BALANCED SCORECARD FOR STRATEGIC PLANNING AND MEASUREMENT.ppt

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BALANCED SCORECARD FOR
STRATEGIC PLANNING AND
MEASUREMENT
Case Study, Concepts and Debatable Ideas
Kenny Ong
CNI Holdings Berhad

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Intro: CNI
1.20 years old
2.Core Business: MLM
3.Others: Contract Manufacturing, F&B Retail,
Export/Trading, eCommerce, Shared Services
4.Malaysia, Singapore, Brunei, Indonesia, India,
China, Hong Kong, Philippines, Italy, Taiwan,
Oman, United States, Vietnam
5.Staff force: ±500
6.Distributors: 200,000
7.Products: Consumer Goods and Services

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Introduction to Balanced Scorecard and
Strategy

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"The digital watch didn't come from
established watch companies, the calculator
didn't come from slide rule or adding
machine companies, video games didn't come
from board-game manufacturers Parker Bros
or Mattel, the ballpoint pen didn't come from
fountain pen manufacturers, and Google
didn't come from the Yellow Pages"
Bob Seidensticker, Futurehype

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What’s wrong with Strategic
Planning Today?
Long-term Plans
Objectives
Strategies
Enablers
Resources
Also known as L.O.S.E.R.

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What’s wrong with Strategic
Planning Today?
1.Biggest Threats often come from OUTSIDEyour normal
industry
2.Planning from the base of an ‘Existing’organization vs.
zero-based
3.Traditional Analysis (e.g. SWOT) based only on known
or existingassumptions or knowledge
4.Spending too much time in market research and
analysis
5.Defining the company from a Product/Service
perspective vs. Category vs. JTBD (e.g. Coca-cola)
6.Wrong Benchmark–already successful vs. what made
them successful
7.Implementing BSCand PMSto improve Business
Model and Strategy
8.New strategy, same people

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Why BSC?
•Reason 1: Balanced
•Reason 2: Cause-and-Effect
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Financial
“To satisfy our
stakeholders, what
Financial objectives
must we accomplish?”
Internal Process
“To satisfy our customers,
in which internal business
processes must we
excel?"
Customer
“Who are our target
customers?
What is our value
proposition?”
Learning & Growth
“What capabilities and
tools do our employees
require to help them
execute our strategy?
Balanced Scorecard:
Corporate

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Mission
“Who are our targets?
What is our value
proposition?”
Internal Process
“To satisfy our targets,
in which internal
processes must we
excel?"
Learning & Growth
“What capabilities and
tools do our staff require
to help them execute our
strategy?
Financial
“To fulfill the Mission,
what Financial, how do
we fund Internal
Processes?”
Balanced Scorecard: NGOs,
Non-Profits, Governments

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Side notes on BSC
1.BSC should be a Thought Processand a Tool
nota Religion (e.g. Excel™vs. Budgeting)
2.BSC ≠Appraisal
3.New BSC implementations should start linking
with Budgetingright from the beginning
4.The ‘proper’ BSC approach should rightly fully
be heavily customizedto the organization
5.‘Strategic Planning’trainings should be
provided before ‘BSC’ trainings
6.Clear definitions for Accountabilityvs. Impact
vs. Influence vs. Assistance

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Today’s Agenda

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Summary: Today’s
presentation
1. Business Model + BSC =
Boundaries
2. Strategy + BSC = How
3. PMS + BSC = Execution

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What is the Business
Model?
USP
Market
Discipline
Profit Model
•Google
•Air Asia
•Tata Nano

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What is the Business
Model?
USP
Market
Discipline
Profit Model

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Business Model: Profit
Model
Revenue
Cost
Margin
Cash
Flow
Assets

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Revenue
Financial
Learning & Growth
Internal
Process
Customers
Cost Margin
Strategy + BSC
Cash Flow Asset

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What is the Business
Model?
USP
Market
Discipline
Profit Model

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Intro: Market Discipline
"They are the most innovative"
"Constantly renewing and creative"
"Always on the leading edge"
"A great deal!"
Excellent/attractive price
Minimal acquisition cost and
hassle
Lowest overall cost of
ownership
"A no-hassles firm"
Convenience and speed
Reliable product and
service
"Exactly what I need"
Customized products
Personalized communications
"They're very responsive"
Preferential service and
flexibility
Recommends what I need
"I'm very loyal to them"
Helps us to be a success
Product
Leadership
Operational
Excellence
Customer
Intimacy

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Operational Excellence
(low cost producer)
Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995
Product Leadership
(best product)
Customer Intimacy
(best total solution)
Strategy: Value Disciplines
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Operational Excellence
(low cost producer)
Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995
Product Leadership
(best product)
Customer Intimacy
(best total solution)
Strategy: Value Disciplines
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Operational Excellence
(low cost producer)
Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995
Product Leadership
(best product)
Customer Intimacy
(best total solution)
Strategy: Value Disciplines
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Operational
Excellence
•Competitive price
•Error free, reliable
•Fast (on demand)
•Simple
•Responsive
•Consistent
information for all
•Transactional
•'Once and Done'
Customer Intimacy
•Management by
Fact
•Easy to do
business with
•Have it your way
(customization)
•Market segments
of one
•Proactive, flexible
•Relationship and
consultative
selling
•Cross selling
Product Leadership
•New, state of the
art products or
services
•Risk takers
•Meet volatile
customer needs
•Fast concept-to-
counter
•Never satisfied -
obsolete own and
competitors'
products
•Learning
organization
Strategy: Value Disciplines
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The McPlaybook*
Make it easy to eat
•50% drive-thru
•Meals held in one
hand
Make it easy to prepare
•High Turnover
•Tasks simple to learn
& repeat
Make it quick
•“Fast Food”
•Tests new products
for Cooking Times
Make what customers want
•Prowls market for new
products
•Monitored field tests
*Adapted from: Businessweek , Februrary 5
th
2007
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Operational Excellence
(low cost producer)
Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995
Product Leadership
(best product)
Customer Intimacy
(best total solution)
Strategy: Disciplines

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Operational Excellence
(low cost producer)
Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995
Product Leadership
(best product)
Customer Intimacy
(best total solution)
Strategy: Disciplines
HPwell-balanced
portfolio, mass
customization
Acersuper lean
cost structure,
aggressive pricing
Applepowerful
products, premium
pricing, limited range
Still
Doing
well in
2009

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What is the Business
Model?
USP
Market
Discipline
Profit Model
•Google
•Air Asia
•Tata Nano

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Summary: Today’s
presentation
1. Business Model + BSC =
Boundaries
Done
2. Strategy + BSC = How
3. PMS + BSC = Execution

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2. Strategy + BSC = How
‘Hope’ is not a strategy

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What is your Goal?
1.Cost Reduction
2.Growth
3.Both?

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Growth Strategy
1.Base Retention
2.Share Gain
3.Positioning4.Adjacent Market
5.New Business
GROWTH
“Double-Digit Growth”, Michael Treacy
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Growth Strategy
1.Base Retention
2.Share Gain
3.Positioning4.Adjacent Market
5.New Business
GROWTH
“Double-Digit Growth”, Michael Treacy
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•Increase switching cost
•Customize products
•Preempt Defections
•Brand
•Neutralize Competitor
advantages
•Superior Value
•Buy market share
•Spot growth opportunities
•Organized search
•Promising Market?
•Make or Buy?

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How Markets determine
Growth Strategies (1)
•Growth Rate
Growth
Rate
Strategy Why?
Fast 1.Market
Positioning
2.Share Gain
3.Base
Retention
•Maintain market share in strategic
segments
•Prepare for market decline
•Competitors focus too much on
getting new customers
Flat 1.Base
Retention
2.Share Gain
(Acquisitions)
•Lose customers slower than
competitors
•Create scale economics, squeeze
costs
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•Churn Rate
Churn
Rate
Strategy Why?
Low 1.Share Gain
(Acquisitions)
2.Adjacent
Markets
•Buying customer base is
cheaper than own efforts
•New products, old customers
strategy
High 1.Base
Retention
2.Share Gain
3.Adjacent
Market
•Lose customers slower than
competitors
•Customers are always open to
the best value and offer
•Desperate to gain revenue
How Markets determine
Growth Strategies (2)
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How Markets determine
Growth Strategies (3)
Fast Growth,
Low Churn
1.Market Positioning
2.Share Gain
3.Base Retention
4.Adjacent Markets
•Example: XYZ Sector
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Side Notes on Cost
Reduction Strategy
Cost Reduction
Business
Model
•USP
•Profit Model
•Market Discipline
•Invest/Divest
Operational
•Finance, HR, IT
•Supply Chain
•R&D
•Sales & Marketing
5% -
30%
30%
-
80%

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Revenue
Base
Retention
Share Gain Positioning Adjacent
Market
New
Business
Financial
Learning & Growth
Internal
Process
Customers
Cost Margin
Strategy + BSC
Cash Flow Asset
Satisfactio
n

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Operational Excellence
(low cost producer)
Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995
Product Leadership
(best product)
Customer Intimacy
(best total solution)
Strategy: Disciplines,
Priorities, and KPIs

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Operational
Excellence
•Competitive price
•Error free, reliable
•Fast (on demand)
•Simple
•Responsive
•Consistent
information for all
•Transactional
•'Once and Done'
Customer Intimacy
•Management by
Fact
•Easy to do
business with
•Have it your way
(customization)
•Market segments
of one
•Proactive, flexible
•Relationship and
consultative
selling
•Cross selling
Product Leadership
•New, state of the
art products or
services
•Risk takers
•Meet volatile
customer needs
•Fast concept-to-
counter
•Never satisfied -
obsolete own and
competitors'
products
•Learning
organization
Strategy: Disciplines,
Priorities, and KPIs

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•Operational Excellence
•Move know-how from top performing
units to others
•Benchmarkagainst best in class
•Ensure operations trainingfor all
employees
•Use disciplines like TQM for continuous
learningto reduce costs and improve
quality
Strategy: Value Disciplines

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Strategy: Value Disciplines
•Customer Intimacy
•Capture knowledge about customers
•Understand customer needs
•Empowerfront line employees
•Ensure that everyone knows the
customer
•Make company knowledgeavailable to
customers

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•Product Leadership
•Reduce timeto market
•Commercializenew products fast
•Ensure that ideas flow
•Reusewhat other parts of the company
have already learned
•Ensure there are multiple sources of
funding
Strategy: Value Disciplines

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Operational Excellence
(low cost producer)
Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995
Product Leadership
(best product)
Customer Intimacy
(best total solution)
Strategy: Value Disciplines

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Operational Excellence
(low cost producer)
Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995
Product Leadership
(best product)
Customer Intimacy
(best total solution)
Strategy: Value Disciplines

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Revenue
Base
Retention
Share Gain Positioning Adjacent
Market
New
Business
Financial
Learning & Growth
Internal
Process
Customers
Cost Margin
Strategy + BSC
Cash Flow Asset
Operational
Excellence
Product
Leadership
Customer
Intimacy
Investment
Strategy
Satisfactio
n

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Alignment: 4-Wheels Model
Culture
Business
Model
Strategic
Planning
Structure
Person
Leadership
Resources

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Alignment: Framework
•Focus point
•Alignment
•Quality
•Innovation & Differentiation
•Risk taking
•Performance Management
•Corporate obsession
•Decision making
Culture

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Alignment: Framework
•Org Structure
•Job Design
•C&B
•Policies & procedures
•Decision making
•Job fit
•Management Systems
•BSC and KPIs
•Decentralized & Empower
Structure

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Strategy: Framework
•Role modeling
•Vision/Mission/Philosophy
•Leadership Style
•Delegation & Empowerment
•C&B, Promotions
•Sense of Urgency
•Speak regularly about Performance
Leadership

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Strategy: Framework
•Recognition
•Recruitment
•Training
•Profit sharing
•Values
•Motivation
•Self Efficacy
•Awareness
•Useful Competencies
•Career aspirations
•Attribution (control)
Person

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Strategy: Framework
Enablers
•Technology
•Equipment
•Materials
•Human
•Intellectual
Property
•Partners
•Property
Resources
Funding
•CAPEX
•OPEX

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Alignment: 4-Wheels Model
Culture
Business
Model
Strategic
Planning
Structure
Person
Leadership
Resources

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Operational
Excellence
Customer
Intimacy
Product
Leadership
Organization, jobs,
skills
Management
systems
Information and
systems
Culture, values,
norms
Each Discipline Requires
Different Priorities & Resources

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Operational Excellence
•Central authority, low level of empowerment
•High skills at the core of the organization
•Disciplined Teamwork
•Process, product-driven
•Conformance, 'one size fits all' mindset
•Integrated, low cost transaction systems
•The system is the process
•Command and control
•Quality management
Organization,
jobs, skills
Management
systems
Information and
systems
Culture, values,
norms
Each Discipline Requires
Different Priorities & Resources

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Organization, jobs,
skills
Management
systems
Information and
systems
Culture, values,
norms
Product Leadership
•Ad hoc, organic and cellular
•High skills abound in loose-knit structures
•Concept, future-driven
•Experimentation and 'out of the box' mindset
•Person-to-person communications systems
•Technologies enabling cooperation
•Rewarding individuals' innovative capacity
•Risk and exposure management
•Product Life Cycle profitability
Each Discipline Requires
Different Priorities & Resources

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Organization, jobs,
skills
Management
systems
Information and
systems
Culture, values,
norms
Customer Intimacy
•Empowerment close to point of customer contact
•High skills in the field and front-line
•Customer-driven
•Variation and 'have it your way' mindset
•Strong customer databases, linking internal and
external information
•Strong analytical tools
•Customer equity measures like life time value
•Satisfaction and share management
•Focus on ‘Share of Wallet’
Each Discipline Requires
Different Priorities & Resources

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Revenue
Base
Retention
Share Gain Positioning Adjacent
Market
New
Business
Financial
Learning & Growth
Internal
Process
Customers
Cost Margin
Strategy + BSC
Cash Flow Asset
Operational
Excellence
Product
Leadership
Customer
Intimacy
Investment
Strategy
Competencies Information
Systems
Motivation,
empowerment,
alignment
Satisfactio
n

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Summary: Today’s
presentation
1. Business Model + BSC =
Boundaries
Done
2. Strategy + BSC = How
3. PMS + BSC = Execution
Done

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3. PMS + BSC = Execution
KPIs and PMS

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Reminder: Why BSC?
•Reason 1: Balanced
•Reason 2: Cause-and-Effect
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Before we start…
Which comes first?
1.Strategies -> KPI?
2.KPI -> Strategies?

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Before we start…
Which comes first?
1.Strategies -> KPI?
2.KPI -> Strategies?
•already know our priorities, aware of all
strategy options available
•creating something UNIQUE, INNOVATIVE
and DISRUPTIVE e.g. Air Asia
•conducting a business Turnaround e.g. MAS

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Before we start…
Which comes first?
1.Strategies -> KPI?
2.KPI -> Strategies?
•want to find out possible strategies,
•determine our priorities first thru selection of
important KPIs;
•growing through ‘normal’ business, not a
Turnaround.

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Example: Selection of KPIs
for BSC
•Customer satisfaction
Customer loyalty
Market share
Customer complaints
Complaints resolved on first contact
Return rates
Response time per customer
request
Price relative to competition
Total cost to customer
Average duration of customer
relationship
Customers lost
Customer retention
Customer acquisition rates
Percentage of revenue form new
customers
Number of customers
Annual sales per turnover
•Win rate (sales closed/sales contact)
•Customer visits to the company
Hours spent with customers
Marketing cost as a percentage of sales
Number of ads placed
Number of proposals made
Brand recognition
Response rate
Number of trade shows attended
Sales volume
Share of target customer spending
Sales per channel
Average customer size
Customers per employee
Customer service expense per customer
Customer profitability
Frequency (number of sales transactions)

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Wrong KPIs
“What is the moral of
the story?”

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KPIs and Behavior
Before:“Handle Time” Per Call
•Motivated Call Centre staff to transfer callers,
getting rid of complainers, making them
someone else’s problem
•Callers at 45% chance of being transferred
•7,000 customers each week suffered transfers 7
times or more

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KPIs and Behavior
After:“Minutes Per Resolution” of a
problem
•Resolution in ONE CALL become the core goal
•Reduced probability of call transfers from 45% to
18%

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Revenue
Base
Retention
Share Gain Positioning Adjacent
Market
New
Business
Financial
Learning & Growth
Internal
Process
Customers
Cost Margin
Cause and Effect
Cash Flow Asset
Operational
Excellence
Product
Leadership
Customer
Intimacy
Investment
Strategy
Competencies Information
Systems
Motivation,
empowerment,
alignment
Satisfactio
n

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Financial
Learning &
Growth
Internal
Process
Customers /
Distributors
Revenue
Growth
ProductivityMarket Value
Department
Operations
Supplier &
Alliances
External
Involvement
Target
Markets
Products/
Services
Channel
Strategies
Human
Resources
Technology
Information &
IntelligenceSystems &
Processes
Cause and Effect: An
Example

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Sample: Other 1
st
Level KPIs
across industries…
Financial Services Retail Telecommunications
•Maximize ARPU
•Minimize Churn
•Mutichannel customer
service
•Understand customer
behavior related to customer
conversion, acquisition, and
retention
•Single view of customer
•Multichannel customer
experience
•Personalized customer
experience
•Anticipate and prevent churn
despite compensation
•Increase number of products
per customer
•Turn call center information
opportunity to up-sell and
cross-sell
•Increase customer
satisfaction and loyalty
Hospitality Travel & Leisure Manufacturing
•Personalized customer
experience
•Maximize share of wallet
•Player/customer loyalty
•Multichannel customer
service
•Increase customer loyalty
and preference
•Maximize customer revenue
•Improve service quality and
efficiency
•Capture and close sales
opportunities
•Single view of customers
across supply chain
•Zero-error order capture
•Streamline opportunity to
cash processes
•Leverage investment in ERP
and backoffice systems

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Sample KPIs for Each
Discipline
Operational
Excellence
•Price
•Selection
•Convenience
•Zero Defects
•Growth
Customer Intimacy
•Customer
Knowledge
•Solutions Offered
•Penetration
•Customer Data
•Customer-success
focus
Product
Leadership
•Marketing
•Functionality
•# of Successes
•# of Failures
•Learn from key
users
•Interdisciplinary
teams
•Pipeline

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B2B/B2G BSC MatchingRevenue
Base
Retention
Share Gain Positioning Adjacent
Market
New
Business
Financial
Learning & Growth
Internal
Process
Customers
Cost Margin Cash Flow Asset
Operational
Excellence
Product
Leadership
Customer
Intimacy
Investment
Strategy
Competencies Information
Systems
Motivation,
empowerment,
alignment
Satisfaction
Customer/Client/
Government BSCRevenue
Base
Retention
Share Gain Positioning Adjacent
Market
New
Business
Financial
Learning & Growth
Internal
Process
Customers
Cost Margin Cash Flow Asset
Operational
Excellence
Product
Leadership
Customer
Intimacy
Investment
Strategy
Competencies Information
Systems
Motivation,
empowerment,
alignment
Satisfaction
Your BSC
1.Draw your ‘customer’s’ BSC
2.Match their CP/IP with your CP
3.Identify IPs that support/conflict

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Cascading
Customer Perspective
Goals StrategiesTargets DirectIndirect
Base
Retention
Mkt
Share Gain Mkt
New
Business
BD

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E3 –Department BSC
Customer Perspective –
Marketing Department
Goals StrategiesTargets CAPEX OPEX
Base
Retention
Share Gain
Budgeting

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Individual MBO
Employee A –Marketing Executive
KRAs Action
Plans
Targets Weight
(%)
Score
Class A
Customer
Retention
Class B
Customer
Retention
Competition
Crossovers
Re: Base
Retention

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What’s In Between Planning
and Execution?
Succession Planning (Business
Continuity)
Talent Management
Differentiation
Performance Management System
Budgeting + Planning
KPIs
BSC
Business Model
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What’s In Between Planning
and Execution?
Succession Planning (Business
Continuity)
Talent Management
Differentiation
Performance Management System
Budgeting + Planning
KPIs
BSC
Business Model
a.k.a. Strategy
Planning
a.k.a. Strategy
Implementation
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Performance Execution
Clarity
A Excellent
B Good
C Average
D Poor
E Useless
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Performance Execution
Clarity
A Excellent
B Good
C Average Good
D Poor
E Useless
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Performance Execution
Clarity
A Excellent Excellent
B Good Very Good
C Average Good
D Poor Not Good
E Useless Commit Suicide
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Performance Execution
Clarity
A ExcellentConsistently achieved 4 for 3
quarters
B Very GoodHigher than planned results
C Good Achieved Planned Results
D Not GoodDid not fully meet planned
results
E Commit
Suicide
Unacceptable performance
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Performance and Pay Clarity
•Pay for Service
•Pay for Job
•Pay for Performance
•Pay for Competency
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Performance and Pay Clarity
•Increment
•Bonus
•Promotion
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Compa Ratio Table
Use this if your company:
•Pays for Performance, and
•Pays for Jobrates
Def:
Mid-Point = Mid Point of Pay Grade
Grade E2
Min
RM2,000
MID
RM2,500
Max
RM3,000
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Performance and Pay Clarity
< 0.7≥0.7 -
≤0.9
>0.9 -
<1.1
≥1.1 -
≤1.3
> 1.3
5 9 8 7 6 5
4 8 7 6 5 4
3 7 6 5% 4 3
2 6 5 4 3 2
1 5 4 3 2 1
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Performance and Pay Clarity
< 0.7≥0.7 -
≤0.9
>0.9 -
<1.1
≥1.1 -
≤1.3
> 1.3
5 20 15 12 8 5
4 18 12 9 5 3
3 9 7 5% 4 3
2 1 1 1 0 0
1 0 0 0 0 0
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Curse of the Bell Curve
‘A’
Staff
‘B’
Staff
‘D’
Staff
‘E’
Staff
‘C’
Staff
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End Notes
Tying it all up

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Review processes
1.Result Planning schedule inc. BSC, Budget
2.Quarterly Performance Appraisals
3.Sales performance reviews
4.Non-sales performance reviews
5.Annual Appraisals
6.Specialized KPI committees
7.CAR, PAR, SCAR KPI (key performance indicator)
improvements
8.Internal Audit & MSD –process problems
9.HRM & TND –people problems
(Mostly –CAR = Corrective Action Request,

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Problems, problems and
more problems…

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Alignment: 4-Wheels Model
Culture
Business
Model
Strategic
Planning
Structure
Person
Leadership
Resources

91. Thank You.
soft copy of slides:
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blogspot.com