2. FUNDAMENTALS OF BALANCED SCORECARD 1 Presented by: Janani Sairam – BSC Specialist

3. Introduced in 1992, by Robert Kaplan and David Norton, the Balanced Scorecard is the most commonly used framework for ensuring that agencies execute their strategies. Today, about 70% of the Fortune 1,000 companies utilize the Balanced Scorecard to help manage performance. Balanced Scorecards are used as the roadmap for creating the “Strategic Management System”. And this will drive overall organizational performance for our entire company! WHERE IT STARTED... Operational measures – drivers of future financial performance

4. “BSC IS LIKE THE DIALS IN AN AIRPLANE COCKPIT: IT GIVES MANAGERS COMPLEX INFORMATION AT A GLANCE.” R. S. KAPLAN AND D. P. NORTON Basic BSC premise is: FINANCIAL RESULTS ALONE CAN NOT CAPTURE VALUE ADDING ACTIVITIES!!!

5. 1992 2009 Based on presentation of Balanced Scorecard Collaborative Articles in Harvard Business Review:  “The Balanced Scorecard — Measures that Drive Performance” January - February 1992  “Putting the Balanced Scorecard to Work” September - October 1993  “Using the Balanced Scorecard as a Strategic Management System” January - February 1996  More than 325 articles published since its inception 2000 Endorsement by Gartner Group 2009: The balanced scorecard methodology developed by Drs. Kaplan and Norton extends beyond financial measures to link vision to action. The Harvard Business Review has acclaimed the balanced scorecard as one of the most influential ideas of the past 75 years Source: Gartner Group; 2009 Feature Article: Business Value of IT — Non-financial Measurements “The Balanced Scorecard” is translated into 18 languages The Balanced Scorecard (BSC) - "One of the most important management practices of the past 75 years" HBR Measurement and Reporting Alignment and Communication Enterprise-wide Strategic Management Informed Risk Decisions

6. BALANCED SCORECARD HALL OF FAME IMPLEMENTED STRATEGIES AND ACHIEVED BREAKTHROUGH RESULTS… FAST Saatchi & Saatchi + $2b ATT Canada + $7b Chemical Bank 99% Merged Target Asset Retention UPS Southern Garden Wells Fargo Cigna + $3b Brown & Root #1 in growth & profitability City of CharlotteDuke Children’s Mobil Last to first Cash flow +$1.2b ROI 6% --> 16% Hilton Hotels Least Cost Producer 3 years Customer Satisfaction Market Revenue Index Revenues9% Net Income33% # Customers450% Best Online Bank Customer Satisfaction = 70% Public Official Award Customer Satisfaction #1 Cost/Case 33% 3 years 2-5 years3 years 3-5 years3 years 2 years 3 years 2-5 years 2 years Mobil Oil, Chemical Bank, Cigna and Brown & Root

7. 6 060228_CESSE_Passadena, CA_nortond_v2 BALANCED SCORECARD HALL OF FAME FOR EXECUTING STRATEGY ACHIEVING BREAKTHROUGH RESULTS

8. EARLY BSC

9. financial and... nonfinancial indicators external and... internal measures outcomes and... performance drivers quantitative and... qualitative factors Balanced Scorecard because: Advantages

10. THE BALANCED SCORECARD: FROM STRATEGY TO PERFORMANCE MEASURES Exh. 10-11 What customers do we want to serve and how are we going to win and retain them? Financial Has our financial performance improved? Customer Do customers recognize that we are delivering more value? Internal Business Processes Have we improved key business processes so that we can deliver more value to customers? Learning and Growth Are we maintaining our ability to change and improve? Performance Measures What are our financial goals? What internal busi- ness processes are critical to providing value to customers? Vision and Strategy

11. WHAT BSC DOES  Links  Aligns  Drilled Downs  Cascade 10

12. A GAP EXISTS BETWEEN MISSION- VISION-STRATEGY AND EMPLOYEES ’ EVERYDAY ACTIONS MISSION Why we exist VALUES What ’ s important to us VISION What we want to be STRATEGY Our game plan EMPOWERMENT / PERSONAL OBJECTIVES What I need to do TOTAL QUALITY MANAGEMENT What we must improve

13. THE BALANCED SCORECARD LINKS VISION AND STRATEGY TO EMPLOYEES ’ EVERYDAY ACTIONS BALANCED SCORECARD Translate, Focus and Align STRATEGIC INITIATIVES What are the priorities MISSION Why we exist VALUES What ’ s important to us VISION What we want to be STRATEGY Our game plan STRATEGIC OUTCOMES Satisfied SHAREHOLDERS Delighted CUSTOMERS Efficient and Effective PROCESSES Motivated & Prepared WORKFORCE EMPOWERMENT / PERSONAL OBJECTIVES What I need to do TOTAL QUALITY MANAGEMENT What we must improve

14. Strategy Department Team/ Individual Team/ Individual Measures Objectives The Organizational Framework HORIZONTAL AND VERTICAL ALIGNMENT !!! Strategic Business Unit (SBU) Ensure Alignment: Each sub-unit and individual link their objectives to the map.

15. Objectives To improve customer satisfaction by 20% Statement of what strategy must achieve and what’s critical to its success Target 20% > 4 days The level of performance or rate of improvement needed TAT optimisation Key action programs required to achieve objectives Initiative Measurement CS Survey score Delivery time How success in achieving the strategy will be measured and tracked Strategic Theme: Operating Efficiency Profitability Financial Learning More customers Ground crew alignment Improve Customer satisfaction Fewer planes Customer Internal Fast ground turnaround Strategy Map example: Diagram of the cause-and-effect relationships between strategic objectives Flight Is on time BSC TERMINOLOGY Extending the Map into Objectives, Measurements, Targets and Initiatives Based on : Presentation of Balanced Scorecard Collaborative

16. STRATEGY HUMAN RESOURCES BUSINESS UNITSEXECUTIVE TEAM INFORMATION TECHNOLOGY BUDGETS AND CAPITAL INVESTMENTS The Balanced Scorecard process allows an organization to align and focus all its resources on its strategy QUESTION: HOW CAN COMPLEX ORGANIZATIONS ACHIEVE RESULTS LIKE THIS IN SUCH SHORT PERIODS OF TIME? Answer: Alignment! Answer: Alignment!

17. 16 COMPREHENSIVE SCORECARD PERFORMANCE REPORTING Financial Drilldown detail Customer Drilldown detail Process Quality Drilldown detail Organisational & People Drilldown detail Key Milestone Project Plan Performance detail financial process people customer ë Review top Scorecard vs... targets ë Drill down into supporting data against each’ box’ ë Action focused analysis & discussion ë Re-plan action where necessary ë Review Key Milestone performance on key performance areas Top Scorecard Key Milestones Milestone 1 Milestone 2 Milestone 3 etc Intention is not to ignore detail, but a discipline to drilling down to information that really matters Intention is not to ignore detail, but a discipline to drilling down to information that really matters

18. WHAT IT LOOKS LIKE (LONG-TERM) Top-Level Scorecard Divisional or Business Unit Scorecards Department or Functional Scorecards Individual Employee Goals

19. Balanced scorecard forces managers to focus on the handful of measures that are more critical 18

20. Leading Definition Lagging Input Output Outcome Objective / Quantitative Example Intermediate outcomes that predicts or drive bottom-line performance results Measure Type Bottom-line performance results resulting from actions taken Amount of Investments, assets, equipment, labor hours, or budget dollars used Units of a product or service rendered - a measure of yield Resulting effect (benefit) of the use or application of an output Empirical indicators of performance Subjective / Qualitative Perceptions and evaluations of major customers and stakeholders Employee turnover rate Employee satisfaction rating Number of Value Meal orders fulfilled Customer satisfaction rating Wait time Customer complaints received as a % of total customers served Number of cashiers Types of Measurements

21. A BALANCED SCORECARD CONTAINS THESE ELEMENTS Mission and Vision – Why you exist as an organization and what you want to become. Goals - What end results you want to achieve. Strategies and Strategic Objectives – How the results will be achieved. Measure - What it looks like when you have successfully implemented the strategic objectives. These are key performance indicators that show achievement of goals and objectives. Target - An objective-specific goal (linked to baseline data), which represents outstanding achievement for related measures. Initiative – or project – clearly scoped work effort that has discernable beginning and end, ensures the objectives are met and is a key budget driver.

22. COMPONENT OF BSC BUSINESS PLANNING DOC Vision, Mission and Core Values SWOT Environmental Scan Objective/Strategy Map Balanced Scorecard  Objectives, Measures, Target, Initiatives  Objective Vs Project Matrix  Objectives Vs KPI Matrix  Alignment Matrix 21

23. GEN0190n.ppt 22 CONCLUSION Balanced score card can be used to:  clarify and update strategy  communicate strategy throughout the company  align unit and individual goals with the strategy  link strategic objectives to long term targets & annual budgets  identify and align strategic initiatives  conduct periodic performance reviews to learn about and improve strategy

24. MIS HISTORY Although great strides in MIS systems were made in the 1980s, the core designs were created in the 1960s, after President Kennedy challenged the United States find a way to send an American to the moon and return him safely. His dream was realized before the end of the decade, as the Apollo program accomplished the goal. IBM, at the time the undisputed leader in the computer industry, faced the challenge by designing the first major MIS system to help the NASA achieve its objective. Originally titled ICS (information control system), it was renamed IMS (information management system) in 1968. Shortly after NASA implemented the system, IBM released it to the IT and business community. 23

25. MIS HISTORY True database management and MIS systems were born and, although expensive, were available to business, government and other entities. Function The function of all MIS systems is identical: manage, massage and manipulate data (or groups of data) in a fashion that enables good decision-making. In the first half of the 20th century, businesses managed information on paper, with detailed filing systems and hand calculated reports. Contemporary MIS systems involve one or more computers, working in concert, to achieve the stated goals of an organization. The function is always the same, but the desired results fluctuate with the specific goals and needs of individual organizations. Since the universal language of commerce is numbers, using the incredible speed of computers, MIS systems achieve their function amazingly well. 24

26. WHAT IS MIS A management information system (MIS) provides information that is needed to manage organizations efficiently and effectively. [1] Management information systems are not only computer systems - these systems encompass three primary components: technology, people (individuals, groups, or organizations), and data/information for decision making. Management information systems are distinct from other information systems in that they are designed to be used to analyze and facilitate strategic and operational activities in the organization. [1]information systemsManagementinformation systems 25

27. TYPES OF MIS Most management information systems specialize in particular commercial and industrial sectors, aspects of the enterprise, or management substructure. Management information systems (MIS), per se, produce fixed, regularly scheduled reports based on data extracted and summarized from the firm’s underlying transaction processing systems [4] to middle and operational level managers to identify and inform structured and semi- structured decision problems.transaction processing systems [4] Decision support systemsDecision support systems (DSS) are computer program applications used by middle management to compile information from a wide range of sources to support problem solving and decision making. 26

28. TYPES OF MIS Executive information systemsExecutive information systems (EIS) is a reporting tool that provides quick access to summarized reports coming from all company levels and departments such as accounting, human resources and operations. Marketing information systemsMarketing information systems are MIS designed specifically for managing the marketing aspects of the business.marketing Office automation systemsOffice automation systems (OAS) support communication and productivity in the enterprise by automating work flow and eliminating bottlenecks. OAS may be implemented at any and all levels of management. School management information systemsSchool management information systems (MIS) cover school administration,and often including teaching and learning materials. 27

29. Wednesday, September 23 2005 Slide 28 QUESTIONS

30. Thank You! 29