Participants Handbook.on BSC

SAIL STRATEGIC SCORE CARD

[Understand: Facilitate: Construct]

Hand Book for Participants

Steel Authority of India Limited

September/October 2010

Prepared and Facilitated by

CII Institute of Quality&

Balanced Score Card

Centre for Excellence in Organization Pvt Ltd.,India – South East Asiawww.exploreceo.com

Contents Page No.

1 SAIL – Chairman’s Strategic Thrust

……………………………….3

2 Basic Concepts of Balanced Score Card…………………………..5i. What is Balanced Score Card? And it’s

utility…………….5ii. Back Ground of Balanced Score

Card……………………….6iii. Terminologies: An

overview…………………………………..11

3 Building a Balanced Score Card (BSC)..…………………………15 i. Phase 1: Strategic

Foundation……………………………….16 a) Strategic alignmentb) Strategic Objectivesc) Strategy Maps

ii. Phase 2: Strategy Execution :Structure…………………..16

a) Measuresb) Targetsc) Initiatives

CII – CEO / SAIL / September/October 2010 1

http://www.exploreceo.com/

Balanced Score Card

iii. Phase 3: Strategy Deployment……………………………….16

a) Roll outb) Reviewsc) Automation

4 Understanding the SAIL Enterprise Map………………………39

Contents Page No.

5 Defining the SAIL Unit Strategic Map…………………………40 i. BSC as a Strategy Management Toolii. Balanced Scorecard as a Measurement Tooliii. Defining Critical Success Factors and Measures

6 Constructing a Balanced Scorecard (sample Templates will be circulated)……………………………………………………………..52 i. Analyzing Cause and Effectii. How many Measures to Choose?

7 Consultants Experiences, cautions, dos and don’ts on BSC…………………………………………………………………………58


Balanced Score Card

8 FAQ’s on BSC……………………………………………………………..59

9 Bibliography……………………………………………………………….70

10 Sample BSC Template…………………………………………………78

This hand book shall be used in conjunction with the presentation material / templates / exercise etc., Presentation slides would be shared as

electronic copies.


Balanced Score Card

1. SAIL Chairman’s Strategic Thrust

Mr. Chandra Shekhar Verma, Chairman, SAIL, inaugurated the launch of SAIL Strategic Score Card on 16th of September 2010. The program was facilitated by Centre for Excellence in Organization under the umbrella of CII Institute of Quality.Emphasizing the sustenance of the SAIL PRIDE, he emphasized on the need for “Survival of the Fittest” is the context of Global trends.

As Leading Steel Manufacturer, SAIL has been a lead player and the pride of Maharatana needs to be augmented. Manpower productivity of SAIL Is 225 tcs/yr, while the Indian average is 500 tcs/yr and the global average is 1000 tcs/yr.

In the twelfth five year plan, Govt is investing trillion rupees in infrastructure and SAIL VIBRANCY is the need of the hour. New players emerging in

India are an opportunity for SAIL to take the competition head on. Hence the Strategies need a newer thrustand measurement systems should go beyond the financial perspective It is important to internalize the BSC processes and role model the delivery of each of the leadership members from 1st Nov 2010- through the BSC processes. We can perfect this in the financial year 2011-2012. As we are investing in technology, it is time to re-strategize, enhance vibrancy and responsiveness to remain competitive.


Balanced Score Card

ED (CP), introducing the theme emphasizes the need to aggressively look at the ROC on all technological investments. . The internal environment analysis highlights the areas of strength and weaknesses which the organization has and the external environment analysis throws light on the opportunities and the threats being offered by the various areas of the environment. The most important thing that can ensure the success of any organization is the development of Execution plan. SAIL’S Responsiveness to execution needs quantum leap. Based on the preparatory work we do, the detailed action plans shall be created and proper reporting systems will be established to start operation of the Balanced Scorecard. We will, from the Business Excellence team, catalyze the execution and support the Chairman’s dream to make SAIL – THE GLOBAL LEADER. No planning system can deliver results; it’s the execution of the plans that deliver results. The Balanced Score card facilitates planning from strategy to implementation to measurement and reporting


Balanced Score Card

2. Basic Concept of Balanced Score Card

i. What is Balanced Score Card? And it’s utilityThe balanced scorecard is a strategic planning and management system that is widely applicable to organizations regardless of size or type of business. The system, extensively used in business and industry, government, and nonprofit organizations worldwide, provides a method of aligning business activities to the vision and strategy of the organization, improving internal and external communications, and monitoring organization performance against strategic goals. It was originated by Robert Kaplan and David Norton of Harvard University in about 1990 and detailed in a series of Harvard Business Review articles and subsequent books, but the roots of the balanced scorecard are deep, and include the pioneering work of General Electric on performance measurement reporting in the 1950’s and the work of French process engineers (who created the Tableau de Board – literally, an instrument panel or dashboard of performance measures) in the early part of the 20th century in France.

Because the balanced scorecard is a generic term, it means different things to different people, and in practice, there are wide variations in both understanding and implementation. To some, the balanced scorecard is a simple dashboard of performance measures, while to others it is a comprehensive planning and management system covering the whole organization and designed to focus efforts on organization strategy and, more importantly, on performance and results.

The balanced scorecard has evolved from its early use as a simple performance measurement framework for non-financial performance measures to a full strategic planning and management system. The “new” balanced scorecard transforms an organization’s strategic plan from an


Balanced Score Card

attractive but passive document into the “marching orders” for the organization on a daily basis. It provides a framework that not only provides performance measurements, but helps planners identify what should be done and measured. It enables executives to truly execute their strategies.

ii. Back Ground of Balanced Score CardFrederick W. Taylor’s Division of Labor resulted in aggressive focus on SILO measures resulting in accountants communicate with financial statements, engineers with shop floor issues and architects communicate with physical models. It seems that almost every profession has some means of communicating clearly to the end user. However the bigger picture of the Organizational thrust gets lost in the hierarchical and departmental ownerships. Outstanding strategies that can bring quantum leaping results never ends in execution. It is some time ok to have ordinary or poor strategies and outstanding execution. Outstanding strategies, with poor execution only results in diffusion, frustration and blame games.

Throughout the history of contemporary management theories starting from the ones that were introduced by the intrusion of the mass production in the beginning of the 20th century and until today, all the gurus of management have been trying to find uniform solutions on more efficient allocation and use of very limited resources available to businesses.

In the 1930-ies, the main topic was motivation of employees, as it turned out that human nature does not enable to work long hours on a repetitive tasks without frustration level getting so high enough to diminish productivity. In the 1940-ies and 1950-ies, the first statistical and linear methods were introduced in trying to measure logistics of the operations management and its implications to overall company success in financial-analysis side. In the beginning of 1980-ies, partly because of introduction of electronic data processing equipment and quick development of


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computers, the whole array of management techniques were initiated. The particular reasons for the vast development of the new theories were catalyzed mainly by ever growing competition generated through more systematic use of computers, and of course also by rapid growth of the importance of human capital.

Today’s companies are in the midst of a revolutionary transformation. Industrial age competition is shifting to information age competition. During the industrial age, roughly from 1850 to about 1975, companies succeeded by how well they could capture the benefits from economies of scale and scope. Technology mattered, but, ultimately, success accrued to companies that could embed the new technology into physical assets that offered efficient, mass production of standard products. During the industrial age, the financial control systems were developed in major companies to facilitate and monitor efficient allocations of financial and physical capital.

A summary financial measure such as return-on-capital-employed (ROCE) could both direct a company’s internal capital to its most productive use and monitor the efficiency by which operating divisions used financial and physical capital to create value for shareholders.

The emergence of the information era, however, in the last decades of the 20th century, has made obsolete many of the fundamental assumptions of industrial age competition. The information age environment for both manufacturing and service organizations requires new capabilities for competitive success. The ability of a company to mobilize and exploit its intangible assets has become far more decisive than investing and managing tangible, physical assets.

Industrial age companies created a sharp distinction between two groups of employees. The intellectual elite – managers and engineers – used their analytical skills to design products and processes, select and manage


Balanced Score Card

customers, and supervise day-to-day operations. The second group was composed of the people who actually produced the products and delivered the services. This direct labor work force was a principal factor of production, which performed its tasks under supervision of the first group. Today automation and productivity have increased the number of people performing analytic functions: engineering, marketing, management and administration. Therefore, the people are more viewed as problem solvers, not as variable costs. In other words, information age has brought about the concept of knowledge management.


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The shift to successful knowledge management has introduced a variety of Improvement initiatives:

Just-in-time, Total quality management, Lean enterprise, Business process re-engineering, Time-based competition, Customer-focused organization, Activity-based cost management, Employee empowerment, Self Managed Teams, Living company, and so on.

Some of those programmes have meant in practice real breakthrough and improvement, others have proven to be in the best case just a short-time disturbance, but in the worst cases total failures resulting in disarray or even bankruptcy of a particular company. The main reason for that lies in five main implementation problems:

i. Current performance measurement systems are based on the traditional financial accounting model, which does not enable to objectively analyze information-age companies;

ii. If some non-financial performance measurement even is made, it is solely based on employees’ tactical performance, not on strategic performance;

iii. Majority of management and employee salary-based motivation schemes are only short-run profit oriented, that does not enable to align towards long-run goals;

iv. Overall company strategy is not closely linked to organizational and personal improvement programmes; and


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v. Strategy is not generally linked to resource allocation, which results in under- financing some of the crucial parts of organization’s development.

As for today, superior financial performance and efficiency in production are just not enough to gain sufficient competitive advantage, but more and more attention needs to be paid to intangible sides of business.

The long-term success of any organization is determined by the capabilities and the competencies it has developed. Today’s businesses require a better understanding of their customers (both existing and potential ) and their needs, better streamlined processes and highly skilled people for ensuring future survival and sustainable growth. Hence for people engaged in strategic planning there has been an on-going dilemma. The finished product, the strategic plan, has not communicated and reached the end user. Sure strategic plans are nice to look at, full of bar charts, nice covers, well written, and professionally prepared; but they simply have not impacted the people who must execute the strategic plan. The end result has been poor execution of the strategic plan throughout the entire organization. And the sad fact of the matter is that execution of the strategic plan is everybody’s business, not just upper level management. Upper level management creates the strategy, but execution takes place from the bottom up. Absence of their inclusion and water fall approach results in unsatisfactory performance.

Mobilizing change through executive leadership. Everyone in the organization needs to understand why a corporate strategy is changing, and only the leaders can drive that change. For example, after Bombay terror attack, the government established an office of strategy management to develop new objectives for agencies like the CID, CBI and the varied state Police Directorates to co-ordinate through an integrated agency set up by Government of India. The office changed the bureau’s agenda from one that restricted information and shared only


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what it had to, to one whose objective is to share information and restrict only what it must.

This innovative tool “Balanced Scorecard” developed by Robert S Kaplan and David P Norton in 1992 is unique in two ways compared to the traditional performance measurement tools. They are:-

i. It considers the financial indices as well the non-financial ones in determining the corporate performance level and

ii. It is not just a performance measurement tool but is also a performance management system the aim of the Balanced Scorecard is to direct, help manage and change in support of the longer-term strategy in order to manage performance. The scorecard reflects what the company and the strategies are all about. It acts as a catalyst for bringing in the ‘change’ element within the organization.

Balanced Scorecard uses a balanced measurement system that comprises of “the old” financial side and four “new” perspectives of:

i. Financial Perspective – How do we look at shareholders?ii. Customer Perspective – How should we appear to our customers?iii. Internal Business Processes Perspective – What must we excel at?iv. Learning and Growth Perspective

Can we continue to improve and create value? Hence, from the above lines we can say that this tool has considered not only the financial results to be important but also those factors which actually drive an organization towards future successes as mentioned earlier. The tool has given stress on the other areas which are required to ‘balance’ the financial perspective in order to get a total view about the organizational performance and improve the same. The framework tries to bring a balance and linkage between

i. Financial and the Non-Financial indicators,ii. Tangible and the Intangible measures,


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iii. Internal and the External aspects andiv. Leading and the Lagging indicators.

iii. Terminologies : An Overview - Speaking the Common Language:

Throughout the entire process of building and implementing a balanced scorecard, we all need to speak the same language. Therefore, the first thing to do is to understand a few terms:

SWOT:Every organization should do a reflective exercise to evaluate the four parameters Strengths ( Good will in the name of SAIL SUSTAINED OVER A PERIOD

OF 52 YEARS) Weakness (Past success determining the glory while the global context

is far ahead – the 225- 500-1000 challenge of SAIL). Being a 52 year old organization, depletion of tacit knowledge because a retirement is a great weakness.

Opportunities. Growth of Infrastructure locally and globally is a great opportunity

Threats. New players with agility, China’s aggression and competitions cost advantage are a threat. SAIL responsiveness and agility and execution of strategies are a threat.

Risk Management:The global meltdown, the economic tsunami saw the “who is who” collapsing. Also, in spite of 54% of Western companies following the BSC, organizations not factoring risk management have seen disasters. Risk management and other measures of corporate strategy need a short-term focus and long-term context in a recession. A recession means short-term focus but with long-term perspective


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“In a recession you need to focus on short-term goals and the three Cs: reduce costs, rebuild capital and watch your credit,”

Cause Effect Relationship: The natural flow of business performance from a lower level to an upper level, or between perspectives or hierarchical flow is related to the cause and effect. For example, training employees on customer relation’s leads to better customer service which in turn leads to improved financial results. One side is the leader or driver, producing an end result or effect on the other side.

Goal: An overall achievement that is considered critical to the future success of the organization goals expresses where the organization wants to be.

Measurement: A way of monitoring and tracking the progress of strategic objectives and giving an enumerative or qualitative value to the pre and post progress is called measure. Measurements can be leading indicators of performance (leads to an end result) or lagging indicators (the end results). If you can’t measure, you can’t manage and you can’t improve upon your corporate success.

Lead Indicators. Actions we anticipate and take to convert strategies to end results are lead indicators. For example in the Context of SAIL, anticipating Coal Shortage, taking over new Coal Mines, or working on strategic collaborations, or sourcing alternate to Coal or all lead indicators. We anticipate a challenge and take actions. Similarly, in the current context, sourcing and retaining engineering talents is becoming a challenge. If organization puts in a strategy to Build People than Buy people (not ready market talent), then it is a lead indicator.


Balanced Score Card

Lag Indicators:Lag indicators or measuring an event that has already happened. Financial performance, process audits are all lag indicators. Inspection is a lag indicator. Focus is on measuring the out puts.

Objective: What specifically must be done to execute the strategy; i.e. what is critical to the future success of our strategy? What the organization must do to reach its goals!

Perspectives:Four or five different views of what drives the organization. Perspectives provide a framework for measurement. The four most common perspectives are: Financial (final outcomes), Customer, Internal Processes, and Learning & Growth.

Initiatives: One of the critical success factors in the BSC approach is linking strategy to end result. Major programs or projects that must be undertaken in order to meet one or more strategic objectives for delivering the desired results are called “Initiatives”. In these troubled economic times, Kaplan advises companies to focus on four or five key strategic initiatives, though not lose sight of long-term corporate strategy.

Strategic Area: A major strategic thrust for the organization, such as maximizing shareholder value or improving the efficiency of operations or seeding Winnovation is the thought architecture. Strategic areas define the scope for building the balanced scorecard system. It is a proactive and intellectual input for quantum leaping out put.


Balanced Score Card

Strategic Map:It is a logical framework for organizing a collection of strategic objectives for the perspectives. Everything is linked to capture a cause and effect relationship. Strategic maps are the foundation for building the Balanced Scorecard.

Strategic Model: It is a frame that combines all strategic objectives over a strategic map, well connected and complete, providing one single model or structure for managing the strategic area.

Strategy: It is thought architecture – derived from collective wisdom, global knowledge, R&D and bench marking. An expression of what the organization must do to get from one reference point to another reference point. Strategy is often expressed in terms of a mission statement, vision, goals, and objectives. Strategy is usually developed at the top levels of the organization, but executed by lower levels within the organization.

Target: An expected level of performance or improvement required in the future.

Templates: Visual tools for assisting people with building a balanced scorecard, typically used for capturing and comparing data within the four components of the Balanced Scorecard: Strategic Maps, Measurements, Targets, and Programs.

Vision: An overall statement of how the organization wants to be perceived over the long-term (3 to 5 years).


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3. Building the Balanced Score Card

Phase I: The Strategic FoundationStep 1: Communicate and align the organization around a clear and concise strategy. This is the fundamental starting point behind everything else. Your strategy is what “feeds” the Balanced Scorecard.Step 2: Determine the major strategic areas or scope for getting the organization focused on those things the organization can actually do.Step 3: Build a strategic map for each major strategic area (step 2) of the business. Out of all the steps in the entire process, this can be the most


ObjectivesMeasuresTargetsInitiatives




Strategy

Vision -> Goals -> Themes

Financial PerspectiveWhat financial results are required for meeting the

expectation of our shareholders

Learning PerspectiveWhat organizational values are critical for meeting our strategic

goals and objectives

Customer PerspectiveWhat customer needs must we satisfy for meeting shareholder

expectations

Internal PerspectiveWhat processes must we deliver

on for meeting customer and shareholder expectations

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difficult since we must take our entire strategy (step 1) and transform it into specific terms that everyone can understand. And everything must be linked to form one complete strategic model.

Phase II: Strategy StructureStep 4: Establish Measurements: For each strategic objective on each strategic map, there needs to be at least one measurement. Measurement provides the feedback on whether or not we are meeting our strategic objectives.Step 5: Set Targets for each measurement: For each measurement in your scorecard, establish a corresponding target.Step 6:Launch Initiatives: Things will not happen unless the organization undertakes formal programs, initiatives or projects. This effectively closes the loop and links us back to where we started – driving the strategy that was formulated in phase me.

Phase III: Strategy DeploymentStep 7: Once the Balanced Scorecard has been built, you need to push the entire processes into other parts of the organization until you construct a single coherent management system. This pulls everything together, allowing successful execution of your strategy.Overall


Balanced Score Card

i. Strategic FoundationStep 1: Strategic AlignmentWhen balanced scorecards were first introduced, it seems that everyone rushed to put a whole new set of measurements in place. However, this is not how a balanced scorecard is built. Strategizing is critically important for building a good balanced scorecard. In fact, it is so important that the authors of the book, The Balanced Scorecard, Robert S. Kaplan and David P. Norton, released a follow-up book titled “The Strategy Focused Organization”.

Therefore, we need to focus on building a strategic foundation, culminating with a set of strategic grids or maps. This is the watershed event within the entire process! The combination of strategic grids, measurements, targets and programs represent the four key components that makeup the Balanced Scorecard. All of these components will be described in detail as we work our way through the seven step three phase process.

When designing a balanced scorecard, we always start by asking: “What is your strategy?” Once we understand the strategy, we can build a new framework for describing the strategy, which we call a strategy map.

- The Strategy Focused Organization by Robert S. Kaplan & David P. Norton

A clear strategy requires two things: Specific objectives that tell people what to do and a set of targets for communicating what is expected. Objectives need to communicate the action people must undertake.

As strategy guru Michael Porter of Harvard University points out – “The essence of strategy is in the activities, choosing to perform activities differently or to perform different activities than rivals.” We must define what these activities are if we expect to have a clear and sharp strategy.


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Strategic objectives expressed in relation to action and activitiesOver the next six months, delivery times will decrease by 15% through more localized distribution centers.By the year 2003, customer turnover will decline by 30% through newly created customer service representatives and pro-active customer maintenance procedures.Operating downtimes will get cut in half by cross training front line personnel and combining all four operating departments into one single service center.

The second key ingredient for a clear strategy is targets. Targets put teeth into a strategy by imposing criteria that the organization must achieve. For example, the strategy needs to be clarified by defining market share, revenue growth, new products introduced, and other specifics that set forth the end results of our strategy. In order to have targets, we need measurements. Both targets and measurements are critical components of the Balanced Scorecard and if you have measurements and targets as components of your strategy, then building the Balanced Scorecard will be much easier.

Once you have defined a clear strategy (objectives and targets), then you must rally the organization around it. This requires a major communication initiative. A good starting point is to develop a communication plan. A communication plan outlines how you will communicate the strategy to each stakeholder group:

Effective communication is the Achilles Heel in this entire process. Therefore, extensive and continuous communication is vital to getting the organization aligned around its strategy.“I sure wish I’d done a better job of communicating with GM people. I’d do that differently a second time around and make sure they understand and shared my vision for the company. Then they would know why I was


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tearing the place up, taking out whole divisions, changing our whole production structure . . . I never got this across.”Roger Smith, CEO of General Motors– Strategic Choices by Kenneth Primozic, Edward Primozic, and Joe LebenFinally, you need to align and re-configure the various parts of the organization around the strategy. This may require changes to the organizational structure, selling off assets, making sure you have a “productive” culture, and other significant changes. Strategy is about closing the gaps between the present position of the organization and where the organization wants to be. Therefore, you must make changes to the organization if you expect success with your strategy.

Once the organization is set around its strategy, only then can you begin building the balanced scorecard system. In the case of Mobil Oil, it took over one year to create the right number of operating divisions around its new strategy.

Step 2: Strategic Focus AreasBefore we start designing the Balanced Scorecard, we need a “fence line” of strategic areas. This helps the organization to focus on selected areas for achieving strategic success; otherwise the organization may find itself trying to do too many things. Strategy is about choices and making decisions on those things the organization can do vs. those things the organization cannot do. Or to put it another way: A few successes are better than a lot of failures.

Therefore, the strategic thrust of the organization needs to be confined to a few major areas. This will provide the “scope” we need for building a set of balanced scorecards.

For most organizations, the strategic thrust of the organization will revolve around stakeholder groups; such as customers, shareholders, and employees. For example, most publicly traded corporations will have


Balanced Score Card

“shareholder value” as a major strategic area. This becomes one of the strategic areas for building the Balanced Scorecard.

Additionally, each strategic area will flow across all four perspectives of the BalancedScorecard: Financial, Customer, Internal Processes, and Learning and Growth. The following example illustrates how shareholder value flows up across the four perspectives of the Balanced Scorecard.Basic flow of Strategic Area within the Balanced ScorecardFINANCIAL Revenue GrowthCUSTOMER More CustomersINTERNAL PROCESS Efficient processes – QCDLEARNING & GROWTH Support systems and personnel: Strategic Areas“One of the mistakes companies make is coming up with a list of measures of what they could measure instead of what they should be measuring. If a company thinks about what it needs to achieve to be successful in the eyes of its shareholders, clients and internal stakeholders that will yield operational activities that the organization needs to do well to achieve those strategies.”

Vicki Elliott, Principal, William M. Mercer “Putting the Scorecard to Work”

– Business Finance Magazine

Notice how each lower perspective layer supports and enables the upper perspective layer; such as more Customers will enable Revenue Growth. Keep in mind that we are trying to link everything together. This is critical to building a great balanced scorecard; i.e. capturing the cause effect relationship.

Collectively, we want to limit our strategic areas to not more than five areas. This helps ensure successful implementation of our strategy. Some common strategic areas are:

Customer Service


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Shareholder Value Operational Efficiency Product Innovation and Social Responsibility.

Linking a strategic goal to a strategic areaStrategic Objective By the year 2005, our company will have the

most innovative product line of hand held computers

Strategic Focus Area Product Innovation

Finally, there is the possibility that one strategic area may conflict with another. For example, Operational Efficiency may require cost reductions while Market Share may require more expenses. If such conflicts do exist, make sure all stakeholders involved are fully aware of these conflicting areas and how they fit within your strategic plan.

Now that we have a strategy in place (step 1) and now that we have defined our strategic areas or scope (step 2), we will translate the specifics of our strategy into a set of maps. We noted that balanced scorecards are structured over four perspectives or layers: Financial, Customer, Internal Processes, and Learning and Growth.

Step 3: Strategy MapsStrategic maps include these four layers. Within each layer, we will place our strategic objectives, making sure everything links back. Trying to develop strategic objectives and placing them into the correct layers for all


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strategic maps is probably the most difficult step in building the Balanced Scorecard. Consultants sometimes refer to this step as straw modeling; trying to string connecting lines over a map that presents an overall strategic model.

Building a strategic map starts at the very top – strategic goals and areas. As we indicated earlier, most publicly traded companies have shareholder value as a strategic area. In order to improve shareholder value, the organization can do things like grow revenues or increase operating performance. Once you decide on your strategy for improving shareholder value, then you have to decide on how you will grow revenues or improve operating performance. The following exhibit illustrates this bottom up flow within the Financial Perspective:Flowing strategic objectives within the Financial Perspective

Share Holder Value

Grow revenues Asset Utilization

New sources of revenues

Increase customer profitability

Lower costs Operating improvements

We will flow our strategic objectives down each perspective within a map of boxes, making sure everything is linked. This map will serve as the foundation for constructing the Balanced Scorecard.

Next, we move down to the Customer Perspective. In order to construct the customer perspective, we need to understand the value(s) we provide to our customers. For example, Federal Express is extremely efficient in getting packages delivered on time.

Therefore, on time delivery is the specific value that Federal Express delivers to its customers. Companies that emphasize operational efficiency


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usually provide certain value attributes, such as competitive pricing, on-time delivery, or superb quality. Other companies may create value for customers through their great relationship with the customer. Finally, some companies may add value by emphasizing innovative and unique products and / or services. It is extremely important to define your customer and the values you provide; otherwise you run the risk of building a scorecard that doesn’t fit with the capabilities of the organization.

Once you have clearly defined your customer values, you can define strategic objectives within the Customer Perspective, linking these objectives to the financial perspective objectives. For example, suppose we have a strategic goal that stipulates that our company will be the price leader in long distance phone service. We can flow this goal within the scorecard map as follows:

Linking customer objectives to financial objectivesFinancial Share holder value

Grow RevenuesCustomer Acquire more customers

Leader in Pricing

Notice how “Leader in Pricing” is the driver behind acquiring more customers. In turn, more customers will flow up to the next layer of growing revenues. And growing revenues is our strategy for meeting our strategic thrust or area of creating shareholder value.

Next, we need to ask the question: How will we become a leader in competitive pricing for attracting new customers? This brings us down to the next perspective: Internal Processes. Internal Processes represent the


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collection of activities that give a company a competitive advantage in the marketplace.

Referring back to the Customer Perspective, we could choose between three strategies:a. Operational Efficiency

Value for customers through competitive pricing, superior quality, on-time delivery or diverse product lines.

b. Customer Relationships Value for customers through personal service, building trust, brand

loyalty, providing customized solutions, and other one-to-one relationships.

c. Innovative Products & Services Inventing new products and features, fast delivery of products and

services, forming partnerships to expand product lines, and other product leadership initiatives.

If we go back to our example on price leadership in long distance phone service, we need to emphasize operational efficiency within our strategy since this will enable competitive pricing. Next, the company must define its strategic objectives for operational efficiency (which leads to competitive pricing). This can include numerousObjectives: Supply chain management, cycle time improvements, cost reduction programs, and any objective aimed at operational excellence. Once we decide on objectives, we can extend our strategic map down into the next perspective as follows:

Linking objectives down to Internal Processes


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Financial Share holder value

Grow RevenuesCustomer Acquire more customers

Leader in Pricing

Internal Process

Improve Operational EfficiencyCostReductionProgram

KnowledgeBased System

Eliminate NonCore Activities

This brings us to the final perspective, Learning and Growth. Learning and Growth is the foundation that enables us to deliver on strategic objectives defined in the Internal Processes Perspective. Like the other perspectives, we need to look at different strategies that fit with our current strategic mapa. Competencies

Skills and knowledge of the work force.b. Technologies

Applications and systems for execution of internal processes.c. Change Culture

Organizational alignment, employee motivation, executive leadership, communication, and other qualities of empowering the organization.

If we go back to our strategic map on Internal Processes, we must decide on

what strategic objectives are required for meeting the three objectives defined in the

Internal Processes Perspective. Therefore, we can extend our map as follows:

Strategic objectives defined for all four perspectives


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Financial Share holder valueGrow Revenues

Customer Acquire more customers

Leader in Pricing

Internal Process

Improve Operational EfficiencyCostReduction Program

KnowledgeBased System

Eliminate NonCore Activities

Learning & Growth

Training : Best practices in cost mgmt

Data Base network on Operational Mgmt

Realign with core competencies

\\Learning andOnce you have completed the strategic map, go back and make sure everything fits with your overall strategy. A set of strategic maps should provide the strategic model for running the business and outlining the specifics of the strategy. All stakeholders should be able to look at your maps and follow the flow of your strategy.

Don’t forget that you are trying to limit your objectives (and maps) to a critical few strategic areas. If possible, keep the total number of objectives on the map to not more than 20 to 25 objectives. We have completed the foundation of the Balanced Scorecard, a set of strategic maps for each strategic area that captures and links objectives across four or more perspectives. We can now move forward and populate each map with: Measurements, Targets, and Initiatives.

ii. Strategic Execution Structure: Three Critical Components


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Once we have completed the strategic foundation (phase I), we are set to measure our objectives, establish a target for each measurement and initiate programs that will make all of this happen. This will effectively complete the building of the Balanced Scorecard.

For each strategic objective on your strategic map, you need at least one measurement. If you have several measurements for a strategic objective, then chances are you have more than one strategic objective. Can you have an objective without a measurement?

Yes, it is possible, but not having a measurement makes it difficult to manage the objective. It’s best to revisit this objective and ask the question: Why is this objective?

Measurement allows us to quantify our strategic objectives, asking the question: How well are we doing? So how do you build your measurements? Here are some basic guidelines:Linked: Measurements communicate what is strategically important by linking

back to your strategic objectives.

Repeatable: Measurements are continuous over time, allowing comparisons.

Leading: Measurements can be used for establishing targets, leading to future

performance.

Accountable: Measurements are reliable, verifiable, and accurate.

Available: Measurements can be derived when they are needed.


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The following template can be used to help build an appropriate measurement:

Measurement Template

Strategic Objective =>Measurement to be used =>Description of Measurement =>Units of Measurement ($,%,etc)Update Frequency => ___ Monthly ___ Quarterly ___ Yearly ___ Other

Internal documents / reportsExternal documents / reportsSpecial studiesProgramsDatabasesOther ______________________________________

Calculation Required: _______________________________________________Assumptions in Calculation: _________________________________________Availability of Data:

Currently AvailableRequires some researchRequires extensive researchNot Available at this time

Step 2: Define the sources for the measurement:

Step 3: Define how the measurement is derived and reported:

Step 1: Define a measurement for each strategic objective:

In addition to the above criteria, you need to understand some concepts related to measurement. For example, some measurements will lead to change in your organization. These types of measurements are called leading indicators since they drive or push final outcomes within the organization. Examples include customer contracts executed, competitive pricing index, employee feedback indicator, service response time, and time spent with customers. If your organization needs to change rapidly, then you need to include some leading type measurements into your balanced scorecard. A common place to use leading measurements is within the Learning and Growth perspective since this is the principal “driver” perspective behind the Balanced Scorecard.

The other side of measurement is looking back, historical type measurements that show us a final outcome or result. These


Balanced Score Card

measurements are referred to as lagging indicators and they dominate most performance measurement systems. About 70% of all measurements tend to fall into this category. Examples include most financial type measurements (return on equity, sales growth, economic value added, etc.) and many non-financial type measurements (production breakeven, customer retention, employee productivity index, etc.). Lagging type measurements are common within the Customer and financial perspectives since these are outcome related.

Almost half of your measurements can be extrapolated from existing systems and procedures. Some common type measurements include ratios, percentages, rankings and indexes. Ratios are good for expressing critical relationships while percentages are good for expressing an overall trend over time. Rankings work well for highly ranked companies trying to move up in the ranking.

However, lower ranked companies usually cannot move easily within a ranking system and therefore, this form of measurement may be too ambitious. Another way to look at measurement is to understand the relationship between leading and lagging indicators for the three lower perspectives.

For example, the Customer Perspective can be broken down into two groups of measurement: Lagging Indicators such as customer satisfaction, retention, and market share; and Leading Indicators such as competitive pricing, excellent quality, outstanding reputation, image, and customer relationships. For example, in order to retain customers, we must provide one or more value attributes to the customer.

The Internal Process Perspective can be broken down into three result categories:Pre Delivery Results


Balanced Score Card

Innovative Processes that meet customer needs, provide solutions, and address emerging trends. Example of Leading Indicator => Number of new products introduced.

Delivery Results Operations that produce and deliver products and services to

customers. Example of Leading Indicator => Delivery Response Time to Customer.

Post Delivery Results Value added services provided to customers once products and / or

services have been delivered. Example of Leading Indicator => Cycle Time for Resolving Customer Complaint.

The Learning and Growth Perspective will emphasize three result categories: Employees, Systems, and Organization.Results for Employees

Employee satisfaction, productivity, and retention. Example of Leading Indicator => Percentage of Key Personnel Turnover.

System Results Engaging to the end user, accessibility, and quality of information.

Example of Leading Indicator => Percentage of employees who have on-line access.

Results for the Organization Climate for change, strong leadership, empowering the workforce,

and other motivating factors. Example of Leading Indicator => Number of Employee Suggestions.


Balanced Score Card

One of the major challenges in building your balanced scorecard is to keep the number of measurements to a manageable few. Throughout building the balanced scorecard, we try to follow the “4 to 5 Rule.” This rule says that we build balanced scorecards with four to five layers, four to five measurements per layer, resulting in not more than 20 to 25 measurements per scorecard (strategic maps).

However, indexing is a sword sharp at both ends. It helps reduce the number of measurements, but it also buries the results making it difficult to clearly see what is going on. The best approach is to use stand-alone measurements wherever possible.

One of the best benchmarks to apply to your measurements is to ask the following question: Can somebody understand your strategic objective by simply looking at your measurement? Keep in mind that you are trying to capture the best “cause and effect” relationship that you can. This is what makes a great balanced scorecard.

For example, what does this measurement say: % sales growth? This measurement implies that we have a strategic objective that must be related to growing sales revenues.

Suppose your strategic objective was not to increase sales revenues, but to increase return on shareholder equity. This changes your measurement to return on equity. Remember everything must be linked as you build your balanced scorecard

Measurement alone is not good enough. We must drive behavioral changes within the organization if we expect to execute strategy. This requires establishing a target for each measurement within the Balanced Scorecard. Targets are designed to stretch and push the organization in meeting its strategic objectives. For example, suppose the strategic objective is to improve customer satisfaction and the measurement is


Balanced Score Card

based on number of customer complaints. The average number of monthly complaints is 45 for the last 12 months. A target of not more than 30 complaints could be established. However this is dependent on the business cycles and practicality.

Targets need to be realistic so that people feel comfortable about trying to execute on the target. Therefore, targets should be mutually agreed upon between management and the person held responsible for hitting the target. One good place to start in setting a target is to look at past performance. Past trends can be extended for modest improvement. Your strategic goals can also give you clues as to what your targets should be. Another good source for targets is benchmarking for best practices. Make sure your targets match your measurements one to one, communicating what needs to change in relation to the measurement. Also be aware that targets may require considerable research. Finally, if past targets have not resulted in much change, then you should consider setting more aggressive targets.

Adding Measurements and Targets to the Balanced ScorecardPerspectiv

eObjective Measures

Target ‘03

Target ‘04

Financial

Financial Maximum

Return on Equity 12% 13%

ReturnsUtilization of Assets

Utilization rates 7% 8%

Revenue Growth% change in revenues

11% 11%

Customer Customer Retention

Retention % 75% 75%

Customer service Survey rating 85% 88%


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Customer Relations

Self Initiated calls 35% 40%

Internal Process

Fast delivery Turnaround time 15 m 14 m

Effective ServiceFist time resolvement

68% 70%

Optimal Cost % cost of sales 66% 61%Resource Utilization

Productivity indicator

78% 83%

Learning & Growth

High Skill levels Skill set ratio 65% 68%Employee Satisfaction

Survey Index 76% 79%

2003The final design step is to close the loop and put specific initiatives in place to make everything happen. This is perhaps the fun part in the entire process. How do we actually hit these targets and meet our strategic objectives? What major initiatives must the organization undertake to make all of this happen?

Initiatives are the major projects that facilitate execution of everything downstream within the scorecard. Some typical examples of initiatives include quality improvement initiatives, marketing initiatives, enterprise resource planning, and Customer Relation’s Management and supply chain management.

Initiatives usually have certain characteristics: Sponsored by upper level management

Utilizes designated leaders and cross-functional teams

Consists of deliverables, milestones and a timeline

Requires resources (people, facilities, allocated budget, etc).


Balanced Score Card

Once initiatives have been established and sold to various stakeholders, they tend to add some degree of strategic value or impact. However, getting a major program initially launched can be difficult due to funding, apprehension, politics and other obstacles. If existing initiatives lose funding, then you need to work back through your scorecard, adjusting your targets and making sure everything still fits.

One of the critical steps in selecting initiatives is to plot them against all strategic objectives and assess the strategic impact. This can be extremely important since executive management will routinely demand cost reductions. You don’t want to cut initiatives with the biggest strategic impact. This would undercut your ability in meeting strategic objectives. Initiatives with little or no strategic impact should get lowest priority within the organization.


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In the above example, notice that the Production Yield System and the Customer Management program impact three different strategic objectives while the IT Complaint Tracking program and the Community Awareness program fail to impact any strategic objective. Generally, since the Financial Perspective is the final outcome, there are usually no programs associated with driving financial related strategic objectives.

iii. Strategy Deployment Once we have designed the Balanced Scorecard, we need to implement it throughout the entire organization. This requires careful planning and coordination with all parts of the organization. We should have learned several lessons from our first stage scorecard: How to organize and kick off the process How to coordinate and gain consensus How to identify the benefits and difficulties associated with the

Balanced Scorecard An understanding of project deliverables

Also we should have knowledge about what factors influence implementation of theBalanced Scorecard such as: Time required developing a balanced scorecard Availability of data and resources for building the Balanced Scorecard Degree of support from upper level management


Balanced Score Card

The deployment phase will involve reviewing and aligning the first scorecard with other parts of the business (divisions, operating units, departments, etc.). We want to integrate the Corporate or Business Unit Scorecard into lower level scorecards. As we move the scorecard forward, a more formal collection and reporting system should emerge for the Balanced Scorecard. Once we get more and more scorecards working we will begin to explore the possibility of linking compensation to the measurements within the Balanced Scorecard.

Since strategizing takes place at the upper level of the organization, one place to start building the Balanced Scorecard is at the corporate level. Once again we can go back to our four to five rules: Build your scorecard at the upper layer of the organization, corporate; work your way down to the second layer, operating; then work your way down to shared service departments; next work your way down to the lowest levels such as department, teams, and individuals. By following this process, we ensure alignment. However, most organizations build their first scorecard at the strategic business unit level (such as operating units or divisions within the business).

The reason is simple. You want to build a balanced scorecard that covers the entire value chain; i.e. customers, production, sales, innovation and all elements that go into making a “complete” scorecard. Also by letting other business units start the process you may get stronger “buy in” to the Balanced Scorecard. For example, if executive management pushes the scorecard down to divisions, the divisions may see the scorecard as just another phony management program. By letting each division use the score card first and report back to executive management, the organization is better positioned for full-scale deployment of the Balanced Scorecard.

Balanced Scorecards often require continuous testing and modification to see if the technique really fits. This can be frustrating for executives who


Balanced Score Card

routinely expect perfect solutions right out-of-the-box. Keep in mind that you are testing something that has never been applied before and you must revisit the construction of your scorecard, adjusting and re-aligning it to fit with the organization. It is not unusual to postpone the rollout of additional scorecards for more than one year until the first scorecard is well established and working. Therefore, companies that have been successful with the Balanced Scorecard have a high tolerance for making change happen in a positive way.

For example, linking part of employee compensation to the Balanced Scorecard should be postponed until such time as you have the correct set of measurements.

Some other attributes of companies that have been successful with the BalancedScorecard includes the following:- A strong commitment from the top to the Balanced Scorecard.- A process for transforming strategies into balanced scorecards.- A cross-functional process for moving strategy down into the lower

parts of the organization.- Leveraging the Balanced Scorecard by using it with other processes

and activities such as budgeting, project management and regular management meetings.

These principles are often cited as components for shifting the organization into a strategic mindset. And this is the ultimate goal behind implementation of the Balanced Scorecard. However reaching this big “pay-off” is incredibly difficult for almost every organization since it means moving from a “strategic planning” organization to a “strategic thinking” organization.

Strategic Planning Strategic ThinkingA formal structured process of researching and analyzing the

A natural and intuitive process of seeing through the competition,


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competition in an effort to identify strengths, weaknesses, Opportunities and threats.

anticipating future trends and comprehending future changes required for the organization.

Planning Strategic ThinkingSince initiatives are the final component within our balanced scorecard and since programs require budgets, we need budgeting to follow right behind completion of the Balanced Scorecard. This extends linking to the next related activity. Therefore, linking budgeting to the Balanced Scorecard is another best practice. It’s worth noting that budgeting occurs at the tail end of the process and not at the beginning. For many organizations (especially government agencies), the reverse is often true. Budgeting drives decision-making and as a result, strategic implementation becomes exceedingly difficult.Best PracticesDeploying a balanced scorecard is more about strategic alignment, communication and change management. However, many organizations prefer to use a software application to help pull together the Balanced Scorecard. Unfortunately, most existing software applications cannot manage the information contained in the Balanced Scorecard. This is due to the fact that most systems are transaction oriented such as Enterprise Resource Planning (ERP) programs. It is estimated that less than half of the information for feeding the scorecard can be derived from transaction-based systems, such as ERP systems. Most of the information is stand-alone like customer surveys, employee suggestions and other independent sources. Therefore, full automation of the Balanced Scorecard can be somewhat of a challenge.

However, for companies seeking to deploy the Balanced Scorecard through automation there are several advantages:

- Provides users with rapid access to exception alerts.- Allows easy drill down to more details about measurements and

targets.


Balanced Score Card

- Easy to follow dependency paths show cause and effect relationships.

- Flexibility on making changes to the scorecard including organizational changes.

- Graphical reporting of measurements and relationships.- Facilitates control over who can see what within the scorecard

system.- Wide on-line distribution of company vision and strategy.- Analysis of strategy on-line.- Test relations against actual data for fine-tuning the scorecard.- Integration with other desktop applications.- Pre-defined templates and other applications make it easy to

change and update different components of the scorecard.- Drives rapid deployment of the scorecard with minimal manual

effort.

Since balanced scorecards cut across the entire organization, they are usually developed by cross-functional teams. The cross functional team consists of middle level management since they can serve as the bridge between the executive level where strategic thinking takes place and the lower levels where the strategy gets implemented.

Obviously, we need executive management to sponsor the Balanced Scorecard and support the cross-functional team. And at the same time we need feedback from lower levels of the organization, especially on the specifics of the scorecard. Managing teams is a big part of any balanced scorecard project since it touches all levels of the organization.


Balanced Score Card

One of the most common tools used for building balanced scorecards is the template. Templates are usually spreadsheets, organized to capture, compare and report data used in constructing the Balanced Scorecard.

Balanced Scorecards are not just for businesses. Since balanced scorecards are an extension of strategy and since strategy is essential to all types of organizations, balanced scorecards are appropriate for any organization concerned about the execution of its strategy.

4. Understanding SAIL Enterprise Map In the 16th September 2010, ED’s and GM’s articulated the Corporate Enterprise Strategy Map. Before, we move to a perfectibility journey on Balanced score card, we will use the template as a sample template for the Unit Strategy Map. This will be reviewed and course corrected in Feb 2011. It has to be borne in mind that the actual set-up of a particular Balanced


Balanced Score Card

Scorecard may vary from organization to organization because of very close linkages to particular establishment’s main functions, vision and strategy. For public sector organizations like SAIL, for instance, it would be necessary to reinforce the financial part of the section of Balanced to add additional features specific to Unit Dynamics and that can be dovetailed in the Unit Strategy Map.

5. Defining SAIL Unit Strategic MapAs a resource team, we will work on the draft Unit/Functional Strategic map. This will be a sample template. What we evolve here will be upgraded and aligned with the respective ED’s and GMs... This will be reworked in the workshop we do at every unit.The process for evolving the maps will be going through the following steps.


Balanced Score Card

i. Balanced Scorecard as a Strategic Management SystemFrom the management point of view it is also not particularly foreseen – it might be set up using the standard project management techniques (preparation- interviews-workshops-implementation-reviews) or be managed by a special unit that is co-coordinating the overall implementation.

It is to be remembered that the SAIL vision should be understood by each and every employee of the organization. If it is understood by the top management only, then it is definite that the organization will fail to realize its goals. Hence, before starting with the strategic implementation process, the organizations needs to be clear about the reason for its existence, where it wants to see itself after a certain number of years and properly decide its business definition. You as ED’s and General Managers should build a consensus around the organization’s vision and strategy. The strategies, in fact, emanate from the vision and mission of the SAIL which means that a linkage is formed between the strategies of the different business units and the vision of the organization. The lofty statements must be translated into an integrated set of objectives and measures. The first task in building up the Balanced Scorecard is clarifying and translating company’s vision and strategic goals. Thus, by using this tool, the overall strategic objectives for Your Unit/Function company gets clarified which helps to achieve consensus across different business units on the overall strategic objectives for SAIL.

The overall purpose of the strategic management is to find a single priority long-term goal which would serve as a basis in resource allocation and organizational development. According to the Balanced Scorecard methodology, the first item that the senior executives of a particular company should consider is the financial goal. The executive team may decide whether to head for revenues or market growth, profitability or cash flow generation or building talent pipe line or innovation in raw


Balanced Score Card

material procurement or creating a new brand pull on the value added products or re directing the R&D focus.

We will write our thoughts individually and then articulate the wisdom collectively to arrive at our common Language. Also, it is important to leverage best practices with in the varied SAIL units.

ii. Balanced Scorecard as a Measurement ToolCommunicating and Linking Strategic Objectives and Measures Just communicating the vision and the strategies are not an end in itself. The strategic goals and the measures to be set in the different areas have to be decided upon. The long-term strategic goals have to be translated into both departmental and individual goals which should be aligned to each other in order to realize the long-term goals. 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. 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.

In a very 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.

Steps included in the Phase of Testing the Results of BSC Implementation Testing phase of BSC implementation hold its unique position in the overall BSC concept. Again as applicable for other processes, it should too be instigated with a focused approach to eventually complete it successfully.


Balanced Score Card

The Testing phase encompasses of a 3-step process to be followed by the businesses as mentioned below as mentioned below:

Preparations prior to initiating the testing phase. The hypotheses underlying the BSC have to be explored to the maximum extent possible. Better formulation and implementation of strategy is achieved by proceeding with this step. Determining the results of parameters of Balanced Scorecard. This step of the result testing phase of BSC implementation aimed at calculating the actual results of the company and comparing it with the values of parameters. Divergence in the results are found out which finally enables the company to know what its current position is and where it wants to be in the future. Devising the ways to correct the performance of the BSC is also done in this step.

Updating the core elements of Balanced Scorecard. The core elements of BSC comprises of the objectives, strategies, measures and targets. Time to time update is what is invariably required for efficient usage of the balanced scorecard. Changes in the business environment may call for updating the core elements to help the company in staying focus towards the achievement of end goals. Updating is also required when the company requires improving the understanding of its employees regarding the BSC concept.

iii. Defining Critical Success Factors and MeasuresFinancial Perspectivesa) Financial Perspective – How do we look at shareholders? From all the

measurement perspectives of a Balanced Scorecard, the financial perspective needs to be introduced the least as the main financial measurement systems have been analyzed during the past years very thoroughly.

b) The particular financial performance measures for any Balanced Scorecard should define long-run financial objectives for the organization. While most of the organizations would emphasize


Balanced Score Card

profitability objectives, other possibilities may also be considered. Businesses with many products in the early stage of their life cycle can stress rapid growth objectives, and mature businesses may emphasize maximizing cash flow.

c) Norton and Kaplan recommend to simplify the financial perspective measurement selection pool to identify first the organization’s stage, which would mainly be one of the three:

i. “Rapid growth” organizations – are at the early stages of their life cycle. They may have to make considerable investments to develop and enhance new products and 11 services, to construct and expand production facilities, to build operating capabilities, to invest in systems, infra-structure, and distribution networks that will support relationships, and to nurture and develop customer relationships.

ii. “Sustain” organizations – organizations that still attract investment and reinvestment, but are required to earn excellent returns on their invested capital. These businesses are expected to maintain their existing market share and perhaps grow it somewhat. Investment projects will be more directed to relieving bottlenecks, expanding capacity, and enhancing continuous improvement.

iii. “Harvest” organizations – have reached a mature phase of their life cycle, where the company wants to harvest the investments made in the earlier to stages. These businesses no longer warrant significant investment – only enough to maintain equipment and capabilities, not to expand or build new capabilities. Any investment project will have to have very short and definite payback periods. The main goal is to maximize cash flow back to the organization.

d) The financial objectives for businesses in each of these three stages are quite different. Financial objectives in the growth stage will emphasize sales growth; sales in new markets and to new customers; sales from new products and services; maintaining adequate spending levels for


Balanced Score Card

product and process development, systems, employee capabilities; and establishment of new marketing, sales, and distribution channels. Financial objectives in the sustain stage will emphasize traditional financial measurements, such as return on capital employed, operating income, and gross margin.

e) Investment projects for businesses in the sustain category will be evaluated by standard, discounted cash flow, capital budgeting analyses. Some companies will employ newer financial metrics, such as economic value added and shareholder value. These metrics all represent the classic financial objective---earn excellent returns on the capital provided to the business.

f) The financial objectives for the harvest businesses will stress cash flow. Any investments must have immediate and certain cash paybacks. The goal is not to maximize return on investment, which may encourage managers to seek additional investment funds based on future return projections. Virtually no spending will be done for research or development or on expanding capabilities, because of the short time remaining in the economic life of business units in their “harvest” phase.

Some of the objectives together with a measurement measures

Objectives MeasuresSurvive Cash FlowProsper Increase in Market ShareProfitability Return on EquityCost Leadership Unit cost ( Price minus)


Balanced Score Card

Customer Perspective How should we appear to our customers? The customer perspective addresses the question of how the firm is viewed by its customers and how well the firm is serving its targeted customers in order to meet the financial objectives. Generally, customers view the firm in terms of time, quality, performance, and cost. Most customer objectives fall into one of those four categories.

In the customer perspective of the Balanced Scorecard, 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.

The customer perspective typically includes several generic measures of the successful outcomes from a well-formulated and implemented strategy. The generic outcome measures include customer satisfaction, customer retention, new customer acquisition, customer profitability, and market and account share in targeted segments. While these measures may appear to be generic across all types of organizations, they should be customized to the targeted customer groups from whom the business unit expects its greatest growth and profitability to be derived.

Market and Account Share Market share, especially for targeted customer segments, reveals how well a company is penetrating a desired market. For example, a company may temporarily be meeting 13 sales growth objectives by retaining customers in non-targeted segments, but not increasing its share in targeted segments. The measure of market share with targeted customers would balance a pure financial signal (sales) to indicate whether an intended strategy is yielding expected results.

When companies have targeted particular customers or market segments, they can also use a second market-share type measure: the account share


Balanced Score Card

of those customers’ business (some refer to this as the share of the “customers’ wallet”). The overall market share measure based on business with these companies could be affected by the total amount of business these companies are offering in a given period. That is, the share of business with these targeted customers could be decreasing because these customers are offering less business to all their suppliers. Companies can measure-customer by customer or segment by segment-how much of the customers’ and market segments’ business they are receiving. Such a measure provides a strong focus to the company when trying to dominate its targeted customers’ purchases of products or services in categories that it offers.

Customer Retention Clearly, a desirable way for maintaining or increasing market share in targeted customer segments is to retain existing customers in those segments. Research on the service profit chain has demonstrated the importance of customer retention.6 Companies that can readily identify all of their customers-for example, industrial companies, distributors and wholesalers, newspaper and magazine publishers, computer on-line service companies, banks, credit card companies, and long-distance telephone suppliers- can readily measure customer retention from period to period. Beyond just retaining customers, many companies will wish to measure customer loyalty by the percentage growth of business with existing customers.

Customer Acquisition Companies seeking to grow their business will generally have an objective to increase their customer base in targeted segments. The customer acquisition measure tracks, in absolute or relative terms, the rate at which a business unit attracts or wins new customers or business. Customer acquisition could be measured by either the number of new customers or the total sales to new customers in these segments. Companies such as those in the credit and charge card business, magazine subscriptions, cellular telephone service, cable television, and banking and other financial services solicit new customers through broad, often


Balanced Score Card

expensive, marketing efforts. These companies could examine the number of customer responses to solicitations and the conversion rate- number of actual new customers divided by number of prospective inquiries. They could measure solicitation cost per new customer acquired, and the ratio of new customer revenues per sales call or per dollar of solicitation expense.

Customer Satisfaction Both customer retention and customer acquisition is driven from meeting customers’ needs. Customer satisfaction measures provide feedback on how well the company is doing. The importance of customer satisfaction probably cannot be over-emphasized. Recent research has indicated that just scoring adequately on customer satisfaction is not sufficient for achieving high degrees of loyalty, retention, and profitability. Only when customers rate their buying experience as completely or extremely satisfying can the company count on their repeat purchasing behavior.

Customer Profitability Succeeding in the core customer measures of share, retention, acquisition, and satisfaction, however, does not guarantee that the company has profitable customers. Obviously, one way to have extremely satisfied customers (and angry competitors) is to sell products and services at very low prices. Since customer satisfaction and high market share are themselves only a means to achieving higher financial returns, companies will probably wish to measure not just the extent of business they do with customers, but the profitability of this business, particularly in targeted customer segments. Activity-based cost (ABC) systems permit companies to measure individual and aggregate customer profitability. Companies should want more than satisfied and happy customers; they should want profitable customers. A financial measure, such as customer profitability, can help keep customer-focused organizations from becoming customer-obsessed. The customer profitability measure may reveal that certain targeted customers are unprofitable. This is particularly likely to occur for newly acquired


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customers, where the considerable sales effort to acquire a new customer has yet to be offset from the margins earned by selling products and services to the customer. In these cases, lifetime profitability becomes the basis for deciding whether to retain or discourage currently unprofitable customers.

Newly acquired customers can still be valued, even if currently unprofitable, because of their growth potential. But unprofitable customers who have been with the company for many years will likely require explicit action to cope with their incurred losses.

Beyond the Core: Measuring Customer Value Propositions Customers’ value propositions represent the attributes that supplying companies provide, through their products and services, to create loyalty and satisfaction in targeted customer segments. The value proposition is the key concept for understanding the drivers of the core measurements of satisfaction, acquisition, retention, and market and account share. For example, customers could value short lead times and on-time delivery. They could value a constant stream of innovative products and services. Or they could value a supplier able to anticipate their needs and capable of developing new products and approaches to satisfy those emerging needs.

While value propositions vary across industries, and across different market segments within industries, Kaplan and Norton have observed a common set of attributes that organizes the value propositions in all of the industries where we have constructed scorecards. These attributes are organized into three categories.

Product/Service Attributes Customer Relationship Image and Reputation

Product and service attributes encompass the functionality of the product/service, its price, and its quality. The image and reputation


Balanced Score Card

dimension enables a company to pro- actively define itself for its customers. The customer relationship dimension includes the delivery of the product/service to the customer, including the response and delivery time dimension, and how the customer feels about the experience of purchasing from the company.

In summary, the customer perspective enables business unit managers to articulate their unique customer and market-based strategy that will deliver superior future financial returns.


Balanced Score Card


Objectives MeasuresNew Products % of sales from Newer

productsCustomer Relationship %of retained customersResponsive supply On time DeliverySTOMACH IS THE SIZE OF THE MARKET

LET US DISCUSS

Internal Business Processes Perspective What must we excel at? Internal business process objectives address the question of which processes are most critical for satisfying customers and shareholders. These are the processes in which the firm must concentrate its efforts to excel.

In the internal business process perspective, executives identify the critical internal processes in which the organization must excel. The critical internal business processes enable the business unit to deliver on the value propositions of customers in targeted market segments, and satisfy shareholder expectations of excellent financial returns. The measures should be focused on the internal processes that will have the greatest impact on customer satisfaction and achieving the organization’s financial objectives.

The internal business process perspective reveals two fundamental differences between traditional and the Balanced Scorecard approaches to performance measurement. Traditional approaches attempt to monitor and improve existing business processes.

They may go beyond just financial measures of performance by incorporating quality and time-based metrics. But they still focus on


Balanced Score Card

improving existing processes. The Balanced Scorecard approach, however, will usually identify entirely new processes at which the organization must excel to meet customer and financial objectives. The internal business process objectives highlight the processes most critical for the organization’s strategy to succeed.

The second departure of the Balanced Scorecard approach is to incorporate innovation processes into the internal business process perspective. Traditional performance measurement systems focus on the processes of delivering today’s products and services to today’s customers. They attempt to control and improve existing operations – the short wave of value creation. But the drivers of long-term financial success may require the organization to create entirely new products and services that will meet the emerging needs of current and future customers. But managers do not have to choose between these two vital internal processes. The internal business process perspective of the Balanced Scorecard incorporates objectives and measures for both the long-wave innovation cycle as well as the short-wave operations cycle.


Objectives MeasuresManufacturing excellence Cycle time per UnitSafety Incidence Index Number of AccidentsIncrease design Productivity Engineering efficiencyReduce product Launch Delays Actual Launch date vs. Plan


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Learning and Growth Perspective Can we continue to improve and create value?

Learning and growth metrics address the question of how the firm must learn, improve, and innovate in order to meet its objectives. Much of this perspective is employee- centered.

The fourth Balanced Scorecard perspective, Learning and growth, identifies the infrastructure that the organization must build to create long-term growth and improvement. The customer and internal business process perspectives identify the factors most critical for current and future success. Businesses are unlikely to be able to meet their long-term targets for customers and internal processes using today’s technologies and capabilities. Also, intense global competition requires that companies continually improve their capabilities for delivering value to customers and shareholders.

Organizational learning and growth come from three principal sources: people, systems, and organizational procedures. The financial, customer, and internal business process objectives on the Balanced Scorecard will typically reveal large gaps between existing capabilities of people, systems, and procedures and what will be required to achieve targets for breakthrough performance. To close these gaps, businesses will have to invest in re-skilling employees, enhancing information technology and systems, and aligning organizational procedures and routines. These objectives are articulated in the learning and growth perspective of the Balanced Scorecard. As in the customer perspective, employee-based measures include a mixture of generic outcome measures- employee satisfaction, employee retention, employee training, and employee skills- along with specific drivers of these generic measures, such as detailed indexes of specific skills required for the new competitive environment. Information systems capabilities can be measured by real-time availability


Balanced Score Card

of accurate customer and internal process information to front-line employees. 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.


Objectives MeasuresTechnology Leadership

Time to develop newer products

Manufacturing Learning

Time to new process Maturity

Product focus % of products representing 80% of salesEmpowered Teams No of Self Managed Teams working without

supervisionBuilding talent pipe line

No of people enabled and empowered to assume newer roles

6. Constructing a Balanced Scorecard –Sample Template

Constructing a Balanced Scorecard One of the possible ways to go through all the steps of construction of successfully operating Balanced Scorecard might be shortly described as seen on. 1. First, members of the organization would have to visit the SAIL vision.

Everybody in the organization has to agree upon one single goal where the organization has to be heading.

2. Then organization’s management has to recognize the strategies that will tell how to reach the vision.


Balanced Score Card

3. Then the perspectives have to be identified. In some businesses, not necessarily all four are relevant. Please look at the Unit strategy maps. In some areas, additional perspectives need to be measured.

Financial perspective (how do we look to our shareholders?) Customer’s perspective (how do we look to our customers?) Internal business process perspective (what processes do we

have to be good at?) Learning and growth perspective (how will we sustain our ability

to improve and change?)4. Then critical success factors for all the perspectives have to be found

out. Example: for customers we have to deliver on time, financially we have to be cost-efficient, on the development side we have to produce X amount of new ideas every week etc.

5. After the critical success factors are in place, they have to be measured somehow; therefore all the measurement systems have to be figured out.

6. The next step is to go through appraisal of the established draft Balanced Scorecard to identify whether it would start measuring the right things and assist the management to steer the organization to the right direction. It might be advisable to establish a test field to simulate how the Balanced Scorecard would start to respond to the actions taken.

7. Based on the preparatory work the detailed action plans should be created and proper reporting systems have to be established to start operation of the Balanced Scorecard.

8. Finally, it has to be remembered that the Balanced Scorecard is not a “finished product”. It has to be amended, improved and changed whenever there is a need for the organization to change something in its vision or strategic goals.

It has to be borne in mind that the actual set-up of a particular Balanced Scorecard may vary from organization to organization because of very


Balanced Score Card

close linkages to particular establishment’s main functions, vision and strategy.

Construct Model for BSC


Balanced Score Card

BSC Implementation: Templates & Typical plan (during practice sessions) See Annexure 2.

Analyzing Cause and EffectThe Four Perspectives: Cause and Effect Relationship. The four perspectives as mentioned above are highly interlinked. There is a logical connection between them. The explanation is as follows:

If an organization focuses on the learning and the growth aspect, it is definitely going to lead to better business processes. This in turn would be followed by increased customer value by producing better products which ultimately gives rise to improved financial performance.


LEARNING AND GROWTH

BETTER PROCESSES

INCREASED CUSTOMER VALUE

IMPROVED FINANCIAL PERFORMANCE

Balanced Score Card

How many Measures to Choose?After the measures have been set for all the perspectives, the organization may face the problem of having either too little or too many items to measure. Many aspects of our bodily functions must perform within narrow operating parameters if we are to survive. If our body temperature departs from a normal 1-2deg window (away from 37degrees Celsius) or if our blood pressure drops too low or escalates too high, we have a serious problem for our survival. In such circumstances, all our energies (and those of skilled medical professionals) are mobilized to restore these parameters back to their normal levels. But we don’t devote enormous energy to optimizing our body temperature and blood pressure. Being able to control our body temperature to within 0.01deg of the optimum will not be one of the strategic success factors that will determine whether we become a chief executive of a company, a senior partner in an international consulting firm, or a tenured full professor at a major university. Other factors are much more decisive in determining whether we achieve our unique personal and professional objectives. Are body temperature and blood pressure important? Absolutely. Should these measurements fall outside certain control limits, we have a major problem that we must attend to and solve immediately. But while these measurements are necessary, they are not sufficient for the achievement of our long-run goals. Similarly, corporations should have hundreds, perhaps thousands, of measures that they can monitor to ensure that they are functioning as expected and that will signal when corrective action must be taken. But


Balanced Score Card

these are not the drivers of businesses’ competitive success. Such measures capture the necessary “hygiene factors” that enable the company to operate. These measures should be monitored diagnostically with deviations from expectations noted rapidly; in effect, management by exception.

The outcome and performance driver measures on the Balanced Scorecard should be the subjects of intensive and extensive interactions among senior and middle-level managers as they evaluate strategies based on new information about competitors, customers, markets, technologies, and suppliers. Unlike the strategic measures selected for inclusion on the Balanced Scorecard, diagnostic measures are not the basis for competitive breakthroughs. As one executive remarked, after he had implemented his first Balanced Scorecard:

“Our division had always measured hundreds of operating variables. In building a Balanced Scorecard, we chose 12 measures as the key to implementing our strategy. Of these 12 measures, seven were entirely new measurements for the division.”

Choosing the right measures and right number of measures is definitely one of the most crucial parts in building up a Balanced Scorecard. Usually the set of 15-25 measures is identified as optimal, as for a single person in an organization 6-8 measures to follow is the maximum ceiling. In the case that the organization uses an IT system to follow the developments according to the Balanced Scorecard, the number may also rise accordingly. But it is impossible to give an optimum, for this is also up to the specifics of a particular establishment.


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7. Consultants Experiences, cautions, Do’s & Don’ts on BSC

It has to be remembered that the Balanced Scorecard is not a “finished product”. It has to be amended, improved and changed whenever there is a need for the organization to change something in its vision or strategic goals. Companies like Coromandel Fertilizers, BHEL have linked the BSC’s to policy deployment and have percolated to the junior most management of the organization.

Maturity processes takes two to three years. Process rigor is critical. In a public sector organization like BHEL the review of rigor is very robust. In fact the top management reviews this eleven times in a year and has been doing this for nearly a decade. In SAIL, the concerns have been the integration of leadership changes and adherence to systems /processes. The initial drill and rigor is must to make this part of the DNA. Each business head/Functional head, instead of looking at the macro direction, should ensure BSC in their area is robust.


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8. Frequently Asked Questions on BSC

1. SAIL is a 52 year Organization and we are a Maharatana.a. What is the necessity for the Balanced Scorecard? b. What are the challenges to make it successful?

As Balanced Scorecard is a tool, which is intended to link and align short-term operational and financial targets on long-term vision and strategy of business, the age of the organization does not matter. The tool itself is just two decades old while many organizations have adopted the tool to their organizational context.

SAIL usually measure the result in monetary terms and our Maharatana parameters are more linked to 65turnovers. The Income & Profit statements which we prepare for SAIL units do not reflect the true performance. Let us understand the various technological investments we have made and measure the ROC. Most of our performance measures are on Lag indicators and not on Lead indicators. Yes we are doing well but from a competitive perspective there are many areas where if we refocus, we will be able to develop internal capabilities which will be beneficial in the future and in doing so may not produce immediate profits but help in creating long term stability. Preparing for the future is about investing in competencies, cultivating customer relationships and creating appropriate databases.

Balanced Scorecard helps to translate the vision of the company into actionable operating plans which can be measured over time for its implementation. Despite the best intention of the company, quite often


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Vision & Mission statements remain as lofty ideals and statements like becoming best in class, customer focused etc; not supported by clear action plans and objectives which are measured. For people to act on the words of vision and strategy statements, these statements must be expressed as a set of objectives and measures agreed upon by the executives that describe a clear chartered direction for the company.

Balanced Scorecard helps in creating specific action plans with clearly defined measures and responsibilities for balancing and exceeding all the stakeholders’ needs instead of only focusing on profit figures. It is the operating system which helps in creating long-term capabilities and canalizing the day-to-day operational activities and achieving both long-term stability and short term profit objectives.

Like any other initiative BSC can succeed only if it is duly mandated and nurtured by Top management and a qualified cross functional team is allocated the responsibility of implementing it with guidance and steering by Top management... and Chairman has rightly emphasized this in the inaugural

B) There are several positives of SAIL and most of the people have tremendous loyalty, emotional attachment and they are both a plus and minus. Also talent depletion in view of attrition (both retirements and young talents) calls for a systemic thrust. Execution becomes our challenge and being highly layered organization, we need to look at redirection, course correction, better responsiveness and leverage the outstanding infrastructure environment we have today in the country. Cost, quality and speed are going to be a critical driver.

2. How does Balanced Scorecard help in creating a Strategy-Focused Organization?

Balanced Scorecard helps in creating a Strategy-Focused Organization, which has three distinct dimensions;


Balanced Score Card

Strategy – Make strategy the central organizational agenda.Balanced Scorecard allows organizations, for the first time, to describe and communicate strategy in a way that could be understood & acted upon Focus – Create incredible focusWith Balanced Scorecard as a ‘navigation’ aide, every resource and activity in the organization is aligned to the strategy Organization – Mobilize all employees to act in fundamentally

different waysBalanced scorecard provides the logic & architecture to establish new organization linkages across business units, shared services & individual employees.

3. How is Balanced Scorecard different from Annual Business Plans & Budgets?

Budgeting is a program for action based on assumptions of business performance expressed in financial terms. The Balanced Scorecard however uses not only financial terms but looks at performance of the company vis-a-vis its customers and also employees. These stakeholders are as important as shareholders (owners) and only when you keep them happy at all times with a clearly defined program can the company delivers financial results. Although the Budget will tell you in financial terms where one is, one needs to look at the other perspectives to stay ahead.

Thus, Balanced Scorecard helps organizations in integrating the changing needs and expectations of all its key stakeholders, viz., customers, shareholders and employees into a company program. The implementation of this program is systematically measured, evaluated and improved. Thus, the company moves on a self-regulating and self-correcting axis of continuous improvement, deriving its energy from within, i.e., from its people. This is the primary basis of building a learning organization.


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However SAIL BUSINEES PLANS come from the thrust areas of the Government of India on which our Annual Business Plans are drawn. In the current and next financial year, we will keep the ABP DOCUMENT as a driver and focus on the robustness of executing the strategies.

4. Balanced Scorecard is a complex model and it is difficult to communicate to employees. How can we simplify it?

The BSC is not really a complex model. It is based on three dimensions in time; yesterday, today and tomorrow. The ‘Financial Perspectives’ deal with the yesterday; the ‘Customer Perspectives’ and the ‘Internal Process Perspectives’ deal with today and the ‘Learning & Growth Perspectives’ deal with tomorrow. The four perspectives which comprise the basic model are:a) To succeed financially, how should we look to our shareholders?b) To succeed with our vision, how should we look at our customers?c) To satisfy our shareholders and customers, at what internal processes

should we excel?d) To achieve out financial & customer goals, how shall we sustain our

capacity to learn and grow?Also, it is time we focus on the three ring approach. We will selective shed the past (which are not relevant in today’s context), do the best concurrently and invent the future)

5. How do we integrate Balanced Scorecard measures and initiatives with Budgeting process?

The BSCs ‘Financial Perspective’ encompasses almost everything that the budget comprises of. It deals with revenues, costs and profits. In addition, Balanced Scorecard also captures performance data of the company vis-a-vis customers, employees and also effectiveness of internal processes and systems.

6. At some stage, can we identify KRAs of executives for the purpose of PMS through Balanced Scorecard measures?


Balanced Score Card

Yes. It is possible. Balanced Scorecard measures are lead to PMS since the PMS can be designed based on the BSC. Also today our KRA’s are not directly linked to the strategies and do not flow from the enterprise score card. The BSC approach will course correct this gap.

7. Does Balanced Scorecard help in identifying certain key issues that inhibits good performance requiring deeper analysis?

It certainly does. Since the measures are clearly thought out based on issues which are critical for the organizations’ success, any deviations / variations automatically trigger a need for a deeper analysis to find out reasons for deviations. This will help in understanding root causes and eliminating the constraints.

8. Is it required to prepare a monthly scorecard / report for all business units and how is it useful?

Yes. The annual plan can be broken down into quarterly / monthly plans giving milestones of achievement. This would help in taking corrective actions IN TIME so as to stay on course. But when BSC is initially rolled out it is suggested to have a quarterly score card. In a Public sector context, BHEL is a classic example where the rigor of monthly review has resulted in their process robustness and price minus strategy.

9. What are some common mistakes that one commits in companies due to which Scorecard implementation fails and how to avoid them?

Any change initiative in an organization requires a ‘buy-in’ by the users. Unless everybody involved is communicated about why there is a need for change, how that change will affect the company and the individual, and how both benefit by accepting the change initiative, there will not be total commitment.


Balanced Score Card

As Chairman has reiterated, it is very important for EVERY INDIVIDUAL to know about where the company is heading and how each individual is contributing towards achieving the company’s goals. Unless this is communicated, the BSC concept is hard to succeed. Hence transparency in information sharing is critical for success.

Furthermore, people should feel this as direction setting and development tool and not used for punitive action.

Tracking of measures as required by the Balanced Scorecard calls for some effort initially and hence objective owners may drag a little longer and feel uncomfortable to put a clear measurement system which may not exist currently. At this stage, close follow up is required by the implementation team and they should help the objective owners in simplifying the measures.

Strategic objectives and measures should be identified through a process of interaction and brainstorming with the team of managers who are responsible for the unit / departmental level performance.

In SAIL we will look at sufficient consideration to unique circumstances in which each and every profit centre is positioned and forces that are impacting them. This can differ from one Unit of SAIL to that of another. Thus each Unit will have its unique strategy and performance plan, which is linked up to specific measures, targets & initiatives. We should appreciate that Balanced Scorecard is an Enterprise Performance Tool and is not a Reporting Format.

10. Isn’t the balanced scorecard just the latest management fad that will soon pass away?

The “buzz word” may change, but not the underlying concepts, which are here to stay for a long time – thinking strategically, measuring performance, evaluating results, feedback – these are fundamental


Balanced Score Card

concepts in management that have been around a long time and will be here in the future. So managers who learn the methods of the balanced scorecard will be in a better position to lead in the future. They will have the right skills to think, plan and assess the success of their organizations – these skills will be valuable for the foreseeable future.

11. What are the benefits of the balanced scorecard approach? The benefits of the balanced scorecard have been identified by many organizations:

Improved organization alignment Improved communications, both internally and externally

Linked strategy and operations More emphasis on strategy and organizational results Integrated strategic planning and management

12. I understand BSC is good for SAIL, but what is in it for me personally?

It is a very good question. Like BSC addresses lot of intangibility, at a personal level, the focus facilitates you to reinvent your own job and the results your produce makes you noticed and leveraged. Many individuals, who have internalized the BSC in their DNA, have progressed in their careers very well. Even if you are in the last few years of service, the very process of following the BSC helps you in your future endeavors. While as a country, we have more young population the knowledge gap and the absence of technical depth at grass roots become a great USP for those above 50. For the younger teams, it is a new way of life to get noticed through your focused initiatives.


Balanced Score Card

13. How does the balanced scorecard compare to the Six Sigma management approach or TQM or TPM or Lean Management. Have we reaped the best of TQM and why now BSC?

A relevant question and true in most Indian organization. At the cost of wrong English, it is important that we should focus on the INITIATIVE TO FINISHIATIVE.

The fanfare of launch is not followed through in its spirit both in Execution and top management review.

While the balanced scorecard is almost always described as a strategic management system, Six Sigma is usually defined in terms of quality improvement related to internal business processes. Six Sigma is equivalent to approximately 3.4 failures per million events. To achieve these levels of quality, Six Sigma encompasses all aspects of a business, including management, service delivery, design, production and customer satisfaction.” Six Sigma was developed at Motorola, GE and Allied Signal, and is widely used in many businesses. While the original concept has expanded over the years to become more strategic, most balanced scorecard organizations will use Six Sigma as project initiatives to improve the efficiency of internal business processes.

In the case of Indian Public Sector Organization like BHEL Six Sigma and balanced scorecard have been integrated at design stage and also the system deployment is so robust, the measures are through six sigma. They both require dedicated top-level management support, a dedicated team of change agents, strategic alignment, implementation of improvement initiatives as projects, cultural change management, and a combination of top-down and bottom-up development. Also, Six Sigma practitioners often adopt the balanced scorecard as a way of deriving appropriate performance metrics.


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14. How does the balanced scorecard compare to the Baldrige? EFQM?

The Baldrige Award, the European EFQM is examples of organizational assessment tools. Usually, these assessment frameworks are used as “snapshots” of the current organizational situation at a particular point in time. The assessment uses a point scale to compare the actual situation against a 1000 points (perfect score) scale. Annual awards are given to a few organizations each year that demonstrate exemplary performance against the 1000 point scale. The balanced scorecard uses assessment data to determine what improvements and breakthroughs in performance are most needed, so that strategies can be crafted to meet these needs. The balanced scorecard includes much more than assessment, and is a dynamic strategic planning and management system.

15. Where can we get software to support the balanced scorecard?

The balanced scorecard is not a piece of software. The balanced scorecard is front-loaded with leadership, education, communication, and cultural preparation. However, once these are in place, there comes a time to consider the purchase of software to support the collection, reporting and analysis of balanced scorecard data.

The ePeoplePower, online Performance Management tool developed by the IT vertical of CEO gives several options to customize the process to the need of your organization. The tool is designed to automate the entire process eliminating administrative activities and gives complete access for strategic planning and goal deployment.

16. It is true that 54% of Western Organizations have followed BSC and how come the global melt down was not predicted in the Western Economy where the authors of Balanced Score card Live.


Balanced Score Card

It is a very interesting question and we need to look at the cause and effect analysis. If we look at the collapse of most of the financial services firm and that in turn affected the manufacturing in the west, the intent of BSC got short circuited. Financial perspective and deceptive customer pull resulted in mindlessness. Hence, it is nothing to do with the tool per say. It is Important from Indian perspective to understand the Karmic processes. Let us not chase the results but perfect the inputs. We are also in our reviews look more at the bottom line than the appropriateness of processes. AS Chairman said in his BSC inaugural, Mahatma Gandhi used Non-violence, a means; he never diluted to get the end result of Indian Independence. Non-violence is most intangible means but the outcome is the most outstanding.

17. How can we ensure that our balanced scorecard system is maintained in the long term?

It is important not only to build the system right, but to maintain it by continual use and re-education of personnel on its purpose and benefits. Since everything is changing in the business environment, a balanced scorecard program is never “done” – it is an ongoing journey. So the key is to maintain strategic alignment to mission and vision and desired long-term strategic results – these are unlikely to change much, and they provide a “pivot” around which everything else revolves. Leaders should help to clarify this vision.

18. What is the Uniqueness SAIL should focus while implementing the BSC?

This was another interesting question that emerged in the dinner meeting with ED’s and GM’s on the 16th September 2010 BSC Launch. If SAIL can look at Customers profitability and also looking at Customer’s Customer and their profitability, you will drive Price-minus and better value added product. Therefore examine, are your customers profitable? Are you able to leverage on your customer base? It is important all senior members of


Balanced Score Card

SAIL should read “Customers-Customer” and drive that psyche. Customer here would mean both internal and external.

Well if you dint know the answers for these, you can find them by implementing balanced scorecard. Yet amid all these measures of customer success, some companies lose sight of the ultimate objective: to make a profit from selling products and services.

CUSTOMER FOCUSSED OR CUSTOMER OBSESSED? In the josh to delight customers, companies become customer obsessed rather than being customer focused. If you keep on delighting the customer without measuring if they are helping to improve profit margins, it is called being customer obsessed.

Whereas if you know how much a customer has helped in increasing profits for the service he has taken from the company, its called customer focused.

BSC CUSTOMER PROFITABILITY METRICSThe ability to measure profitability at the individual customer level allows companies to consider new customer profitability metrics such as "percentage of unprofitable customers," or "rupees lost in unprofitable customer relationships." Such customer profitability measures provide a valuable signal that satisfaction, retention, and growth in customer relationships are desirable only if these relationships contribute to higher, not lower, profits.

BSC customer profitability metrics are also highly actionable. If a company finds that an important customer is unprofitable, it should first look internally to see how it can improve its internal processes to lower the cost-to-serve. After all, we can't expect customers to pay for our inefficiencies. For example, if important customers are migrating to smaller


Balanced Score Card

order sizes, the company can focus on reducing setup and order handling costs.

19. Which are the Indian Companies where Balanced Score Card is a success and is it copy righted?

Few excellent success stories should give us the energy that SAIL will be one organization that wills role model. In Public Sector, we have BHEL, and in private sectors, companies who have similar long history BSC is in CESC of RPG group(118 year old company), EID Parry(240 year old company), Tatas , ( 100 plus year old), and green field organizations like GMR, Vedanta(Sterlite) and hospital settings like CARE Hospital. Balanced scorecard is a generic management term, such as “information technology” or “performance measurement”. It is not trademarked or copyrighted.

20. What is my role in making BSC a success?This is one of the best questions that emerged in the dinner meeting with ED’s and GM’s in the 16th September Inaugural.

It is important to become an enabler. Environment will throw lot of disablers. But, the roles each one of you are in the SAIL, IS hierarchically and role holding wise, most coveted and important. Leadership is all about Laddership. Overcoming the obstacles and making your area as role model in the BSC perspective amidst presence or absence of cross functional support is the first step. Creating grass root inclusion is the second step. Influencing the cross functionality is the third step. Process robustness will take six to eighteen months to deliver the quantum leaping results and have patience. Then, you will be noticed and then there is no looking back. Do read more on BSC, visit successful organization and then you take the unthreaded path to become the bench leader not bench marker.


Balanced Score Card

9. BIBLIOGRAPHY Bossidy, L., Charan, R. (2002). Execution: The Discipline of Getting

Things Done. Bestseller by the CEO of Allied Signal. Brown, M.G., Hitchcock, D.E. and Willard, M.L. (1994). Why TQM Fails

and What to Do About It. McGraw-Hill, New York. Lots of good advice that is still relevant.

Cartin, T.J. (1993). Principles and Practices of TQM. ASQC Quality Press, Milwaukee, WI. Practical guide to the concepts and tools of total quality management.

Cox, B.G. and Chinnappa, B. N. (1995). Business Survey Methods. Wiley. NY. A good reference to help in the design of quality personal opinion and assessment surveys.

Deming, W. Edwards. (1986). Out of the Crisis. MIT Center for Advanced Engineering Study. Cambridge, MA. This is the classic book by Deming that summarized his teachings, which became the foundation for modern measurement-based management.

Drucker, P. (1985). Innovation and Entrepreneurship. Harper Business, NY. Ways that organizations can encourage new ideas, from the management guru who helped to inspire many of them.

Drucker, P. (1990). Managing the Nonprofit Organization. HarperCollins. The wisdom of Drucker in his prime. If you are a nonprofit manager you must get this book.

Fitz-enz, J. and Phillips, J. (1998). A New Vision for Human Resources. Crisp Publications, Inc. Brief outline of measurement-based HR management by the well-respected founder of the Saratoga Institute.

Gabor, A. (1990). The Man Who Discovered Quality. PenguinBooks. New York. A admirer's distillation of the teachings of -- who else? -- W. Edwards Deming.


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Hodgetts, R.M. (1998). Measures of Quality and High Performance. Amacom (American Management Association), NY.

Juran, J.M. (1989). Juran on Leadership for Quality. FreePress. New York. Widely known author of the TQM era.

Kalton, G. (1983). Introduction to Survey Sampling. Sage Publications, London. A brief introduction to the mathematical analysis involved in surveys.

Kaplan, R.S. and Norton, D.P. (1996). The Balanced Scorecard: Translating Strategy into Action. Harvard Business School Press, Boston, MA. The book that coined the term, but does not include strategy maps because they weren't invented yet.

Kaplan, R.S. and Norton, D.P. (2001). The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment. Harvard Business School Press, Boston, MA. Recommended for a manager's introduction to the key concepts.

Kaplan, R.S. and Norton, D.P. (2004). Strategy Maps: Converting Intangible Assets into Tangible Outcomes. Harvard Business School Press, Boston, MA. 400 pages of private sector strategy maps; 28 pages of government and not-for-profit strategy maps.

Kaplan, R.S. and Norton, D.P. (2006). Alignment: Using the Balanced Scorecard to Create Corporate Synergies. Harvard Business School Press, Boston, MA. An advanced BSC book for large corporate enterprises.

Kaplan, R.S. and Norton, D.P. (2008). The Execution Premium. Harvard Business School Press, Boston, MA. Linking Strategy to Operations for Competitive Advantage.

Kaydos, W. (1991). Measuring, Managing, and Maximizing Performance: What Every Manager Needs to Know about Quality and Productivity to Make Real Improvements in Performance. Productivity Press Inc. The title says it all.

Kaydos, W. (1998). Operational Performance Measurement: Increasing Total Productivity. CRC Press. An excellent treatment by one of our own consultants.


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Keehley, P. et al., (1997). Benchmarking for Best Practices in the Public Sector: Achieving Performance Breakthroughs in Federal, State and Local Agencies, Jossey-Bass. Explains the processes used in conducting benchmarking projects between governmental organizations.

Leidig, G. and Sommerfeld, R. (2002), Balanced Scorecard als Instrument zur Strategieumsetzung. Handbuch für die Druck- und Medienindustrie, Bundesverband Druck und Medien (German Printing Association), Wiesdaden (391 pp. incl. CD-ROM, ISBN 3-88701-238-0).

Leidig, G. and Mayer, T. (Hrsg.) (2002), Betriebswirtschaft und Mediengesellschaft im Wandel. Festschrift für Diethelm Schmidt und Lorenz Rottland, Bundesverband Druck und Medien, Wiesbaden (XVIII pp., 365 pp., ISBN 3-88701-237-2).

McCormack, C. and Jones, D. (1997). Building a Web-Based Education System. Wiley Computer Publishing, New York. Includes software to support all aspects of training.

Miller, G.J., Hildreth, W.B., Rabin, J. (2001). Performance Based Budgeting: An ASPA Classic. Westview Press. An anthology of the best academic articles on this subject. Includes an important article by ex-Senator Fred Thompson.

Mintzberg, H., Ahlstrand, B., and Lampel, J. (1998). Strategy Safari: A Guided Tour Through the Wilds of Strategic Management. Free Press, New York. Classic but advanced book that describes ten schools of strategic management.

Monahan, K.E. (2001). Balanced Measures for Strategic Planning: A Public Sector Handbook. Management Concepts, Vienna, VA. Outgrowth of a study done for the National Partnership for Reinventing Government (NPR). A practical reference book with numerous public sector case studies.

Olson, A., et al. (1995). Performance Measurement. Coopers & Lybrand LLP, Arlington, VA. A monograph by a leading supplier of management consulting to the US federal government.


http://www.bvdm-online.de/Aktuelles/

http://www.bvdm-online.de/Aktuelles/

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Olve, N., Roy, J. and Wetter, M. (English ed., 1999). Performance Drivers: A Practical Guide to Using the Balanced Scorecard. Wiley, New York. The Swedish approach to the BSC.

Olve, N., Roy, J. and Wetter, M. (English ed., 2003). Making Scorecards Actionable: Balancing Strategy and Control. Wiley, New York. An update on progress with the BSC in several mostly Scandinavian companies.

Pederson, L.M. (2002). Performance-Oriented Management: A Practical Guide for Government Agencies. Management Concepts, Inc., Vienna, VA. Includes how to facilitate offsite strategic planning retreats, develop performance management systems, and conduct Baldrige assessments. Contains several assessment tools in appendices.

Raj, D. (1968). Sampling Theory. McGraw-Hill. NY. Textbook on survey and experimental design.

Savage, S.L. (2003). Decision Making with Insight. Brooks/Cole - Thomson Learning, Belmont, CA. Contains software for making analytical decision models and Monte Carlo simulations with Excel spreadsheets.

Shewhart, W. (1939). Statistical Method from the Viewpoint of Quality Control. in Deming, W.E., ed., Graduate School of the Department of Agriculture. Washington, DC. Shewhart was the inventor of SPC (Statistical Process Control) which was an early form of performance measurement and control of industrial processes.

Tingey, M.O. (1997). Comparing ISO 9000, Malcom Baldrige and the SEI CMM for Software, Prentice-Hall. A reference and selection guide for these three quality management assessment methodologies.

Van Grembergen, W. (2001). Information Technology Evaluation Methods & Management. Idea Group Publishing, London. Collection of scholarly studies by various authors that includes balanced scorecard concepts as they relate to IT management.

Wholey, J.S., Hatry, H.P. and Newcomer, K.E., eds. (1994). Handbook of Practical Program Evaluation. Jossey-Bass, San Francisco. A major 600-page textbook written by key leaders in US government program evaluation.


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Also the internet down load case studies has the authors mentioned in the down load. Plus experiences of the facilitators in Indian companies.

10. Sample BSC Template

BALANCED SCORE CARDNAME OF THE BUSINESS / SBU / DEPT / INDIVIDUAL ACIDS BUSINESSYEAR 2009-2010

FINANCIAL PERSPECTIVE

S.No. ObjectiveTarget

UOM Weightage2008-09 2009-10

1.1 Maximization P2O5 Production 163607 224000 MT 51.2 Improve EBIDTA 687 192 Cr 51.3 Improve P2O5 Recovery 96.54 97.18 % 51.4 Achieve Zero cost and beyond 477 -1190 Rs/MT 51.5 Strategic Rock Sourcing 5.96 7.75 Lac MT 5

25CUSTOMER PERSPECTIVE



2.1 Improve market share in Gypsum 55 60 % 52.2 Customer satisfaction and retention 80 85 % 52.3 To develop Slag market 2.2 10 Lakh MT 102.4 To construct the tank terminal in port In progress Completed Timeline 2

2.5 To Control Fluorine emission & Dust Emission in plant <25 Mg/Nm3 3

25INTERNAL BUSINESS PROCESS PERSPECTIVE



3.1 TPM (GOVIND) Continuous Continuous Modules 5

3.2 To benchmark with top 3 plants in Asia in Operational parameters and submit the report NA 9-Dec timeline 5

3.3 Anti dumping duty initiation by Ministry In process 9-Dec timeline 5

3.4 CRM conceptualization & business case study NA 10-Feb timeline 5


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3.5 To Implement TQM projects 1 2 Nos 525

L&G PERSPECTIVE



4.1 SPIDER - Phase III to be completed 75 85 % 5

4.2 Ideas Implementation 4 2Nos/

employee/year

5

4.3 Star development 5 8 nos 54.4 women employees <10% 11%-15% % 5

4.5 Skill enhancement for employees 0 4 nos. per year 5

25


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Participants Handbook.on BSC

Documents

Transcript of Participants Handbook.on BSC