Building strategy focused organizations with the balanced scorecard

Building Strategy Focused Organizations
with the Balanced Scorecard
Dr. Robert S. Kaplan
Marvin Bower Professor of Leadership Development
HARVARD BUSINESS SCHOOL
and
Chairman
BALANCED SCORECARD COLLABORATIVE


The Balanced Scorecard:
A Good Idea in 1992

Balanced Scorecard in 1992

“The Balanced Scorecard –
Measures that Drive
Performance”
Harvard Business Review,
1992

©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

2


The Balanced Scorecard:
A Great Idea by 2002
Balanced Scorecard by 2002

21 translations

17
translations

50% usage in Fortune 500
Harvard Business Review “Hall of Fame”
50,000+ BSC on-line members
©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

3


Balanced Scorecard Hall of Fame Implemented
Strategies and Achieved Breakthrough Results… Fast
Mobil
3 years

Saatchi & Saatchi
+ $2b

• Last to first
• Cash flow +$1.2b
• ROI 6% --> 16%

ATT Canada
3 years

+ $7b

2-5 years

Cigna

Brown & Root

2-5 years

3 years
• #1 in growth &
profitability

+ $3b
City of Charlotte
3 years

Duke Children’s

• Customer Satisfaction = 70%
• Public Official Award

• Customer Satisfaction #1
• Cost/Case
33%

3 years

Wells Fargo

Southern Garden
3-5 years

• # Customers 450%
• Best Online Bank

• Least Cost Producer

3 years

2 years

Chemical Bank
3 years
• 99% Merged Target
Asset Retention

UPS
Hilton Hotels
• Customer Satisfaction
• Market Revenue Index

• Revenues
• Net Income

©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

9%
33%

2 years

4


Question:
Question:

Answer:
Answer:

How
Howcan
cancomplex
complexorganizations
organizations
achieve
results
like
achieve results likethis
thisininsuch
such
short
periods
of
time?
short periods of time?

Alignment!
Alignment!

The Balanced Scorecard process allows an organization

to align and focus all its resources on its strategy

BUSINESS UNITS

EXECUTIVE TEAM
STRATEGY

INFORMATION
TECHNOLOGY

HUMAN RESOURCES

BUDGETS AND CAPITAL
INVESTMENTS
©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

5


A Gap Exists Between Mission-Vision-Strategy and
Employees’ Everyday Actions
MISSION
Why we exist
VALUES
What’s important to us
VISION
What we want to be
STRATEGY
Our game plan

TOTAL QUALITY MANAGEMENT
What we must improve
EMPOWERMENT / PERSONAL OBJECTIVES
What I need to do

©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

6


The Balanced Scorecard Links Vision and Strategy to
Employees’ Everyday Actions
MISSION
Why we exist
VALUES
What’s important to us
VISION
What we want to be
STRATEGY
Our game plan
BALANCED SCORECARD
Translate, Focus and Align
STRATEGIC INITIATIVES
What are the priorities
TOTAL QUALITY MANAGEMENT
What we must improve
EMPOWERMENT / PERSONAL OBJECTIVES
What I need to do

STRATEGIC OUTCOMES

Satisfied
SHAREHOLDERS

Delighted
CUSTOMERS

Efficient and Effective
PROCESSES

©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

Motivated & Prepared
WORKFORCE

7


The Principles of a Strategy-Focused Organization
TRANSLATE
STRATEGY
•
•
•
•
•

EXECUTIVE
LEADERSHIP

Mission / Vision

Strategy Maps
Balanced Scorecard
Targets
Initiatives

BALANCED
SCORECARD

•
•
•
•
•

ORGANIZATION
ALIGNMENT
•
•
•
•

CEO Sponsorship
Executive Team Engaged
“New Way of Managing”
Accountable for Strategy
A Performance Culture
CONTINUAL
PROCESS

Corporate Role

Corporate - SBU
SBU - Shared Services
External Partners

EVERYONE’S
JOB

•
•
•
•
•

Linked to Budgeting
Linked to Ops. Mgmt.
Management Meetings
Feedback System
Learning Process

• Strategic Awareness
• Goal Alignment
• Linked Incentives
©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

8


#1

Principles of the Strategy Focused Organization:

TRANSLATE THE STRATEGY TO OPERATIONAL TERMS
The Strategy

Financial Perspective

‰ Measurement is the
language that gives clarity
to vague concepts.

"If we succeed, how will
we look to our
shareholders?”
Customer Perspective

‰ Measurement is used to
communicate, not to
control.

"To achieve my vision,
how must I look to my
customers?”

‰ Building the scorecard
develops consensus and
teamwork throughout the
organization

©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

Internal Perspective

"To satisfy my customer,
at which processes must
I excel?”
Organization Learning
"To achieve my vision, how
must my organization learn
and improve?”

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The Complete Balanced Scorecard Strategy Map
Improve Shareholder Value
Financial
Perspective:
the drivers of
shareholder
value

Shareholder Value
ROCE

Productivity Strategy

Improve Cost
Structure

Increase Asset
Utilization

‰ Cost per Unit

Internal
Perspective:
how value is
created and
sustained

Learning & Growth
Perspective: role for
intangible assets –
people, systems,
climate and culture

Enhance Customer
Value
‰ Customer
Profitability

‰ Asset Turnover

Market and Account Share ‰

Customer
Perspective:
the
differentiating
value
proposition

Revenue Growth Strategy

‰

Customer Acquisition

Customer Retention

‰

Create Value from
New Products &
Services
‰ New Revenue
Sources

Customer Satisfaction
Product Leader

Customer Solutions

Customer Value Proposition
Product/Service Attributes
Price

Quality

Time

Operations Theme

(Processes that Produce
and Deliver Products
& Services)

Low Total Cost

Relationship
Function

Service

Customer
Management
Theme
(Processes that
Enhance Customer
Value)

Image

Relations

Brand

Innovation Theme
(Processes that
Create New
Products and
Services)

Regulatory and
Society Theme
(Processes that
Improve the
Environment
and
Communities)

Human, Information, and Organizational Capital
Strategic
Competencies

Strategic
Technologies

©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

Climate for
Action

10


Mobil NAM&R Strategy Map
Increase ROCE to 12%

Financial
Perspective

Revenue Growth Strategy

Increase Customer
Profitability Through
Premium Brands

New Sources of NonGasoline Revenue

Customer
Perspective
T Share of
Targeted
Segment
T Mystery
Shopper
Score

T Non-Gasoline
Revenue & Margin

Become Industry
Cost Leader

T Volume vs. Industry
T Premium Ratio

T Cash Flow

“Win-Win Dealer Relations”

Basic
T
T
T
T

Maximize Use of
Existing Assets

T Cash Expense (cpg)
vs. Industry

“Delight the Consumer”
Differentiators

Clean
Safe
Quality Product
Trusted Brand

Speedy
Purchase

“Build the Franchise”

Internal
Perspective

Productivity Strategy

ROCE
Net Margin (vs. industry)

Friendly Helpful
Employees

“Increase Customer Value”
Understand
Consumer
Segments

Create NonGasoline
Products &
Services

“Achieve Operational Excellence”
Improve
Hardware
Performance
T Yield Gap
T Unplanned
Downtime

Best-In-Class
Franchise
Teams

T New Product
Acceptance Rate

More
Consumer
Products

Recognize
Loyalty

On-Spec
On-Time

Improve
Inventory
Management

“Be a Good Neighbor”

Improve
Environmental,
Health and
Safety

T Inventory
Levels
T Run-Out Rate
Industry Cost
Leader
T Activity Cost
vs. Competition

T Dealer Quality

Rating

Help Develop
Business
Skills

T Dealer Profit
Growth
T Dealer
Satisfaction

T Environment
Incidents
T Safety Incidents

A Motivated and Prepared Workforce
Climate for Action

Learning &
Growth
Perspective

• Aligned
• Personal Growth
T Personal BSC
T Employee Feedback

Competencies
• Functional Excellence
• Leadership Skills

• Integrated View
T Strategic Skill
Coverage Ratio

©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

Technology
• Process Improvement

T Systems Milestones

11


New Source of Revenues and Customer Loyalty
Attractive Convenience Store

©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

12


The Balanced Scorecard Framework Is Readily Adapted to
Non-Profit and Government Organizations
The Mission
"If we succeed, how will
we look to our
taxpayers (or donors)?”

”To achieve our vision,

how must we look to
our customers?”

“To
“To satisfy
satisfy our
our customers,
customers,
financial
donors
and
financial donors and mission,
mission,
what
business
processes
what business processes
must
must we
we excel
excel at?"
at?"

“To
“To achieve
achieve our
our vision,
vision, how
how
must

our
people
learn,
must our people learn,
communicate,
communicate, and
and work
work
together?”
together?”
The Mission, rather than the financial / shareholder objectives,
drives the organization’s strategy
©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

13


Boston Lyric Opera Strategy Map
Our mission is to ensure the long-term future of opera in Boston and New England by (1) producing the highest quality professional productions of diverse opera
repertoire that are artistically excellent as well as musically and theatrically innovative; (2) developing the next generation of opera talent; (3) engaging and educating
a diverse community about opera to become enthusiastic audience members, educators, supporters, and volunteers.
(HBS Case #9-101-111)

National/International Opera Scene

Supporters/Subscribers

CUSTOMER

Target

Generous and Loyal
Contributors/
Prospects

Focus on
Board
Investment and
Recruitment

Build Artistic
Reputation
for High
Standards

Launch Unique
Residency
Program for
Artists

Enhance Customer Relationships
INTERNAL
BUSINESS
PROCESSES

Streamline
Ticketing/Gift
Acknowledgement
Processes

Increase

One-on-One
Contact

Improve
Board Support
Systems

Provide
Staff with
Skill
Training

Promote
Collaborations

Insure Operational Excellence

Develop
Web-based
Service/
Products

Contract
“Best”
Talent

Develop Strategic Job Competencies
LEARNING
AND
GROWTH

Present
Diverse
Repertory

Community

Leverage Board
Effectiveness with
Education and
Fundraising Training

Develop
Innovation
Review
Process

Increase Brand Awareness

Increase Cost
Efficiency/Quality
Assurance

Increase
Revenue

Systematize
Financial
Processes

Launch
Comprehensive
PR Campaign

Develop
New
Products/
Program

Strengthen Strategic Alignment

Build Growth-Enabling Infrastructure

Develop
Strategic
Communications
Plan

Create
HR Plan

Incorporate
Milestone
Evaluations

Fiscal Health

FINANCIAL

Focus on

Educ./Comm.
Programs for
Greater Boston

Build
Community
Support

Build
Multi-Year
Support

Invest in
Strategic
Technologies

Develop
Administrative
Residency
Program

Growth Planning
Create
Long-Term
Investment
Strategy

©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

Develop

Realistic
Pro Formas

Institutionalize
Multi-Year
Budgeting

14


Resources

Learning & Growth

Internal Process

Stakeholder

Mission

Medical Readiness for the Transformed Army
Core Competencies
Protect and Sustain A Healthy and Medically Protected Force
Deploy a Trained and Equipped Medical Force that Supports Army Transformation
Manage the Care of the Soldier and Military Family

Battlefield

Performing Our
Mission in Any

Environment

Home
Station

Focus on Customers / Sound Business Practices

Enable Mission Readiness

Achieve Fiscal Accountability


Army
Medical Command Strategy Map
Project and Sustain A Healthy and Medically Protected Force
Mission

Financial

Protected from
disease and injury
C-2

Healthy soldiers
C-1

Smaller Footprint
C-5

Flexible Medical

Forces C-4

DoD/Army
Financial

Stakeholder

Trained Medics
C-3

Reduce cost of
ownership of the
deployable force F-2

Passion for
Eliminating
Wasted Time C-9

Quality,
Compassionate
Healthcare C-8

Healthy Patients
and Families are #1
C-7

Internal Process

Products to Market to
Support the Transforming

Army
Monitor Medical
Threats and the
Fitness of the Force

IP - 4

Battlefield

Return Soldiers
to Duty
IP-6

Leverage
Capabilities of
Institutional
AMEDD

& Growth

Optimize Total
(MCSC+ Direct)
System Efficiency F-3

IP1

Expedient,
Compassionate
Disposition of Medically
Unfit Soldiers

Home

IP-13

Safe Patient
Care

IP- 2

Develop Fast Accurate
Analysis, Forecasting,
Modeling and Planning

Align Resources with
Population
Requirements

Station

IP-7

Streamline
Access to Care
IP 10

Integrate Direct
and Network Care

Market the Army

Healthcare System
IP- 9
IP- 14

Maintain a Reliable
Facility and
Installation
Infrastructure

IP-11

IP- 12
IP- 8

Achieve Fiscal
Responsibility

Eliminate the
Hassle Factor
C-10

IP - 5

IP- 3

Enable Mission
Readiness

Beneficiary/DoD/Army
Financial

Manage the Care of the Soldier and the Military Family

Leverage Science
& Technology

Learning

Lower Army’s medically
related costs F-1

Deploy a Trained and Equipped Medical Force that Supports Army Transformation

Provide State of the Art
Health Risk Assessments
and Countermeasures

Resources

DoD/Army/Soldiers

Focus on Our Customers / Sound Business Practices

Recruit & Retain a
Quality AMEDD Force

Develop
Leaders
L-3

L1

Predict and Secure Levels
of Funding Required

Train the Medical
Force
L-4

Implement Clinical
and Business Best
Practices
IP- 15

Leverage Information
Management and
Information Technology

Operate Within Budget
F-4

F-5

L-2


Financial

Internal

Mission/ Customer

Goal 1: Project and Sustain a Healthy and Medically Protected Force
Strategic Theme:

Objective Statement

Healthy Soldiers
C-1

C-1 Improve and sustain the general health
of soldiers to ensure medically-ready
deployable forces.

Protected From
Disease and Injury
C-2

Provide State of the Art
Health Risk
Assessments and
Countermeasures
IP-1

Monitor Medical
Threats and the Fitness
of the Force
IP-2

Lower Army’s

Medically Related
Costs
F-1

C-2 Sustain the health and fitness of the
deployed forces, preventing casualties from
disease, injuries, and stress reactions.

Measures
C-1 Percent of units reporting medical readiness.

C-2 Number of Man-Years Lost Due to Disease,
Injury, Stress Reactions.

IP-1 Enhance health and performance
through strategies, tools, products and
other countermeasures to reduce risks of
disease, non-battle injury, chemical and
biological warfare casualties, and stress
reactions. Promote the use and assess
the effectiveness of these
countermeasures throughout their life
cycle.
IP-2 Improve monitoring and reporting on
demand the medical risk assessments and
the health status of units and individuals.

IP-1 Percent of threats (Infectious Disease,
chemical and biological warfare) on the validated,
prioritized threat lists for which effective

countermeasures are available to deployable and
deployed forces .

F-1 Identify, Target & Reduce the Army’s
Medically-Related Costs and Increase
Return to Duty Rates Through Improved
Management

F-1a Number of injury/illness driven claims (Rate
per 100 employees);

IP-2 Percent of requested medical threat/risk
assessments and health status reports delivered
electronically on demand to operational
commanders and their staffs.

F-1b Cost of injury/illness driven claims.

©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

17


Several Different Types of “Balanced Scorecards”
Have Emerged in Practice

Strategy
Card

Stakeholder

Card

©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

KPI
Card

18


A KPI Scorecard: The Four “P’s”
•

Profits

•

Portfolio (loan volume)

•

Process (ISO certification)

•

People (diversity)

©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

19

What’s missing from the 4P’s KPI scorecard?
•

Where are the customers?

•

What is the value proposition?

•

How does ISO certification lead to increases in loan
volume?

•

How does a more diverse work force lead to ISO
certification?

•

Is there no role for information technology?

•

Is innovation not important?
©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

20


A Good Balanced Scorecard Tells the Story of
Your Strategy

•

Every measure is part of a chain of cause and effect
linkages

•

All measures eventually link to organizational outcomes

•

A balance exists between outcome measures (financial,
customer) and performance drivers (value proposition,
internal processes, learning & growth)

©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

21


The Principles of a Strategy-Focused Organization
TRANSLATE
STRATEGY
•

•
•
•
•

EXECUTIVE
LEADERSHIP

Mission / Vision
Strategy Maps
Balanced Scorecard
Targets
Initiatives

BALANCED
SCORECARD

•
•
•
•
•

ORGANIZATION
ALIGNMENT
•
•
•
•

CEO Sponsorship
Executive Team Engaged
“New Way of Managing”
Accountable for Strategy
A Performance Culture
CONTINUAL
PROCESS

Corporate Role
Corporate - SBU
SBU - Shared Services
External Partners

EVERYONE’S
JOB

•
•
•
•
•

Linked to Budgeting
Linked to Ops. Mgmt.
Management Meetings
Feedback System
Learning Process

• Strategic Awareness
• Goal Alignment

• Linked Incentives
©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

22


Principles of the Strategy-Focused Organization:
LINK AND ALIGN THE ORGANIZATION AROUND ITS
STRATEGY
#3.
#1.

Each Support Unit develops a
plan and BSC for “best
practice” sharing to create
synergies across SBUs.

A Corporate Scorecard defines
overall strategic priorities.

CORPORATE

LINE BUSINESSES

CORPORATE SCORECARD
(Shared Strategic Agenda)
Themes

Measures

SBU
A

SBU
B

SBU
C

SUPPORT UNITS

EXTERNAL PARTNERS

SBU
D

1. Financial Growth

xxx

•

Finance

2. Delight the Consumer

xxx

•

Marketing

•

Customer Scorecards

3. Win-Win Relationships

xxx

•

Distribution

•

Distributor Scorecard

4. Safe & Reliable

xxx

•

Procurement

•

Joint Venture Scorecard

5. Competitive Supplier

xxx

•

Purchasing

•

Vendor Scorecard

6. Good Neighbor

xxx

•

Safety

•

New Venture Scorecard

7. Motivated & Prepared

xxx

•

Human Resources

•

Outsourcer Scorecard

8. Quality

xxx

•

Information Technology

xx

xx

xx

xx

#2.

#4.

Each SBU develops a
long-range plan and BSC
consistent with corporate
strategic agenda.

Plans and BSC’s define
relationships with external
partners consistent with
SBU strategy.

Strategies Are Executed Through Business Units. The Strategies of the Business
Units Must Be Integrated If Organization Purpose and Synergies Are to Be Achieved.
©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

23


Principles of the Strategy-Focused Organization:
LINK AND ALIGN THE ORGANIZATION AROUND ITS
STRATEGY
#3.
#1.

Each Support Unit develops a
plan and BSC for “best
practice” sharing to create
synergies across SBUs.

A Corporate Scorecard defines
overall strategic priorities.

CORPORATE

LINE BUSINESSES

CORPORATE SCORECARD
(Shared Strategic Agenda)
Themes

Measures

SBU
A

SBU
B

SBU
C

SUPPORT UNITS

EXTERNAL PARTNERS

SBU
D

1. Financial Growth

xxx

•

Finance

2. Delight the Consumer

xxx

•

Marketing

•

Customer Scorecards

3. Win-Win Relationships

xxx

•

Distribution

•

Distributor Scorecard

4. Safe & Reliable

xxx

•

Procurement

•

Joint Venture Scorecard

5. Competitive Supplier

xxx

•

Purchasing

•

Vendor Scorecard

6. Good Neighbor

xxx

•

Safety

•

New Venture Scorecard

7. Motivated & Prepared

xxx

•

Human Resources

•

Outsourcer Scorecard

8. Quality

xxx

•

Information Technology

xx

xx

xx

xx

#2.

#4.

Each SBU develops a
long-range plan and BSC
consistent with corporate
strategic agenda.

Plans and BSC’s define
relationships with external
partners consistent with
SBU strategy.

©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

24


Washington State: The
Salmon Recovery Problem

•
•

Endangered Species Listing of 18 Species
Federal Approval of Recovery Plans -- or
– no government or private entity make “take” any salmon - - thus
– forestry, agriculture, hydro power production, transportation
improvements and land use changes stopped or curtailed
– i.e.. A train wreck

•

Fractured governance
– six states, another country (Canada) and 27 Indian tribes
– eight US agencies, 12 state agencies, 39 counties, 277 cities
– 300 water and sewer districts, 170 local water suppliers
©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved.

25