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Transcript of Balanced Scorecard
Business Process Knowledge DocumentBusiness Process Knowledge Document
Integrating Measurement, Plan-Do-Review Integrating Measurement, Plan-Do-Review and Communicationand Communication
The Balanced ScorecardThe Balanced ScorecardSTRATEGYSTRATEGY
FINANCIALSFINANCIALS EXTERNALEXTERNAL
INTERNALINTERNAL LEARNINGLEARNING
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STRATEGYSTRATEGY
FINANCIALSFINANCIALS EXTERNALEXTERNAL
INTERNALINTERNAL LEARNINGLEARNING
CONTENTS
What is included in this document. . .
• Traditional Measurement- Benefits and Concerns
• Balanced Scorecard:– Unique Features
– How it works
• Getting Started - The First Steps
• Integrating Balanced Scorecard and Plan-Do-Review
• Application Across the Business
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STRATEGYSTRATEGY
FINANCIALSFINANCIALS EXTERNALEXTERNAL
INTERNALINTERNAL LEARNINGLEARNINGTraditional measures, measures, measures, measures. . .
• Traditionally dominated by Financial add-ups, after the event
• Great for business turnarounds
• A good place to start if the business has nothing - look after the cash
. . . and we seldom stop to think “what are the key priorities”?
Benefits Concerns
• Crucial elements to deliver Strategies are overshadowed
• Proliferation of measures to ‘check-up’ on lower levels
• Weak alignment of all measures to the Strategy for the group/ business
• Characterised as ‘driving forward looking in the rear view mirror’
TRADITIONALLY
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STRATEGYSTRATEGY
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Strategy is at the centre of the management system
The focus is on factors that create long-term value Measurement is
used to communicate, not to control
The Balanced Scorecard has unique features as opposed to traditional measurement approaches. . .
Measures and indicators are cascaded and tested for alignment through the organisation
The Scorecards are an integral part of the Plan-Do-Review management process
. . .with the emphasis on drivers of forward performance!
FEATURES
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STRATEGYSTRATEGY
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To drive forward Performance you need some Lead Indicators and Lag Measures. . .
. . . where INDICATORS control and communicate BEHAVIOUR which will lead to a measurable result!
HeadingLEAD INDICATORSLEAD INDICATORS• Text•
HeadingLAG MEASURESLAG MEASURES• Text•• Petrol consumption• Oil consumption• Tyre wear• Washer levels• Scratches and bumps • Engine wear• Speeding fines
• Speed• Engine revs• Engine temperature• Fuel level indicator• Oil level indicator• Warning light status• Defensive driving• Tiredness breaks
EFFECTEFFECT
HOW IT WORKS
These These may may
impact impact onon
CAUSECAUSEThese are These are measures measures of effectof effect
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Balanced ScorecardBalanced Scorecard
Our Strategy is at the centre of the Measurement System, reflected in 4 balanced critical success factors. . .
Financial Quadrant
“How do we look toour shareholders?”
STRATEGYSTRATEGY
Customer Quadrant
“How do we look to our customers?”
Internal Quadrant“What business
processes are the value drivers?”
Organisational Learning Quadrant“Are we (our people) able to sustain innovation, change
and improvement?”
Reference: “The Balanced Scorecard — Measures That Drive Performance, “Robert S. Kaplan, David P. Norton, Harvard Business Review, Jan-Feb ‘92.
HOW IT WORKS
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STRATEGYSTRATEGY
FINANCIALSFINANCIALS EXTERNALEXTERNAL
INTERNALINTERNAL LEARNINGLEARNINGOur BSC ‘operationalises’ our Strategy. . .
Balancing Four Critical Success FactorsBalancing Four Critical Success Factors
If we succeed, how
will we look to our
shareholders?
FinancialProfitability
GrowthShareholderValue
To satisfy our customers,
what business processes must we excel at?
InternalCycle Time
Quality
Productivity
To achieve our vision, how will we
sustain innovation, change and
improvement?
LearningInnovationContinuousLearningIntellectualAssessment
To achieve our vision,
how must we look to our customers?
CustomerCycle TimeQualityService
Price /Cost
The Vision
. . . by distilling Strategic Objectives
down into Key Result Areas then into Indicators and
Measurements
HOW IT WORKS
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Criteria For A Good Balanced ScorecardCriteria For A Good Balanced Scorecard
A Good BSC will “tell the story” of your Strategy
Cause and Effect RelationshipsEvery measure selected should be part of a chain of cause and effect that represents the strategy
Linked to FinancialsEvery measure selected can ultimately be related to financial indicators
Performance DriversA balance of lead measures and lag indicators
Measures that Create ChangeSome measures which cause the organisation to change its behaviour in some way
A STRATEGY is a Set of Hypotheses
about Cause & Effect
HOW IT WORKS
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The real value of a Balanced Scorecard comes from a focus on “Performance Drivers” not past results
FinancialF1 - Meet Shareholder ExpectationF2 - Improve Operating PerformanceF3 - Achieve Profitable GrowthF4 - Reduce Shareholder Risk
CustomerC1 - Improve Agents PerformanceC2 - Satisfy Target Policyholders
InternalI 1 - Develop Business in Target Markets
I 2 - Underwrite Profitably
I 3 - Align Claims with the Underwriting
I 4 - Improve Productivity
LearningL1 - Upgrade Staff CompetenciesL2 - Improve Access to Strategic Info
• Return on Equity• Combined Ratio
Acquisition/Retention (vs. plan)
Acquisition/Retention
(by segment)
Staff Productivity
Loss Ratio
Claims Frequency
Claims Severity
Expense Ratio
Business Mix (by segment)
Strategic Objectives Outcome Measures (Lag Indicators) Performance Drivers (Lead Indicators)
UnderwritingQuality Audit
Business Portfolio Mix Catastrophic
Losses
Authority levelsfor spending
Mgt of Budget assumptions
Velocity coefficients
Development &Training Plan
HOW IT WORKS
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There are some initial steps required to implement the Balanced Scorecard process . . .
• Establish the Key Objectives for the Business/Supply Chain/Site/Function to deliver the Strategy, in each of the BSC critical success factors
• Distil the ‘precious few’ Key Result Areas (KRAs) to achieve the deliverables within each Objective
• For each KRA, agree the Lead Indicators & Lag Measures which will indicate progress to the deliverables
• Share and cascade these steps down through the Organisation, and check for alignment and consistency
• Use the BSC as an integral part of the ‘Teams’ regular Plan-Do-Review throughout the Organisation
. . . it is crucial to avoid ‘Analysis Paralysis!’
FIRST STEPS
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The power of the process will speak for itself!
• Form a team and just get started!
• Get an “Executive Champion” who really believes - and is willing to role model the plan-do-review process
• Work top-down and bottom-up and involve middle managers
• Brown paper the as-is and to-be using the “Scorecard” framework
• Keep it simple
• Don’t get bogged down with jargon or theory
• Make KPI charts and graphics visible
• Pilot and create a role model - you’ll be amazed at how fast people copy it
• Establish a review process quickly
Some tips for successful implementationFIRST STEPS
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OBJECTIVES• Development of a single aligned
set of business performance measures for M&S and the supply chain
• Gain commitment for BSC among M&S management team/client group
• Clarify the framework for implementation and management processes to follow construction of initial scorecard
• Implement balanced scorecard principles and associated measures throughout M&S
• Ensure smooth transition from existing measures to KPIs
• Ensure we build on what is already in place and focus on the new measures needed for supply chain differentiation
ACTIVITIES• Share best practice in balanced
scorecards and implementation ‘watch-outs’
• Agree with RBB process for development of BSC alongside supply chain vision and principles and their order of implementation
• Create work plan and Gantt chart
• Review current KPIs and targets• Assist in delivery of KPIs at
M&S management team/client level
• Define and initiate a PDR process for M&S management team/client group
• Pilot BSC using key individual product supply chains
• Obtain timely actual data for agreed KPIs
• Discuss targets with M&S management team/client group
• Develop roll-out plan for cascading
DELIVERABLES• Creation and delivery of BSC
and KPIs aligned to the business strategy
• Communication of activities to core team and executives
• Documented linkages • vision• SBOs• CSFs• KPIs and targets
• Plan for roll-out/cascade of KPIs/PDR to other product supply chains at all levels in M&S organisation
• Mechanism for alignment of top down KPIs to bottom up KPIs
• Pilot run for key individual product supply chains
• Plan for transition from existing measures to KPIs
CSFs• Creation of key
‘to be’ supply chains
• Articulation of the supply chains into clear business objectives
• Commitment by M&S management team to implement PDR, based on agreed vision and SBOs
• Commitment by GPM to BSC implementation (as clients of the supply chain)
• Clearly defined management accountabilities for the measures
The change/project team will need a charter for their BSC. . . ExampleFIRST STEPS
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The KPIs need to be prioritised in order to establish the Top 3 measures per quadrant for focus
Question: Which measures have the highest impact?
Ease of Implementation
High
Low
Performance
Plan and Process to Reach 50% increase in
sales
ImpactLow High
FIRST STEPS
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STRATEGYSTRATEGY
FINANCIALSFINANCIALS EXTERNALEXTERNAL
INTERNALINTERNAL LEARNINGLEARNINGThe “Balanced Scorecard” principles brought to life. . .
. . . and cascaded through teams and individuals, to be aligned to the Strategy!
VISIONARY
LEADERSHIP
CUSTOMER
SATISFACTION
COST
EFFECTIVE
ORGANISATION EFFECTIVE
RESOURCES
OBJECTIVE
LEADERSHIP
CUSTOMER
REQUIREMENTS
EFFICIENT
OPERATIONS
EFFECTIVE
PROCESSES
TEAM
LEADERSHIP CUSTOMER
DELIVERABLES
EFFICIENT
PROCEDURESEFFECTIVE
MANAGEMENT
Senior ManagementTeam
Operations ManagementTeamAsset
ManagementTeam
‘Group’Strategy
BSC & PDR
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Objectives• To invest wisely and thereby ensure
outstanding returns on capital investment at minimal risk
A BSC cascade can be directed through the line
Project manager
Project engineer
Engineering team
Individual engineer
PTD Progress of engineeringaspects of project
Progress of all mechanical engineering work
Progress of an engineering activity
Individual contribution to progress
Progress of capital project
Procurement
Measures• Successful implementation of capital
projects, on time, within budget
BSC & PDR
Example
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Supply Chain Balanced Supply Chain Balanced Scorecard(Overall Strategic Objectives)Scorecard(Overall Strategic Objectives)
ObjectivesMeasures
F1 Maximise profit xF2 Manage working capital effectively xF3 Invest wisely x
O1 Build better & simpler for less xO2 Operate betters & simpler for less xO3 Supply better & simpler for less xO4 New technology better & simpler for less xP1 Retain the best xP2 Develop people to be the best xP3 Recruit the best xP4 Live the values
Our Supply Chain BSC cascaded to include both line and support functions within the project
Sitesxxx
xxxxxxx
Prc’mentxxx
xxxxxxx
Distr.xxx
xxxxxxx
Tollingxxx
xxxxxxxxEach function/site
develops a scorecard consistent with the
overall scorecard and objectives
Financexxx
xxxxxxx
ITxxx
xxxxxxx
PTDxxx
xxxxxxx
Line ActivitiesLine Activities Support ActivitiesSupport Activities
C1 Retain customer loyalty x xC2 Increase customer spend x x x xC3 Attract new customers x x x x x x
Departments, teams and individuals can develop
plans consistent with the functional objectives and
scorecard as well as supply chain objectives
Balanced scorecards for
support activities promote “Best
Practice” sharingManagement TeamManagement Team
Steering GroupSteering Group
BSC & PDR
ExampleThe supply chain
balanced scorecard defines overall
strategic priorities
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BSC & PDR
The BSC is a solid foundation for our Plan-Do-Review processes. . .
Review
Plan
DoEstablish targets and definitions
Assign/agree actions to resolve variances:
What By whom
When
Examples of key meetings
Board
Business Unit
Operations
Production
…with differing
Frequencies
E.G. Monthly/Quarterly
Monthly
Weekly
Daily
Focus on variances to
plan
Focus on variances to
target
Agree accountabilities
and KPIsRACI
Establish meetings charters Charter
Balancing 4 Critical Success Factors
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FINANCIALSFINANCIALS EXTERNALEXTERNAL
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BSC & PDR
We then linked the BSC with the PDR “traffic light” system
RRAAGG In control - On targetSome slippage, should be able to recover. No immediate action
Problems with process, immediate action required
Report not due Report not yet developed
Compliance and best
Perf. Measure "A" "R"s Target for 2000 Explanation of Current Status Jan Feb
Engage sites
SNO Stretch SL Huddersfield
Deliver or better Seneffe resource issues are a concern Team launch NWT resources OK.
SNO Implementation BTT the 2000 SNO re. Bips implementation.Argentina amber. Guatemala meeting. PDR/RACI in place
programme Benefits down die to Syngenta effect. Draft cost reporting Mak deal signed.
Establish Asset Confirm PMP RACI Update site capacity
Asset Review Process JDH Review process Publish plan data and key drivers.
On hold till post merger Agree strategic
Manufacturing Strategy JDH principles.Agree bench-
marking for 2000.
Basis of Safety review
Global Processes MAK practice.
Establish GMST
Product Siting JDH as key decisionforum.
Budget $497m
Fixed Costs CB Target $486m
ExamplePDR
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STRATEGYSTRATEGY
FINANCIALSFINANCIALS EXTERNALEXTERNAL
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We are making extensive use of the Balanced Scorecard unique process right across the business. . .
. . . to drive forward and achieve extraordinary results!
Planning Manufacturing
HR SHE
Senior Management, Asset Management and Shift Hand-over levels
Management of the SHE 2000 improvement plan deliverables, by the SHE Committees
The ISOP, Supply Chain ROPS, Yalding YROP
International Supply Chain Career Working Party
APPLICATION
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Please contact Andrew Thurston
For further information or help. . .
1. ‘The Balanced Scorecard’ Robert S. Kaplan, David P. Norton Harvard Business Review, Jan-Feb ‘92
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STRATEGYSTRATEGY
FINANCIALSFINANCIALS EXTERNALEXTERNAL
INTERNALINTERNAL LEARNINGLEARNINGGlossary of Terms
Balanced Scorecard Set of measures, split into 4 sections or quadrants - Financial, Internal, External and People - which are all taken into account to ensure balance in achieving objectives
Plan-Do-Review A formal, low technology way of mobilising people to follow an ongoing planning, implementation and review change process which is activity oriented
Lead indicators Indicators which show projected performance - present tense
Lag Measures Measures which show how well something has performed - past tense
Hypothesis A statement describing a state which needs to be proved or disproved
CharterA summary, agreed by the team, of the Rational, Emotional, Political influences of their task OR The mission statement of a Natural Work Team which defines the primary areas of opportunity to be addressed and worked.
RACI Technique used in charting roles and responsibilities within a group/team. (R-Responsible. A- Accountable, C-Consulted, I-Informed)