Graduate Program in Business Information Systems BIS 581 Business Process Management Lecture Aslı Sencer Department of Management Information Systems

Business Process Management – Balance Scorecard and Strategic Initiatives

Outline 3 Balance Score Card – History – Definition – Development and use – Strategic initiative development

History Balanced Scorecard (BSC) is a tool popularized by Robert Kaplan and David Norton in their series of Harward Business Review articles in the early 1990s. BSC has gained popularity over the years and still seen as a value adding concept after 20 years of its inception. 4

Definiton A balanced scorecard (BSC) is a management tool that provides senior executives with a comprehensive set of measures to assess how the organization is progressing towards meeting its strategic goals. BSC implementation has two levels: 1.Introducing the BSC to the decision making system 2.Using it as a management tool 5

Level 1: Introducing the BSC to the Decision Making System At level 1, BSC is like a grading report of student. Targets and current state are discussed by the BSC coordinator Ex: 12 targets are met, 8 are missed. Missing targets result in immediate chastising No further actions are taken for improvement! 6

Level 2: BSC as a Decision Tool BSC is not just an agenda item, it is actually the driver of the agenda! The executive team reviews the BSC performance. Ex: CEO, president or Regional manager or IT manager depending on the scope of the BSC implementation. Missing targets do not result in immediate chastising. Focus is on why targets were missed. Ex: Target is unrealistically high, initiatives that drive the performance is behind the schedule or ineffective, an external event has happened, etc. Strategy and future are discussed on the basis of objectives, measures and initiatives. BSC is not just any measurement system, it helps organizations measure progress towards meeting their strategic goals. 7

Misnomers about BSC BSC doesn’t replace all other measurement systems. Ex: BCS focuses on strategic aspects, yet there are still operational goals. Measuring something on BSC does not mean it can’t be measured in other places Ex: Tax revenue is both a strategic measure and a measure for the Treasury operations 8

Misnomers about BSC (cont’d.) It is not a good thing or bad thing to be on the BSC. Measures on BSC are required to be evaluated on a regular basis. Ex: A BSC with 20 measures can be reasonably interpreted. For a department, not being on the BSC does not mean that it is not important. Scorecard measures are not set in stone, new measures are added or some are deleted when needed. Ex: Business conditions change, interests change, measure may get useless 9

Misnomers about BSC (cont’d.) Each perspective does not need to have the same number of measures. Ex: 24 measures should not necessarily be divided equally between 4 learning and growth measures. 10

Role of BSC in the Execution of Strategic Goals Pre-BSC world: Organizations create a strategic plan every year, present it to their employees, than go back to their jobs and forget about strategy until the next year. BSC world: BSC provides a method for keeping the strategy in front of the leadership team over the course of the year. This forces them to consciously consider strategy while making every decision. 11

Strategy Map Strategy map is a tool popularized by Kaplan and Norton. Strategy map enables an organization to articulate its strategy through a series of cross functional cause and effect relationships. It clearly illustrates the main strategic themes of the organization and how they are linked together. 12

Ex: Strategy Map of the Treasury Department 13

Ex: Strategy Map of the Human Resources Department of an Hospital 14

Relationship of the Strategy Map Perspectives 15 Financial Perspective Customer Perspective Process Perspective Learning and Growth Perspective Profit organizationNon-profit organization Customer Perspective Financial Perspective Process Perspective Learning and Growth Perspective Customer Perspective Process Perspective Learning and Growth Perspective Financial Perspective

Ex: Treasury Balanced Scorecard 16

Ex: Treasury Balanced Scorecard (cont.’d) 17

BSC Implementation Develop the strategy map Develop the BSC based on the first two columns of the strategy map, i.e., perspectives and objectives Identify and prioritize measures 18

Ex: BSC Based on Strategic Map 19

Framework for Measurement Development 20

Step 1: Chosing the Objective to Start with... Start with an easy objective Objectives that are focused on communication, technology, culture or any behavioral sounding issues are difficult to measure. Penetrate new markets, increase on time delivery percentage should be prefered. Avoid financial objectives Financial objectives requires experts that are specialized in this area. 21

Step 2: Review Strategic Data Consider the S.W.O.T analysis Ex: If an opportunity under Penetrate New Markets is to “market services throughout Canada to attract new customers”, then potental BSC measures are Canadian sales dollars, number of Canadian customers, etc. 22

Step 3: Brainstorm Potential Measures 23 Objective: Penetrate new markets

Step 4: Lag and Lead Categories Lag measures reflect current outcomes, lead measures drive bottom line results in the future. Pick the easy ones first Don’t obsess over the categorization Some measures may not totally fall in any category. If the team can not reach to a conclusion, the measure appears on both. Recognize the initiatives Ex: Market potential analysis may be a one-time initiative or an ongoing measure 24

Step 5: Balance Between Lag and Lead Measures If there are few numbers of lead and lag measures then proceed to the next step. If more lead measures are needed, ask “what else can we do to help us penetrate new markets?” Answer: Advertising dollars spent or product demos conducted 25

Step 6: Rank the Measures Try to determine which of the measures are important enough to be in the BSC? If there were only one measure on the BSC for penetrate new markets objective, which one would that be? Ranking criteria are 1.Relevance 2.Ease of data collection (should be considered in case both measures have the same relevance) 26

Step 6: Ground Rules for Ranking Unless it is necessary, give low rank to measures that are subset of others. Ex: Canadian sales is a subset of new market sales A low ranked standard measure may be more relevant to another objective. Ex: Total revenue Ranking after three or four are not very significant. 27

Step 7: Identify the BSC Measures Decide on the serious candidates to be among top measures in the BSC. 28

Step 8: Review all measures for integrity, overlaps, etc. Look for identical measures in different categories and try to eliminate some. Ex: Training Look for measures that are restated measures of others. Ex: Customer retension and number of lost customers under “build strong customer relationship” objective Beware of measures that sound like they will need to be expanded to show multiple categories. Ex: Reasons for lateness for the objective of “increase on time delivery %”. 29

Step 8: Review all measures for integrity, overlaps, etc. (cont.’d) Beware of measures that are clearly annual Ex: “Market share in relationships” objective will be repeated on every monthly BSC, thus can be removed. Question whether the most senior executive needs to know the measure to run the company properly. Ex: Number of meetings held and intranet hits may not be of interest to a senior executive and could be removed. 30

Ex: Measurement of Candidates after Prioritization 31

Step 9: Define the Remaining Measures A good definition includes Context of the measure (which perspective and objective does it belong to?) Explanation on what counts as part of the measure and what does not How data will find its way onto the scorecard An explanation (with an example) of how the data will be calculated and displayed on the scorecard An explanation of the related cause and effect arrows on the strategy map to impact the overall objective of the organization? 32

Ex: Sample Measurement Definition 33

Step 10: Barriers to Data Collection No data exists – Generate a data collection procedure Lack of systems – Avoid measures that require horribly complex data collection No discipline for data collection – Give support and be patient Difficult to make the number meaningful in a one number BSC format – If it is not apparent whether a number is high or low, interpretation is not possible Measure doesn’t reveal anything useful – no need for a measure that does not change at all 34

Strategic Initiatives: Implementation The identification and prioritization of initiatives is a critical step in the process because it establishes what actually get done. This step is the primary responsibility of the executive team. Initiative derivation and prioritization process – List the strategic objectives – Review S.W.O.T that leads to the development of the objective – Develop potential initiatives – Prioritize initiatives to determine which need an immediate start – Develop and approve project plans 35

Ex: Strategic Initiatives Objective: Develop high quality staff Potential initiatives – Benefit review – Hiring process analysis – Initiate career development programs – Succession planning process analysis – Gainsharing – Customer service training – 7 hats of creative thinking training – Individual training plan development 36

BSC Utilization BSC, strategy map and initiative list should all be used together when the management team is discussing strategy. The tools will tell the management team what is going on, but they must determine why it is happening. The BSC and strategy map are great tools. However If you give great tools to good managers, they become great managers. If you give great tools to bad managers, they remain bad managers; the BSC gives these managers another thing to mismanage. 37

Group Exercise Develop the strategy map and the balanced score card for the registration department of our university. 38