New 13 strategy-maps bsc integrative-thinking

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  1. 1. On Strategy Maps and Balanced Scorecard Ziya G. Boyacigiller This presentation was created and given by Ziya Boyacigiller who was leading Angel Investor and a loved mentor to many young entrepreneurs in Turkey. We have shared it on the web for everyones benefit. It is free to use but please cite Ziya Boyacigiller as the source when you use any part of this presentation. For more about Ziya Boyacigillers contributions to the start-up Ecosystem of Turkey, please go to www.ziyaboyacigiller.com
  2. 2. 2 Ziya G. Boyacigiller 2005 Pulling It All Together With Strategy Maps and Balanced Scorecard Ziya G. Boyacgiller Sabanc nversitesi
  3. 3. 3 Ziya G. Boyacigiller 2005 Question: Now What? You get a new job. First thing you do is to apply what you learned in this class to your new company. You create and develop some powerful ideas as to what is wrong, or missing, or needs improvement You develop a vision and a strategy. What would you do next? How would you like the upper management to measure the companys performance? How would you know if you are gaining or losing ground?
  4. 4. 4 Ziya G. Boyacigiller 2005 Focusing question becomes: Which activity do we measure to control the companys performance?
  5. 5. 5 Ziya G. Boyacigiller 2005 In an airplane, reliance on one dial can be fatal that is why pilots need multiple dials in the cockpit.
  6. 6. 6 Ziya G. Boyacigiller 2005 no single measure can provide a clear performance target or focus attention on the critical areas of a business which is a complex system of activities and interacts with external environment
  7. 7. 7 Ziya G. Boyacigiller 2005 that is why we need a Balanced ScoreCard (BSC) BSC shows both: Financial Measures that tell the results of actions already taken, and Operational Measures that are the drivers of future performance (measures such as customer satisfaction, internal processes, innovation & growth activities)
  8. 8. 8 Ziya G. Boyacigiller 2005 A business needs more than an idea If you can define: 1. Who is the customer? 2. What value (benefits/cost) proposition do I have? 3. How do I deliver that value? then, stakeholders will follow you. However, stakeholders will ignore you if you only have an idea, and you cannot define these three...
  9. 9. 9 Ziya G. Boyacigiller 2005 BSC provides answers to 4 essential questions: 1. How do customers see us? (customer perspective) 2. What must we excel at? (internal processes perspective) 3. How can we continue to create and improve value? (innovation and growth perspective) 4. How do we look to stakeholders? (financial/corporate perspective)
  10. 10. 10 Ziya G. Boyacigiller 2005 BSC links Performance Measures Financial / Corporate Perspective GOALS MEASURES Internal Business Perspective GOALS MEASURES Customer Perspective GOALS MEASURES Innovation & Growth Perspective GOALS MEASURES Vision & Strategy How do customers see us? How do stakeholders see us? What must we excel at? How do we continue to create value and grow?
  11. 11. 11 Ziya G. Boyacigiller 2005 Why BSC? (needle in a haystack) It is difficult to focus on strategic objectives (local optimization vs global optimization) It is difficult to identify the conflicting objectives and decide how to proceed It is difficult to know what-to-do and what not- to-do strategic focus It is difficult to communicate strategy convincingly (both up, lateral, and down) It is difficult to execute strategy It is difficult to measure performance (companies rarely suffer from having too few measures. )
  12. 12. 12 Ziya G. Boyacigiller 2005 Customer Perspective: Customers concerns : 1. Time (orderdelivery, or definition market) 2. Quality (fulfill what customers want -- they will know it when they see it) 3. Performance & Service (contribute to customers value generation process) 4. Cost (enable customers to be in business, address total cost)
  13. 13. 13 Ziya G. Boyacigiller 2005 Examples: Producer of very expensive medical equipment: Equipment up time percentage Mean-time response to service calls Computer company wanted to solve customers problems through partnerships Percentage of third-party revenue
  14. 14. 14 Ziya G. Boyacigiller 2005 BSC links Performance Measures Financial / Corporate Perspective GOALS MEASURES Internal Business Perspective GOALS MEASURES Customer Perspective GOALS MEASURES Innovation & Growth Perspective GOALS MEASURES Vision & Strategy How do customers see us? How do stakeholders see us? What must we excel at? How do we continue to create value and grow?
  15. 15. 15 Ziya G. Boyacigiller 2005 Internal Business Perspective: Focus on critical internal processes that will best enable the company to satisfy customer needs. Must have information system (backup data) available to understand root-causes of problems.
  16. 16. 16 Ziya G. Boyacigiller 2005 Examples: HP to measure effectiveness of new product development activities: BET (breakeven time) One company to measure effectiveness of TQM program: Monthly survey of randomly selected employees to see if they are aware of the program, had it changed their behavior, believed it worked, etc.
  17. 17. 17 Ziya G. Boyacigiller 2005 BSC links Performance Measures Financial / Corporate Perspective GOALS MEASURES Internal Business Perspective GOALS MEASURES Customer Perspective GOALS MEASURES Innovation & Growth Perspective GOALS MEASURES Vision & Strategy How do customers see us? How do stakeholders see us? What must we excel at? How do we continue to create value and grow?
  18. 18. 18 Ziya G. Boyacigiller 2005 Innovation & Growth Perspective: Growth and Innovation improve shareholder value the most, make the company most competitive in time. Growth comes from more customers Innovation results in improved profits Organizational Learning & Continuous Improvement are also important factors for growth and innovation.
  19. 19. 19 Ziya G. Boyacigiller 2005 Examples: Plan for growth by hiring 10% of company employees from universities and by on-the-job training (growth) Start break-through projects as 5% of all new product development projects (innovation) Develop 2 new processes per year to obsolete existing high volume production processes and improve productivity by minimum 200% (innovation) Improve new product success (meet/exceed marketing forecast by 3rd year after introduction) by focusing on definition, design, and merchandising processes (organizational learning) Improve customer satisfaction ratings 1% per quarter (continuous improvement)
  20. 20. 20 Ziya G. Boyacigiller 2005 BSC links Performance Measures Financial / Corporate Perspective GOALS MEASURES Internal Business Perspective GOALS MEASURES Customer Perspective GOALS MEASURES Innovation & Growth Perspective GOALS MEASURES Vision & Strategy How do customers see us? How do stakeholders see us? What must we excel at? How do we continue to create value and grow?
  21. 21. 21 Ziya G. Boyacigiller 2005 Financial/Corporate Perspective: Financial performance measures indicate if the companys strategy, implementation, and execution are contributing to bottom-line performance. Typically these are after-the-fact measures (lagging), such as: Profitability Growth (revenue, profit, market share, etc.) Shareholder value
  22. 22. 22 Ziya G. Boyacigiller 2005 Examples: One company stated its financial goals as: To survive cash flow To succeed quarterly sales growth operating income by division To prosper increased market share by segment return on equity
  23. 23. 23 Ziya G. Boyacigiller 2005 How to develop your BSC? 1. Develop a strategy map a. Start by asking What is the one most important objective we have? Follow up by asking what is the next most important until you run out of significant objectives. b. For each objective in (a) above, continue by asking What is one most important factor that is stopping us from reaching this objective?. Follow up by asking what is the next most important until you run out of significant factors. c. Develop the linkages between each factor, making sure that you dont have conflicts (suck-and-blow objectives) force yourself to make trade-offs and decide what-not-to-do.
  24. 24. 24 Ziya G. Boyacigiller 2005 Penny/Share/Quarter profit growth reduce new shares offered reduce costs keep cash-flow positive Strategy Maps show strategic objectives and their drivers i.e. cause-and-effect linkages introduce high-margin products general requirement differentiator or high fit measure of achievement net profit by quarter number of shares by quarter average margin by quarter
  25. 25. 25 Integrative Thinking When making any decision, people proceed through four steps: Salience: what do we choose to pay attention to, and what not? In this initial step, we decide which features are relevant to our decision. Causality: how do we make sense of what we see? What sort of relations do we believe exist between the various pieces of the puzzle? Architecture, during which an overall mental model is constructed, based upon our choices from the first two steps, Resolution: what will our decision be, based on our reasoning? Integrative thinkers approach these four steps in a very specific way. As shown on the diagram below, in step one they consider more features of the problem as salient to its resolution; they consider multi-directional and non- linear causality between the salient features; they are able to keep the big picture in mind while they work on the individual parts of the problem; and they find creative resolutions to the tensions inherent in the problems architecture Ziya G. Boyacigiller 2005
  26. 26. 26http://www.rotman.utoronto.ca/integrativethinking/definition.htm
  27. 27. 27 IT vs CT (Integrative Thinkers vs Conventional Thinkers) Integrative thinkers build models rather than choose between them. Their models include consideration of numerous variables customers, employees, competitors, capabilities, cost structures, industry evolution, and regulatory environment not just a subset of the above. Their models capture the complicated, multi-faceted and multidirectional causal relationships between the key variables in any problem. Integrative thinkers consider the problem as a whole, rather than breaking it down and forming out the parts. Finally, they creatively resolve tensions without making costly trade- offs, turning challenges into opportunities. Ziya G. Boyacigiller 2005
  28. 28. 28 Ziya G. Boyacigiller 2005 Penny/Share/Quarter profit growth reduce new shares offered reduce costs keep cash-flow positive Strategy Maps show strategic objectives and their drivers i.e. cause-and-effect linkages introduce high-margin products general requirement differentiator or high fit measure of achievement net profit by quarter number of shares by quarter average margin by quarter
  29. 29. 29 Ziya G. Boyacigiller (c) 2007 Kinepolis Strategy Map resulting from its Value Innovation High Growth in Revenues & Profits
  30. 30. 30 Ziya G. Boyacigiller 2005 2. Define strategic objectives and then develop the objectives into a statement Example: a. STRATEGIC OBJECTIVE: Cross-sell the product line. b. OBJECTIVE STATEMENT: We recognize that growing existing account and selling a broader set of products to current customers represents the most efficient approach to achieving greater profitability. Therefore, we will target segments that represent the greatest opportunity for growth and actively promote solutions to meet the needs of those customers. How to develop your BSC?
  31. 31. 31 Ziya G. Boyacigiller 2005 3. Define possible measures Examples: a. Share of customers with 2 or more products b. Percent of quarterly revenue from sales of multiple products to same customers c. Growth per segment of customers with repeat orders by quarter 3. Select final BSC measures a. That are easier to implement & use, b. Defines responsibility & accountability How to develop your BSC?
  32. 32. 32 Ziya G. Boyacigiller 2005
  33. 33. 33 Ziya G. Boyacigiller 2005 Summary Strategy requires Vision Vision & Strategy drive the organizational resource allocation and prioritization decisions BSC and Strategy Maps drive execution of vision & strategy.

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