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The Balanced Scorecard

The Balanced Scorecard. Strategy Implementation. Lab Case . . . Client acquires company with hidden $5M business Issue: How can we develop a growth plan Discovery: Business and Management Is A Disaster How to Organize The Problem How to Organize Potential Solutions

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The Balanced Scorecard

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  1. The Balanced Scorecard Strategy Implementation

  2. Lab Case . . . • Client acquires company with hidden $5M business • Issue: How can we develop a growth plan • Discovery: Business and Management Is A Disaster • How to Organize The Problem • How to Organize Potential Solutions • Use the Balanced Scorecard for Organization

  3. Financial Need Vision & Strategy Systems Customer Knowledge Have Capable People Lacking Skill Development Not Bringing In Key Skills No Knowledge Alliances Scorecard Perspective On Lab Business Low Margin Projects Losing Repeat Business Fixed Contract Bids Short Capitalization Sales System Out Of Control Inadequate QC and CS Losing Key People Don’t See Emerging Needs Higher Cost Custom Projects Not Attracting Best Projects

  4. Your Assignment Figure out how to organize this into a cause-effect definition of the problem.

  5. What is a Balanced Scorecard? • Strategic Management System • Focus on Mission / Vision • Maps What Objectives Are Consistent With Attaining Mission / Vision • Sets Objectives to Meet Mission / Vision • Sets Metrics To Measure Success • Control via Rewards/Penalties via Metrics • Aligns Everyone / Every Process To Mission/ Vision

  6. Financial How we look to shareholders Vision & Strategy Processes What activities must we excel at Customer How we look to our customers Knowledge How do we learn & grow The Balanced Scorecard:A Framework For Strategic Management

  7. The Balanced ScorecardShouldTell The StoryOfYour Strategy

  8. Focus = Strategic Choices & Vision Customer Focus Which customer will we serve? What is their hierarchy of needs? What will we offer them? Greater Customer Value Superior Profits The Winning Proposition What will we do differently or better than our competition? Set & Implement Key Priorities

  9. Measures and Rewards STRATEGY People Structure and Process Culture Align the Organization To Strategy

  10. Most Strategies Fail! . . . Why? • 45% Failures in Implementation • 26% Failures in Concepts Used To Formulate • 21% Inadequate Info / Poor Assumptions • 8% Failures in Analysis

  11. Function: Mfg. IT Acct. Mktg. Sales Service Process: Innovation Customer Mgmt. Operations Set Objective For Each Perspective 4 Perspectives Financial Customer Processes Learning & Growth Shareholder Value Grow Revenue Improve Productivity Customer Product Operational Intimacy Leadership Excellence Competencies Technology Culture Governance

  12. Financial Perspective Shareholder Value Grow Revenue Improve Productivity

  13. We Have Always Had Metrics • Financial Measures • Revenue / Revenue Growth • Profit (Return on Net Assets BIT) • Cash Flow • EVA (Economic Value Added) • Market Measures • Customer Perceived Quality / Satisfaction • Market Share Lets Explore This Further . . .

  14. Return on Net Investment(Before Interest & Taxes) • Net Investment • Includes Depreciated Assets • Does Return Cover Replacement of Assets? • Would You Want To Replace Assets? • A ‘70’s / 80’s Problem That Led To Business Apathy • Profit • Financial Focus on Past • Not Linked To Strategy and Operations • Can Be Very Short-Term Focused

  15. Cash Flow • Net Income minus Change In Net Investment • Used Heavily In Portfolio Analysis Models • BCG Growth-Share Matrix • Explore Portfolio Investment Balance • Guide who Generates, Who Holds, Who Can Use Cash • Discounted CF Used To Judge Investments • Problem: What Discount Rate? • Problem: Different Assumptions Give Wildly Different Calculations ( Who can calculate future?)

  16. EVA: Economic Value Added • Market Price / Net Book Value • Management of Balance Sheet • Market Price determined by: • Overall Market Valuation • Growth In Income • Growth In Investment • CEO’s Love This Measure In An Up Market • Is IT Real Or Is It ________?

  17. Market Share • Your Sales Value Relative To Competition • Can’t Deposit MS In The Bank! • So Why Do We Want It? • It Leads To Profit . . . So We Believe! ROI MS

  18. Customer Perceived Quality • A ‘Soft’ Measure (Perception/Belief) • Again . . . Can’t Be Deposited • Importance • Research Shows It’s Tied To Price • Research Shows It’s Tied To Purchase Intent • Research Shows It’s Tied To ‘ Brand Loyalty’ • Note the term “Brand Equity” • Research: Quality Ultimately Related To Profit

  19. Measures of Success • From Financial To Market • From Abstract To Actionable • From Centralized Management To Distributed Management • From Historical To Predictable

  20. Be Careful What You Ask For … You Might Just Get It!Anonymous

  21. Customer Perspective Customer Product Operational Intimacy Leadership Excellence

  22. Value Strategies • Operational excellence: provide customers with reliable services at competitive prices and delivered with minimal difficulty or inconvenience. • IT is central to performing and controlling all key processes • To reduce cost of redundancy and variability, all processes are standardized • Formula/formula/formula

  23. Value Strategies 2. Product Leadership: Generating a stream of products that are clearly better and possibly path breaking – solving customer’s next unknown and unmet need • Visions drive the development targets . . . • Product leaders must prepare markets and educate consumers how to use ‘really new’ products • Vision! Vision! Vision!

  24. Value Strategies 3. Customer Intimacy: offering the best total solution, not necessarily the lowest price or the latest features, but the best overall result for the client. • Keys to success • Deep knowledge of customers • Breakthrough insights about their underlying processes • Flexible product line • CI Companies revamp and manage customer business processes • CI companies become integrators / coordinators • Solution! Solution! Solution!

  25. Function: Mfg. IT Acct. Mktg. Sales Service Process: Innovation Customer Mgmt. Operations Business Processes

  26. Value Chain Firm Infrastructure Human Resources Staff Research & Development Supply Chain Management Service Line Transformation Inbound Logistics Marketing & Sales Outbound Logistics

  27. Value Chain • Intangible Investments In Business Processes • What we DO / Don’t DO! • What We Make /Buy • Make = unique (distinctive competencies • Buy = Commodity (no competitive advantage) • How we Do What We Do!

  28. Examples of Internal AllignmentValue Strategies and Intangible Investments

  29. Strategic AllignmentValue Chain with Value Strategy • Choose a Value Strategy • Customer Relationship • Innovation • Efficiency • Optimize Value Chain investment choices to desired Value strategy • SWOT to determine Strengths vs. Weaknesses • Prioritize Investments for future

  30. Learning & Growth Competencies Technology Culture Governance

  31. Balanced ScorecardImplementsStrategic Management

  32. For Each Perspective: Financial ObjectivesMeasuresTargetsInitiativesResponsibilityBudget 1. 2. 3. Customer ObjectivesMeasuresTargetsInitiativesResponsibilityBudget 1. 2. 3. Etc.

  33. Case Examples

  34. College of Management

  35. Financial Customer Processes Learning NTS Strategy MapNavigate a Short Course to Global Markets Increase Market Value of NTS Increase Revenues Increase Operating Margins Total Solutions Provider (Synergy) New Services/ Revenue Streams Outstanding Customer Service Improve Understanding of Customer Future Needs Outstanding Customer Service Processes Best Practices via Tech Utilization Develop Pipeline For Technical Ideas & Market Scanning Personal & Professional Growth & Development Best In Class Performance Align Culture Leverage Through Synergy Market Centric Customer Service Performance (Process) Leadership

  36. Strategic Themes • Objectives That Fit Together • Found in the Different Perspectives • You Must Observe / Identify / Link • You Manage by Strategic Theme • Cross Functional • Example: Become Market Centric

  37. Deliverable 4 • Pick A Company or Organization • Identify It’s Strategy / Mission • Develop BSC Objectives for Each Perspective ( Minimum of 2) • Identify appropriate measures and goals • Identify Strategic Themes • Put into a Strategy Map Framework

  38. Organization:Mission:

  39. Oganization:_________ Student: ______ Strategy Map Themes: 1.________ 2._________ 3._______ etc. Financial Customer Process Learning & Growth

  40. Exam Review Concepts • Portfolio Matrix • Business Model & its Components • Value Proposition • Business Ecosystem • Strategic Business Unit • Benefit Segmentation • Conjoint Analysis • Porter’s Five Forces • Types of Assets • Capabilities • Competencies • Market Scanning Process • Technology Adoption Process • Industry / Market Attractiveness • Sustainability of Intangible Assets • Economic Rents / Monopoly Rents • Value Chain (components and use) • SWOT Analysis • Key Success Factors • Corporate Growth Options • Organic Growth Options • Customer Scenarios • Economies of Scale • Economies of Scope • Balanced Scorecard • BSC Perspective • BSC Themes • Value Disciplines • Strategic Alliances • Global Alliances

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