Balanced Scorecard Airline FMCG Implementation Anand Subramaniam 1 To navigate a plane looking at the fuel indicator is too limited – other fa

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Balanced Scorecard Airline FMCG Implementation Anand Subramaniam 1 To navigate a plane looking at the fuel indicator is too limited – other fa Powered By Docstoc
					   Balanced Scorecard
Airline & FMCG -Implementation

    Anand Subramaniam



                                 1
To navigate a plane, looking at
the fuel indicator is too limited
– other factors impact the
success of a flight; a cockpit
requires a balanced measuring
system !!

                                    2
    Implementation Highlights
Challenges around Strategy Execution

What is Balance Scorecard (BSC) and why firms
implement it?

My Client’s (FMCG & Airlines) :
–   Challenges,
–   Goals,
–   Benefits Seeked,
–   Critical Success Factors (CSF),
–   Strategy Map
–   Example – themes, CSF, measures & targets,
–   implementation roadmap including time frames,
–   Project Organisation Chart
–   Lessons Learned                                 3
       Is this happening at your firm ?

                                                        STRATEGY

   60% of organizations
    don’t link strategy &    update the                                               test the    85% of management
           budgets            strategy                                              hypotheses   teams spend less than
                                                  Strategic Learning Loop                        one hour per month on
                                                                                                    strategy issues

                                                        BALANCED
                                                       SCORECARD



                                                         BUDGET


78% of organisations lock
budgets to an annual cycle     funding            Management Control Loop          reporting
                                                                                                 92% of organisations do
20% of organisations take                                                                          not report on lead
 more than 16 weeks to                                PERFORMANCE                                      indicators
   prepare a budget
                                       Input             Initiatives &       Output
                                                          Programs
                                    (Resources)                             (Results)


                                                                                                                      4
             Strategy Execution Challenges
    “We have a            “Our employees             “Our strategic,      “We do not know if
 strategy, we just       don’t have a clear         operational, and        our strategy is
can’t explain it that    understanding of         financial plans are    working until it is too
      easily.”          what the strategy is          not aligned.”              late.”
                        and their role in it.”
                                                  “We spend too         “Our data is of poor
 “Our leadership                                  much time and         quality and we have
  team does not                                    effort creating      disparate systems to
 agree on our key       “We are a collection      plans instead of            report on
    priorities.”         of silos that do not    getting value from        performance.”
                            collaborate.”           the planning
                                                      process”
                                                  “I’m not sure our      “We don’t have the
 “We are trying to       “Recognition and                                   right measures.
   do 100 things,         rewards are not           resources are
                                                  allocated against      There are too many
 rather than do 15      based on driving the                            of them and we’re not
   critical things       change we need.”         priorities and our
                                                 best opportunities.”    sure which ones to
        well.”                                                                    use”



                             Lack of
                             Lack of
  Unclear Vision
  Unclear Vision                                 Disjointed Planning
                                                 Disjointed Planning    Inability to Test and
                                                                        Inability to Test and
                                                                                            5
                           Organisation
                           Organisation
   and Strategy
   and Strategy                                    and Processes
                                                   and Processes        Adapt Performance
                                                                         Adapt Performance
                            Alignment
                            Alignment
Vision to Outcomes – Conceptual Overview
                               MISSION
                            Why we exist
                               VALUES
                         What’s important to us
                               VISION
                         What we want to be
                             STRATEGY
                            Our game plan
                      BALANCED SCORECARD
                       Translate, Focus and Align
                       STRATEGIC INITIATIVES
                         What are the priorities
                    TOTAL QUALITY MANAGEMENT
                        What we must improve
                EMPOWERMENT / PERSONAL OBJECTIVES
                           What I need to do



                       STRATEGIC OUTCOMES

    Satisfied       Delighted       Efficient & Effective   Motivated & Prepared
 SHAREHOLDERS     CUSTOMERS            PROCESSES              WORKFORCE            6
What is a Balance Scorecard (BSC)?
                          The Premise
Measurement Communicates Values, Priorities & Direction


                     The Conclusion

       Measurement Must Be Linked To Strategy


               Strategy
                                   Balanced
                                   Scorecard


                                                          7

     Measurement To Communicate, Not To Control
                 BSC Perspectives
Perspective          Key Concept              Key Questions

                                     Through the eyes of our
  Customer/                          customers and stakeholders, how
                      Satisfaction   will they judge our products and
 Stakeholder
                                     services?
                                     For businesses, how do we create
                                     value for owners?
   Financial            Financial
 Stewardship          Performance


                                     How can we improve internal
   Internal                          processes to improve quality,
                       Efficiency    timeliness, economics, and
   Process
                                     functionality?
                                     How can we continually get
Organisational       Knowledge and   smarter, innovate, and improve?
  Capacity             Innovation
                                                                     8
BSC




      9
 Why firm’s implement BSC?
To align corporate strategy with daily operations
To make informed business decisions via defined
reporting and analysis, to corporate best practices
To comply with regulations by disclosing corporate
information timely
To achieve the vision by building rigor
To help with innovation / new product development
To adapt to changing technologies and markets
To attract and retain talented people
A management system or a check-up for the
business                                            10
My Client’s BSC Implementation


       Lesson’s Learned




                                 11
     Challenges before BSC
Measures not aligned or changed with strategy and does not
reflect critical success factors.
Short-term focus rather than taking a long-term and the focus
was on what is currently being done, not what should be done
Failure to measure the impact on the overall organisation
Much quantitative information could not be reduced to
monetary amounts and some could not be quantified
Some information provided feedback but no guidance
Measures poorly designed and / or collected (eg. customer
satisfaction, employee morale)
Goals were arbitrarily determined, beyond the ability of the
system
Measures produced were irrelevant, redundant, questionable,
confusing (not defined) and some were manipulated
                                                            12
                Goals seeked
To improve management effectiveness by having a shared
and actionable view of the strategy
To provide a generic framework to translate strategy into
operational terms
To create a systems approach or an integrated Strategic
Management Process
To provide a clear line of sight to the vision and strategy of
the company, providing feedback and guidance
To provide a tool for communicating the strategy and the
processes and systems required for strategy implementation
To draw a cause and effect roadmap to stakeholder value –
shareholder, customer, and employee.
To provide a balance between current performance and long-
term competitive abilities (financial & non-financial measures)
                                                             13
         Benefits achieved
Improved management effectiveness by having a
shared and actionable view of the strategy
Ensured strategic outcomes for a given set of
resources
Enabled employees to work in a coordinated,
collaborative fashion towards organisational goals
Provided timely information for informed decision-
making on resource allocation
Provided guidance on future operations & decisions
BSC was utilised as an change agent, to translate
the strategy into action, providing feedback and
learning
                                                 14
  Lesson’s Learned / Success
            Criteria
“Story of the firm’s strategy” in actionable terms.
Executive Involvement - strategic decision makers
validated and owned the strategy and related
measures
Cause and Effect Relationships - every objective
selected was analysed for cause and effect linkages
and to the strategy
Balance between outcome and leading measures -
there was a balance and facilitated anticipatory
management
Financial Linkage - every objective was ultimately
linked to the financial results
Linkage of Initiatives and Measures - each initiative
was analysed for variance, between baseline and
target.
                                                    15
                         Strategy Map designed
                                                                             Improve Shareholder Value
Financial Perspective:                            Productivity Strategy                Shareholder Value                  Revenue Growth Strategy
                                                                                       ROCE
drivers of shareholder                                                                                                                         Create Value
                                       Improve Cost                  Increase Asset                                Enhance
value                                    Structure                      Utilisation                             Customer Value
                                                                                                                                                from New
                                                                                                                                                Products &
                                                                                                                                                 Services
                                     Cost per Unit                  Asset Turnover                                Customer                       New Revenue
                                                                                                                  Profitability                  Sources
                             Market and Account
                                                        Customer Acquisition             Customer Retention            Customer Satisfaction
                                 Share
Customer Perspective:                                                                                               Product Leader
                                                                                                               Customer Solutions
differentiating value
proposition                                             Customer Value Proposition                        Low Total Cost
                                           Product/Service Attributes                      Relationship            Image

                                   Price      Quality       Time        Function      Service       Relations      Brand




Internal Perspective:                                                      Customer
                                      Operations Theme                                                  Innovation Theme                  Regulatory and
                                                                          Management                                                      Society Theme
how value is created                                                        Theme                       (Processes that
                                       (Processes that                                                                                   (Processes that
and sustained                             Produce and                   (Processes that
                                                                                                      Create New Products                  Improve the
                                                                                                          & Services)                   Environment and
                                       Deliver Products &               Enhance Customer
                                            Services)                        Value)                                                       Communities)



Learning & Growth
                                                             Human, Information, and Organisational Capital
Perspective:
                                                    Strategic                                     Strategic                                Climate for
role for intangible assets                        Competencies                                  Technologies                                 Action            16
– people, systems,
climate and culture
                       Example - Internal / Operations Themes
                              Objective                    Objective Statement                            Measure                      Initiatives

                                                                                              •Certification Rates of all         •Charter attrition work
                                                                                                           course.                       group.
                                                                                               •% deploying BCT receiving
                                                 •Ensure health services assets of all three
                          Enhance Training                                                   deployment training across                   •TBD
                                                 •components are trained and modular and
                          & Development                                                                all modules.
                                                   •cutting edge to support full spectrum
                                                  •operation and joint force requirements.         •Adherence to the (re)
                                                                                                                                  •Incorporate audit
                                                                                             verification, (re) validation, and
Internal Perspective




                                                                                                                                        guidance.
                                                                                               (re) accreditation process.

                                                 •Enhance accessibility of our products and     •% of products available via
                          •Improve Access to                                                                                      •Market products and
                                                    services to our customers through            online and traditional
                        •Products and Services                                                                                         service.
                                                     innovative, cutting edge delivery.         methods (hard copy, CDs)

                       •Increase Organisational                                                                                  •Survey employees
                                                •Institutionalise processes that increase our •% increase in updated policies
                             Efficiency and                                                                                   concerning alignment and
                                                  efficiency and get rid of those that don’t. and procedures from baseline.
                            Standardisation                                                                                     duplication of efforts.


                                                 •Posture our organisation to optimise joint                                       •Comprehensive and
                            •Improve Joint                                                      •Adherence to Schedule
                                                                integration                                                         integrated program
                              Integration
                                                                                                                                    management plan.


                                                                                                                                                     17
   Example - Critical Success Factors
  Success Factor                      Imp.    Cap.          Supporting Actions

Business-wide                         10          3      Customer Focus Groups
clarity on customer needs &                              0800 complaint line
concerns                                                 System of ‘Listening Posts’

Effective internal                    10          7      Team Listening structure
communications                                           Intranet Web-sites for all projects
                                                         48 hour responses to all project queries

Involvement and                       8           2      Management workshop on I&P ideas
Participation (I&P) at all                               Pilot participative ‘event’
levels                                                   Staff design of business forums

Demonstrable support for              9           6      Regular business forums
new culture / ethos                                      Team charters at all levels
                                                         Open access to performance data

Process                               7           9      Formal ownership guidelines
Ownership Infrastructure                                 Regular process owners forums
                                                         Central process design repository

                                                                                                    18
        Imp. - Importance           1- Minor Relevance       10 - Critical
        Cap. - Current Capability   1 - Major Weakness       10 - Best Practice
                   Measures & Targets - Example
                                              Strategic Goals              Measures                      Targets            Initiatives
                                               Strategic Goals              Measures                      Targets            Initiatives
                      Customer



                                   What do we have to do to get     How do we know if we are    What will we measure our
                     Customer




                                     What do we have to do to get    How do we know if we are    What will we measure our
                                   there?
                                   there?                                         goals?
                                                                    achieving our goals?                  against?
                                                                                                progress against?
                                     there?                          achieving our goals?        progress against?




                                                                                                                                What activities are we doing to reach our targets?
                      Financial
                     Financial
Vision & Mission




                      Process
                     Process




                                                                                                                                                                          targets?
                                   Employee
                                  Employee




                                                                                                                                                                             19
                                                   BSC - Airways
                              Strategy Map                                        Balanced Scorecard                             Action Plan
    Theme: Operating Efficiency                          Objective               Measurement               Target             Initiative        Budget
Financial              Profits &                   •   Profitability         •   Market Value          •   30% CAGR
                        RONA
                                                   •   Grow revenues         •   Seat Revenue          •   20% CAGR
        Grow                             Fewer
      Revenues                           Planes
                                                   •   Fewer planes          •   Plane Lease Cost      •   5% CAGR
Customer
                 Attract & Retain                  •   Flight is on-time     •   FAA On-Time Arrival   •   #1
                 More Customers                                                  Rating
                                                   •   Lowest prices         •   Customer Ranking      •   #1            •   Customer Loyalty   • $XXX
                                                                             •   # Repeat Customers    •   70%               Program
       On-time                          Lowest
                                                   •   Attract and retain    •   # Customers           •   Increase
       Service                          Prices
                                                       more customers                                      12% annual


Internal                                           •   Fast ground           •   On Ground Time        •   30 Minutes    •   On Ground Cycle    • $XXX
                  Fast Ground
                                                       turnaround                                                            Time
                  Turnaround
                                                                             •   On-Time Departure     •   90%               Optimisation       • $XXX
                                                                                                                         •   Quality
                                                                                                                             Management
Learning                                           •   Ground crew aligned   •   % Ground Crew         •   100%          •   ESOP               • $XXX
                 Ground Crew                           with strategy             Stockholders
                  Alignment
                                                                             •   Strategic Awareness   •   100%          •   Ground Crew        • $XXX
                                                                                                                             Training
                                                   •   Develop the           •   Strategic Job         •   Yr 1 - 0%
                                                       necessary skills          Readiness                 Yr 3 - 90%    •   Crew Scheduling    • $XXX
                                                                                                           Yr 5 - 100%       System Rollout
   Strategic Systems               Strategic Job   •   Develop the support
   Crew Scheduling                 Ramp Agent          system                •   Info System           •   100%          •   CRM System         • $XXX
                                                                                 Availability
                                                                                                                             Total Budget        $XXXX
                                                                                                                                                  20

                                     Communicate                                          Measure                                   Execute
               Implementation Roadmap
Week             1         2             4          6        8         10   12         14            16            18
        Step 1




                                       Step 3                 Step 4              Step 5                  Step 6
• Define and Clarify
 Mission & Vision
• Develop Strategic Goals


      Step 2
                               • Draft Strategic        • Define Measures   • Identify Initiatives   • Get Buy-in!
                                Map with linkages       • Set Targets       • Allocate Resources     • Plan & Implement
                                & themes
                               • Develop Baseline



• Identify Unit Objectives/ Critical
 Success Factors / Architecture
                                                                                                               21
                                Ongoing Management
         Implementation - Steps 1 ~ 3
         Week                2             4               6    8   10         12          14          16       18
                                                  Step 3
              Step 1                                                                    Step 5
                                                  Draft a
             Develop a                         Strategy Map                         Select Strategic
           Business Case                       With Linkages                           Initiatives
                                               And Themes

                             Step 2
                                                                     Step 4                                 Step 6
                              Build
                            Strategic                          Determine Measures                         Plan and
                           Architecture                            and Targets                         implementation




Work/Inputs                                                                                                 Outputs:

• Strategy                                                       Refine and                                 • Agreed upon
  Documents            Agree upon          Review and           rework draft                                  stretch targets
                         stretch          refine themes                               Discuss next
                                                                  linkages               steps
• Draft themes &         targets                                                                            • Finalised themes
  linkages based
  on Strategic                                                                                              • Strategy map
  Destination
                                                                                                                           22
                    Implementation - Step 4
             Week               2             4               6     8   10        12           14          16       18
                                                     Step 3
                 Step 1                                                                     Step 5
                                                     Draft a
                Develop a                         Strategy Map                          Select Strategic
              Business Case                       With Linkages                            Initiatives
                                                  And Themes

                                Step 2
                                                                         Step 4                                 Step 6
                                 Build
                               Strategic                           Determine Measures                         Plan and
                              Architecture                             and Targets                         implementation




Work/Inputs                                                                                                              Outputs:

• Refined                                                                                                                • 90%
  strategy                                                                                                                 complete
                                                                                                                           linkages
• Existing                Refine and          Review                                 Begin             Plan for
  measures                                                        Design new                                             • Complete
                            validate           draft                                targets           measures
  assigned to                                                      measures                                                measures
                           linkages          measures                             discussion         development
  objectives
                                                                                                                         • Measures
• Draft                                                                                                                    development
  measures                                                                                                                       23
                                                                                                                           plan in place
  developed
           Implementation - Step 5 & 6
          Week                  2            4                 6    8   10        12           14          16       18
                                                     Step 3
                 Step 1                                                                     Step 5
                                                    Draft a
              Develop a                          Strategy Map                           Select Strategic
            Business Case                        With Linkages                             Initiatives
                                                 And Themes

                                Step 2
                                                                         Step 4                                 Step 6
                                 Build
                               Strategic                           Determine Measures                         Plan and
                              Architecture                             and Targets                         implementation




Work/Inputs:                                                                                               Outputs:

• Refined linkages           Review                                                                        • “Locked in” on
                                                                                      Align/                 objectives and linkages
  and measures                 and                Review           Brainstorm
                                                                                   rationalise
                             validate             existing              new
                                                                                    initiatives            • Measures defined
• Inventory of              linkages             initiatives        initiatives
                                                                                   to themes
  existing                     and
  initiatives               measures                                                                       • Initiatives defined

• Proposed new                                                                                             • Plan for initiatives
  initiatives                                                                                                review established 24

                                                                                                           • implementation
               Project Organisation
                                     • Overall project ownership
                     Executive
  Vendor
                      Sponsor/       • Consultations/workshops
Engagement
                      Steering         as needed
  Manager
                     Committee
 (part-time)




                                     • 3 days/week
  Vendor                                                             • 8 Half-day
                       Client                            Executive     workshops
  Project
                       Project                          Leadership
  Leader
                       Leader                              Team      • One 90-minute
 (full-time)
                                                                       briefing/
                                                                       interview

                                                                     • Consultations/
                                     • 2-4 staff                       workshops
                        Client
                                                                       as needed
  Vendor                Core
  Project               Team         • 3- 5 days/week
   Team
                          Staff      • Briefings with others
     1-2            knowledgeable      as needed
Consultants           of business
 (full-time)        strategies and
                                                                                    25
                     organisation
              Lessons Learned
Measures must relate to the strategy and interrelated
– Must understand how the perspectives influence each other
– Organisation-wide view replaces local focus

Determine the critical success factors
– Identify long-term and short-term business objectives and prioritise
  them based on business goals
– What must be achieved to survive, or what will cause the company to fail
  if it is not achieved?
– Determine success factors for each of the four perspectives
– Limit the number to items that are critical, not just interesting
– Must understand the linkages between the activities and the goals

Develop metrics to evaluate performance
– Provide feedback and also indicate risk / opportunity areas
– Metrics may be financial, non-financial, trends, surrogates, internally or
  externally gathered
                                                                         26
– Should include leading and lagging measures, not too much or little
  Lessons Learned (Contd.)
Requires teamwork and collaboration
– Different perspectives and expertise are required
– No one individual has a complete view of the organisation
– Greater participation produces greater “buy-in”
– Employees have a sense of ownership in the resulting scorecard
– More likely to use the scorecard to guide their decisions

Identify owners and assign responsibilities
Initiative must start with Senior Management
– Who understand the overall strategy and have authority to make
  strategic decisions
– Their Commitment level will determine success or failure
       The project may fail if senior management does not show continued interest
       and support in the design process
       The scorecard will be ignored if management does not promote its use for
       performance evaluation and guidance                                        27
  Lessons Learned (Contd.)
Requires teamwork and collaboration
– Different perspectives and expertise are required


Link to databases and IT system
– Modify information system if necessary to collect and report the metrics
      What data is available / not available?
      The scorecard should determine what data is collected and the data available
      should not determine the scorecard
– Determine reporting procedures
      Who gets the information? How is it reported? How often is it reported?


Communicate to employees regularly - tactics,
objectives, assumptions, timetables
– What is being measured
– Why it is being measured
– What is expected of the employees                                             28

– How to use the information
  Lessons Learned (Contd.)
Develop scorecards for lower levels
– For staff to understand what they must do to support the level above

Interview senior managers
– Input on strategic objectives, critical success factors, possible measures

Periodic reviews and re-align
– Has company strategy changed?
– Are the critical success factors still valid?
– Are the activities still valid?
– Are the metrics still valid?
– Analyse results

Pitfall to avoid
– Senior management committed and there is consensus
– Staff buy in and regular communication between staff and management
                                                                   29
         ROI & BSC
It may not be obvious to YOU or
YOUR managers, how to increase
sales, decrease costs, and
decrease investments in a way
that is consistent with the
company’s strategy.
A well constructed balanced
scorecard can provide YOU with a
road map that indicates how YOUR
                              30

company intends to increase ROI.
                  Take Away
BSC not only supports management decisions, but also
identifies possibilities for change and motivates people

Reports on the performance against the corporate goals

Supports management decisions & establishes priorities
regarding human and other resources

Identifies ways to improve performance

Identifies the need for adjusting processes and the flaws in
supporting systems and infrastructure

Identifies the need for change in the organisational culture

Motivates people in their work by giving signals about what is
important to the organisation                             31
      Good Luck
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                                               32

				
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