ADVANCED MANAGEMENT CONCEPTS

Managing Corporate

Performance with Balanced

Scorecard

Corporate Performance Management

Performance Management Framework

IdentifyingDefining

MeasuringMonitoring Reporting

Key Performance Indicators

Company strategy

VisionMissionStrategy

Strategy Map

Three critical components for effective process of performance management

Performance ManagementInfrastructure

PerformanceManagement

Culture

PerformanceManagement

Process

Performance management cycle is continuous and

consistent

Culture that is based on performance accountability

Logistic support and performance management

administration

Performance Management Component

STRATEGY

Plan and Execute

Monitor and Evaluate

Reward and Coach

Set Measures and Target

Performance Management Cycle

Managing Performance with Balanced Scorecard

The balanced scorecard is a strategic planning and management systemthat is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals.

It was originated by Drs. Robert Kaplan (Harvard Business School) and David Norton as a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics to give managers

and executives a more 'balanced' view of organizational performance.

4 Perspectives in Balanced Scorecard

If we succeed, how will we look to our shareholders?

Financial Perspective

To achieve our vision, how must we look to our

customers?

Customer Perspective

To satisfy our customers, which processes must we excel at?

Internal Perspective

To achieve our vision, how must our organization learn and

improve?

Learning & Growth Perspective

The Strategy

Strategy and Balanced Scorecard

Mission – Why We

Exist

Vision – What We

Want to Be

Values – What’s

Important to Us

Strategy : Our Game

Plan

Strategy Map :

Translate the Strategy

Balanced Scorecard :

Measure and Focus

Strategic Outcomes

Satisfied Shareholders

Delighted Customers

Excellent Processes

Motivated Workforce

Financial Perspective

• In private companies, the financial perspective is the main objective (ultimate goal) – without having to sacrifice the interests of other relevant stakeholders (community, environment, government, etc.)

• In the financial perspective, the strategic goal is the long-term shareholder value. This goal is driven by two factors, namely : revenue growth and cost efficiency.

Long-term Shareholder Value

Revenue Growth

Improve Cost Structure

Increase Asset Utilization

Cost Efficiency

Strategic Objectives in Financial

Expand Revenue Opportunities

Enhance Customer Value

Customer Perspective

• This perspective is very instrumental, because without customers, how can a company survive?

• Customer perspective covers the following elements:• Customer acquisition • Customer retention• Customer profitability • Market share• Customer satisfaction

Price Availability BrandServiceQuality

Customer Acquisition

Customer Satisfaction

Customer Retention Customer Profitability

Market Share

Strategic Objectives in Customer

Internal Process Perspective

• This perspective reflects the processes in key business that should be optimized in order to meet the needs of the customers.

• There are four main themes in this perspective, namely:

• Operations Management Process

• Customer Management Process

• Innovation Process

• Regulatory and Social Process

Operations Management

Processes

CustomerManagement

Processes

Innovation Processes

Regulatory and Social Processes

Processes that produce and deliver

products and services

Processes that enhance customer

value

Processes that create new products and

services

Processes that improve communities and the environment

• Supply• Production• Distribution

• Selection• Acquisition• Retention• Growth

• New Ideas• R&D Portfolio• Design/ Develop• Launch

• Environment• Safety & Health• Employment• Community

Strategic Objectives in Internal Process

Learning & Growth Perspective

• This perspective reflects the capability that a company should have, namely:

• Human Capital

• Organization Capital

• Information Capital

• This perspective shows us that good human resource development system, organizational system and information system forms a solid foundation for improving company performance.

Human Capital Organization Capital Information Capital

• Skills• Knowledge• Attitude

• Systems• Database• Networks

• Culture• Leadership• Organization Development

Strategic Objectives in Learning & Growth

Identifying Key Performance Indicators (KPI)

VisionMission and

ValuesStrategy

Finance

Customer

Internal Business Process

HR Development

Key Performance Indicators

Key Performance Indicators

Key Performance Indicators

Strategic Objectives

KPI = Measurement or indicator that provides

information on how far we have succeeded in achieving

the strategic objectives

Key Performance Indicators (KPI)

• The measure of success must show clear, specific and measurable performance indicators.

• The measure of success should be declared explicitly and in detail so that it is clear what is being measured.

• Costs to identify and monitor the measure of success should not exceed the value that will be known from the measurement.

Guidelines in Formulating the KPI

KPI Guidelines

KPI Family Dimension

Productivity Measures employee output (units/ transactions/ dollars), the uptime levels and how employees use their time (sales-to-assets ratio, dollar revenue from new customers, sales pipeline).

Measures the ability to meet and/or exceed the requirements and expectations of the customer (customer complaints, percent returns, DPMO -- defects per million opportunities).

Quality

KPI Family Dimension

Profitability Measures the overall effectiveness of the management organization in generating profits (profit contribution by segment/customer, margin spreads).

Measures the point in time (day/week/ month) when management and employee tasks are completed (on-time delivery, percent of late orders).

Timeliness

KPI Family Dimension

Process Efficiency

Measures how effectively the management organization incorporates quality control, Six Sigma and best practices to streamline operational processes (yield percentage, process uptime, capacity utilization).

Measures how effectively the management organization leverages existing business resources such as assets, bricks and mortar, investments (sales per total assets, sales per channel, win rate).

Resource Utilization

KPI Family Dimension

Cost Savings Measures how successfully the management organization achieves economies of scale and scope of work with its people, staff and practices to control operational and overhead costs (cost per unit, inventory turns, cost of goods).

Measures the ability of the management organization to maintain competitive economic position in the growth of the economy and industry (market share, customer acquisition/retention, account penetration).

Growth

Corporate and Division Scorecard

Sample from GE Lighting Business Group

Level of Organization Financial Customer Internal Process Learning & GrowthCorporate Scorecard Increase profit margin Improve customer Increase inventory turns Increase level of

satisfaction level Improve internal process employee competency

Division Scorecard Optimize cost of production Improve customer Increase inventory turns Increase level ofReduce inventory levels satisfaction level Improve internal process employee competency

Plant Scorecard Optimize cost of production Increase percent of Increase inventory turns Number of "on the Increase yields ratio on time delivery Reduce number of defects job training" deliveredIncrease labor productivity Reduce customer per million Number of performanceReduce inventory levels complaints per million Improve quality incoming coaching session

materialsMaintain optimum equipment speed

Frontline Employee Reduce waste Reduce equipment downtime Number of "on the Scorecard Reduce overtime Reduce number of poor job training" attended

Increase production rates solders Number of performanceReduce number of cracked coaching session bulbs attended

The above example shows how the scorecard at corporate level is cascaded to division level, and further to plant level and employee level.