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The Balanced Scorecard

Patrick Penfield. Assistant Professor

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The Balanced Scorecard

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    1. The Balanced Scorecard

    2. Patrick Penfield Assistant Professor & Director of Supply Chain Executive Education 15 Years of Industry Experience – UTC, Raymond/Toyota, Johnson & Johnson and Philips Electronics MBA, CPIM & CPM Married, two kids and I live in Baldwinsville, N.Y Buffalo Bills and Syracuse University Fan Used the Balanced Scorecard Process at Philips

    3. Introductions Introduce Yourself to Another Student Tell them something about yourself that no one knows about Make sure both of you have spoken Each person will introduce the other person and tell everyone what they learned

    4. What do you hope to get out of Today’s Seminar on the Balanced Scorecard?

    5. Who is this Man?

    6. The Balanced Scorecard Why the Balanced Scorecard? Doing Business in the Post-Enron Era. Where did the Balanced Scorecard Come From? What is it? Why Use it? What considerations should I make before I start? What are the key things I should do throughout? Is there ever an end to it? Resources Discussion Questions

    7. Why the Balanced Scorecard – and Why Now? Performance Measures and Management have never been hotter. WHY?

    8. Why Three Factors Inability of Organizations to Execute Their Strategy Reliance on Financial Measures Corporate Accounting Scandals Enron – once the seventh largest company in the U.S. – 63.4 billion dollar bankruptcy WorldCom – 107 billion dollar bankruptcy Tyco, Global Crossing, Adelphia and dozens of others

    9. Doing Business in Post-Enron Era (For Profit Companies) Sarbanes-Oxley Act Section 906 – Requires Certification by CEO & CFO – Reports fully comply with the requirements of securities law and that the information in the report fairly presents, in all material respects, the financial condition and results of the operation of the company Wall Street They want broader reporting Hewitt Associates Found evidence that companies highly aligned with traditional metrics tend to be the worst performers in shareholder return

    10. Doing Business in Post-Enron Era (Government) 1990 – Chief Financial Officers Act – Improve Federal Financial Management and Develop Performance Measures 1993 - Government Performance and Results Act – (GPRA ) – Federally Funded Agencies develop and implement performance measurements, setting goals and objectives and measuring progress towards achieving them 1994 – Government Reform Act & 1996 – Information Technology Reform Act These acts required federal agencies to strategically plan how they would deliver high quality goods and services to their customers and specifically measure the programs and performance to goal George Bush – sent a budget plan to Congress that formally assessed the performance of government agencies and programs and to some extent link financing to their results Results less than encouraging – GAO determined that a majority of federal managers are largely ignoring performance information while allocating resources (2002)

    11. Where did the Balanced Scorecard Come From?

    12. Balanced Scorecard Origins Developed by Robert Kaplan – Accounting Professor at Harvard and David Norton a Consultant in the Boston Area They were looking to develop new methods of performance measurement Kaplan & Norton found that a reliance on financial measures was affecting a companies ability to create value What did they mean by this?

    13. Balanced Scorecard Origins Kaplan and Norton came up with this tool that captured performance measures on activities throughout the company Customer Issues Internal Business Processes Employee Activities Shareholder Concerns THE BALANCED SCORECARD WAS BORN!

    14. Balanced Scorecard Origins Over the Next Four Years Companies That Adopted the Balanced Scorecard saw immediate results Kaplan and Norton wrote “The Balanced Scorecard” 50% of the Fortune 1000 have adopted the Balanced Scorecard HBR – hailed it as one of the 75 most influential ideas of the twentieth century

    15. What is the Balanced Scorecard? Essentially the scorecard (think baseball or football) measures how well your organization did along 4 institutional measures (you get to pick the measure that exemplifies each) Financial Internal processes Customer Innovation and learning The scorecard essentially lines up your goals and helps the members of your organization go in the same direction to meet those goals.

    17. The measures are often expressed in a matrix

    18. Although they can be expressed in other ways…

    19. You’re a government entity; what can a balanced scorecard do for you?

    20. Why use it? The BSC ( Balanced Scorecard) links to your strategic performance--your goals and how you plan to meet them. It gives you balance within your measurements If you can measure it you can act in a more focused manner; be more disciplined in performing your mission. Hopefully, that will results in a more efficient organization. You can demonstrate that you’re a good steward of the public’s trust and $.

    21. Why use it? We’re all pressed to provide higher quality at lower costs; it’s difficult, but not impossible, to demonstrate to the taxpayer. The Army is using the BSC to measure the success of its ongoing transformation. The BSC is part of the President’s Management Agenda

    23. What triggers (or triggered, or would trigger) your organization to begin a balanced scorecard process?

    24. What considerations should I make before I start? What are your Mission? Goals? Core Competencies?

    25. What considerations should I make before I start What are your core processes? People? Materials? Methods? Equipment? Environment?

    26. What considerations should I make before I start What is private sector doing? People? Materials? Methods? Equipment? Environment?

    27. Federal Government Half of all Federal Employees perform tasks that are readily available in the commercial marketplace. OMB – Bid out the process to print the Federal Budget Since 1860 the Government Printing Office has printed In the end the GPO won the bid at a reduced price – 505k to 387k

    28. What are the key things I should do throughout? Communicate progress early and often Develop a scorecard at the corporate level and then cascade it down to lower organizational levels. This will help focus the actions in one direction to help your goals. Teach your scorecard process.

    29. Support training to develop scorecards and try to use internal people to do it. Focus on your organization’s scorecard. Involve as many people as early as you can. Encourage individuals to make their own scorecards for their own use. What are the key things I should do throughout

    30. Communicate changes; refer to the scorecard often; make it a part of the organization’s culture. Use the results of the scorecard to foster change; not to punish Encourage trial and error. What are the key things I should do throughout

    31. Now I would like to talk to you about the ASA(FM&C) Balanced Scorecard Strategy Map. First and foremost on the strategy map is the ASA(FM&C) mission. (fly in) Now I would like to talk to you about the ASA(FM&C) Balanced Scorecard Strategy Map. First and foremost on the strategy map is the ASA(FM&C) mission. (fly in)

    32. Next you will note that the strategy map has four perspectives. The Balanced Scorecard provides a framework to look at the strategy used for creating value in the organization from four different perspectives. These are Financial, Customer, Internal Processes, and Learning and Growth. A little about each perspective: Financial: The strategy for growing the resources of the Army, for meeting its requirements and managing its risks, from the perspective of our leadership. Customer. The strategy for creating value and differentiation. This is from the perspective of the customer….and identifying the perspective of the customer was probably the most difficult part of the scorecard. You will see on the scorecard that we identify both internal and external customers. Internal Process. The strategic priorities for various business processes, which create customer and leadership satisfaction. Learning and Growth. The priorities to create a climate that supports organizational change, innovation, and growth. Next you will note that the strategy map has four perspectives. The Balanced Scorecard provides a framework to look at the strategy used for creating value in the organization from four different perspectives. These are Financial, Customer, Internal Processes, and Learning and Growth. A little about each perspective: Financial: The strategy for growing the resources of the Army, for meeting its requirements and managing its risks, from the perspective of our leadership. Customer. The strategy for creating value and differentiation. This is from the perspective of the customer….and identifying the perspective of the customer was probably the most difficult part of the scorecard. You will see on the scorecard that we identify both internal and external customers. Internal Process. The strategic priorities for various business processes, which create customer and leadership satisfaction. Learning and Growth. The priorities to create a climate that supports organizational change, innovation, and growth.

    33. Our Four themes for transforming Army Financial Management are: Systems Integration. Develop integrated functional and financial systems to provide relevant and reliable information to decisions makers. Results in improved accountability of the Army. Cost Control. Develop a cost culture in the Army, maximizing the impact of each dollar spent. Results in reduced program costs. Resource Generation. Increase Army funding by developing budgets supported by quality requirements informed by execution. Results in increased funding for Army programs. Leverage/Innovate. Generate investment funding by maximizing the use of Army assets. Results in increased investment funding. Overall objective. Funding = Requirements to meet the individual and collective Army needs for People, Readiness and Transformation. Our Four themes for transforming Army Financial Management are: Systems Integration. Develop integrated functional and financial systems to provide relevant and reliable information to decisions makers. Results in improved accountability of the Army. Cost Control. Develop a cost culture in the Army, maximizing the impact of each dollar spent. Results in reduced program costs. Resource Generation. Increase Army funding by developing budgets supported by quality requirements informed by execution. Results in increased funding for Army programs. Leverage/Innovate. Generate investment funding by maximizing the use of Army assets. Results in increased investment funding. Overall objective. Funding = Requirements to meet the individual and collective Army needs for People, Readiness and Transformation.

    34. Please now turn to the third page of the Balanced Scorecard. It is called “Cost Control” The next couple of slides talk to components of the scorecard. The first component is the strategic objectives. Strategic objectives are the statement of what the strategy must achieve. Please note that objectives are linked together, and they tell a story for each of the strategic themes.Please now turn to the third page of the Balanced Scorecard. It is called “Cost Control” The next couple of slides talk to components of the scorecard. The first component is the strategic objectives. Strategic objectives are the statement of what the strategy must achieve. Please note that objectives are linked together, and they tell a story for each of the strategic themes.

    35. So let me tell you the story of the Cost Control Theme. You can either start from the top or bottom, I will start from the bottom. From a learning and growth perspective, the critical enabler to improve performance is to develop a cost culture in the Army. This cost culture will enable improvements to our core business processes. First we must improve the output and performance measures for our programs, and develop full costs of those programs. We must then imbed the cost culture, along with the output and performance measure data and full costs by program into all program/budget reviews, decisions, and actions. These improved internal processes will allow us maximize the impact of each dollar spent, which is important to our customers. Finally, maximizing the impact of each dollar spent will lead to the controlled and reduced program costs, which will both reduce program requirements and be a source of funds to meet other program requirements.So let me tell you the story of the Cost Control Theme. You can either start from the top or bottom, I will start from the bottom. From a learning and growth perspective, the critical enabler to improve performance is to develop a cost culture in the Army. This cost culture will enable improvements to our core business processes. First we must improve the output and performance measures for our programs, and develop full costs of those programs. We must then imbed the cost culture, along with the output and performance measure data and full costs by program into all program/budget reviews, decisions, and actions. These improved internal processes will allow us maximize the impact of each dollar spent, which is important to our customers. Finally, maximizing the impact of each dollar spent will lead to the controlled and reduced program costs, which will both reduce program requirements and be a source of funds to meet other program requirements.

    36. Each objective has measures…usually one to two The key to the balanced scorecard is that what gets measured gets done. Measurement Communicates Values, Priority & Direction. You have all seen this work. However, as you see, what is measured is now part of a strategy to change and transform the organization. These measures are how Mrs Pack will tell whether success is being achieved on the objectives that are key to her strategy. We are populating the measures with data currently, and Mrs Pack will begin reviews of these measures in October. Continuing with the Cost Control Theme, and the Objective to imbed a cost culture in program/budget reviews, decisions and actions. There are two measures: Number of programs with integrated performance reviews Percent of performance reviews that yield cost reductions Each objective has measures…usually one to two The key to the balanced scorecard is that what gets measured gets done. Measurement Communicates Values, Priority & Direction. You have all seen this work. However, as you see, what is measured is now part of a strategy to change and transform the organization. These measures are how Mrs Pack will tell whether success is being achieved on the objectives that are key to her strategy. We are populating the measures with data currently, and Mrs Pack will begin reviews of these measures in October. Continuing with the Cost Control Theme, and the Objective to imbed a cost culture in program/budget reviews, decisions and actions. There are two measures: Number of programs with integrated performance reviews Percent of performance reviews that yield cost reductions

    37. Of course, each measures have targets. These targets are set by the FM leadership, and show where we must be over time to achieve our objectives. Each measure has a target. Components of the target are used to rate the measures as red, amber or green. Targets change over time so that performance can “ramp up” . Example is for measure “number of programs with integrated performance reviews, and still has not been approved by MG Sinn. - Worst: Sets lowest possible acceptable value - BAU: Business as usual. Sets where the measure would be without any actions to improve performance. - Planned: Set the level of performance that the organization desires to achieve. - Benchmark: The stretch goal. - Best: Highest possible acceptable value. Of course, each measures have targets. These targets are set by the FM leadership, and show where we must be over time to achieve our objectives. Each measure has a target. Components of the target are used to rate the measures as red, amber or green. Targets change over time so that performance can “ramp up” . Example is for measure “number of programs with integrated performance reviews, and still has not been approved by MG Sinn. - Worst: Sets lowest possible acceptable value - BAU: Business as usual. Sets where the measure would be without any actions to improve performance. - Planned: Set the level of performance that the organization desires to achieve. - Benchmark: The stretch goal. - Best: Highest possible acceptable value.

    38. Initiatives are the action plans that many of you will be involved in to improve performance. A little about developing action plans. A strategic initiative can be viewed as an “Intervention Project” Initiatives are defined to help close the performance gap Initiatives are generally organizationally sponsored projects that address some organizational performance gap or challenge A “Good” strategic initiative should have: Accountability at the leadership team level Clearly defined start and stop dates and progress milestones A budget Committed resources allocation (e.g., real employee hours) An initiative is not business as usual, it is an act to achieve the strategic objective Initiatives are the action plans that many of you will be involved in to improve performance. A little about developing action plans. A strategic initiative can be viewed as an “Intervention Project” Initiatives are defined to help close the performance gap Initiatives are generally organizationally sponsored projects that address some organizational performance gap or challenge A “Good” strategic initiative should have: Accountability at the leadership team level Clearly defined start and stop dates and progress milestones A budget Committed resources allocation (e.g., real employee hours) An initiative is not business as usual, it is an act to achieve the strategic objective

    39. Themes are not stovepipes and are not organizationally organized Requires cooperation / teamwork More time to devote to higher leverage activities Continuing with the cost control theme, we see two of the internal process objectives, Imbed a cost culture in program budget reviews actions and decisions and Improved output and performance measures/Develop full costs by programs These objectives are linked closely for key systems integration objectives of: Provide timely and relevant management information Integrate functional and financial system requirements For example, the improved output and performance measures and the components of the full cost of programs must be fed to the folks building integrated functional and financial system requirements so they can integrated. This will result in timely in relevant management information systems, the outputs of which must be used in program budget reviews and decisions. Thee are many examples such as these. Themes are not stovepipes and are not organizationally organized Requires cooperation / teamwork More time to devote to higher leverage activities Continuing with the cost control theme, we see two of the internal process objectives, Imbed a cost culture in program budget reviews actions and decisions and Improved output and performance measures/Develop full costs by programs These objectives are linked closely for key systems integration objectives of: Provide timely and relevant management information Integrate functional and financial system requirements For example, the improved output and performance measures and the components of the full cost of programs must be fed to the folks building integrated functional and financial system requirements so they can integrated. This will result in timely in relevant management information systems, the outputs of which must be used in program budget reviews and decisions. Thee are many examples such as these.

    40. We will achieve our strategy through use of a Balanced Scorecard. I don’t want to teach you about a Balanced Scorecard today, but instead I want to leave you with a couple of thoughts.  First, this strategy is about change. We must change the way we do financial management in the Army, or we will not be able to keep up with the changing environment we face.  Second, we need everyone to get into this strategy, the way the soldier did in the video we saw a couple of minutes ago. He was able to articulate that the Army must deploy a brigade within 96 hours. You each need to gain a similar understanding of our strategy, and your role in implementing it.   We will achieve our strategy through use of a Balanced Scorecard. I don’t want to teach you about a Balanced Scorecard today, but instead I want to leave you with a couple of thoughts.  First, this strategy is about change. We must change the way we do financial management in the Army, or we will not be able to keep up with the changing environment we face.  Second, we need everyone to get into this strategy, the way the soldier did in the video we saw a couple of minutes ago. He was able to articulate that the Army must deploy a brigade within 96 hours. You each need to gain a similar understanding of our strategy, and your role in implementing it.  

    42. What processes have you experienced in developing a balanced scorecard? Can you share your successes in linking strategy, goals, and tactics?

    45. CASE STUDY

    47. Discussion Questions How did you gain acceptance for the scorecard on your organization or how would you? What format did you elect to use for your scorecard and why? Do you have some favorite resources to share?

    48. Thank You!

    49. Resources Kaplan and Norton (both are HBR publications and a must read if you’re going down the BSC path.) Balanced Scorecard: Translating Strategy into Action The Strategy Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment. Niven – Balanced Scorecard for Government and Nonprofit Agencies – Wiley,2003 Caterinicchia, Dan. (12 Aug. 2002.) Army Keeps Score. Federal Computer Week. 27.) APQC http://www.apqc.org/portal/apqc/site?path=root A good information resource. Check out ako comm.us.army.mil/srs

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