Dedicated Resources: (1) 5 people half time (2) 5 x $1,500 = $9,500
Year 1 Year 2
Anticipated Benefits (Total) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Revenue $80k $100K $200K
Cost $9.5K $9.5K $9.5K $12K $12K $15K $15K $20K
Capital
Cumulative Cash Flow
Impact on Objective & Theme: Develop ability to meet 70% of our product requirements internally by Q1.
© Palladium Group, Inc.
Stage 5: Value of Initiative Management Process
Companies that align initiatives to strategic objectives can
achieve significant savings - up to 20%.
- Palladium research
Companies that actively manage their initiative portfolios
can create significantly more value - up to 30% more.
-McKinsey research
The Execution Premium Process™ (XPP)
© Palladium Group, Inc.
Stage 6: Test and Adapt
Test the Strategy's Cause and Effect Relationships
Test Robustness of the Strategy
Use Decision Analytic Models
The Execution Premium Process™ (XPP)
© Palladium Group, Inc.
Stage 6: Test the Strategy's Cause and Effect Relationships
The Execution Premium Process™ (XPP)
© Palladium Group, Inc.
Fishbone/Ishikawa Driver tree diagram - 5 Why’s
It is important to test the cause-and-effect relationships underlying the
strategy assumptions and drivers in order to make adjustments and adapt
the strategy as necessary
Stage 6: Test the Strategy's Cause and Effect Relationships
The Execution Premium Process™ (XPP)
TYPICAL DRIVERS
Confidence in Senior Leadership
Company Direction and Role/Fit
Relationship with Supervisor
Praise & Recognition
Support - Tools and Information
Job Skills Levels
Teamwork
Career Growth Opportunities
RESULTS a. Employee Commitment b. Employee Productivity
c. Employee Retention
d. Growth of Valued Employee
Skills/ Competencies
© Palladium Group, Inc.
People drivers and results
Stage 6: Test Robustness of the Strategy
Perform scenario modeling, war gaming, stress testing and
other analyses to assess the risk and robustness of the strategy
Scenario planning and war games are two methods for testing
how the strategy might be affected based on changes in the external
environment, for example the potential effect of a competitor's action
Scenario planning describes "alternative futures"- the plausible range
of changes in the environment A
The Execution Premium Process™ (XPP)
© Palladium Group, Inc.
Stage 6: Use Decision Analytic Models - the discipline of
evaluating complex alternatives in terms of values and uncertainty, using
statistical techniques and business data which, to derive probabilities
Some common techniques include:
Statistical Analyses like Regression Analysis, Correlation Analysis
Decision Trees and Diagrams
Influence Diagrams
Sensitivity Analysis
Time-series Analysis and Forecasting
Activity-based Costing
Industry Benchmarking
Economic Profit Tree
The Execution Premium Process™ (XPP)
© Palladium Group, Inc.
Leadership, Change
and Support
Lead the Campaign – Lead the campaign
Executive leadership takes an ownership/active role in
leading the campaign to formulate, drive and execute the
strategy (Model necessary behavior)
Defining the organization's vision, mission and core values
Driving strategy execution
Achieving commitment across the executive and top leadership team
Defining an agenda of strategic change
The Execution Premium Process™ (XPP)
© Palladium Group, Inc.
Lead the Campaign – align executive team behavior
Consensus - means fostering and achieving general
agreement among members of a group
Principles for building Commitment:
Use actions and words to demonstrate your own commitment
Create consequences for non-support
Clarify what will happen if leadership-team members don't commit
Follow through with action, if necessary
Define meaningful stakes
The Execution Premium Process™ (XPP)
© Palladium Group, Inc.
Lead the Campaign – create strategic change agenda
The Execution Premium Process™ (XPP)
© Palladium Group, Inc.
As is…Change / Performance
Dimension"To be…"
Undifferentiated, unknown, individual pockets of
renownReputation
Pre-eminent national lab renowned for its focus
on nuclear energy and national security
"small potatoes", "job shop" mentality, practical
orientation, opportunisticFocus Mission-driven research, larger scale, focused
Low cost provider, under investingFinancial management
Cost effectiveness, reinvestment AND meeting
growth objectives
Aging, poorly maintained, inadequate Physical infrastructure Premier, world class R&D campus of the future
Contractor oversight and micromanagement,
operational "clean-up", too largeOperations Office Relationship
Broad contract oversight and R&D oversight,
right size
Transactional relationship Customer relationships Solution provider, partner, anticipate needs
Maverick. lone wolf, insular External Collaboration Rich, collaborative, mutual interdependence
Best kept secret, bureaucratic obstacles, not
relevant
Industry relationship
Partnering, sharing-risk, commercializing ideas,
easy to do business with, relevant and needs based
programs
Dogs and cats, small, disconnected programs Sources of growth Large multi-year programs
Disconnected, silos, lack of standards Process management Integrated and aligned, flawless execution
Disconnected, individual efforts Problem solving Holistic, solutions oriented
Burdensome processesOperational excellence
Cost effective, attack process barriers that get in
our way
Requirement, "Star status"Safety
Essential, flawless, unrelenting, recognized world
leader
Multiple, fragmented, "clean and close" cultureCulture
Forward focus, one team, nuclear focus, best
practice
Aging workforce, integrating clean-up staffPeople
Bring in young blood, diversity, world famous
scientists in key areas
1. INCREASE URGENCY Raise a feeling of urgency so that people
say “let’s go,” making a change effort well positioned for launch
2. FORMING A POWERFUL COALITION help form a group
that has the capability-in membership and method of operating-to guide a
very difficult change process.
3. CREATING A VISION and strategies to guide action in all of the
remaining stages of change.
4. COMMUNICATE CHANGE VISIONS and strategies effectively
so as to create both understanding and a gut-level buy-in.
John P. Kotter and Dan S. Cohen, The Heart of Change, Harvard Business School Press, Boston, 1999
Leading Change
5. EMPOWERING ACTION - deal effectively with obstacles that block
action, especially disempowering bosses, lack of information, the wrong
performance measurement and reward systems.
6. PRODUCE SUFFICIENT SHORT-TERM WINS sufficiently
fast, to energize the change helpers, enlighten the pessimists, defuse the cynics,
and build momentum for the effort.
7. DON’T LET UP Continue with wave after wave of change, not
stopping until the vision is a reality.
8. MAKE CHANGE STICK - changes are embedded in the very
culture of the enterprise so the new way of operating will stick.
John P. Kotter and Dan S. Cohen, The Heart of Change, Harvard Business School Press, Boston, 1999
Leading Change
Leading Change
EXPLORATION
RESISTANCE
COMMITMENT
DENIAL
Change Curve
Build Technology Infrastructure
Information Management Delivery
Data Governance
The Execution Premium Process™ (XPP)
© Palladium Group, Inc.
Information Management Delivery
The Execution Premium Process™ (XPP)
© Palladium Group, Inc.
Departmental Focus Enterprise Focus
Historical Focus Real-time
Tactical Decision Strategic, Tactical, Operational
Analysts Users Enterprise
Reactive Orientation Proactive
Strategic Analysis Output Strategic Action
Open-ended Process Closed Loop
Metrics Measures KPI's
Generic Views Personalized
Tables/Charts Visuals Dashboards/Scorecards
Informal/Email Collaboration Built-in
Pull (adhoc) Interaction Push (alerting)
Trends Analysis Exceptions
Numeric Data Numeric, Text
FROM TO
Data Governance - is the collection of decision rights, processes,
standards, policies and technologies required to manage, maintain and
exploit information as an enterprise resource.
The Execution Premium Process™ (XPP)
© Palladium Group, Inc.
o Data governance is a cross-functional process and is NOT owned,
operated or managed by anyone business unit
o The goal of Data Governance is to implement mechanisms that ensure
accuracy, integrity, accessibility and security of information across the
enterprise
o Data Governance requires accountability cascaded through multiple
levels of the organization
o Data Governance is NOT a one-time project that has an end date, it is an
ongoing process and competency
The Execution Premium Process™ (XPP)
Critical Success Factors
Ensure that project sponsorship is from a high enough
level to command the organization's attention
Make sure the ENTIRE Leadership Team has a real
understanding and gives endorsement of time
commitment
Involve the right people
© Palladium Group, Inc.
The Palladium Kaplan-
Norton Balanced Scorecard
Certification Program
© Palladium Group, Inc.
The Palladium Kaplan-Norton Balanced
Scorecard Certification Program
© Palladium Group, Inc.
The number of Certified Candidates in the Program is now over
1,200 strategy management professionals globally, with over 400
having successfully earned the distinction of Kaplan-Norton
Balanced Scorecard Certified Graduate™
The Execution Premium Process™ (XPP)
© Palladium Group, Inc.
1. *Balanced Scorecard Certified Practitioner™ - BSC Boot Camp course
and exam completion + application: one letter of testimonial and BSC work
examples
2. *Balanced Scorecard Certified Graduate™ - BSC Boot Camp course
and exam completion
3. Balanced Scorecard Certified Candidate – BSC Boot Camp course
*Annual renewal required to maintain Kaplan-Norton Balanced Scorecard Certification
The Execution Premium Process™ (XPP)
Thank you!
Questions??