an introduction to balanced socrecard

8/8/2019 An Introduction to Balanced Socrecard

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Balanced ScorecardIntroduction

Overview & Examples


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The BSC concept


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- 3 -

Measurement Motivates Behaviour

What youmeasure is what

you get

What youmeasure is what

you get

Its not whatyou

expect its

what youinspect

Its not whatyou

expect its

what youinspect

If you canmeasure it, youcan manage it

If you canmeasure it, youcan manage it

The Balanced Scorecards (BSC) fundamental premise isthat measurement motivates behaviour


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The scorecard differs substantially from traditionalmeasurement approaches

The BSCs focus is on factors which create long-term economic value in anorganisation, for example:

Customer focus.

Organisational learning.

Business processes.

Traditional accounting measures are by definition backward looking:

Financial measures only reflect the results of actions already taken.

Do not provide an indication of future financial performance.

Do not indicate desired performance.

Do not provide a basis for planning and target setting.


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Criteria For A Good Balanced ScorecardCriteria For A Good Balanced Scorecard

A Good Balanced Scorecard will Tell the story of yourstrategy

Cause and Effect Relationships:

Every measure should be part of a cause and effectchain to determine if the measures correctly representsand drives the strategy.

Linked to Financials:

Every measure selected should ultimately DrivePerformance.

Focus on factors that create long-term value.

A balance of lead and lag indicators:

Measures that Create Change:

Measures must cause the organisation to change itsbehaviour in some way.

Cause and Effect Relationships:

Every measure should be part of a cause and effectchain to determine if the measures correctly representsand drives the strategy.

Linked to Financials:

Every measure selected should ultimately DrivePerformance.

Focus on factors that create long-term value.

A balance of lead and lag indicators:

Measures that Create Change:

Measures must cause the organisation to change itsbehaviour in some way.

CompanyStrategy

As-Is

Vision


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Clarifying andTranslating the

Vision andStrategy

Clarifying andTranslating the

Vision andStrategy

StrategicFeedback and

Learning

StrategicFeedback and

Learning

Planning and

Target Setting

Planning and

Target Setting

Communicationand Linking

Communicationand Linking

Feedback system used to test thehypotheses on which strategy is based.

Strategy development is a continuousprocess.

Stretch targets are agreed.

Investments are determined by the strategy.

Annual budgets are linked to long-range plans.

Goal alignment exists fromtop to bottom.

Open communication ofstrategy is basis foremployee empowerment

BalancedScoreboard

The Balanced Scoreboard creates a strategic frameworkfor action

The strategy is the reference point for theentire management process.

The shared vision is the foundation forstrategic learning.


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The Balanced Scorecard translates vision and strategy intofour dimensions of performance

When we achieve our vision,how will our organisation learn

and grow ?

When we achieve our vision,how will we look to our business

partners ?

When we achieve our vision,how will our internal business

processes operate ?

When we achieve our vision,how will we look to our

shareholders ?

VisionVision

Customers and Partners

Financial/Shareholder

Internal Processes

Learning and Innovation


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For each of the four dimensions, objectives, measures andtargets are explicitly defined

Financial / Shareholder

Objectives Measures Targets



Internal Processes




VisionVision


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The linkage between the four dimensions is crucial inensuring long-term success

Financial Client satisfaction, efficient and

effective delivery of services willdeliver financial results.

Excellent processes and people

will deliver client satisfaction.

Good people in efficientprocesses support effectiveness.

You need good people, peopleprocesses and structure toachieve high performance.

Shareholder

Value

ShareholderValue

Partners /

Customers

InternalProcesses

Learning &Growth


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Alignment through the organisation will be achieved bycascading the scorecard

High LevelScorecard

Business Unit orDepartmentalScorecards

IndividualScorecards

Shareholder / Parent /

Requirements

Financial

Customers& Partners

InternalProcessesVision

Learning& Innovation

Financial

Customers& Partners

InternalProcesses

Vision


Financial

Customers& Partners

InternalProcesses

Vision


Financial

Customers& Partners

InternalProcesses

Vision



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When implemented well, the benefits of BalancedScorecard can be significant

Senior executives are focused and aligned around a smallnumber of critical objectives and success measures.

A simple, single management report makes progresstowards financial, customer, internal processes and learning

objectives clearly visible.

The Plan-Do-Review principle establishes clearaccountability for achieving objectives, for success andfailure

The BSC implementation establishes a strategic feedback /monitoring system that drives actions to excel in criticalperformance indicators

FocusFocus

BalancedPerformance

BalancedPerformance

AccountabilityAccountability

ContinuousImprovement

ContinuousImprovement


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The BSC Process


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Balanced Scorecard design is only a component of theoverall process

Scorecard Design Scorecard Implementation / Roll-out

StrategicIntent

Develop& finalise

Objectives

Develop &finalise

Measures

Determinebaselines

and settargets

Incorporatescorecard

review as keyitem in

businessmanagement

meetings

Managebusiness

according toscorecard

Review/refine score-

card on aregular basis

in conjunc-tion withstrategyreviewprocess

Align/planinitiatives


Develop andimplement

BU andsection

scorecards

Ensurescorecardalignment

Review &refine on

an ongoingbasis

Manage BU,section etc.according

toscorecard

format

Feedback to high level scorecard toensure alignment

Corporate/Shareholder

input where relevant

Communicate Scorecard to organisation

Cascade scorecard to individual level.To ensure individual focus and

alignment.Balanced Scorecard

Business ManagementProcess


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The Business Management Process (BMP) implements theBalanced Scorecard in a Plan-Do-Review Cycle

Link to Higher Level BSC

FinancialFinancial

Learningand

Innovation

Learningand

Innovation

InternalProcesses

InternalProcesses

Customersand

Partners

Customersand

Partners

Measures

Targets

Objectives

Link to Lower Level BSC

Link to Higher Level BMP / Report

Link to Lower Level BMP / Report

Review

BSC

ReviewBSC

Take Action: Initiatives

Plans

Budgets

Measure Actualsagainst Targets

Compile Report Target

Plan-Do-Reviewsession

Determine RootCauses for Variances

Define ActionSteps

PDR SessionPDR Session


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What makes a good Objective orMeasure


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We need to have clear and communicated definitions of theBSC components

Objective: Statement that defines what we must do to achieve the vision.

Linked to our strategy.

Measure:

A numeric indicator that will indicate successful achievement of the objective.

Lead indicator Indicates the likelihood of change (forward looking). Lag indicator Indicate that change has occurred (backward looking).

Target:

Value of the measure that we would like to achieve in a given time frame.

Must be achievable.


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PerspectivePerspective

A Good Balanced Scorecard includes objectives,measurements and targets that promote changeExample:

FinancialFinancial

CustomerCustomer

InternalInternal

LearningLearning

BusinessObjectives

Business

Objectives Shareholder value

Profit

New revenue

Differentiation

Strategic alliances

Customer service

Productivity

New product development Segmentation

People policy

Alliance management

Customer focus

MeasurementsMeasurements

% dividend growth

Operating Margin

Revenue from newservices

Target market-share

Profits from alliances

Customer satisfaction

Revenue/work hour

Product developmentcycle time

Number of initiativestargeted at profitablesegments

Management span ofcontrol

Number of learningpartnerships

% management timeinterfacing withcustomers

TargetsTargets

CPI + X% annually

Top quartile

25% in three years

Number one

$M in five years

Number one customerrating

Best-in-class within fiveyears

Reduced by 50% in twoyears

60% within one year

Triple in three years

10 in five years

20% in two years

AccountabilitiesAccountabilities

Finance Director CEO Business

DevelopmentManager

Marketing Director Business

DevelopmentManager

Marketing Director

COO Research and

DevelopmentManager

Marketing Director

Human ResourcesDirector

BusinessDevelopmentManager

CEO

. . . and clear accountabilities to ensure ownership.. . . and clear accountabilities to ensure ownership.


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The objectives define what the organisation must do toachieve the vision

Description of a good objective:

Linked to, and descriptive of a component of the vision/strategy.

Relevant to what the organisation wants to achieve.

Action orientated:

Start statement with a verb.

Measurable:

there must be a manner in which we can determine success in achieving the objective:

Clear and concise.

Understandable to the whole organisation.

Must be able to assign overall accountability to a single person.


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Measures must be the key indicators that registerachievement of the objective

The SMART criteria defines a good measure:

SS imple relatively easy to access, collate and calculate.

MM easurable e.g: number of hours worked, lines installed, etc.

AA actionable ability to take action on variances to plan.

RR elevant ability to influence that which is being measured.

TT imeous must be determined/measured as frequently aspossible, or when relevant.

the longer the delay in measuring the less the chance toallow timeous/appropriate action.


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Targets must be set for each measure, and define goals forthe organisation to achieve

Criteria for a good target:

Must be achievable.

Provide some stretch for the organisation.

Set for a good fixed time period.

Determine intermediate values, to evaluate progress.

Aligned with what the organisation wants to achieve.

Supported by and have buy-in of the executive team.

The objectives, measures, targets and accountabilities need to be defined at alllevels of the organisation.

The objectives, measures, targets and accountabilities need to be defined at alllevels of the organisation.


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Priority: Effectively Manage Value Adding Processes

Priority: Effectively Manage Value Adding Processes

Formula: Weighted ranking of total unit cost of production + plant

reliability index + total staffing index + computerised

instrumentation index + total maintenance + sustainingcapital index.

Formula: Weighted ranking of total unit cost of production + plant

reliability index + total staffing index + computerised

instrumentation index + total maintenance + sustainingcapital index.

Source:

Site Leadership

Source:

Site Leadership

For each objective and measure we will develop a precisedefinition . . .

Measure:Cost excellence rating

Measure:Cost excellence rating

Formula Notes: A weighted index that gives a quartile performance cost

excellence position. Weightings to reflect their importance to

each business. Categories are 1st to 4th quartile Rankings, as defined by external consultants at least every

other year, but done yearly A comparative group is defined Formula to be defined by type of plant relevant to their

business need and value proposition. Weightings may shiftover time.

Formula Notes: A weighted index that gives a quartile performance cost

excellence position. Weightings to reflect their importance to

each business. Categories are 1st to 4th quartile Rankings, as defined by external consultants at least every

other year, but done yearly A comparative group is defined Formula to be defined by type of plant relevant to their

business need and value proposition. Weightings may shiftover time.

Update Frequency:

Annual

Update Frequency:

Annual

Action to Implement: Use blend of industry studies (e.g., Solomon, Mastio, Chem Systems, Townsend), and analysis of one-on-one comparisons vs.

leaders. May also use simplified benchmarks and models, as appropriate.

Action to Implement: Use blend of industry studies (e.g., Solomon, Mastio, Chem Systems, Townsend), and analysis of one-on-one comparisons vs.

leaders. May also use simplified benchmarks and models, as appropriate.

Effectively Manage Value Adding Processes:Be the low cost provider of products and services by achieving competitive excellence in all our business processes.Effectively Manage Value Adding Processes:Be the low cost provider of products and services by achieving competitive excellence in all our business processes.

EXAMPLE

Objective:


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Perspective: Internal processesMeasure: Cost excellence rating

Perspective: Internal processesMeasure: Cost excellence rating

. . . and an approach to setting targets

Effectively Manage Value Adding Processes:Be the low cost provider of products and services by achieving competitive excellence in all our business processes.

Effectively Manage Value Adding Processes:Be the low cost provider of products and services by achieving competitive excellence in all our business processes.

Objective:

Frequency of Meaningful UpdateMonthly

AnnuallyQuarterly

Frequency of Meaningful UpdateMonthly

AnnuallyQuarterly

Measurement definition/formula (See also Measurement Profile):

Weighted ranking of total unit cost of production + plant reliability index + total staffing index + computerised instrumentation index +total maintenance + sustaining capital index.

Measurement definition/formula (See also Measurement Profile):Weighted ranking of total unit cost of production + plant reliability index + total staffing index + computerised instrumentation index +total maintenance + sustaining capital index.

Approach to setting targets and/or developing measure [If targets exist, identify source]:Target is to be top quartile. Sites (types of plants) will need to select the key variables, weight them, and choose a suitable externalbenchmarking methodology. Recommendations need to be agreed by business teams and leadership team

Approach to setting targets and/or developing measure [If targets exist, identify source]:Target is to be top quartile. Sites (types of plants) will need to select the key variables, weight them, and choose a suitable externalbenchmarking methodology. Recommendations need to be agreed by business teams and leadership team

Target setting responsibility:Manufacturing leadership/SBU

Target setting responsibility:Manufacturing leadership/SBU

Accountability for results:Manufacturing leadership

Accountability for results:Manufacturing leadership

Tracking/reportingresponsibility:Site leadership

Tracking/reportingresponsibility:Site leadership

Completion date:1995 (some could be ready byJanuary)

Completion date:1995 (some could be ready byJanuary)

Linkage to Businesses:Through business teams, aligned with SBU strategy

Linkage to Businesses:Through business teams, aligned with SBU strategy

Linkage to BT Streams / Initiatives:ManufacturingCapital investment excellenceSupply chain

Linkage to BT Streams / Initiatives:ManufacturingCapital investment excellenceSupply chain

EXAMPLE


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Example Objectives and Measures


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Generally, BSC objectives focus around key themes in eachof the four areas

Financial/ShareholderThemes

Shareholder value.

ROI.

Profitability.

Turnover/Revenue.

Learning & InnovationThemes

Attract, retain and motivate

employees. Clarify and communicate Roles

and Responsibility.

Building skills.

Manage resources (leadership).

Knowledge management.

Internal Process Themes

Low costs. Production efficiency. Quality:

ISO compliance.

Safety. Production volume. Environment. Process effectiveness.

Customers & PartnersThemes

Retention.

Satisfaction.

Value-added to customers.

VisionVision


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The Balanced Scorecard should contain a balance of lead and lagindicators

F1 Meet shareholderexpectations

F2 Improve operating performanceF3 Achieve profitable growth

Return on Equity Combined Ratio Business Mix

C1 Improve agency performance

C2 Satisfy target policyholders

Acquisition/Retention

(vs. plan) Acquisition/Retention

(by segment)

Agency Performance

(vs. plan)

Policyholder Satisfaction Survey

I1 Develop target markets

I2 Underwrite profitablyI3 Align Claims with business

I4 Improved productivity

Business Mix (by segment)

Loss Ratio Claims Frequency Claims Severity Expense Ratio

Business Development

(vs. plan) Underwriting Quality Audit Claims Quality Audit

Headcount Movement

Managed Spending Movement

L1 Upgrade staff competencies

L2 Access to strategic information

Staff Productivity Staff Development (vs. plan) Strategic I/T Availability

(vs. plan)

Objectives

Measures

Lead Indicators(Performance Drivers)

Lag Indicators(Core Outcome Measures)

Learning

Internal

Custo

mer

Financial


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AREAPRODUCTION

MANAGER

DIRECTOR

ZONEMANAGER

TEAM LEADER

Sample Targetfor Specific

Time Window

From To

21

hours

19

hours

Reduce area

cycle time from

22 to 8 days

Reduce overall

cycle time from

73 to 28 days

StrategicBusinessObjective

Reduce zone

cycle time from

7 to 3 days

Reduce team

cycle time from

30 to 11 hours

5.1

days

4.6

days

17

days

15

days

48

days

44

days

Top-Downand Bottom-Up

LinkedPLAN

ACTUAL

Quarterly Time Window Target

PLAN

ACTUAL


PLAN

ACTUAL


PLAN

ACTUAL


Objectives, measures and targets at each level have to bealigned top-down and bottom-up

Example: CarManufacturerExample: CarManufacturer Reduce overall

cycle time from

73 to 28 days


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Measures should be cascaded as with this railway utility

Managing Director

Functional Managers

Area Managers

Department Managers

Section Managers

Work Group,Supervisors and Staff

Business objective:92% of trains to

arrive within 5minutes of published

time

PunctualityPunctuality

% leave ontime

% leave ontime

Maintainschedule

Maintainschedule

Crewavailable

Crewavailable

% trainsavailable

% trainsavailable

Trains inwrong

location

Trains inwrong

location

Trainsrejected byoperations

Trainsrejected byoperations

% trainsavailable

right formed

% trainsavailable

right formed

% trainsoperational

% trainsoperational

% trainspending

wheel sets

% trainspending

wheel sets

% wheel setsto plan

% wheel setsto plan

Wheel lathedowntime

Wheel lathedowntime


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Example BSC : TelcoSupp.

T l S i i i t b th t f l l l


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Client Key Issues

TelcoSupps vision is to be the most successful localtelecommunications solutions provider

Producer and supplier of products inthe telecommunications industry.

Vision is to be the most successfullocally.

Alignment of leadership to meetlong-term goals.

Increasing customer demands.

Th T l S BSC bj ti d i d t


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The TelcoSupps BSC objectives were designed tosupport the Vision


Deliver sustainable growth inprofitability.

Maximise shareholder value.

Ensure financial independence byfunding future growth andinitiatives internally.

Organisational Learning

Attract and retain appropriateskills.

Develop a learning culture.

Communicate effectively.

Apply employment equityprincipals.

Empower our employees.

Develop a company team spirit.

Define, communicate and live thevalues.

Internal

Be the industry benchmark by anymeasure.

Invest in the right projects toensure our future

Become a centre of competence.

Develop a balanced relationshipwith the parent company.

Business Partners

Customer:

Increase market share.

Broaden customer base.

Improve service quality to exceedcustomer expectations.

Build long term customerpartnerships.

Alliances:

Pursue alliances to enable us in ourmarket

Suppliers:

Build long term supplier relationships

Community:

Actively support Southern Africandevelopment

A measurement system will assess progress towards the objectives.A measurement system will assess progress towards the objectives.

VisionVision


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Benefits Concerns

Comments on TelcoSupps BSC

Cascaded into the organisation tocreate focus.

Parent company has adopted BSCconcept and suggested BSCdevelopment and implementation forother divisions.

Strong business partner andorganisational learning focus.

High number of objectives (21).

Accountabilities rest with a fewindividuals.

Balanced Scorecard Comments


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TelcoSupps BSC measures and accountabilities

Objectives

Financial

Deliver sustainablegrowth in profitability

Maximise shareholdervalue.

Agreed Measure(s)

Operative profit on turnover.

ROCE.

EVA.

Ensure financialindependence by fundingfuture growth andinitiatives internally.

Cash flow

Accountability

Financial Director

Financial Director

Financial Director

Business Partners

Objectives Market Share Index (aggregate segments)

Customers supplier evaluations. Customer surveys (includes a preferred supplier assessment.)

Number of customers contributing >5% of turnover over totalcustomers

Increase market share.

Broaden customer base.

Improve service quality toexceed customer expectations.

Build long term customerpartnerships.

Pursue strategic alliances toenable us in our market.

Actively support SouthernAfrican development.

Market share in specific business segments (as measured inthe Market Share Index)

Value of business via Black Economic Empowermentcompanies.

IPP credits.

% purchase volume via frame agreements Build long term supplierrelationships

Agreed MeasureMarketing Director

Marketing Director

Marketing Director

Marketing Director

Financial Director

Financial Director

Accountability

Customers

Allian-

ce

s

Supp-

liers

Comm-

uniry

TelcoSupps BSC measures and accountabilities


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TelcoSupps BSC measures and accountabilities(cont.)

Internal

Be the industry benchmark byany measure.

Become a Centre of Competence.

Develop a balanced relationshipwith the parent company.

Objectives

Refer to Quality Measurement System.

Number of significant centres of competence.

Proportion of own business versus commission business

Invest in the right projects toensure our future

Net present value of all project business cases to beimplemented

Agreed Measure

Operations Director

CEO

CEO

Executive Accountability

Marketing DirectorOrganisational Learning

Objectives Staff turnover

Number of unfilled positions

Training and education expenditure as % of payroll.


Attract and retain appropriateskills.

Develop a learning culture.

Communicate effectively.

Apply employment equity

principals.


Develop a Siemens team spirit.

Define, communicate & live thevalues.

% Black staff penetration.

% Black and gender representivity.

Agreed Measure




HR Director

HR Director

HR Director

HR Director

HR Director

HR Director

HR Director

Executive Accountability


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Example BSC : ChemCo

ChemCo needed a strategy to manage a diverse portfolio in


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Client Key Issues

ChemCo needed a strategy to manage a diverse portfolio ina highly cyclical market

Manufacturer of petrochemicals:

Polymers and monomers for use asindustrial feedstocks

Primarily commodity products

Approximately 6000 employees

One year into a two year BusinessTransformation project

Highly cyclical market.

Wide variety of product and customertypes within the portfolio.

Major leadership change underway.

ChemCo's Balanced Scorecard translated the firms


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Shareholder

Customer

InternalProcesses

Society

EmployeeLearning &Growth

Develop aLearning

Organisation

Develop aLearning

Organisation

Focus onMargin

Enhancement

Focus onMargin

Enhancement

Strive toContinuous

Enhancement

Strive toContinuous

Enhancement Manage ValueAdding Process

Effectively

Manage ValueAdding Process

Effectively

ChampionResponsible

Care

ChampionResponsible

Care

Foster ProductStewardship

Foster ProductStewardship

DemonstrateCommunityLeadership

DemonstrateCommunityLeadership

ProvideCustomer

Value

ProvideCustomer

ValueDevelop Total

BusinessRelationships

Develop TotalBusiness

Relationships

Build FinancialStrength

Build FinancialStrength

AchieveProfitableGrowth

AchieveProfitable

Growth

DeliverResults to

Shareholder

DeliverResults to

Shareholder

Create aClimate for

Results

Create aClimate for

Results

ChemCo s Balanced Scorecard translated the firm sstrategy into strategic objectives across five perspectives


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Benefits Concerns

Comments on ChemCos BSC

Defined linkages to ultimately provideshareholder returns.

Introduced society dimension toindicate community responsibility.

Reduce focus to thirteen keyobjectives.


Broad and generic objectives andmeasures:

Not specific to the organisation.

Could apply to other companies.

The objectives were translated into into a set of key


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Employee Learning & Growth Perspective

Society Perspective

Internal Processes Perspective

Shareholder Perspective

Customer Perspective

The objectives were translated into into a set of keystrategic measures

Provide superior value to our customers by supplying them with products and services that

meet their needs (total value package). Form relationships with customers which allow us to fully understand and address their needs.

C1 Provide Customer Value

C2 Develop Total Business

Relationships

SH1 Deliver Results toShareholders

SH2 Build Financial Strength

SH3 Achieve Profitable Growth

DefinitionStrategic Priority

Develop and use our leadership to empower and gain commitment from all employees thusachieving exceptional business results.

Improve our skills and knowledge by developing people and adapting best practices found withinChemCo and from external sources to realise all of our priorities.

Be a leader in our industry by our achievements in safety, health, env ironment and riskmanagement.

Qualify as an industry leader by developing mutually supportive relationships with thecommunities in which we conduct business.

Integrate health, safety, environment, economic, and ethical considerations at every stage in thelife cycle of our products.

Effectively manage the selection of customers and product offerings (including technology &

service) so as to maximise margins.

Be the low cost provider of products and services by achieving competitive excellence in all our

business processes.

Continuously seek ways to improve and simplify ChemCos processes to achieve our strategic

business objectives.

Manage our businesses to achieve the returns expec ted by shareholders.

Manage our business so that we are cash positive and able to meet capital funding requirementsto sustain ChemCo through the business cycle.

Achieve increased size in our business to provide increased value to shareholders.

E1 Create a Climate forResults

E2 Develop a LearningOrganisation

S1 Champion ResponsibleCare

S2 Demonstrate CommunityLeadership

S3 Foster ProductStewardship

I1 Focus on Margin

Enhancement

I2 Effectively Manage Value

Adding Processes

I3 Strive for Continuous

Enhancement

Shareholder

Customer

InternalProcesses

Society

Employee

Learningand Growth

t Customer satisfaction index

t Retention of targeted customers

Measurest Leadership effectiveness

survey rating

communicationst Employee satisfactiont Best practices identifiedt Employee contribution

t Safety,health, environment & riskresults.

t Community opinion rating

t Product stewardship participation

tContribution margin

t Cash flow cycle time

t Cost excellence rating

t Fixed cost productivity

t Product development cycle time

t Business Transformation/SAP

benefits

t Return on capital employedt Economic value addedt Net cash flow

t Total revenue


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Example BSC: ManCo


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Client Key Issue

ManCo required a tool to focus and align the organisation

Large petrochemical manufacturer.

BSC was a component of a large twoyear transformation project.

Significant cost reduction required tomaintain profitability.

Need to focus and align theorganisation.

Accountability and targets are seen as key components of


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y g y pManCos BSC

Shareholder / Financial Customer

Growth / Learning Internal Processes

KPI (Area) A Target Comments

Return on NetAssets

PBIT/ Netassets (Qtr)

Profit after tax

Cash flow4 -12 monthsprojection(Mth)

Unit cost


Customersatisfaction

index

%Conformanceto agreedoffering percustomer.

(Qtr)

Product MixOptimisation


Value createdby ProjectPortfolio

NPV ofnew anddevelopingprojects at 22%discount rate(WACC) vs

target NPV (Qtr)

Corecompetencies

Taken off untila suitablemeasure isdefined

KPI (Area) A Target CommentsProcess efficiency

Environment Index: releases,resourceconsumptions, re-mediation &

compliance (Mth)

Safety and Health

Production Value(Mth)

DIIR includingoccupational diseases

Total Cost perton of product(Mth)

% Adherenceto Target Mix(Mth)

Ton marketableproduct per gigajoule(Mth)

Actual vstarget (Mth)

PeopleKPI (Area) A Target Comments

Employeesatisfaction /climate window

AffirmativeAction

Index : Leadership values,Jobsatisfaction and DevelopmentProductivity (Qtr)

AA spectrum % (Qtr)

Production

Technical Integrity Index: to be defined

Note: Accountabilities and targets not shown to maintain client confidentiality.


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Benefits Concerns

Comments on ManCos BSC

Significant management buy-in anduse of the BSC.

Two years after introduction the BSCremain the key focus/management

tool for the executive committee.

People dimension added to indicatea key focus area.

BSC focused on measures notobjectives.

After two years, executives considerfifteen objectives/measures too many

to focus on simultaneously.



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Example BSC: OilCo


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Client Key Issue

OilCo need to address internal soft issues

Significant player in the downstreamoil business.

Successful organisation looking tomaintain and grow position.

Low employee moral and lack ofconfidence in leadership.

Lack of understanding oforganisations vision and strategy.

Growth in market place.


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VisionVision

BSC of a large downstream Oil Company

Financial / Shareholder Objectives

Customers and Partners Objectives Internal Processes Objectives

Learning and Innovation Objectives

Maximise shareholder value.

Real growth in operating profit with a longterm objective of 10%.

Keep unit cost increase below inflation.

Increase Market Share

Add significant value to customers.

Ensure clear roles, responsibilities and

accountabilities for all our people. Mobilise the organisation towards the

vision.

Ensure strategic advantage through IT.

Ensure effective performance management.

Increase diversity in the workforce.


Stimulate creativity and innovate.


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Benefits Concerns

Comments on OilCos BSC

Half the objectives focus on softissues, to address current internalissues.

Reduced number of objectives to

allow for greater focus.

No objective to determine/focus oninternal efficiencies.


OilCo designs measures and assigned accountability for all


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their objectives


Objective Measures Accountable

Person

Ensure effective performancemanagement

1) Employees with development plans (lead)2) Level of acceptance of merit appraisal system (lag)3) Percentage of employees receiving quarterly

performance reviews (lead)4) Level of belief that performance drives reward and

recognition (lag)

HR Director

Increase diversity in theworkforce

1) Staff mix (lag)

2) Diversity awareness / attitude (lag)

CEO

Empower our employees 1) Employee belief that they are empowered (lag) Operations Director

Stimulate creativity andinnovate

1) Number of new ideas (lag)

2) Financial impact of new value - adding ideas (lag)Technology Director

Increase market share. 1) Market share (lag) Strategy director

Add significant value tocustomers

1) Number of value adding plans for top 20% of customers(lead)

2) Customer belief that OilCo adds value to them (lag)

Marketing director


Objective Measures Accountable Person

OilCo designs measures and assigned accountability for allth i bj ti


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their objectives

Internal Processes

Ensure clear roles, responsibilities andaccountabilities for all ourpeople

1) Percentage of employees with agreed performance charters (lead)2) Degree to which employees believe that their roles, responsibilities and

accountabilitiesare clearly defined (lag)

Operations director

Mobilise the organisation towards thevision

1) Percentage of employees who attended a Vision / Mission roll-out session(lead)

2) Percentage of monthly business meetings where Vision / Mission is a fixedagenda item and is discussed (lead)

3) Employee belief that OilCo is adhering to its stated value system (lag)

4) Percentage of employees responding Yes to vision / mission understanding

and acceptance (lag)

HR director

Ensure strategic advantagethrough IT

1) Return on total cost of ownership as an investment indicator(lag)

IT director




Maximise shareholder value 1) E.V.A. CEO

Real growth in operating profit witha long term objective of 10%

CEO

Keep unit cost increase belowinflation

1) Increase in unit cost / vs. CPI. CFO

1) Real annual growth in operating profit


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Example BSC: Aluminum Smelter

Aluminium Smelter introduced a BSC concept to monitorth f th i STAR j t


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Client Key Issue

the progress of their STAR project

International Aluminium Smelter.

BSC development was part of animprovement project.

Need to demonstrate financialperformance to attract furtherinvestment:

Investment required for incremental expansion.

No investment would force the Smelter to close ineight years time.

The management team BSC is displayed in a dashboardf t


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format

Performance ofRetrofitted

pots

Performance ofRetrofitted

pots

Netshareholder

value

Netshareholder

value

PerformanceagainstSTAR

deliverables

PerformanceagainstSTAR

deliverables

Potlineinternal

envt

Potlineinternal

envt

Product/process

devt

Product/process

devt

ProfitProfit

Rateof

return

Rateof

return

Unit cost(addedvalues)

Unit cost(addedvalues)

Accidentrate

Accidentrate

CurrentefficiencyCurrent

efficiency

External

environmentalindex.

Environmentalpermitexceedances.

Sickness rate.

Potline output.

Saleable output.

Comments on Aluminium Smelters BSC


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Benefits Concerns

Comments on Aluminium Smelters BSC

The dashboard format indicatesimportance of each measure:

Large indicators represent key measures.

Small indicators represent secondary measures.

Bullet points indicate warning lights.

Notice only when warning light flashes.

Focus on few key themes.

Significant detail was developed foreach theme.

Lack of balance in the scorecard:

Little focus on customers and innovation andlearning.

Little need for customer focus as most productsold to shareholder.

Focus on financial measures, as these are key forlong term survival.



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Lessons Learned

The BSC must be driven from the top


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The BSC must be driven from the top

Leadership/management long-term buy-in and commitment to the BalancedScorecard process is critical to ensuring success.

The scorecard needs to be a living document:

Modified/reviewed in line with business/environmental changes.

Scorecard modification/review in conjunction with a strategic review process.

Agree on a final limited set of key objectives: Too many objectives will de-focus the organisation and spread resources too thinly.

Differentiate between nice-to-have and must have objectives.

Measures must be carefully selected to reflect/determine the objectivescore intent.

Do not develop a system with high running/maintenance costs,i.e. measurement cost outweighs benefit:

Use the 80:20 principle.

The final BSC must focus on the few key objectivesrequired to achieve the strategy


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required to achieve the strategy

Too many objectives:

Confuse & de-focus the organisation. Spread energy to thinly.

Ensure a balance of objectives between the four dimensions .

Clear accountabilities must be assigned for each objective.

Assign only key measures for each objective: As few measures per objective, ideally only one.

Distinguish between critical and nice-to-have measures.

Ensure balance between lead and lag indicators.

Ensure the objective for the high level scorecard are strategic in nature, and

crucials for all departments. Operational or department specific objectives must be moved to departmental scorecards.

Successful BSC development will depend in placing objectivesand measures at the correct level in the BSC structure


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and measures at the correct level in the BSC structure

Most of Hillsides present KPA are departmental measures.Most of Hillsides present KPA are departmental measures.

Financial

Customers& Partners

InternalProcesses

Vision


Financial

Customers& Partners



Financial

Customers& Partners



Financial

Customers& Partners



DepartmentalScorecards

High level or organisation scorecard:

Two factors drive the need for objectives in the high levelBSC


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BSC

Factors driving need for objectives in the high level scorecard

Potential objectives can be assessed against these two dimensions.Potential objectives can be assessed against these two dimensions.

Together theydetermine

requirements forthe objectives in

the high levelscorecard.

The need for strategicintegration

The need foroperational integration

The high level scorecard must focus on strategic issueswhich integrate across several departments


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which integrate across several departments

High

Low

High

Objectives fordepartmentalscorecardsT

heneedsforstrate

gicintegra

tion

The needs for operational integration

Objectivesfor

thehighlevel

scorec

ard

There are many potential pitfalls to successfulimplementation


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implementation

Scorecard Design Scorecard Implementation / Roll-out

StrategicIntent

Develop& finalise

Objectives

Develop &finalise

Measures

Determinebaselines

and settargets

Incorporatescorecard

review as keyitem in

businessmanagement

meetings

Managebusiness


Review/refine score-

card on aregular basis

in conjunc-tion withstrategyreviewprocess

Align/planinitiatives


Communicate Scorecard to organisation

Develop andimplement

BU andsection

scorecards

Ensurescorecardalignment

Review &refine on

an ongoingbasis

Manage BU,section etc.according

toscorecard

format

Cascade scorecard to individual level.To ensure individual focus and

alignment.

Feedback to high level scorecard toensure alignment

Corporate/Shareholderinput where relevant

Inappropriatestrategy

Measures notaligned toobjectives

Targets toosoft or

ambitious

Scorecardnot used as

businessmanagement/

focus tool

Scorecard notcommunicated

Reviewprocess

inadequateor poorly

timed

Pooralignmentbetween

levelsFeedback nottaken intoaccount

Poor BSC design and implementation can lead to amultitude of problems


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PhilosophyProcess

Strategic Intent

multitude of problems

Industry generic, not strategic. Perspectives unintegrated.

What customer values not defined.

Missing internal, operational link.

Levels in organisation not distinguished.

Measurement

Too many measures.

Unrealistic, unrepeatable.

Activities instead of measures.

Misleading.

All financial.

No executive consensus - not top down.

Roll out before completion.

Tie to incentives too quickly.

Too many people, too long.

Lose momentum.

Control, not communication.

Strategic report vs. strategic agenda.

Strategic planning vs. improvisation.

an introduction to balanced socrecard

Documents