ScoreCard 3rd Gen

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Performance Management &  the 3rd Generation Balanced Scorecard  An Introduction

© 2009 2GC Limited. All rights reserved.   This document is protected under copyright by 2GC Limited. Limited. The following terms and conditions conditions apply to its use: Photocopying Photocopying - single photocopies may be made for personal use as allowed by national copyright laws. Permission from 2GC and payment of a fee is required for all other photocopying, including multiple or systematic copying, copying for advertising or promotional purposes, resale, and all forms of document delivery; Derivative Works – Permission from 2GC is required for all derivative works, including compilations and translations; Electronic Storage or Usage - Permission from 2GC is required to store or use electronically any material contained in this document. Except as outlined above, no part of this document may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of 2GC Limited.

2GC Limited Albany House Market Street Maidenhead Berkshire SL6 8BE UK +44 (0) 1628 421506 www.2gc.co.uk  [email protected] 

 

Performance Management & 3rd Generation Balanced Scorecard

Purpose of this slide pack  •



Welcome – this 2GC slide pack has been produced to introduce you to Performance Management and the Balanced Scorecard This pack should help you to improve your  understanding of… What is Performance Management What is Balanced Scorecard Why use Balanced Scorecard How to design a modern Balanced Scorecard How to implement your Balanced Scorecard

“The Balanced Scorecard fills the void that exists in most management systems - the lack of a systematic process to implement and obtain o btain feedback about strategy.”

Robert Kaplan & David Norton “The Balanced Scorecard”, HBS Press, 1996

© 2GC Limited, 2009  - April 2004

Performance Management & 3rd Generation Balanced Scorecard

1

 

General Management Issues Section Summary:

General Management Issues

Performance Management – Key to Strategic Success

3rd Generation Balanced Scorecard

Designing and Deploying Balanced Scorecard – Best Practice Insights Next Steps – Getting ready to Implement in Your Own Organisation

© 2GC Limited, 2009  - April 2004

In most organisations the communication of strategic goals and objectives is poor – so it is hard for people in the organisation to know what to do . . . . . . and it is therefore hard for senior managers to check that the right things are being done – what are the ‘right’ things’? The result: only one third of organisations believe they are successful in implementing their strategic goals Strategic success therefore requires that people are clear about what needs to happen, and that managers get useful information about this activity.

Performance Management & 3rd Generation Balanced Scorecard

2

 

General management issues What are the issues? Dilbert

From: “Dilbert - A Treasury Of Sunday Strips: Version 00” by Scott Adams, (Andrews McMeel Publishing 2000)

© 2GC Limited, 2009  - April 2004

Performance Management & 3rd Generation Balanced Scorecard

3

 

General management issues The management challenge How to decide what to do? How to balance the actions required over time? How to effectively communica communicate te what is needed to the wider  organisation? How to make these decisions relevant to the rest of the organisation? How to confirm that the necessary actions are actually being taken?

© 2GC Limited, 2009  - April 2004

Simply measuring an organisation’s performance does not by itself ensure that the organisation will begin to perform as either it should do or  could do

Performance Management & 3rd Generation Balanced Scorecard

4

 

General management issues Implementing strategic goals is difficult Percentage of organisations having . . . .

 Almost all organisations organisations have a strategic vision . . . but few manage to realise it 97 %

80 %

52 %

33 %

Clear

Some

Significant

strategic plans

strategic success

strategic success

Vision

“You have got to succeed at doing what is necessary”

 From: Strategic PerformanceMeasurement & Manag ement  Business Intelligence/Renais sanceWorldwide,19 97 

Sir Winston Churchill 

How do successful organisations achieve their strategic goals?

© 2GC Limited, 2009  - April 2004

Performance Management & 3rd Generation Balanced Scorecard

5

 

Performance Management Section Summary:

General Management Issues

To be able to design a performance management system, you must first be clear about what it is you are trying to achieve - i.e. what is ‘good’ performance To know if ‘good’ performance is being achieved you need a process to supply useful information about…

Performance Management – Key to Strategic Success

3rd Generation Balanced Scorecard

Designing and Deploying Balanced Scorecard – Best Practice Insights Next Steps – Getting ready to Implement in Your Own Organisation

© 2GC Limited, 2009  - April 2004

!

!

Whether the actions needed to improve performance are being carried out Whether the actions being carried out are having the desired impact

Carried out poorly, the activity to collect performance information is focused on too many (of the wrong) things, and the organisation then struggles to usefully define targets, evaluate performance, or use the available information to drive improved behaviours Some of these issues can be addressed by using a standard framework for the Performance Management system design. Performance Management systems have evolved to support the articulation, communication, monitoring and updating of strategic goals as part of an efficient, proven management process The most commonly used Performance Management framework is the Balanced Scorecard

Performance Management & 3rd Generation Balanced Scorecard

6

 

Performance Management How successful organisations drive strategy implementation Management checks that actions are being completed and results are being achieved

Management decides what needs to be achieved, and documents these decisions 1

 Articulate the Strategy

2

Communicate the Strategy

3

4 Monitor  Activity

Manage  Activity

Management

Management

communicates these decisions to the rest of the organisation

takes action when results are different from those expected

Strategic Success

Traditional Performance Management has focused on the last two steps

© 2GC Limited, 2009  - April 2004

Performance Management & 3rd Generation Balanced Scorecard

7

 

Performance Management What happens when strategy is unclear? With the strategy unclear, managers:

Only 2/3* of senior executives understand how the strategy relates to their own own job . . .

 Articulate the Strategy

Communicate the Strategy

. . .shop and only floor1/10* staff of understand how the strategy relates to their own job

• • • •

Selec Selectt unhelpfu unhelpfull p perform erformance ance measu measures res Selec Selectt too too man many y pe perform rformance ance measur measures es Att Attemp emptt to monito monitorr ‘eve ‘everyt rythin hing’ g’ Don’t re really ally kn know ow what is goin going g on acro across ss the or organis ganisation ation

1

2 Monitor  Activity

Manage  Activity

?

When monitoring is done poorly, managers:

• • • •

Can Can’t ’t se see e the w wood ood ffor or th the e tre trees es Attem Attempt pt to m manage anage with iinadeq nadequate uate intelli intelligence gence Strug Struggle gle to exercise exercise con control trol ove overr organi organisatio sational nal acti activities vities Fail to re realise alise organ organisati isational onal poten potential tial

Frameworks are helpful in deciding what to measure . . . * Survey, Business Intelligence / Renaissance Worldwide, 1997 © 2GC Limited, 2009  - April 2004

Performance Management & 3rd Generation Balanced Scorecard

8

 

3rd Generation Balanced Scorecard Section Summary:

General Management Issues

Performance Management – Key to Strategic Success

3rd Generation Balanced Scorecard

Designing and Deploying Balanced Scorecard – Best Practice Insights Next Steps – Getting ready to Implement in Your Own Organisation

© 2GC Limited, 2009  - April 2004

The original Balanced Scorecard concepts were developed in the late 1980s – and were publicised by Kaplan & Norton in a 1992 Harvard Business Review paper Early Balanced Scorecard focused on strategy and vision, but said little about how to design or use effectively Over last decade the understanding of Balanced Scorecard has improved – Balanced Scorecard design and design methods have evolved to address the shortfalls inherent in the original approach The latest version of Balanced Scorecard is “3rd Generation” – it offers major benefits to users and developers over prior versions !

Quicker to develop, more reliable, easier to use, set targets for, and to cascade within organisation

Performance Management & 3rd Generation Balanced Scorecard

9

 

3rd Generation Balanced Scorecard Balanced Scorecard first appeared in 1992 Kaplan & Norton’s 1 st  Generation Balanced Scorecard 

Financial “To succeed financially, how should we appear to our shareholders?”

Objectives

Measures

Targets

Initiatives

Customer  “To achieve our vision, how should we appear to our customers?”

Objectives

Internal Business Processes Measures

Targets

Initiatives

“To satisfy our shareholders & customers, what business processes must we excel at??”

Vision & Strategy

Objectives

Measures

Targets

Initiatives

Learning & Growth “To achieve our vision, how will we sustain our ability to change and improve?”

Objectives

Measures

Targets

Initiatives

But 10 years have seen some major improvements to this framework  © 2GC Limited, 2009  - April 2004

Performance Management & 3rd Generation Balanced Scorecard

10

 

3rd Generation Balanced Scorecard Best practice Balanced Scorecard has evolved 1st Generation Balanced Scorecard

First Generation

Financial Ob ejc it e vs

“Tosucceed financially,how should we appear to our shareholders? ”

Measures

Targets

I int ai it e vs

Customer

InternalBusinessProcesses

Ob ejc itev s Measures

“Toachieveour vision, how should we appear to our customers? ”

Targets

I inia t itev s

“To satisfyour Ob ej tcvie s Measures shareholders& customers,what business processesmust weexcelat?? ”

Vision& Strategy

Targets

In ti tavie s

Learning & Growth “Toachieveour vision,howwill we sustain our abilitytochange andimprove? ”

Ob ejc it e vs

Measures

Targets

I int ai it e vs

alanced Scorecards

broke new ground by combining financial and non-financial performance measures grouped into four perspectives

©2GCLimited,2003.

Strategic Linkage Model   e   v    i    t   c   e   p   s   r   e    P    l   a    i   c   n   a   n    i    F

ImprovedShareholder Value(ROCE)

Gross Contribution (AfterCitySales and Marketing)

Sales Growth(byCity byProduct)

  e   v    i    t   c   e   p   s   r   e    P   r   e   m   o    t   s   u    C

Overheads as a%of  NSV

 AssetTurn

I H av eaG ood RelationshipwithDBX

DBXUnderstands and Responds tomyNeeds

DBX has an ExcellentConsumer Franchise DBXProducts aremy FirstChoiceProducts

  e   v    i    t   c   e   p   s   r   e    P

DriveTradeTerms by Channel

   l   a   n   r   e    t   n    I    h    t   w   o   e   r   v    i    G   t   c    &   e   g   p   s   n   r    i   n   e   r   a   P   e    L

DevelopandRetain ProfessionalManagers

DBXProducts areGood ValueforMoney

DevelopProfessional, CustomerOriented,Skilled Sales Force

DBXProducts areVisible andAvailable

DeliverExcellent Consumer  Propositions

ImplementMajor   AccountManagement Programme

DeliverCustomer  ServiceStandards

DeliverExcellent InternalCustomer  Service

UnderstandImpactOf  Various Marketing Levers

EffectiveManagement ofCompanyAssets

DevelopService  Agreements

EffectiveControlof  Business (NoSurprises)

DevelopBetterWo rk Practices andIS

©2GCLimited,2003.

Second Generation

alanced Scorecards

defined strategic objectives, linked together using a causal ‘strategy map’ to help identify the activities and results that needed to be measured

Destination Statement Distribution: 50 Cities

Ma Di D g n iarr  o tc e i

Ma k e r  itn g D Di e r  o c tr  i

Ma Di D g in r  ru tc a f  f rr  o tc e    i

SalesVolume:

Sa Di D s e lrr  o tc e  i

50,000 MT

OneManufacturingSite Pr  o d u M c tMa n a g e r  r  a

Re Sa S la n o igMa M s e l rr  e g a na a

Fa Di D ry o r  tcrr  o tc e   i

SalesRevenue

:

Nomorethan6 CoreBrandProducts

£50 Million

ROCE: 7% CapitalEmployed:

No more than £45 million

Minimumsalesvolumes:  –5,000 MT foreach core brand

EmployerofChoice: (# 1 in industryand ranked in FMCG top 10)

 –2,000MT foreach product

Marketing

• •

Clearbrand propositi/systemsestablished forthe sixcore brands DBXhas two ofthetop fivecategoryproduct brands Product/house brand awarenesstargetsin DBXcity strategiesachieved

Overall:

D B X s e e n a s o n efot o p 1 0 FM C G C o . servicing keyaccountsin the country(and #1 in

CustomerMarket Focus:

Salesstaffachievingset targetsinlinewithcitystrategiesforfocuson customer  and marketissues

Citymarket share targetsachieved within agreed budget Modelsand measuresofthe relativempactofall i

• Assessus ingdistributionbychannel,visibilityandtrade promotions

marketingleversavailabletoassistintheevaluation/ targetingofmarketingactivity

ImprovedSkillsandProcesses:

Standardised and transparentsales processes developed and agreed within DBXand with Group • Salesteamskillstargets(based on ex ternalbenchmark comparisons)achieved through training and recruitment

ImprovedSkillsandProcesses:

Standardised and transparentmarketing processesdeveloped and agreed within DBXand with Group



Marketing teamskill stargets(based on external benchmarkcomparisons)achieved through training and recruitment(where applicable)

sation al al Organi

(where applicable)

Structur e

• Clearscopeandrolestatements existforall &Marketing):

InformationSystems

functi(including

• S u p p o r t i n g f u n c t i ( i nl u c d in g s u p p lc y h a i n )iw l l b e a c h ivei n g a l l agreedservicelevel targets withsales & marketing

SupplyChain C o s t ef ifc i e tns u p p l c y h a i n b sae d o n f lxei b l e p rdo u cot in l i n e w s • Increasedresponsivenesstomarketdemands • L o w e r c y c l e t i mse • Product/channel freshness targets

’s

category)

Mediaandpromotionalstrategy: •

Third Generation

Sales

Branding:

Sales

 Appropriateinformationsystems thatwill meet DBX’sneeds • An ll e c e s s a r m y a n a gm e e n t i nof r m a ot in p r o ud c e d w hi t i n p r e scales •

• id ll e liv e r :

- a g r e de t i m e l i n a se n d

Management

S e n i o r m aang e m e n t iw l l b e c o m mti te d t o o w r k i n g no s t r aet g y a n d e t h e i r a ibl i t yt o c o ahc/ a d v i s e / g iud e a n d e nusr e t h tat a s k sa r effectively. P r o f ses i o n lm a id d le m a n a gm e e n t wlei l x i s t t h a t iw l lb e

v a l u aet d o n e d e l e g ae td

a b l e t o at cm o r e

i n d e p ne d e nl yt w i t h i n ed f i n e d ug i d e l ien s , a n d h vae t h e s k l l isr e q /role  – Successionplans forkey positi w ille x is t  – Recruitingandtrainingpol icies will aim t o r a e i sm i d d l e m anage competencetomeetinternationalstandards

u i r e dof r t h e ior jb

me n t

alanced Scorecards

use the creation of a “Destination Statement” as the starting point for choosing Strategic Objectives, selecting measures and setting targets

©2GCLimited,2003.

Building a modern Balanced Scorecard requires a good design process

© 2GC Limited, 2009  - April 2004

Performance Management & 3rd Generation Balanced Scorecard

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3rd Generation Balanced Scorecard Key components

Strategic Objectives developed directly from a detailed “vision” of the organisation at a future date called a Destination Statement

Destination Statement To build management consensus

Destination Statement Distribution:

To articulate the intended results of implementing the chosen strategy

50 Cities

M D g n iar  ro tc e i 

M D g n itk e r  rar  ro tc e i  

M Di D g n ir  ru tc a f  fr  ro tc e    i

SalesVolume:

Sa Di s e D l r  ro tc e i

50,000 MT

OneManufacturingSite Pr  M tc u d or  re g a n 

Fa Di y D r  ro tcr  ro tc e  i

Re Sa S la n o igs e M l r  re g a na 

SalesRevenue

:

Strategic Linkage Model

Nomorethan6 CoreBrandProducts

£ 50 Million

ROCE: 7% CapitalEmployed:

No more than £45 million

EmployerofChoice:

Minimumsalesvolumes:  – 5,000 MTforeach core brand  – 2,000MTforeach product

Marketi ng

Sales

Branding:

To identify what actions must be taken, and what interim outcomes are required, to deliver the strategy

• •

Clearbrand propositi/s ystemsestablished forthesixcorebrands DBXhas two o fthe topfive categoryproductbrands fthe Product/housebrand awarenesstargetsin DBXcit y strategies a chieve d chieve

Overall: DBXse e n aso n e ofto p 10 FM CGCo . category)

CustomerMarketFocus:

Sales staffachieving set targetsinline withcitystrategies forfo c cuson uson customer  andmarketissues • Asse s ssusing susingdistributionbychannel,visibilityandtrade promotions

Citymarket sharetargetsachiev edwithinagree dbudget ed

Modelsand measuresofthe relative impactofall tofall marketingleversavailabletoassistintheevaluation / targeting ofmarketing activity

ImprovedSkillsandProcesses:

Standardised and transparentsales processes developed and agreed within DBXand with Group • Salesteamskillstargets(basedonexternalbenchmark comparisons)a chieved chievedthrough trainingand recruitment (whereapplicable)

ImprovedSkillsandProcesses:

Standardised and transparentmarketing processesdeveloped and agreed within DBXand with Group



Measures & Targets

Marketing teamskillstargets(based on external benchmarkcomparisons)achievedthroughtraining and recruitment(where applicable)

Organisational

To track whether objectives are being achieved

Structure ure

InformationSystems



Clearscopeandrolestatementsexistforall & Marketing):



Suppo r ti ng fu n cti t i (ni c l ud i n g s u p pl y c h ani ) wi l b l e a c hei v i ng a l l agreedserviceleveltargetswithsales&marketing

functi(including d ing

Sales

 Appropria tteinformationsystemsthatwill einformationsystemsthatwill meet DBX’s needs • A l l n e c es s ayr m a n a ge m e n ti nfo r ma ti o n pr o d u c e d wi th in p re scales •

SupplyChain Co s te ff icien ts t s u p pyl c h a i n ba s e d o n fle x i bl e p r od u cito n l i ne s w • Increasedresp o onsivenesstomarketdemands nsivenesstomarketdemands • L o we r cy c l e tim e s • Product/channel reshnesstarge f ts ts

To drive the right management actions

’s

servicing icing keyaccountsin the country(and #1 in

Mediaandpromotionalstrategy: •

(# 1 in industryand ranked in FMCG top 10)

i l l d e lvi e r :



- a g r e d ti m eiln e s a n d

Management

S e ni o m r a na g e m e nt w i l b e c om m i tte d ot w o kr i n g o n srt at e gy a n d e th eri a b i lty i to c o a ch /a d v i s e /g ui d e a n d e n s u r eht a tta sk s a r effectively. P r oef s soi n a m l i d del m a n a g e m e n twi l e l x i stth t th a twi l lb e i n d ep e n d e n tl y with i n d e fi f i n e d gu i d el i n es ,a n d h a e v th e s k ills r e q

v a ul aet d o n edeleg a te d

a b l e to ac tm o r e u i r ed fo r th ei r j o b

/role  –  –

Success ionplansforkey i onplansforkey positi will exist Recruitingandtrainingpol icieswill aim t o a r ie s md i d el m an a ge competenc e etomeetinternational tomeetinternationalstandards

m en t

© 2GCLimited,2003.

Strategic Linkage Model

Balanced Scorecard Measures & Targets     s     e     m     o     c      t     u      O

O7: Brand(s) knownby clients (ER5) O4: Environmental Footprint (EO2)

O3: Agency Estate (EO8)

(EO3)

O11:Advocacy (EO1)

Objective

O5:Partners &  Customers influenced by EA (ER1)

O2: Environmental Impact (EO7)

O10:Informing Government

O6:Customers rateEA as Best in Class ( ER3) ER3)

O12: (EO5)  Awareness

O8:EA is Trusted  Advisor / Partner

(EO6)

© 2GC Limited, 2009  - April 2004

 A2: Maintain Quality (14001/ 9001) (ROC1,AP6)

 A3: Better Processesfor BetterServices

 A5: Implement Change Programmes

(ROC5,AP7)

(ROC1,AP1)

 A4: Develop our people (ROC3,ROC4)

Cas h & as s et management

Sales&profit growthfrom existingbusinesses

 A9: Go and meetpeople

Causality is shown by linkages between the objectives selected

Val ue

Tar get

F1.1

-30p

150p

F1.2

8

18

F2.1 O13: Environmental Incidents (EO4)

O9: Delivery of Programme

 A1: Deliver Procurement Improvements

Status Measure

Per formanc e comm ents for objective

Obj ective Owner

Dividendexpectedkeptat 28p. for wholeyear, butsharepricestill around 1,000penceleading to lowP/Ecomparedwithsectorand results from om previousyears

NG

Increasing cashinflowfromdivisions Aand Dbut levels ofinvestments in B,Cand Emakes thegroupcash negativeforatleastanother 12months

NG

DivisionEstill far behindbudgets.Cpositive, butbelow budget. Aon budget(flatbudgets). L4Lsales positiveinD drivenbybrands. Cindex 120onL4L

NG

No major M&Atargets insightyet. Pipelinecover -50% due to aggressive growthtargets combinedwithsevere scarcityoftargets. Profitmixand growthmarketnumbers notavailableyet

NG

Coston average10% >Category1competitors. Onlevel withcategory hcategory 2 competitors

NG

Moreshareholders vary aboutour futureearnings potential dueto dropin TSRand general negativepress.All is down to nextbig announcement indicating newthrust anddirection

ES

(ER2,ER4,ER6)

O1:Partners &  Customers useEA eBusiness solutions(ER7)

    s     e(ROC3,RO5)      i      t      i     v      i      t     c      A

Outperform capitalmarkets

Successful deal doing  A8: Improve Productivity (ROC5,AP2,AP7)

200

185

F2.2

-6

4

F3.1

1,550

1,442

F3.2

652

488

F3.3

93%

90%

F4.1

17

24

F4.2

257

600

F5. 1

7. 65%

7. 44%

Competitivecost ofcapitalvia capital structure

 A6: Improve Healthand Safety (ROC1)

 A7: Changeour Systems (ROC4, ROC5, ROC7, AP7,  AP8)

Shareholders supportandback strategies

Rsh1.1

65%

74

Rsh1.2

8

7

© 2GC L imited, 2003.

© 2GC Limited,2003.

Performance Management & 3rd Generation Balanced Scorecard

12

 

3rd Generation Balanced Scorecard Benefits of 3rd Generation design •

Efficiently builds management team consensus



Faster to develop than earlier designs



Easier to use for target setting









Identifies linkages between the strategic activities required and the strategic outcomes desired Better for communicating strategic priorities within organisation Drives selection of meaningful performance measures Enables better strategic alignment:  Vertically between organisational organisational units - Balanced Scorecard cascades are now practicable Horizontally, between organisational units at same level Between people and their organisational unit



© 2GC Limited, 2009  - April 2004

Produces a Balanced Scorecard with greater  longevity

Performance Management & 3rd Generation Balanced Scorecard

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Best Practice Design & Deployment Section Summary: Requirements of a best practice design process

General Management Issues

!

Short

!

Engaging

!

Efficient use of managers’ time

!

Performance Management – Key to Strategic Success

!

Developed in the round – transparent, not magic!

Deployment !

!

3rd Generation Balanced Scorecard

Designed by the eventual users of the Balanced Scorecard /  Performance Management system

!

Cascade is a powerful mechanism for alignment, even in complex organisation Integrate fully with other business processes Need to build maintenance ability into organisation during design process ! ! !

Designing and Deploying Balanced Scorecard – Best Practice Insights

!

!

!

!

© 2GC Limited, 2009  - April 2004

Support Tools  Automation if required

Using

!

Next Steps – Getting ready to Implement in Your Own Organisation

Knowledge Transfer

First six months are critical to establish behaviour patterns that use Performance Management information effectively Strong sponsorship is critical Changes to key processes (e.g. the B oard Agenda) help to ensure the tool is used Linking the use of the Balanced Scorecard to budgets is a powerful mechanism for getting organisational units to participate Be wary of using to align personal goals with organisational objectives – this is too expensive for most purposes, plus incentives undermine the dynamic nature of Balanced Scorecard

Performance Management & 3rd Generation Balanced Scorecard

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Best Practice Design & Deployme Deployment nt Requirements of an excellent Balanced Scorecard design process Characteristics

Logic

 Actively involves involves Balanced Scorecard owners in the design

Only the responsible managers know the answer 

Makes efficient use of managers’ time

Management time is a scare resource

Understandable and transferable

Must be communicated and driven downward

Easily aligned and cascaded across the organisation

To help the entire organisation work  to a common purpose

Compatible with existing process

Other management processes and tools must be usefully retained

3rd Generation design processes can deliver these characteristics © 2GC Limited, 2009  - April 2004

Performance Management & 3rd Generation Balanced Scorecard

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Best Practice Design & Deployme Deployment nt  A proven, six-step design process

1

2

Document Review & Interviews

3

4

Meeting 1

Homework 1

Facilitated discussion between all members of the management team to identify the strategic choices facing the organisation and to select among these choices Working sessions to describe the organisation at some future point in time

Homework to review and amend the Draft Destination Statement and to begin proposing related Strategic Objectives

•Draft Destination Statement

5 Meeting 2

6 Homework 2

Meeting 3

What is involved Review of strategic documentation to identify strategic choices Structured interviews with responsible management team to identify areas of agreement and divergence

Homework to complete Strategic Objectives definitions and to begin defining potential Measures for each Objective

One-on-one meetings with participants to review Meeting 1 and to support completion of homework

•Revisit and update the Draft Destination Statement from Meeting 1, incorporating Homework output •Debate and develop the medium term Strategic Objectives •Develop a Draft Strategic Linkage Model (SLM)

•Revised Destination Statement •Draft Strategic Objectives

•Updated Destination Statement •Draft Strategic Objectives and SLM

•Draft Objective Definition Forms

1-on-1 meetings with participants to review Meeting 2 and to support completion of homework

•Obtain final agreement on contents of Destination Statement and SLM •Review and finalise Strategic Objectives •Develop Measure definitions and targets

Outputs •Project & Workshop Plan

3 month design

© 2GC Limited, 2009  - April 2004

Management engagement

Small facilitation team

Low tech process

•Final Destination Statement •Final SLM •Completed Objective Definitions •Draft Measures Definitions and Targets

3-5 Meetings

Performance Management & 3rd Generation Balanced Scorecard

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Best Practice Design & Deployme Deployment nt Key learnings Realisation of organisational strategy requires that managers have access to appropriate information and to the interventions needed to control organisational activity 3rd Generation Balanced Scorecard gives management this ability Control is greatly enabled when the following elements are in place: Clarity of direction (Destination Statement)  Agreement on how to achieve the strategy strategy (Strategic Objectives) Understanding of causal relationships between Objectives (Strategic Linkage Model)  A well considered set set of Performance Performance Measures

 An effective design process is a pre-requisite to building a modern Balanced Scorecard The design process can be straight-forward, but requires genuine management involvement Design can be completed in about 3 months; embedding the Balanced Scorecard typically requires another 3 months © 2GC Limited, 2009  - April 2004

Performance Management & 3rd Generation Balanced Scorecard

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Best Practice Design & Deployme Deployment nt Integrate Balanced Scorecard with existing frameworks

Balanced Scorecard can be seen as an umbrella concept that links together organisational philosophies and management tools © 2GC Limited, 2009  - April 2004

Performance Management & 3rd Generation Balanced Scorecard

18

 

Best Practice Design & Deployme Deployment nt Balanced Scorecard complements other management tools and processes

Balanced Scorecard helps organisations to ‘do the right things’, while BEM helps to ‘do things right’ – used together they can ensure that the organisation ‘does the right things right’

EFQM BEM

EVA 

Economic Value Add (EVA) uses specific financial measures to evaluate organisational unit performance – Balanced Scorecard’s financial perspective can accommodate these particular measures

Balanced Scorecard Balanced Scorecard identifies the organisations strategic objectives. Risk management processes then evaluates these objectives to identify risks to their achievement and mitigation activities required; these activities are then monitored through the Balanced Scorecard review process

© 2GC Limited, 2009  - April 2004

Risk Management Process

Strategic Planning Process

Balanced Scorecard identifies the high level strategic objectives and actions required to deliver these – the strategic planning process translate these objectives and actions into detailed implementation plans

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Best Practice Design & Deployme Deployment nt Maintain your Balanced Scorecard For a Balanced Scorecard to continue to be useful over time, several elements must be in place: Reporting tools !

This needs to be owned, managed and resourced explicitly by the organisation: automation should be a ‘cost-benefit’ driven

Supporting ongoing use !

The organisation needs the ability to respond to problems with the use and management of Balanced Scorecard (e.g. train new users)

 Annual reset capability !

R  e    p o  r  t  i   n    g   T    o  o ll    s   Evolution of Use and Implementation

BSC System

Reset Capability 

The organisation needs to be able to resource, manage and co-ordinate periodic updates /  reviews of the Balanced Scorecard

Evolution of use and implementation !

The provision for expertise that understands the ‘wider’ picture of Balanced Scorecard and how it might integrate with future and current processes and how it can be improved

© 2GC Limited, 2009  - April 2004

Ongoing Use / Support

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Best Practice Design & Deployme Deployment nt Five actions to realise the benefits Requirement

Logic

Report

• Perfor Performance mance repor reports ts must be rregularl egularly y reviewed by the the accountable accountable management management team • Anyt Anything hing les lesss is pure pure b burea ureaucra ucracy! cy!

Discuss

• Only through discussion ion can the ca causes uses and implicati implications ons of the per performance formance resultsthro be ugh fullydiscuss understood • Make iitt an it item em on the the man managem agement ent agenda agenda!!

Act on

• Balance Balanced d Score Scorecard card is a vehicle vehicle to d drive rive be behavioura haviourall change • If the sta status tus quo is maintained, maintained, the Balanc Balanced ed Scorecard Scorecard is adding adding littl littlee value

• Balance Balanced d Scorecar Scorecard d can be an effective effective top-down top-down and bot bottom-up tom-up communicati communication on

Communic ate

tool: • Use it to communicate: communicate: ‘This is is what we expec expectt of you’ you’

Maintain

• Strat Strategies egies must be updated as tthe he intern internal al and external external environments environments evolve evolve • Strat Strategic egic Objectives Objectives and Measur Measures es must evolve to stay relevant relevant

© 2GC Limited, 2009  - April 2004

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Preparing for implementation Section Summary:

General Management Issues

Not a trivial exercise – need to get sponsorship and support at highest level !

Performance Management – Key to Strategic Success

!

Implementation must involve all managers, so need to get consensus about project before you start Will take at least three months – up to 2 years in large / complex organisations – so make sure you have time / budget / will power to do this

Project design is critical to success !

3rd Generation Balanced Scorecard !

Designing and Deploying Balanced Scorecard – Best Practice Insights

Clever design of the methods used can lead to substantial improvements in ownership of Balanced Scorecards, plus save lots of time and money

External Expertise can be very valuable !

Next Steps – Getting ready to Implement in Your Own Organisation !

!

© 2GC Limited, 2009  - April 2004

Only get one shot at this type of project – you need to be very sure that you’ll get it right first time

External consultants will not be able to tell you what the right measures are – only you know that – but they will be able to share the benefit of their experience of carrying out similar projects elsewhere. Typically projects with external support use less internal time / resources, are completed more quickly, and result in higher levels of ownership and satisfaction than projects done by internal teams Something else…?

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Preparing for implementation Get it right first time Building a Balanced Scorecard requires significant management time and energy Failure to get the design right typically results in the project failing, or the Balanced Scorecard being abandoned over time  You only get one shot at glory – you must get the design right first time! Management teams will only make this investment once every few years

Don’t start too soon – plan properly and ensure full involvement of all key resources: ‘Content’ experts (the management team) Process experts (internal or external)

 A simple checklist helps get you into the right frame of mind: Question 1 - What are you managing? Question 2 - Who is managing (what)? Question 3 - What do you want performance data for? Question 4 – Will using a framework help?

© 2GC Limited, 2009  - April 2004

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Preparing for implementation Sponsorship and communications Effective communication is not generated by a one-off effort – it requires dedication, commitment and patience to ensure it is sustained throughout the change  Visible commitment and and active communication from key sponsors !

Project sponsor: ~50% of project time on

!

communications initially Executive team: ~30% of project time on communications initially

Clearly defined communication roles with dedicated time allocated !

!

!

Clearly outlined areas of communication responsibility Input from all content experts driving the change Core team to co-ordination and ensure consistency

Listen to concerns at all levels in the organisation and act to rectify them Prompt responses to feedback Integrate into Board/Steering Committee  Agendas

© 2GC Limited, 2009  - April 2004

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Preparing for implementation Facilitation is always better than consultancy Why is facilitation better than consultancy? The management team will always know more about what they want to achieve than an external (or internal) consultant… !

The ‘guess – comment – edit’ approach leads to very generic outcomes being adopted as these are the only ones that can be clearly communicated both ways…

The same problem applies in reverse when it comes to signing off the externally driven design !

However long you spend trying to work out what is in the proposed design… !

You won’t really work it out the way the designers did

!

Your colleagues will work it out differently (or may, but you won’t easily find out…)

Example: Only one of the pictures on the right is the ‘right way up’… !

!

Which one is it? You can’t know for sure – only an ‘insider’ (the artist for example) can tell us

Use consultants to facilitate your project rather than do it for you

© 2GC Limited, 2009  - April 2004

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Preparing for implementation Joint teams bring the necessary mix of skills Management Team (Scorecard Owners)  brings:

of company strategy •Intimacy of the board •Political understanding • Access to the management team •Credibility with management team •Sponsor (senior)

Project Team (Internal Team + External Support)  brings:

•Knowledge

© 2GC Limited, 2009  - April 2004

•Facilitation

+

skills •Project design skills •Workshop design •Process knowledge •Experience •Expertise •Time available to do this •Organisational liaison

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Preparing for implementation How 2GC can help If you are exploring Balanced Scorecard for the 1st time –we can help: Building a case for change Giving basic training Providing board briefings (or simply call for a chat)

If you are starting a Balanced Scorecard project – we can help: Supplying advanced training Designing the Balanced Scorecard project/programme Giving presentations and briefings Providing facilitation / project support

If you already have a Balanced Scorecard – we can help: Briefing the Board on the latest Balanced Scorecard developments  Auditing existing Balanced Scorecards Scorecards Redesigning / resetting existing Balanced Scorecards Providing coaching support

 2CG Project Locations Integrating Balanced Scorecard with existing management systems Supplying independent advice on software selection

© 2GC Limited, 2009  - April 2004

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3rd Generation Balanced Scorecard To find out more  Visit 2GC’s Web Site We focus specifically on strategic control and performance measurement issues, and have a wide range of working papers, FAQs, and presentations to download on these topics The site also has a recommended reading list that covers relevant topics, and the “Weblinks” database of relevant Internet sites

Contact 2GC Let us know if you have a question you can’t answer, we’ll do what we can to help… email to [email protected] to [email protected] or  or call on +44 (0) 1628 421 506

© 2GC Limited, 2009  - April 2004

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