executing strategy with the bsc management system · 1 executing strategy with the bsc management...

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Executing Strategy with the BSC Management System

Dr. Robert S. KaplanBaker Foundation Professor, Harvard Business SchoolChairman, Professional Practice, The Palladium Group, Inc.

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Even in troubled times, strategy execution remains the leading concern of executives world-wide.

3© 2008 Robert S. Kaplan and Palladium Group, Inc. - Confidential

HBS Cases:Chemical Bank (1994)Mobil (A)-(D) (1996)United Way (1997)Wells Fargo Online (1998)City of Charlotte (1999)New Profit, Inc (2000)Montefiore Hospital (2001)Boston Lyric Opera (2001)First Commonwealth (2004)Fulton County School System (2006)Amanco: Sustainability Scorecard (2007)

1992 20001996 20041993 2005 2006

22 translations 18 translations 13 translations 17 translations

8 Harvard Business Review articles

2008

14 translations

The Balanced Scorecard, originally introduced in 1992, as a performance measurement system, has become the premier management system for strategy execution.


Balance Sheet for Company A (US$ billions)

March 31, 2008

ASSETS LIABILITIES AND EQUITY

Cash 1.7 Miscellaneous accruals 1.0

Receivables 0.8

Advances 0.7

Current Assets 3.2

Property Plant & Equipment (net) 1.0 Shareholders Equity 3.4

Goodwill 0.2

Total Assets 4.4 Total Liabilities and Equity 4.4

2008 Net Income = $1.15 billion


The Power of Intangible Assets

“Our core corporate assets walk out every evening. It is our duty to make sure these assets return the next morning, mentally and physically enthusiastic and energetic.”

N. R. Narayana Murthy, Chairman and Chief Mentor, Infosys

Source: Page 1 of Infosys 2008 Annual Report

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Why Measures Matter

If you can’t measure it, you can’t manage it. If you can’t manage it, you can’t improve it.

Kaplan & Norton (and many others)

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Companies around the world are using a strategy execution system, based on the Balanced Scorecard, to deliver breakthrough results

Revenue up 310% EPS up 305%

Active clients rose from 293 to 500

Big accounts ($20M+) up from 6 to 27

Innovation (new product revenues) up 48%

Ranked #1 employer in IT sector (Dataquest)

Ranked India’s best managed company

Financial Perspective

Customer Perspective

Process Perspective

Learning & Growth Perspective

8© 2008 Palladium Group, Inc.

Telecom and Utilities

Palladium Balanced Scorecard Hall of Fame for Executing StrategyBy Industry 2005 – 2008

Health Care

Governmentand Military

Non-Profit

Financial Services

Consumer Products

Process Manufacturing

Discrete Manufacturing

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The Management System for Strategy Execution Links Strategic Planning and Operational Excellence

results

performance measures

Process

Initiative

EXECUTION


results

1

3

45

6

• Mission, Values, Vision • Strategic Analysis• Strategy Formulation

DEVELOP THE STRATEGY

• Strategy Map / Themes• Measures / Targets• Initiative Portfolios• Funding / Stratex

TRANSLATE THE STRATEGY

ALIGN THE ORGANIZATION

• Business Units• Support Units• Employees• Board of Directors

PLAN OPERATIONS

• Key process improvement• Sales planning• Resource capacity plan• Budgeting

• Profitability Analysis• Strategy Correlations• Emerging Strategies

TEST & ADAPT

• Strategy Reviews• Operating Reviews

MONITOR & LEARN

Strategic Plan

• Strategy Map• Balanced Scorecard• Stratex

Operating Plan• Sales Forecast• Resource Requirements• Dashboards• Budgets

2

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Stage 1: Develop the Strategy

results


Process

Initiative

EXECUTION


results

1

3

45

6







PLAN OPERATIONS



TEST & ADAPT


MONITOR & LEARN

Strategic Plan



2

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The mission describes the fundamental purpose of the entity, especially what it provides to customers and clients

“Organize the world's information and make it universally accessible and useful.”Google

The core values of a company prescribe the attitude, behavior, and character of the organization.

The vision is a concise statement that defines the 3 to 5 year goals of the organization.

Wells Fargo Online Financial Services (1997)“have one-million on-line customers by the end of the decade.”

University of Leeds“By 2015, our distinctive ability to integrate world class research, scholarship, and education will have secured us a place among the top 50 universities in the world.”

Before embarking on a transformational change program, leaders must re-affirm the organization’s fundamental goals and purpose

• Individuals who are treated with respect and given responsibility respond by giving their best. • We guard and conserve the company's resources with the same vigilance used to guard and conserve our own personal resources. • In all our dealings we will strive to be friendly and courteous, as well as fair and compassionate. • We feel a sense of urgency on any matters related to our customers. We own problems and we are always responsive.

12© 2008 Palladium Group, Inc. - Confidential

• Buyer Power• Supplier Power• Barriers to Entry• Threat of Substitutes• Industry Rivalry and

Intensity of Competition

External and internal analysis helps to identify the strategic opportunity

SWOT Analysis

• Political• Economic• Social• Technological• Environment• Legal

External Analysis Industry Analysis

Strengths Opportunity

Weaknesses Threats

Strategy Formulation• Objective

• Advantage• Scope

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Companies can describe their strategy with the OAS framework

Objective (O): (similar to the Vision Statement) the ends that the strategy is designed to achieve; quantitative target and time frame

Advantage (A): the means by which the enterprise will achieve its objective what the enterprise will do differently, better or uniquely compared to competitors the value proposition the company will offer to attract customers the “strategy canvas” or value curve (Blue Ocean strategy)

Scope (S): the domain (niche) in which the enterprise intends to operate customer segment, product line breadth, technologies employed, geographic locations

served, or degree of vertical integration (which value chain activities it will perform)

M. Rukstad and D. Collis, “Can you say what your strategy is?” Harvard Business Review (April 2008)

© 2008 Robert S. Kaplan and The Palladium Group, Inc.

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Wha

t the

com

pany

offe

rs cu

stom

ers

Dimensions of the company’s offering to customers

© 2008 Robert S. Kaplan and The Palladium Group, Inc.

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An OAS strategy statement for a discount airline (such as US-based Southwest Airlines) in less than 40 words

Objective To remain the most profitable US-based airline

Advantage by offering the speed of airline travel at the price, frequency, and reliability of cars, buses and trains

Scope to price-sensitive travelers who value convenient flights

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In summary, at the end of Stage 1, the company should have defined its mission, values, and vision, and have a clear statement of its strategy

The strategy communicates:• What the company is trying to achieve

• How the company will measure success

• The “sandbox” it is playing in

• The means (advantage) it will use to accomplish its goals.

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Stage 2 of the Management System: Plan the Strategy

results


Process

Initiative

EXECUTION


results

1

3

45

6



PLAN THE STRATEGY



PLAN OPERATIONS



TEST & ADAPT


MONITOR & LEARN

Strategic Plan


Operating Plan• Dashboards • Sales Forecast• Resource Requirements• Budgets

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MISSIONWhy we exist

VALUESWhat’s important to us

VISIONWhat we want to be

STRATEGYOur game plan

EMPOWERMENT / PERSONAL OBJECTIVES / GRIDMotivate employees

LEAN – SIX SIGMA – TQM – TQC – etc.Improve local processes

A gap often exists between the senior executive team’s description of mission, vision, and strategy and the understanding by front-line employees and middle managers.

WIIFM?


STRATEGY MAPDefine & communicate priorities and focus

BALANCED SCORECARDMeasure performance against priorities

MISSIONWhy we exist

VALUESWhat’s important to us

VISIONWhat we want to be

STRATEGYOur game plan

EMPOWERMENT / PERSONAL OBJECTIVESMotivate employees

INITIATIVE and PLANNING PROCESSManage actions and resources to drive change

STRATEGIC OUTCOMES

SatisfiedSHAREHOLDERS

Delighted CUSTOMERS

Efficient and EffectivePROCESSES

Motivated & PreparedWORKFORCE

Strategy Maps and the Balanced Scorecard bridge the strategy implementation gap: They link leadership at the top to management of initiatives, process improvements and employees’everyday actions.


#1. Financial performance, a lag indicator, measures the tangible outcomes from the strategy.

#2. The customer value proposition defines the source of value.

#3. Strategic processes create value for customers and shareholders.

Process Perspective



SustainedShareholder

Value

Operations Management

Processes

Customer Management

Processes

Innovation Processes

Productivity Revenue Growth

Price Quality Time Function Relation Brand

Product/Service Attributes Relationship Image

Regulatory and Social Processes


Human Capital

Information Capital

Organization Capital

#4. Aligned intangible assets drive improvement in the strategic processes

A Strategy Map and Balanced Scorecard provides the foundation for a new strategy execution system

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Nemours Children’s Hospital Strategy Map Organized by Strategic ThemesVision: Freedom from disabling conditions

Mission: To provide leadership, institutions and services to restore and improve the health of children through care and programs not readily available, with one high standard of quality and distinction regardless of the recipient’s financial status

We will enable our

People

To deliver theStrategic Processes

Ensuring stewardship of the trust and assured financial strength

That supports Our Mission

Stewardship

S2 - Achieve growth through delivery of impactfulservices in Florida and the Delaware Valley

S3 - Manage costs/expenses through process efficiencies and resource decisions

S1 - Create sufficient cash flow and operating margins to achieve our strategic goals

CustomersC1 - Children and Families: “Create an environment where each child is treated as if

they were your own”

C2 - Communities: “Be a catalyst for change, as well as a trusted resource for improving

children’s health”

People & LearningL01 - Recruit & retain the right

people in the right seats

L04 - Value diversity and foster a culture of trust by living our

core values

L03 - Align, reward, and encourage our associates’

passion for excellence

L02 - Assure a highly skilled workforce

ProcessesService & Quality Efficiency & EnvironmentImpact & Community

P01 - Expand our reach in the Delaware Valley and Florida to ensure vitality and

viability

P02 - Create an integrated system of children’s health

P03 - Working with community partners and government, influence issues and drive

change relevant to child health and wellness

P04 - Improve children's health through research and education

P05 - Assure service excellence in order to provide a compassionate, personalized and

informed experienceP06 - Achieve exceptional outcomes

through coordinated, evidence-based care, health promotion and improved clinical

processes

P07 - Leverage technology for process improvement, enhanced quality, safety, and

service excellence

P08 - Partner with physicians and other care providers to create an efficient and effective

environment for care

P09 - Create and enhance physical environments that are patient-centered, and

support excellent care

P10 - Assure that operations are efficient and effective

P11 - Allocate financial and capital resources for efficiency and effectiveness

That provide a uniquely satisfying customer

experience

Core Values: *Excel *Respect *Serve *Honor *LearnCommitment: I will do whatever it takes to make every contact with Nemours a uniquely satisfying experience … for our patients,

parents, visitors, colleagues and business partners

Vision: Freedom from disabling conditionsMission: To provide leadership, institutions and services to restore and improve the health of children through care and programs not

readily available, with one high standard of quality and distinction regardless of the recipient’s financial status

We will enable our

People

To deliver theStrategic Processes

Ensuring stewardship of the trust and assured financial strength

That supports Our Mission

Stewardship

S2 - Achieve growth through delivery of impactfulservices in Florida and the Delaware Valley

S3 - Manage costs/expenses through process efficiencies and resource decisions

S1 - Create sufficient cash flow and operating margins to achieve our strategic goals

CustomersC1 - Children and Families: “Create an environment where each child is treated as if

they were your own”

C2 - Communities: “Be a catalyst for change, as well as a trusted resource for improving

children’s health”

People & LearningL01 - Recruit & retain the right

people in the right seats

L04 - Value diversity and foster a culture of trust by living our

core values

L03 - Align, reward, and encourage our associates’

passion for excellence

L02 - Assure a highly skilled workforce

ProcessesService & Quality Efficiency & EnvironmentImpact & Community

P01 - Expand our reach in the Delaware Valley and Florida to ensure vitality and

viability

P02 - Create an integrated system of children’s health

P03 - Working with community partners and government, influence issues and drive

change relevant to child health and wellness

P04 - Improve children's health through research and education

P05 - Assure service excellence in order to provide a compassionate, personalized and

informed experienceP06 - Achieve exceptional outcomes

through coordinated, evidence-based care, health promotion and improved clinical

processes

P07 - Leverage technology for process improvement, enhanced quality, safety, and

service excellence

P08 - Partner with physicians and other care providers to create an efficient and effective

environment for care

P09 - Create and enhance physical environments that are patient-centered, and

support excellent care

P10 - Assure that operations are efficient and effective

P11 - Allocate financial and capital resources for efficiency and effectiveness

That provide a uniquely satisfying customer

experience

Core Values: *Excel *Respect *Serve *Honor *LearnCommitment: I will do whatever it takes to make every contact with Nemours a uniquely satisfying experience … for our patients,

parents, visitors, colleagues and business partners


The Balanced Scorecard starts with the Financial Objectives: What are the financial drivers of long-term sustainable value creation?


Increase Shareholder Value

Increase Asset Utilization

Improve Cost Structure

Enhance Existing

Customer Value

Expand Revenue

Opportunities

Achieve Productivity Improvements Generate Revenue Growth

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Productivity

Revenue

But a two-legged stool for value creation may not be a stable solution

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Productivity

Revenue

Disasters in the US housing and financial sectors during 2007/08 toppled the strategic plans of almost all corporations (and households, and governments)

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ProductivityRevenue

Risk Management

Companies must re-build their revenue growth and productivity strategies while paying far more attention to the risks in their strategies

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Strategy maps need to incorporate Risk Management, the third driver of sustainable financial value creation.


Increase Shareholder Value



Enhance Existing

Customer Value

Expand Revenue

Opportunities

Achieve Productivity Improvements Generate Revenue Growth

Manage Enterprise

Risk


SupplyProduceDistributeManage Risk

OperationsManagement

ProcessesProcess Perspective

Relationship Image


Customer Value Proposition

Price Quality Availability Selection Functionality Service Partnership Brand

Product / Service Attributes


Long-Term Shareholder Value

Productivity Strategy Growth Strategy

Enhance Customer Value



Expand Revenue Opportunities

And risk management must be one of the key processes that the enterprise excels at for its strategy to be successfully executed

Identify New OpportunitiesSelect the R&D PortfolioDesign and DevelopLaunch

InnovationProcesses

Select CustomersAcquire New CustomersRetain Existing CustomersGrow Business with

Customers

Customer ManagementProcesses

EnvironmentSafety & HealthEmploymentCommunity

Regulatory & Social Processes

Information Capital

Organization CapitalCulture Leadership TeamworkAlignment


Human Capital

Manage Enterprise

Risk

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The Strategy Map and Balanced Scorecard translate the OAS strategy statement into actionSouthwest Airlines: “To remain the most profitable US-based airline by offering price-sensitive travelers who value convenient flights the speed of airline travel at the price, frequency, and reliability of cars, buses and trains.”

$XXXX

Action Plan

Initiative Budget

• Customer Loyalty Program

• $XXX

• On Ground Cycle Time Optimization

• Quality Management

• $XXX

• $XXX

• ESOP

• Ground Crew Training

• Crew Scheduling System Rollout

• CRM System

Total Budget

• $XXX

• $XXX

• $XXX

• $XXX

Execute

Strategy Map

Theme: Operating Efficiency Objective

• Profitability

• Grow revenues

• Fewer planes

Financial Profits & RONA

Grow Revenues

Fewer Planes

• Flight is on-time

• Lowest prices

• Attract and retain more customers

CustomerAttract & Retain More Customers

On-time Service

Lowest Prices

Fast Ground Turnaround

Internal • Fast ground turnaround

• Ground crew aligned with strategy

• Develop the necessary skills

• Develop the support system

Learning

Strategic JobRamp Agent

Strategic SystemsCrew Scheduling

Ground Crew Alignment

Balanced Scorecard

Measurement Target

• Market Value

• Seat Revenue

• Plane Lease Cost

• 30% CAGR

• 20% CAGR

• 5% CAGR

• FAA On-Time Arrival Rating

• Customer Ranking

• # Repeat Customers• # Customers

• #1

• #1

• 70%• Increase

12% annual

• On Ground Time

• On-Time Departure

• 30 Minutes

• 90%

• % Ground Crew Stockholders

• Strategic Awareness

• Strategic Job Readiness

• Info System Availability

• 100%

• 100%

• Yr 1 - 0%Yr 3 - 90%Yr 5 - 100%

• 100%

MeasureCommunicate

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Cur

rent

initi

ativ

e

Initiative Mapping Grid Example

Proc

urem

ent r

edes

ign

Emer

ging

mar

kets

str

ateg

y

Part

ner w

ith th

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inne

rs

Res

sec

and

W&

L an

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ane

Qua

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need

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entif

icat

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Qua

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proc

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elim

Ref

orm

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SV c

omm

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aliz

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cilit

ies

Cus

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aint

trac

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pro

Side

lam

VP/

part

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hips

IT e

nhan

cem

ent i

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lue

chai

n

SCO

P im

plem

enta

tion

Abm

Dev

elop

/cas

cade

BSC

Com

mun

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Asi

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IT s

trat

egy

alig

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Scra

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oces

s im

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Yiel

d im

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Faci

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ISO

900

02 N

A re

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mfg

. Cer

Expe

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ms

Rew

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dev

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t/im

plem

Glo

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omm

unic

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ns

Trai

ning

str

ateg

ic s

kills

ObjectivesPerspective

Financial

Economic value added

Be the lowest cost producer

Pick the winners globally

CustomerCreate new market demand

Price performance

Partnering

Integrate and align resources

ProcessSales and customer developmentFocused technology development

Perfect manufacturing

People and change management

Learning& Growth

Strategic competencies

Individual and team performance

Customer sensitive culture

No initiatives for the Financial

perspective

9 initiatives for 1 objective

No initiatives for this objective

2 initiatives serving no objectives

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Strategic Fit and Benefit

Resource Demands:Cost to implement

FTEs requiredDuration

Organizational Capability (Risk):

Confidence on Ability to DeliverChange required

Output:Scored Project

Input:Candidate Projects

Scoring model:• Each initiative is ranked against all of the criteria• The rating is then multiplied by the criteria’s weight• The score for each criteria is added together for the total score

x5 x3 x2

Scoring each initiative facilitates comparison

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Theme 3

Theme 2

Linking Strategy to the Budget through STRATEX

Strategy Map Balanced ScorecardMeasure Target

Action PlanInitiative Budget

Them

e: “

Cro

ss-S

ell t

he P

rodu

ct L

ine”

• Human Capital Readiness

• Strategic Application Readiness

• Goals Linked to BSC

• Cross-Sell Ratio

• Hours with Customer

• Revenue Mix

• Revenue Growth

100%

100%

100%

2.5

1hr/Q

New = +10%

+25%

• Relationship Management• Certified Financial Planner

• Integrated Customer File• Portfolio Planning Application

• MBO Update• Incentive Compensation

• Financial Planning Initiative

• Integrated Product Offering

$ XXX$ XXX

$ XXX$ XXX

$ XXX$ XXX

$ XXX

$ XXX

Total Budget $XXX

Broaden Revenue Mix

Cross-Sell the Product Line

Strategic Job

Financial Planner

Strategic Systems

Portfolio Planning

Create Organization Readiness

Strategic Job

Financial Planner

Strategic Systems

Portfolio Planning

Create Organization Readiness

• Share of Segment

• Share of Wallet

• Customer Satisfaction

25%

50%

90%

• Segmentation Initiative

• Satisfaction Survey

$ XXX

$ XXX

Increase Customer

Confidence in Our Financial Advice

Rolling Forecast (Budget)

Strategy• Strategy Map

• Targets• Accountability

• Themes• Objectives• Measures

Balanced Scorecard

Strategic Initiatives

$ XXTotal Strategic Investment

Revenue• Direct Expense

Gross Margin• Indirect Expense

– Sales– Prof. Dev.– G+A

Contribution• R&D• STRATEX

EBITDA• ITDA

Net Income

XX(XX)

XX

(XX)(XX)(XX)

XX(XX)(XX)

XX(XX)

XX

100%(40)

60%

(10)(5)

(15)

30%(5)(5)

20%(5)

15%

$$ %

Cost Management Investment Management

Integrated Strategic

Plan

Operational Plan/Budget

• OPEX • CAPEX

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From 26 Strategic Initiatives

11 High Priority5 Low Priority

3 High Priority6 Medium Priority (or Already Underway)2 Low Priority

Line of Sightto Revenue & Expense Impact

Line of Sightto Strategic Impact

Productivity: Reduce Costs; Conserve CapitalReact to current environment and new conditions with

short-return productivity investments we can take immediately

Revenue EnhancementShort term revenue enhancement through strategic Initiatives with predictable, low-risk outcomes; non-

capital intensive, incremental transactions

Strategic TransactionsFurther our long term strategy through strategic,

attainable but meaningful transactions

6 High Priority

7 High Priority

1 High Priority

14 High Priority Initiatives based on Near Term Strategy

to

What is different about managing in a recession? One company used its BSC to re-prioritize its strategic initiatives.

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Stage 3 of the Management System: Align the Organization

results


Process

Initiative

EXECUTION


results

3

45

6

• Mission, Values, Vision • Stretch Targets• Strategic Analysis• Strategy Formulation


• Strategy Map / Themes• Measures / Targets• Initiatives• Funding / Stratex




PLAN OPERATIONS



TEST & ADAPT


MONITOR & LEARN

Strategic Plan



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Alignment in Action

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Alignment using individual BSCs

BSC Corporate

1 Corporate Strategy Map

iBSC iBSC

12 Support Area

Maps

Contribution Panels

6 Business Units

Maps

54 Contribution Panels

BSCBSC

19 Strategy Maps

Individual BSC

115 Contribution Panels with

publication in the Intranet

22.000 Individual BSCs

Contribution Panels

61 Contribution Panels

Individual BSC

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Shared Objectives Example

Bankwide identical objective

Objective unique to GCBU

Shared objective

Global Corporate Banking Unit

(GCBU) Strategy Map

Global Corporate Banking Unit

(GCBU) Strategy Map

Grow Revenues Manage Risk Improve Productivity

Increase fee income

Maximize income from

core customers

Enhance cost

efficiency

Be #1 foreign wholesale bank in the Americas

Be a reliable source of credit

Provide global network banking

Provide speedy and accurate

service

Develop succession

plan

Provide training on credit and

product

Competitive environment:

teamwork, safe and fair

Competitive compensation

Segmentation and tier up

Increase net income

Enhance disaster recovery/business

continuity plan

Enhance risk management in Latin America

Strategically focus on opportunities in

Asia

Proactive risk management and

compliance

Execute major technology and

efficiency projects

Tie up between business strategy and risk appetite

FinancialPerspective

CustomerPerspective

InternalProcess

Perspective

HumanCapital

Perspective

Minimize credit costs

Ensure collaboration -Relationship &

Purchasing Managers

Streamline credit approval

process

Enhance collaboration throughout

supply chain

(Corporate and Units)

(Between Units)

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Align Employees to Make Strategy Everyone’s Job

Create Strategic awareness : “Communicate seven times seven different ways” Personal relevance (WIIFM) brings the strategy to life Sustained communication uses different channels to get the message across

• Leadership meetings• CEO random visits to employees• Dear Colleague Quarterly Letter in Mellon News• Learning lunches & informal discussions• Intranet• Working groups facilitated by HR• Staff briefings

Source: Presented by Jack Klinck, Vice Chairman, Mellon Europe at BSCol European Summit, June 2005

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Stage 4 of the Management System: Plan Operations

results


Process

Initiative

EXECUTION


results

1

3

45

6






• Business Units• Support Units• Employees

PLAN OPERATIONS



TEST & ADAPT


MONITOR & LEARN

Strategic Plan



2

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1. IMPROVE KEY PROCESSES

(What business process changes does the strategy require?)

2. DEVELOP THE RESOURCE CAPACITY PLAN

Ensure that changes required by the strategic themes are translated to changes in operational processes

Ensure that resource capacity, operational plans and budgets reflect the directions and needs of the strategy

No alignment between strategic priorities and quality and continuous improvement programs

Forecasts, budgets and operating plans developed independently from strategic plan

• Total quality management• Business process

improvement• Key Success factors• KPIs / Dashboards

• Rolling Forecasts • Activity-Based Costing Model• Resource Planning• Budgeting (Opex / Capex)• Pro Forma Financials

STRATEGY EXECUTION PROCESS OBJECTIVE BARRIERS REPRESENTATIVE

ACTIVITIES

(How do we link strategy to operating plans and budgets?)

Link Strategy and Operations

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Link Process Improvement Objectives to Local Dashboards

Business Unit Strategy Support Unit Strategy

Corporate Strategy

Store Dashboard

Store Operations Strategy

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Identify operational processes key to executing strategy and manage those processes using analytical models rather than instincts

Analytical models identify drivers to the process and display these drivers on a dashboard accessible to managers that can make an impact

Strategy Map Cause-and-Effect Model of Each Key Process

Web-based Dashboard of metrics used to manage a

Key Process

THEME linked to PROCESS

PROCESS linked to METRICSMETRICS improve PROCESS

PROCESS supports THEME

Dashboards articulate the critical link between strategy management and operations management.

42

Stage 5 of the Management System: Monitor and Learn

results


Process

Initiative

EXECUTION


results

1

3

45

6







PLAN OPERATIONS



TEST & ADAPT


MONITOR & LEARN

Strategic Plan



2

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Operational Review Meetings: Role for KPI Dashboards Frequent (daily, twice weekly, weekly) Departmental and functional personnel (purchasing, sales, operations, finance, logistics,

etc.) Identify and solve operational problems (late deliveries, equipment downtime, supplier

problems) Promote continuous improvement (better, faster, cheaper)

Strategy Review Meetings: Role for Balanced Scorecard Monthly Management team; cross functional, multiple business units Discuss and solve problems with strategy implementation Manage product and customer profitability

Companies use strategy scorecards and operational dashboards to inform their different management meetings.

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Identify Performance Issues: Focus on the performance of objectives NOT

measures.

What are the measures telling us? Are the measures driving change and adding focus?

Analyze Objective Performance:

Take Action: Discuss and agree on how to remedy issues. Assign accountability to ensure decisions are

implemented.

What are the root causes of what’s occurring? What are the expectations for the future? And, are current initiatives sufficient to close the performance gap?

What action steps – including additional or different initiatives - are required to improve performance going forward?

Are initiative on track to deliver expected value? If not, why and what can be done to remedy issues?

Use of a BSC Report in Strategy Review Meetings1

3

5

2

4

Objective:

Discussion/Update:

Recommendations/Required Actions:

Person(s) Responsible: Due Date: Priority (A, B, C):

Action Item Detail:1.2.3.

6

7

ILLUSTRATIVE

I03 Identify Adverse Trends

The leadership team uses the BSC to review performance, examine strategic initiatives, make informed decisions, and assign accountability.

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Stage 6 of The Management System: Test and Adapt

results


Process

Initiative

EXECUTION


results

1

3

45

6







PLAN OPERATIONS



TEST & ADAPT


MONITOR & LEARN

Strategic Plan



2

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Analyze External, Competitive Information and Internal Information (Balanced Scorecard, ABC) Annually (perhaps quarterly for fast-moving industries) Senior management team; functional and planning specialists Test and adapt strategy based on causal analytics and product-line and

channel profitability Establish strategic and operational plans, authorize resource spending,

targets, and initiatives

Stage 6: Strategy Testing and Adapting Meetings

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Managing in Turbulent Times

“In good times, companies expand their operations. They add product lines, expand into new geographic areas and customer segments, and even experiment with new business models. Then comes a downturn. The company can no longer do everything it once did, and the decisions about where to focus can be agonizing.

[The company needs to perform] a thorough inside-out analysis: Where is the company generating the best results, measured by profitability and growth? Which product lines, which markets, which customers segments?

Who are the customers that we love the most …?”

Darrell Rigby, Bain & company, Inc. Winning in Turbulence (Harvard Business Publishing, 2009, forthcoming)

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Activity-Based Costing Reveals the Hidden Profit and Hidden Cost Customers

Revenues

Costs

Apparent Profits

Hidden C

osts

HiddenProfits

Customer

A

Traditional Costing Activity-Based Costing

Customer

B

Customer

A

Customer

B

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Transforming unprofitable products and customers provide excellent short-term profit improvement opportunities

* Benchmark data across 100 companies, 400 facilities, 10 industries ranging from $25M to $20B

*

20% most profitable generate 180% of

profits

20% least profitable lose

80% of net profits

**

50

Actions from knowing customer (and product) profitability

Companies can improve customer profitability by:

o Process improvements that lower the cost of servicing customer demands (e.g., electronic ordering, electronic self-help and self-service)

o Menu-Based Pricing, allowing customers to choose the level and features of service they wish, and also to pay for them

o Managing customer relationships: minimum order size, standard packaging and shipping, small orders through distributors

o When all else fails, the company can suggest that its unprofitable customers attempt to find alternative suppliers


What is different about managing in a recession?Modify the Strategy to Focus on Short-Term while Protecting the Long-Term:

One Bank Hunkered Down to Focus on “The Three C’s”CONSUMER NATIONAL BANK

Create Outstanding Value for Shareholders

Fund Strategic Investments

Achieve XX% ROEGrow New Revenue

Sources Manage Risk

Improve the Financial Success of Our Customer

Provide Quality Products

Build High Value Relations

Provide Competitive Prices

Be Involved in the Community

Develop Human Capital to Support Strategy

Leverage Information Technology

Create a High Performance Culture

Drive Quality Growth

• Increase Fee Income• Build the Brand• Manage Risk

Deliver Distinctive Service

• Improve Convenience• Develop New Products• Increase Cross-Selling

Increase Quality & Productivity

• Streamline Processes• Maximize LOB Profitability• Optimize Capital & Taxes



Process Perspective



What is different about managing in a recession?

results


Process

Initiative

EXECUTION


results

1

3

5

6Strategic Plan


Operating Plan

• Sales Forecast• Resource Requirements• Dashboards• Budgets

2


PLAN OPERATIONS4




MONITOR & LEARN


TEST & ADAPT





results


Process

Initiative

EXECUTION


results

1

3

5

6Strategic Plan


Operating Plan


2


PLAN OPERATIONS


PLAN OPERATIONS4






MONITOR & LEARN


MONITOR & LEARN


TEST & ADAPT


TEST & ADAPT









The strategy management system promotes speed, flexibility and adaptability to change

• Focus on short-term• Protect long-term

• Shorten time horizon• Rapid response

• Communicate• Shift priorities• Re-align organization

• Analyze• Find new

opportunities

• Be clear about objectives and measures

• Re-prioritize investments• Manage Stratex

• Change the strategy

53

A Strategy Management Officer Coordinates the Six Stage Management System

results


Process

Initiative

EXECUTION


results

1

3

4

5

6

• Mission, Values, Vision

• Strategic Analysis• Strategy

Formulation


• Strategy Map / Themes

• Measures / Targets• Initiative Portfolios• Funding / Stratex




PLAN OPERATIONS• Key process

improvement• Sales planning• Resource capacity plan• Budgeting

• Profitability Analysis

• Strategy Correlations

• Emerging Strategies

TEST & ADAPT


MONITOR & LEARN

Strategic Plan

• Strategy Map• Balanced

Scorecard• Stratex

Operating Plan

• Sales Forecast• Resource

Requirements• Dashboards• Budgets

2

Plan the Strategy:Develop, Translate and

Align(Stages 1-3)

Execute the Strategy:Link to Operations,

Monitor, Learn and Test

(Stages 4-6)

SMO

54

Why do companies need an office of strategy management (OSM)?The typical management system is made up of many stand-alone subsystems that are not integrated or aligned with one another.

results


Process

Initiative

EXECUTION


results

1

3

5

6Strategic Plan


Operating Plan


2

• Key process improvement

• Sales planning• Resource capacity plan• Budgeting

PLAN OPERATIONS4




MONITOR & LEARN


TEST & ADAPT





• Strategy Map• Balanced Scorecard

• Resource-Based Strategy• Blue Ocean Strategy• Emergent Strategy

• Initiative Screening and Funding

• Lean Management• Reengineering• Six Sigma• Dashboards• Beyond Budgeting

• Customer and Product Profitability

• Analytics

• Meeting Management

• Knowledge ManagementActivity-Based

CostingStandard Process

• The Budget

• Cascading Corporate-Level Strategy

• Service level agreements

• Internal Communications

• Management by Objectives

• PESTEL/SWOT analysis• Five Forces Industry

Analysis• Strategic Positioning

55

The Office of Strategy Management is the process owner for several strategy execution processes.

Develop the Strategy: Help the CEO and Executive Team to formulate and adopt the strategy.

Translate the Strategy: Design the Strategy Map and Balanced Scorecard. Manage the reporting system.

Align the Organization: Ensure that all business and support units are aligned with thestrategy.

Plan & Fund the Initiatives: Link financial, HR, IT, and marketing plans to the strategy.

Review the Strategy: Shape the agenda for strategy review and learning meetings.

Define, develop and oversee execution of close-loop processes required to manage the strategy.

THE PROCESS

OWNER

56

Strategy Communications: Communicate and educate employees about the strategy.

Initiative Management: Identify and oversee the management of strategic initiatives.

The Office of Strategy Management coordinates with other functions to ensure their processes are aligned to the strategy

THE INTEGRATOR

Human Capital: Ensure that all employee’s goals, incentives and development plans link to the strategy.

Financial Resources: Insure that the expected impact of strategic investments are reflected in operating plans.

IT Resources: Insure that IT plans for applications and infrastructure are aligned with the strategy.

Key Business Processes: Insure that the design of key business processes reflects the strategic priorities and intent.

Insure that operational processes owned and run by other functional executives are linked to the strategy.

Quality Programs: Insure that quality management / six sigma programs focus on strategic objectives.

Best Practice Sharing: Facilitate a process to identify and share best practices.

Resource Management

Process Management

57

Executing Strategy to Drive Profitability

QUESTIONS?

executing strategy with the bsc management system · 1 executing strategy with the bsc management...

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