BALANCED SCORECARD (BSC) Ratapol Wudhikarn, Ph.d. Knowledge management College of Arts, Media and Technology

Transcription

1 BALANCED SCORECARD (BSC) Ratapol Wudhikarn, Ph.d. Knowledge management College of Arts, Media and Technology

2 Contents IC and BSC A concept of BSC The BSC as a management system Why does business need a BSC? The BSC and its perspectives Linking multiple scorecard measures to a single strategy Cause-and-effect relationships Performance driver Design of BSC

3 Objectives The students can Understand a concept of balanced scorecard (BSC). Apply the BSC for planning and executing strategic management.

4 Intellectual capital (IC) and BSC A business competitive has changed. Traditionally, financial assets were solely accepted as a key resource of organizations. Several well-known financial measures have been widely applied for several decades. ROA Return on investment NPV Net present value IRR Internal rate of return

5 IC and BSC (cont.) Measurement of performance using traditional financial methods is currently insufficient (Lerro and Schiuma, 2013). The traditional measures only represent real value of company s assets. Nevertheless, this approach could not reveal hidden values inherent in intangible assets (Fernandez, 2003; Ordóñez de Pablos, 2005).

6 IC and BSC (cont.) Monotonic emphasis >>> Diverse concentrations (Lerro and Schiuma, 2013, Stewart 1997) Financial asset management + Intangible asset management (IC management)

7 IC and BSC (cont.) A traditional management is insufficient anymore (Waterhouse and Svendens, 1998). IC has been broadly identified as a critical management method (Bontis, 1996; Caddy, 2002; Mouritsen, 2004; Kale, 2009). Management of intangible assets with tangible assets was respected as a means of achieving a sustainable competitive advantage (Ordóñez de Pablos, 2005; Solitander and Tidström, 2010).

8 IC and BSC (cont.) Many strategic tools and methods related to IC have been proposed in recent decades. SWOT analysis Five force model BSC EVA TM IC-index Skandia Navigator BSC is a distinguished strategic management technique.

9 IC and BSC (cont.) BSC is indicated as major root of IC in a measurement part as depicted in Figure.

10 IC and BSC (cont.) The method comprehensively considers on both financial and non-financial capital. Moreover, it also addresses a critical deficiency of traditional management methods by connecting an organizational long-term strategy with shortterm performances (Kaplan and Norton, 1996).

11 A Concept of BSC The BSC was proposed by Kaplan and Norton (1992). The method provides a systematic framework suggesting conversion processes from the vision, mission and strategy of an organization to coherent strategic objectives and relative key performance indicators (KPIs).

12 A Concept of BSC (cont.) Therefore, this method includes not only management but also measurement consideration (Yüksel and Dağdeviren, 2010). The method considers both lagging and leading measures through four considered perspectives (Janeš, 2013).

13 A Concept of BSC (cont.) Lagging indicators are typically output oriented, easy to measure but hard to improve. Leading indicators are typically input oriented, hard to measure and easy to influence. (

14 A Concept of BSC (cont.) Weight loss activity: What kinds of these indicator? Decreased weight Calories taken in Calories burned (

15 A Concept of BSC (cont.) Most financial indicators such as revenue, profit, costs are lagging indicators. They are results of the activities of the company. Most traditional management approaches focus on the lagging financial indicators.

16 A Concept of BSC (cont.) As previously mentioned, the BSC focuses on both lagging and leading indicators. These indicators are represented in four major perspectives: Financial perspective (F) Customer perspective (C) Internal process perspective (I) Learning and growth perspective (L)

17 A Concept of BSC (cont.) The financial perspective traditionally concentrates on the financial security of the organization. Liquidity Profitability Revenue growth The customer perspective seeks to deliver value to the buyer. Market share Customer retention rate

18 A Concept of BSC (cont.) The internal process perspective encourages the enhancement of process efficiency and effectiveness Defect rate Delivery time New product launching time The learning and growth perspective focuses on the improvement of intangible assets Rate of accomplishment on IT Culture dissemination rate Employee satisfaction

19 The BSC as a Management System Many organizations have performance measurement systems incorporating financial and non-financial measures. Non financial measures >>> local improvements (front-line and customer-facing operations) Financial measures are applied by senior managers as a summary of results of lower and mid-level operations.

20 The BSC as a Management System (cont.) The BSC emphasizes the important of both financial and non-financial measures to be a part of information system for all employees. Front-line employees must to know the financial consequences of their actions. Senior managers also need to realize the relative drivers of long-term financial achievement.

21 The BSC as a Management System (cont.) The objectives and measures of BSC are not derived from adhoc decision. They are systematically derived from a top-down process (vision, mission and strategy). Transforming a business unit s mission and strategy into tangible objectives and measures.

22 The BSC as a Management System (cont.) A Balance of External measures (F and C) and internal measures (I and L) Past efforts (F and C) and future performance (I and L) Objective measures (F and C) and subjective measures (I and L)

23 The BSC as a Management System (cont.) The BSC extends the business s objectives beyond summary financial measures. Executives can measure both current and future values of business delivered to customers. The BSC is more than a tactical or an operational measurement system. A STRATEGIC MANAGEMENT SYSTEM

24 The BSC as a Management System (cont.) Several companies used it to accomplish crucial management processes: Clarify and translate vision and strategy Communicate and link strategic objectives and measures Plan, set targets, and align strategic initiatives Enhance strategic feedback and learning

25 The BSC as a Management System (cont.) (

26 The BSC as a Management System (cont.) Several companies used it to accomplish crucial management processes: Clarify and translate vision and strategy Communicate and link strategic objectives and measures Plan, set targets, and align strategic initiatives Enhance strategic feedback and learning

27 Clarify and translate vision and strategy Senior executives translate business s strategy into strategic objective for all perspectives. One strategy can be transformed to several objectives depending on a business function. For example, one financial institution thought it top 25 senior executives agreed about it strategy. However, each executive had a different definition as to what were the targeted customers.

28 Clarify and translate vision and strategy (cont.) No complete consensus on importance of strategic objectives in group discussion. However the BSC creates a share model of the entire business to which everyone has contributed.

29 The BSC as a Management System (cont.) Several companies used it to accomplish crucial management processes: Clarify and translate vision and strategy Communicate and link strategic objectives and measures Plan, set targets, and align strategic initiatives Enhance strategic feedback and learning

30 Communicate and link strategic objectives and measures The BSC s strategic objectives and measures should be throughly communicated in an organization via Company newsletters Bulletin boards Videos Electronic network The communication serves to signal the critical objectives that must be accomplished.

31 Communicate and link strategic objectives and measures (cont.) Some companies try to break down organizational measures into specific measures at the operational level. For example, on-time delivery (OTD) >>> setup time of machine. In this approach, local improvement efforts become aligned with organizational success factors.

32 Communicate and link strategic objectives and measures (cont.) Once employees understand high-level objectives and measures, they can establish local objectives that support the business s strategy. In conclusion, everyone in firm should realize the business s long-term goals, and strategy for achieving the goals. Individuals can formulate local actions contributing to business s objectives and they will be also aligned to the organizational direction.

33 The BSC as a Management System (cont.) Several companies used it to accomplish crucial management processes: Clarify and translate vision and strategy Communicate and link strategic objectives and measures Plan, set targets, and align strategic initiatives Enhance strategic feedback and learning

34 Plan, set targets, and align strategic initiatives The greatest impact of BSC is generated when it is deployed to drive organizational change. The executive should establish targets that will transform the company. Challenging target!!! Stock price ROI

35 Plan, set targets, and align strategic initiatives (cont.) Therefore, to achieve the financial objectives, executives must identify extended targets to their customer, internal process and learning and growth objectives. The targets can come from several ways: Meeting Customer expectations Benchmarking

36 Plan, set targets, and align strategic initiatives (cont.) The BSC does not only apply to redesign a local process where gains are easily obtained. Improving only the critical activity.

37 Plan, set targets, and align strategic initiatives (cont.) The BSC also enables the consideration of strategic planning with annual budgeting process. The planning and target-setting management process enables the organization to: Quantify the long-term outcomes, Identify mechanism and provide resources for achieving those outcomes, and Establish short-term milestones for the financial and non-financial measures.

38 The BSC as a Management System (cont.) Several companies used it to accomplish crucial management processes: Clarify and translate vision and strategy Communicate and link strategic objectives and measures Plan, set targets, and align strategic initiatives Enhance strategic feedback and learning

39 Enhance strategic feedback and learning The most critical aspect of BSC Nowadays, executives do not have a process to obtain feedback about their strategy and also to test their hypothesis. The BSC enables them to monitor and adjust their strategic management.

40 Enhance strategic feedback and learning (cont.) By having short-term milestones of all measures, management reviews can examine financial outcomes. Moreover, the executives also examine whether the business is achieving its targets for C, I and L. Shifting past performance to learn about future.

41 Enhance strategic feedback and learning (cont.) The strategic learning involves with all processes.

42 Enhance strategic feedback and learning (cont.) The first process (clarify and translate vision and strategy) attempts to clarify a shared vision that the entire organization wants to achieve. The second process (communicate and link strategic objectives and measures) drives employees to execute actions related to organizational objectives.

43 Enhance strategic feedback and learning (cont.) The second process (communicate and link strategic objectives and measures) drives employees to execute actions related to organizational objectives. The emphasis on cause and effect in constructing a scorecard introduces dynamic system thinking. It enables individuals in various parts of an organization to understand how their role influences other and entire organization.

44 Enhance strategic feedback and learning (cont.) The third process (plan, set targets, and align strategic initiatives) defines the quantitative expected performance of organization across a balanced set of outcomes and drivers. A comparison of desired goals with current levels represents the performance gap that strategic initiatives can be designed to close.

45 Enhance strategic feedback and learning (cont.) The three processes are crucial for implementing strategy. Only these processes, they are insufficient. The feedback process should be included or integrated with the BSC processes.

46 Enhance strategic feedback and learning (cont.) Sailing Captain (CEO) determines the direction and speed. The sailors (managers and front-line employees) carry out the orders and implement the identified plan.

47 Enhance strategic feedback and learning (cont.) Sailing Operational and management control systems must be established to ensure that the managers and employees act in accordance with the strategic plan indicated by executives.

48 Enhance strategic feedback and learning (cont.) Sailing Operational and management control systems must be established to ensure that the managers and employees act in accordance with the strategic plan indicated by executives.

49 Enhance strategic feedback and learning (cont.) Sailing This approach of establishing a vision and strategy, communicating and linking vision and strategy to all organizational participants, and aligning actions and initiatives to achieving longterm goals is a single-loop feedback process.

50 Enhance strategic feedback and learning (cont.) With the single-loop, the objective remains constant. There is no question about the plan, method and result. XXXXX Are they still appropriate? XXXXX In a real-life situation, the strategies cannot be stable.

51 Enhance strategic feedback and learning (cont.) In currently intensive competition, executives highly require feedback. Thinking about sailing, under changing weather and sea conditions, a chain of command still exists, and captain needs to respond to the turbulent condition.

52 Enhance strategic feedback and learning (cont.) Therefore, in constantly changing environment, new strategies can emerge from opportunities or threats that were not considered before. Traditional management systems do not encourage nor facilitate the formulation, implementation, and testing of strategy in changing environments.

53 Enhance strategic feedback and learning (cont.) Organizations need the double-loop feedback. Checking >>> the operations remain consistent with current situation. Executives strongly need feedback about the planned strategy remains a viable and successful strategy.

54 Enhance strategic feedback and learning (cont.) A properly constructed BSC should represent the cause-and-effect relationships of strategic objectives. If employees and executives have achieved the drivers, but failure to achieve expected results represents that the identified strategy may not be valid.

55 Why does business need a BSC? If you can t measure it, you can t manage it Peter Drucker If companies want to survive, they must use measurement and management systems derived from their strategies and capabilities. Unfortunately, many firms adopts strategies related to CRM, core competencies, organizational capabilities while measuring performance only with financial measures.

56 Why does business need a BSC? (cont.) The BSC still retains financial measurement as a crucial summary of managerial and business performance, but it remains to focusing on a more integrated set of measurement linking customer, internal process and learning and growth to longterm financial success.

57 The BSC and its perspectives The BSC provides a comprehensive framework transforming a organization s vision and strategy into a relative set of measurement system. Several organizations have adopted mission statements to communicate fundamental values and belief to all employees. Nevertheless, the inspirational mission statement and slogans are insufficient.

58 The BSC and its perspectives (cont.) As mentioned, the BSC translates mission and strategy into objectives and measures organized into four perspectives.

59 Financial perspective The BSC retains the financial perspective since financial measures are valuable in summarizing the readily measurable economic consequences of actions already taken. Financial performance measures indicate whether a company s strategy, implementation, and execution are contributing to bottom-line improvement.

60 Financial perspective (cont.) Financial objectives typically relate to profitability measured, for example, by operating income, return-on-capital employed, or, more recently, economic value-added.

61 Customer perspective Managers identify the customer and market segments in which the business unit will compete and the measures of the business unit s performance in these targeted segments. This perspective typically includes several core or generic measures of the successful outcomes from a well-formulated and -implemented strategy.

62 Customer perspective (cont.) The core outcome measures include customer satisfaction, customer retention, new customer acquisition, customer profitability, and market and account share in targeted segments. But the customer perspective should also include specific measures of the value propositions that the company will deliver to customers in targeted market segments.

63 Customer perspective (cont.) The segment-specific drivers of core customer outcomes represent those factors that are critical for customers to switch to or remain loyal to their suppliers. For example, customers could value short lead times and on-time delivery. The customer perspective enables business unit managers to articulate the customer and marketbased strategy that will deliver superior future financial returns.

64 Internal process perspective In the internal-business-process perspective, executives identify the critical internal processes in which the organization must excel. These processes enable the business unit to: deliver the value propositions that will attract and retain customers in targeted market segments, and satisfy shareholder expectations of excellent financial returns.

65 Internal process perspective (cont.) The internal-business-process measures focus on the internal processes that will have the greatest impact on customer satisfaction and achieving an organization s financial objectives. The internal-business-process perspective reveals two fundamental differences between the traditional and the BSC approaches to performance measurement.

66 Internal process perspective (cont.) Traditional approaches attempt to monitor and improve existing business processes. These measurements generally include quality and time-based metrics. They typically concentrate on improvement of existing processes.

67 Internal process perspective (cont.) Nevertheless, the BSC will usually identify entirely new processes at which an organization must excel to meet customer and financial objectives. The objectives directly serve vision, missions, or financial and customer objectives.

68 Internal process perspective (cont.) For instance, from the identification of financial and customer objectives, a company may realize that it should provide a critical process serving customer needs or any process to deliver new services that directly target customers value. The internal process objectives highlight the processes, several of which it may not be identified and focused before the adoption of BSC.

69 Internal process perspective (cont.) The second difference of the BSC approach is to incorporate innovation processes into the internal process perspective. Most traditional performance measurement systems concentrate on the processes of delivering today s products and services to today s customers.

70 Internal process perspective (cont.) They attempt to control and improve existing operations that represent the short wave of value creation. This short wave of value creation begins with the receipt of an order from an existing customer for an existing product (or service) and ends with the delivery of the product to the customer.

71 Internal process perspective (cont.) The organization creates value from producing, delivering, and servicing this product and the customer at a cost below the price it receives. This approach is insufficient since it cannot sustain an organization.

72 Internal process perspective (cont.) Source: 4.gif

73 Internal process perspective (cont.) But the drivers of long-term success may require entirely new products and services responding to the emerging needs of current and future customers. The innovation process is a more powerful driver of future performance than the short-term operating cycle.

74 Internal process perspective (cont.) For several organizations, the ability to manage a product-development process or to reach entirely new categories of customers may be more critical for future economic performance than managing existing operations.

75 Internal process perspective (cont.) Nevertheless, executives do not have to choose between these two vital internal processes. The internal process perspective considers objectives and measures for both the long-term values and the short-wave operations.

76 Learning and growth perspective The fourth perspective identifies the infrastructure of organization that must be built to create longterm growth and improvement. The customer and internal process perspectives identify the factors most critical for current and future success.

77 Learning and growth perspective Organizations cannot achieve their long-term goals using today s technologies and capabilities. Moreover, intensive competition forces companies to continually improve their capabilities for delivering value to customers and shareholders.

78 Learning and growth perspective (cont.) Organizational learning and growth come from three principal sources: people, systems, and organizational procedures The financial, customer, and internal process objectives on the BSC typically will reveal large gaps between the existing capabilities of people, systems, and procedures.

79 Learning and growth perspective (cont.) From the gaps, organizations will realize that what will be required to achieve breakthrough performance. To improve these gaps, companies have to invest in reskilling employees, enhancing information technology and systems, and also aligning organizational procedures and routines.

80 Learning and growth perspective (cont.) These objectives are articulated in the learning and growth perspective of the BSC. Similar to the customer perspective, measures of this perspective include a mixture of generic outcome measures: employee satisfaction, employee retention, training, and skills

81 Learning and growth perspective (cont.) There are also specific drivers of the generic measures, such as detailed, business-specific indexes of the particular skills required for the new competitive environment. Information systems capabilities can be measured by real-time availability of accurate, critical customer and internal process information to employees on the front lines of decision making and actions. Organizational procedures can examine alignment of employee incentives with overall organizational success factors, and measured rates of improvement in critical customer-based and internal processes.

82 Learning and growth perspective (cont.) Along with specific drivers of these generic measures, such as detailed, business-specific indexes of the particular skills required for the new competitive environment. Information systems capabilities can be measured by real-time availability of accurate, customer and process information to employees on the front lines.

83 Learning and growth perspective (cont.) Organizational procedures can examine alignment of employee incentives with overall organizational success factors, and measured rates of improvement in critical customer-based and internal processes.

84 The BSC and its perspectives (cont.) In conclusion, the BSC transforms vision and strategy into objectives and measures across a balanced set of perspectives. The scorecard includes measures of desired outcomes as well as processes that will drive the desired outcomes for the future.

85 Linking multiple scorecard measures to a single strategy In most cases, a company may already establish a mixture of financial and non-financial measures. Especially in recent years, the renewed focus on customers and process quality has forced several companies to track nonfinancial measures such as customer satisfaction and complaints, product and process defect levels, and missed delivery dates.

86 Linking multiple scorecard measures to a single strategy (cont.) Nevertheless, the BSC are more than collections of critical indicators or key success factors. The multiple measures on a properly constructed BSC should consist of a linked series of objectives and measures that are both consistent and mutually reinforcing.

87 Linking multiple scorecard measures to a single strategy (cont.) Like a flight simulator, the scorecard should incorporate the complex set of cause-and-effect relationships among the critical variables, including leads, lags, and feedback loops, that describe the trajectory, the flight plan, of the strategy. The linkages should incorporate both cause-andeffect relationships, and mixtures of outcome measures and performance drivers.

88 Cause-and-effect relationships A strategy is a set of hypotheses about cause and effect. The measurement system should make the relationships (hypotheses) among objectives (and measures) in the various perspectives explicit so that they can be managed and validated. The chain of cause and effect should pervade all four perspectives of a Balanced Scorecard.

89 Cause-and-effect relationships (cont.) For example, return-on-capital-employed may be a scorecard measure in the financial perspective. The driver of this measure could be repeat and expanded sales from existing customers, the result of a high degree of loyalty among those customers. So, customer loyalty is included on the scorecard (in the customer perspective) because it is expected to have a strong influence on ROCE.

90 Cause-and-effect relationships (cont.) But how will the organization achieve customer loyalty? Analysis of customer preferences may reveal that on-time delivery of orders is highly valued by customers.

91 Cause-and-effect relationships (cont.) Thus, improved OTD is expected to lead to higher customer loyalty, which, in turn, is expected to lead to higher financial performance. So both customer loyalty and OTD are incorporated into the customer perspective of the scorecard.

92 Cause-and-effect relationships (cont.) The process continues by asking what internal processes must the company excel at to achieve exceptional on-time delivery. To achieve improved OTD, the business may need to achieve short cycle times in operating processes and high-quality internal processes, both factors that could be scorecard measures in the internal perspective.

93 Cause-and-effect relationships (cont.) And how do organizations improve the quality and reduce the cycle times of their internal processes? By training and improving the skills of their operating employees, an objective that would be a candidate for the learning and growth perspective.

94 Cause-and-effect relationships (cont.) We can now see how an entire chain of causeand-effect relationships can be established as a vertical vector through the four BSC perspectives:

95 Cause-and-effect relationships (cont.) Financial Return on capital employed Customer Customer loyalty On-time delivery Internal process Process quality Process cycle time Learning and growth Employee skills

96 Cause-and-effect relationships (cont.) In a similar vein, recent work in the service profit chain has emphasized the causal relationships among employee satisfaction, customer satisfaction, customer loyalty, market share, and, eventually, financial performance. Thus, a properly constructed Balanced Scorecard should tell the story of the business unit s strategy.

97 Cause-and-effect relationships (cont.) It should identify and make explicit the sequence of hypotheses about the cause-and-effect relationships between outcome measures and the performance drivers of those outcomes. Every measure selected for a Balanced Scorecard should be an element in a chain of cause-and-effect relationships that communicates the meaning of the business unit s strategy to the organization.

98 Performance driver A good BSC should also have a mix of outcome measures and performance drivers. Outcome measures without performance drivers do not communicate how the outcomes are to be achieved. They also do not provide an early indication about whether the strategy is being implemented successfully.

99 Performance driver (cont.) Conversely, performance drivers such as defect rates without outcome measures may enable the business unit to achieve short-term operational improvements, but will fail to reveal whether the operational improvements have been translated into expanded business with existing and new customers, and, eventually, to enhanced financial performance.

100 Performance driver (cont.) A good Balanced Scorecard should have an appropriate mix of outcomes (lagging indicators) and performance drivers (leading indicators) of the business unit s strategy.

101 Performance driver (cont.) The scorecard should be the translation of the business unit s strategy into a linked set of measures that define both the long-term strategic objectives, as well as the mechanisms for achieving those objectives.

102 Design of BSC 1. Collecting all relative data 2. Analyzing internal and external environment 3. Reviewing vision and missions 4. Identifying strategic objectives of each perspective 5. Creating a strategy map 6. Setting KPIs and targets 7. Transforming a strategy to action plans 8. Deploying KPI

103 1. Collecting all relative data Vision, mission and strategy Finance Customer Internal process Learning and growth Vision Mission Strategic plan History Financial report Annual & operational report Financial analysis report Benchmarking report Financial journal Marketing journal Marketing data Consultant Strategic plan Customer annual report Requirements, expectations and opportunities of markets Operational annual report Production report Competitor data Benchmarking data Human capital data Human journal Benchmarking data

104 2. Analyzing internal and external environment Situation analysis Internal (Controllable) External (Uncontrollable) Customer Competitor Organization Industry Country World Strength / Weakness Opportunity / Threat

105 2. Analyzing internal and external environment (cont.) Market Competition Sociocultural Technology Market share Industry competition Trend Agility Growth rate New competitor Structure New technology Profitability Supplier Culture / Belief Production technology Substitute product Economic Politic Revenue per capita Government policy Interest rate Political stability Exchange rate International relationship Infrastructure

106 2. Analyzing internal and external environment (cont.) Strength Weakness Opportunity Threat Finance Customer Internal process Learning and growth

107 3. Reviewing vision and missions Vision Mission Financial objective Customer objective Internal process objective Learning and growth objective

108 3. Reviewing vision and missions (cont.) Vision Where is our destination? Mission & Strategy How can we go to the destination? Where are we now? SWOT

109 4. Identifying strategic objectives of each perspective Financial perspective Customer perspective Internal process perspective Learning and growth perspective

110 4. Identifying strategic objectives of each perspective (cont.) Financial perspective Aim to answer the question: How should the financial performance of organization be? What is the successful financial performance for shareholders? Profitability Liquidity Leverage Revenue growth

111 4. Identifying strategic objectives of each perspective (cont.) Customer perspective Customer intimacy Customer Product leadership Operational excellence

112 4. Identifying strategic objectives of each perspective (cont.) Customer perspective Aim to answer the question: How should a company respond to customer in order to achieve organizational vision? New customers Customer satisfaction Customer retention Market share

113 4. Identifying strategic objectives of each perspective (cont.) Internal process perspective Operations Customer management Innovation Regulatory and society Supply Production Distribution Risk management Selection Acquisition Retention Growth Opportunity R&D Portfolio Design/develop Launch Environment Safety and health Employment Community

114 4. Identifying strategic objectives of each perspective (cont.) Internal process perspective Aim to answer the question: Which process of company should be excellently perform for serving customer and stakeholder? Product improvement Defect rate reduction Delivery time reduction New product launch time

115 4. Identifying strategic objectives of each perspective (cont.) Learning and growth perspective Human capital Skills Knowledge Values Information capital Systems Databases Networks Organizational capital Culture Leadership Alignment Team

116 4. Identifying strategic objectives of each perspective (cont.) Learning and growth perspective Aim to answer the question: How should an organization change & improve process to achieve a vision? Employee satisfaction Safety rate Information system improvement Resignation rate of capable employee

117 5. Creating a strategy map Vision & mission BSC uses cause-and-effect logic Realizing the mission and vision Customer benefits Financial results To deliver customer satisfaction Drive financial responsibility Internal capabilities To build the strategic capabilities Where are we now? Knowledge, kills, systems and tools Equip our people

118 5. Creating a strategy map (cont.) Alignment, cause and effect relationship Finance Outcomes Customer Process Drivers Learning and growth

119 5. Creating a strategy map (cont.) A strategy map creation procedure 1. Verifying an organizational direction and vision 2. Identifying a mission or strategy serving the vision achievement 3. Determining relative strategic objectives following the BSC s perspectives 4. Creating a strategy map by inputting all identified objectives to the related area, and using arrow to identify the relationships among objectives 5. If any objective does not relate to other objectives, there is an error or deficiency with the map

120 5. Creating a strategy map (cont.) Strategy map template VISION Financial Customer Internal process Learning and growth

121 5. Creating a strategy map (cont.) Determining relative strategic objectives following the BSC s perspectives Strategic objective F1 - Increasing revenue F2 - Decreasing a quantity of aircrafts C1 - On-time strategy C2 - Low-cost ticket C3 Customer retention I1 - Increasing departure capability L1 - Employee serving the organizational strategy Perspective F F C C C I L

122 5. Creating a strategy map (cont.) Strategy map Financial F2 F1 Customer C2 C3 C1 Internal process I1 Learning and growth L1

123 5. Creating a strategy map (cont.) Strategic objective KPIs KPI 1 KPI 2 KPI 3 Target XXX YYY ZZZ

124 6. Setting KPIs and targets A key performance indicator (KPI) is a business metric used to evaluate factors that are crucial to the success of an organization ( Quality Quantity Safety Cost Technology Satisfaction Time

125 6. Setting KPIs and targets (cont.) Examples of KPIs Type of KPI Quantity Cost Time Safety Satisfaction Technology KPI Product quantity per day Ratio of cost to revenue Delayed day No. of accident Customer satisfaction score % of technology investment budget

126 6. Setting KPIs and targets (cont.) Identifying KPIs and targets Objective KPI Current status Customer retention % of repeated purchase 1% 10% Target

127 Reference Kapland R.S., and Nortom, D.P., The balanced scorecard: translating strategy into action, Harvard, 1996.

128 Q&A