BSC/KPI NEGERI MESYUARAT PENGURUS NEGERI 1/2006 1B FEBRUARI 2006 DISEDIAKAN OLEH: ABD RAHAMAN RASID PENGURUS KANAN JABATAN PERANCANGAN KORPORAT/PENGURUS PROJEK EIS 1B FEBRUARI 2006

SCOPE & OBJECTIVE OF PRESENTATION Introduction and Background To explain basic concept on Balanced Scored Card (BSC) To highlight BPM Destination Statement To elaborate on BPM Corporate Scorecard To propose State Scorecard, Branch and Hub To get feedback from State Manager

BALANCED SCORE CARD (BSC)

CONCEPT BSC Formal Definition: A tool that translates an organization’s mission and strategy into a comprehensive set of a performance measures that provides the framework for a strategic measurement and management system MY DEFINITION: A SYSTEMATIC WAY FOR MANAGEMENT TO PLAN AND EXCUTE STRATEGY FOR THE WHOLE ORGANIZATION

WHY BSC? Traditional reliance on financial measures (e.g: ROA) The rise rise of intangible assets The importance of reputation ( part of intangible asses) Organizations face difficulty in executing strategy

Barriers to Strategy Execution Only 10% organizations execute strategy Barriers to Strategy Execution Vision Barrier People Barrier Management Barrier Resource Barrier Only 25% managers have incentives linked to strategy 85% executive teams spend less than 1 hour/month discussing strategy 60% of organizations don’t link budgets to strategy Only 5% workforce understands the strategy Source: Robert S. Kaplan & David P. Norton

BSC: HAS FOUR PERSPECTIVES FINANCIAL CUSTOMER INTERNAL BUSINESS PROCESS LEARNING & GROWTH

BSC: FOUR PERSPECTIVES FINANCIAL PERSPECTIVE To succeed financially, how should we appear to our shareholders? CUSTOMER PERSPECTIVE To achieve our vision, how should we appear to our customers? INTERNAL PERSPECTIVE To satisfy our shareholders & customers, what business processes must we excel at? LEARNING & GROWTH PERSPECTIVE To achieve our vision, how will we sustain our ability to change and improve?

BALANCED SCORECARD: AN OVERVIEW Financial Perspective Shareholder Value Productivity Strategy Growth Strategy Product/Service Attributes Relationship Image Customer Perspective Partnership Price Quality Time Function Brand Manage Customers Manage Innovation Internal Perspective Manage Operations Learning & Growth Perspective Human Capital Information Capital Organisation Capital

FINANCIAL PERSPECTIVE

FINANCIAL PERSPECTIVE Revenue Opportunities Shareholder Value Productivity Strategy Growth Strategy Improve Cost Structure Increase Asset Utilization Expand Revenue Opportunities Enhance Customer Value Improve profitability from existing customers Manage capacity from existing assets New products New markets New partners Reduce expenses Improve yields

CUSTOMER PERSPECTIVE

Customer Value Proposition CUSTOMER PERSPECTIVE FINANCIAL PERSPECTIVE Customer Profitability Market Share Account Share Customer Acquisition Customer Retention Customer Satisfaction Product/Service Attributes Relationship Image Customer Perspective Service Price Quality Availability Brand Selection Functionality Partnership Customer Value Proposition

INTERNAL PERSPECTIVE

INTERNAL BUSINESS PROCESS FINANCIAL PERPECTIVE CUSTOMER PERPECTIVE Acquire raw materials Convert raw materials to finished products Distribution Operation Management Process Processes that produce & deliver products & services Processes that enhance customer value Select targeted customers Acquire targeted customers Retain customers Grow business with customers Customer Management Process INTENAL PERSPECTIVE Processes that create new products & services Identify new products & services Manage research & development Develop new products Innovation Management Process

LEARNING AND GROWTH

LEARNING AND GROWTH FINANCIAL PERPECTIVE CUSTOMER PERPECTIVE INTERNAL PERPECTIVE Attitude Skill Knowledge Human Capital System Database Network Information Capital LEARNING & GROWTH Leadership Culture Teamwork Organization Capital

BALANCED SCORECARD: OBJECTIVES, MEASURES, TARGETS & INITIATIVES FINANCIAL “To succeed financially, how should we appear to our shareholders?” INTERNAL BUSINESS PROCESS CUSTOMER “To satisfy our shareholders & customers, what business processes must we excel at?” Objectives Measures Targets Initiatives “To achieve our vision, how should we appear to our customers?” Objectives Measures Targets Initiatives Objectives Measures Targets Initiatives Vision & Strategy LEARNING & GROWTH Objectives Measures Targets Initiatives “To achieve our vision, how will we sustain our ability to change & improve?”

MEASUREMENT

MEASURING BUSINESS STRATEGY PERSPECTIVES GENERIC MEASURES Financial ROI, ROA, ROE Satisfaction, retention, acquisition, market share Customer Response time, new products, cost, product & service quality Process Learning & Growth Employee satisfaction, information system, competency, value system

Two Types of Strategic Objectives MEASURES Two Types of Strategic Objectives Use slide to describe lag and lead measures. 3-5 minutes. Use the slide to describe characteristics of lag and lead measures. Ask participants which type of measure they feel is the norm within their organisations. Emphasize that the BSC integrates both lag and lead measures to obtain a more robust view of performance within the organisation relative to the strategic direction. Discuss when lag and/or lead measures may be appropriate based on the perspective and objective in question. (see following slides) Outcome (Lag) Measures Driver (Lead) Measures Purpose Focus on the performance results at the end of a time period or activity Examples “year-end-budget expense” “client satisfaction” “cases per caseworker” Strengths Usually objective and easily captured Issues Outcome measures reflect success of past, not current, activities and decisions Purpose Measure intermediate processes and activities Examples “hours spent with clients” “$ spent on automation”. Strengths More predictive in nature Allows organisations to adjust behaviors for performance Issues Based on hypotheses of strategic “cause and effect” Often difficult to collect supporting data

STRATEGY MAP

BSC TERMINOLOGY Strategic Objectives Strategic Theme: Operating Efficiency Increase Shareholder Value Financial Learning More customer Improve Strategic Skills & Competencies One Stop Solution Defend Current Business Customer Internal Create Product & Services Offerings / Bundles Strategy Map: Diagram of the cause-and-effect relationships between strategic objectives Exceptional Value Services KEY PERFORMANCE INDICATOR (KPI) Strategic Objectives Create Product & Services Offerings / Bundles Statement of what strategy must achieve and what’s critical to its success Measurement # of cross sell business bundles How success in achieving the strategy will be measured and tracked Target 8 new business bundle The level of performance or rate of improvement needed Develop cross-sell business bundles Key action programmes required to achieve objectives Initiative

FROM STRATEGY TO ACTION PLAN: LOAN BUSINESS STRATEGY MAP BALANCED SCORECARD ACTION PLAN Strategy Objective Measurement Target Initiative Budget Identify new customers Offer new limit to existing customers ROA Profitability Grow Revenue Increase loan Loan approval RM 2 million Attract new customer No. customer 700 Corporate advertisement Customers RM10,000 Days taken to approve loan Fast loan approval One week Fast Service Review New authority limit Day taken to approve loan Proposal to Management Decision making One week Enhance Knowledge on corporate loan Knowledge Number of training/year Find suitable courses 2 times RM4,000

INITIATIVE

Implement automated case management system and train Every Rep in 99 INITIATIVES Use slide to review the purpose of initiatives within the BSC Process. 3-5 minutes. Review the progression from Objective to Measure/Target to Initiative. Reveal portions of the slide that are applicable to the discussion as it progresses. Initiatives Are Defined to Help Close the Performance Gap OBJECTIVE Increase Customer Satisfaction Objectives articulate the components of our strategy MEASURE / TARGET Measure 90% Customer Satisfaction Survey Rating gap 45% INITIATIVE Implement automated case management system and train Every Rep in 99 $M Target 90% favorable overall Target Actual Measures track our progress toward achieving and communicating the intent of the objective Initiatives help close the gap between our current and desired performance

CASCADING

What does cascading the BSC means? The process of developing BSC at each division and business unit levels The scorecards must align with organization highest level scorecard by identifying the strategic objectives and measures Lower level scorecard will also include additional measures and initiatives that reflecting the specific opportunities and challenges faced at that level

BALANCED SCORECARD: THE CASCADING PROCESS Mission, Vision & Value Strategy Financial O M T I Customer O M T I Internal O M T I L & G O M T I CORPORATE Financial O M T I Customer O M T I Internal O M T I L & G O M T I DEPARTMENT Financial O M T I Customer O M T I Internal O M T I L & G O M T I STATE Financial O M T I Customer O M T I Internal O M T I L & G O M T I BRANCH Team & Personal BSC Note: O: Objectives M: Measures T: Targets I: Initiatives

Three Ways to Cascade Cascading is accomplished using one of three approaches Corporate Business Unit Shared Identical Objectives Contributory Translated Objectives Hybrid Identical, Translated and Unit Specific Objectives

GLOSSARY Balanced Scorecard: A tool that translates an organization’s mission and strategy into a comprehensive set of a performance measures that provides the framework for a strategic measurement and management system Cause and Effect Relationship: A cause and effect relationship identifies the initiatives, responsibilities or activities (causes) necessary to achieve an objective or target (effect) Customer Value Proposition: Defines who the customer is and what they want Initiative: Key action programs to achieve objectives or close gap between measures performance and targets. Initiatives are often known as projects, actions or activities. Lag Indicator: Measures to determine the outcome of an objective that indicate company performance at the end of a period. These are results-oriented and do not reflect a process. Lag indicators often appear in BSC’s outcome-oriented Financial and Customer perspectives.

GLOSSARY Lead Indicator: Measures that indicate progress againts a process or behavior. These measures are helpful in predicting the future outcome of an objective. Lead indicators tend often appear in the Internal and Learning & Growth perspectives. Measures: Statement of how success in achieving an objective will be measured and tracked. Measures are written statements of WHAT we will track and trend over time, NOT the actual targets such as direction and speed. A measure should include a statement of the unit to be measured (RM, %, rating). Objective: Concise statement articulating a specific component of what the strategy must achieve/what is critical to its success. Each perspective usually contains 3-6 primary objectives that state a key aspect of the strategy to be achieved over the next 3-5 years. Objectives are best stated as action phrases and may include the means and/or desired results as well as the action. E.g: “ Increase market share through current customers” Strategy Map: A visual representation of an organization’s strategy and the processes and systems necessary to implement that strategy. A strategy map will show employees how their jobs are linked to the organization’s overall objectives