1. Finalizing Measures and Developing Cause-and- Effect Linkages Presented to: Prof. Dr. Ahmad Galal Prepared by: Radwa M. Roushdy

2. Agenda The importance of cause-and-effect. The importance of cause-and-effect. Definition of cause-and-effect linkages & its relation to the BSC. Definition of cause-and-effect linkages & its relation to the BSC. How to develop cause-and-effect linkages? How to develop cause-and-effect linkages? Questions to ask for the cause-and-effect linkages? Questions to ask for the cause-and-effect linkages? Importance of telling the strategic map as a story. Importance of telling the strategic map as a story. Basic contents of story of the strategic map Basic contents of story of the strategic map

3. Importance of cause & effect “Shallow men believe in luck. Strong men believe in cause and effect.” “Shallow men believe in luck. Strong men believe in cause and effect.” Ralph Waldo Emerson Telling the story of your strategy through a series of linked measures is what really separates the BSC from other performance management systems. Telling the story of your strategy through a series of linked measures is what really separates the BSC from other performance management systems.

4. Definition of the cause & effect in the context of the BSC It is the process of linking your measures through a series of cause-and-effect relationships that unite to describe your strategy. It is the process of linking your measures through a series of cause-and-effect relationships that unite to describe your strategy. It allows the organization to not only measure the implementation of its strategy, but also describe the all important “how” of value creation (i.e. procedures for strategy execution). It allows the organization to not only measure the implementation of its strategy, but also describe the all important “how” of value creation (i.e. procedures for strategy execution).

5. Why Cause-and-Effect Linkages Are Critical to the BSC? The cause-and-effect linkages or “strategy maps” serve as the recipe of your success. The cause-and-effect linkages or “strategy maps” serve as the recipe of your success. Based on Kaplan and Norton: Based on Kaplan and Norton: “Strategy implies the movement of an organization from its present position to a desirable but uncertain future position. Because the organization has never been to this future place, the pathway to it consists of a series of linked hypotheses. A strategy map specifies these cause and effect relationships, which makes them explicit and testable.”

6. Importance of Cause-and-Effect Linkages Cause-and-effect linkages also serve as a highly effective diagnostic tool to examine your newly created BSC. Cause-and-effect linkages also serve as a highly effective diagnostic tool to examine your newly created BSC. Only by analyzing the chain of cause and-effect linkages you can begin to see possible gaps or missing ingredients in your recipe of success. Only by analyzing the chain of cause and-effect linkages you can begin to see possible gaps or missing ingredients in your recipe of success.

7. Understanding the relation between cause & effect to BSC According to Margaret J. Wheatley “We cannot understand a system by looking only at its parts. We need to work with the whole of a system, even as we work with individual parts or isolated problems.” “We cannot understand a system by looking only at its parts. We need to work with the whole of a system, even as we work with individual parts or isolated problems.” “If we hold awareness of the whole as we study the part, and understand the part in its relationship to the whole, profound new insights become available.” “If we hold awareness of the whole as we study the part, and understand the part in its relationship to the whole, profound new insights become available.” And finally, “To make a system stronger, we need to create stronger relationships’’. And finally, “To make a system stronger, we need to create stronger relationships’’.

8. How to Develop Cause-and-Effect Linkages? The cause-and-effect linkages in the BSC is built through telling the story of our strategy. The cause-and-effect linkages in the BSC is built through telling the story of our strategy. In other words; to achieve such linkage you need both the graphical map and a short accompanying narrative articulating that map. In other words; to achieve such linkage you need both the graphical map and a short accompanying narrative articulating that map.

9. How to Develop Cause-and-Effect Linkages? (Cont.) An earlier stage which was done, during the development of performance measures, this stage is the construction of a map consisting of a series of cause and-effect relationships. An earlier stage which was done, during the development of performance measures, this stage is the construction of a map consisting of a series of cause and-effect relationships. On re-examining this step do not feel that there was a waste of time in measures that will not be used in story telling. On re-examining this step do not feel that there was a waste of time in measures that will not be used in story telling. Alternatively, they may be considered “operational” or “diagnostic” measures and tracked outside of the BSC. Alternatively, they may be considered “operational” or “diagnostic” measures and tracked outside of the BSC.

10. How to Develop Cause-and-Effect Linkages? (Cont.) Another possibility when devising the map is the addition of entirely new measures in order to make your strategic story coherent. Another possibility when devising the map is the addition of entirely new measures in order to make your strategic story coherent. A good BSC should contain a mix of core outcome measures (lagging indicators) and the performance drivers that lead to improved performance on those metrics (leading indicators). A good BSC should contain a mix of core outcome measures (lagging indicators) and the performance drivers that lead to improved performance on those metrics (leading indicators).

11. How to Develop Cause-and-Effect Linkages? (Cont.) The logical sequence of the measures: begin with financial aspirations and tunneling downward through customer, internal process, and ultimately, employee learning and growth measures. The logical sequence of the measures: begin with financial aspirations and tunneling downward through customer, internal process, and ultimately, employee learning and growth measures. Then the leading indicators of performance for each perspective can be considered without concern if these indicators of performance will easily link together through the 4 perspectives or not. Then the leading indicators of performance for each perspective can be considered without concern if these indicators of performance will easily link together through the 4 perspectives or not.

12. Objectives Measures Measures Lag Lead Financial Build the business Revenue growth Customer Develop customer loyalty Customer loyalty *Hours spent with customers. *Solutions offered. Int. Process Improve knowledge of customers Additions to solution database *System downtime. *Ease of system use Learning & growth Increase employee productivity Competencyattainment *Training results *PDP goals completed

13. Questions to Ask When Building Cause-and-Effect Linkages Financial Do the financial objectives and measures describe how we will satisfy shareholder expectations of our organization? Customer Do the customer objectives and measures reflect the value proposition we will pursue to achieve our financial goals?

14. Questions to Ask When Building Cause-and-Effect Linkages (Cont.) Internal Process Have we identified the key internal processes we must excel at in order to meet customer and financial expectations? Have we identified the key internal processes we must excel at in order to meet customer and financial expectations? Will the achievement of these measures lead to improved customer and financial results? Will the achievement of these measures lead to improved customer and financial results? Employee Learning and Growth Do the employee learning and growth objectives and measures describe the skills, information infrastructure, and alignment that will enable us to excel at our internal processes?

15. Questions to Ask When Building Cause-and-Effect Linkages (Cont.) Do we have an appropriate mix of lagging and leading measures on Scorecard? Do we have an appropriate mix of lagging and leading measures on Scorecard? To sustain our improvement, the SC should contain measures that will lead to short-, intermediate-, and long-term value creation. Have we considered the timing of our linkages? To sustain our improvement, the SC should contain measures that will lead to short-, intermediate-, and long-term value creation. Have we considered the timing of our linkages? Does this BSC tell the whole story of our strategy? Does this BSC tell the whole story of our strategy?

16. The importance of telling strategy map as a story A story will respect sequence (clarifying all cause-and- effect linkages) & put it in an easy way to understand. A story will respect sequence (clarifying all cause-and- effect linkages) & put it in an easy way to understand. Why are stories so effective? Because they tend to captivate the audience, engage them and draw them into the subject. Why are stories so effective? Because they tend to captivate the audience, engage them and draw them into the subject. Stories help to imagine a course of action, imagine its effects on others, and decide whether or not to do it.”

17. 3 M style of strategic mapping “Stories are a habit of mind at 3M, and it’s through them—through the way they make us see ourselves and our business operations in complex, multidimensional forms—that we’re able to discover opportunities for strategic change. Stories give us ways to form ideas about winning.” “Stories are a habit of mind at 3M, and it’s through them—through the way they make us see ourselves and our business operations in complex, multidimensional forms—that we’re able to discover opportunities for strategic change. Stories give us ways to form ideas about winning.”

18. Basic contents of story of the strategic map Every story is composed of a basic format: conflict, transition, climax & close. Every story is composed of a basic format: conflict, transition, climax & close. Conflict implies defining the current situation, analyzing your market, and discussing the current tensions that make change inevitable. This is the “burning platform” section of the story, explaining why it is imperative that you change to stay ahead of the competition. Conflict implies defining the current situation, analyzing your market, and discussing the current tensions that make change inevitable. This is the “burning platform” section of the story, explaining why it is imperative that you change to stay ahead of the competition. The transition phase of your narrative introduces the BSC system, provides an overview of the methodology, and supplies evidence of its success. Your objectives for launching a BSC would also be found in the transition phase. The transition phase of your narrative introduces the BSC system, provides an overview of the methodology, and supplies evidence of its success. Your objectives for launching a BSC would also be found in the transition phase.

19. Basic contents of story of the strategic map (Cont.) Your story’s climax describes the performance measures you’ve chosen, and lucidly outlines the cause-and-effect relationships that will drive your performance. It is here that you provide the reader with sufficient background on the assumptions you have made in drafting the map. Your story’s climax describes the performance measures you’ve chosen, and lucidly outlines the cause-and-effect relationships that will drive your performance. It is here that you provide the reader with sufficient background on the assumptions you have made in drafting the map. Close your narrative with a discussion of how you believe the BSC you have crafted will lead to the successful execution of your strategy and bring you closer to your mission and vision. Close your narrative with a discussion of how you believe the BSC you have crafted will lead to the successful execution of your strategy and bring you closer to your mission and vision.

20. Strategy Map for McCord Travel Management

21. ATAeBusiness Strategic Map

23. In conclusion “A key feature of the Balanced Scorecard... is its ability to bridge the gap, holistically, between strategic goals set by executive management and the frontline staff whose daily performance is absolutely critical to reaching those goals.” “A key feature of the Balanced Scorecard... is its ability to bridge the gap, holistically, between strategic goals set by executive management and the frontline staff whose daily performance is absolutely critical to reaching those goals.”

24. Thank You