EXECUTIVE SUMMARY After a Merger with Manufacturers Hanover Corporation, at the beginning of 1995, the retail bank division

of Chemical Bank, named New York Market, faced declining margins, and increased competition in its, among others, credit and deposit gathering and processing business. Thus, Michael Hegarty, head of the Division, oversaw the need for a transformation in his organization. He wished to transform the bank, into a market-focused organization, that would be a preferred financial service provider to target customer groups. In order to achieve the foregoing, the bank needed huge investments in order to better understand customer needs, identify attractive customer segments, and develop and tailor new products and services. To achieve the foregoing, the division adapted the Balanced Scorecard to clarify and communicate the new strategy and to identify main drivers for strategic success. These strategic objectives and measures were divided into four perspectives: financial, customer, internal, and learning growth. The process for implementing the new measurement and management system was crucial, such as on time identification of new adaptations to the system that were not working as expected. The scorecard provided measures they needed to stay focused on performance, while at the same time enabling the Bank's management to clarify and communicate its vision. CASE BACKGROUND In 1993, Chemical Bank and Manufacturer's Hanover concluded a merging process and launched a metropolitan markets division, which targeted customers and small businesses (under $1 million in sales) in the New York City area. Retail banking was experiencing slow revenue growth, outflows of deposits to mutual funds, increased customer demand for value, and underlying growth in core expenses such as occupancy, salaries and benefits and FDIC. The foregoing factors produced a real profitability squeeze for the retail banking division. The Bank's new three-pronged strategy involved over 100 main initiatives for shifting every part of the firm's core business. The executive team felt that this scope and depth of transformation would require strong management. Thus, they selected the Balanced Scorecard as a tool for focusing and controlling these change efforts. This team found it useful for reducing the number of retail branches while also minimizing the number of loosing or non-profitable accounts. From 1993 to 1996, Chemical Bank achieved, as a result of its Balanced Scorecard implementation, among others, the following: *<Tab/>85 to 90% retention of targeted customer accounts, in spite of massive branch closings resulting from merger with Manufacturers Hanover. *<Tab/>95 to 100% retention of targeted account balances when a second merger was completed in with Chase Manhattan in 1996. SUMMARY/CONCLUSIONS In 1992, the Retail Division of Chemical Bank, now JP Morgan-Chase Bank enjoyed a 30% market share in the New York metropolitan area; however,

Chemical Bank was still struggling to digest a recent merger, as well as trying to introduce more integrated financial services and greater use of electronic banking to its customer base. Implementation of this new and revolutionary strategy was being stalled by the proliferation of lots of new ideas and investment initiatives which, in the short-run gave no alignment, mission or focus to the firm. And there was also, no prioritization of the work needed to be done to get the goals achieved. With this environment, the Balanced Scorecard was introduced in 1993 to define strategic priorities and provide a structure to link strategy, budgeting and results. They realized that no one owns a process end-to-end (most do just a small part of it); however, every individual should understand how they fit in, what their role is for helping the company achieve its strategy. The scorecard gave them measures to stay focused on performance, while enabling to clarify and communicate vision, and focus energies for change. They concluded that measurement allows learning, and that learning renews vision and refuels said energy for change. By 1996, the results of the new strategy were becoming obvious. In the lapse of three years, profitability had increased by a factor of 20. According to Michael Hagerty, "The Balanced Scorecard has become an integral part of our change management process. The Scorecard has allowed us to look beyond financial measures and concentrate on factors that create economic value." Thanks to the Balanced Scorecard, the Bank was able to retain 85 - 90% of targeted customer accounts in spite of massive branch closings resulting from a merger. Chemical Bank's industry of financial services also was able to rationalize the rate of introducing new "products" (actually services). They realized that in most cases, these offerings returned little or no new valuable customers and also gave little value to the customers' needs, also they were no different in nature or execution from the goodies of competitors. However, retention of valuable and profitable customers accounts, and increases in revenues per customer obtained by selling to them additional services, are thus the keys to powerful organic growth. Thereafter, with the BSC, they were able to focus in fewer products and services, retaining more profitable customers. The Chemical Bank tried to be different from its competitors, which were indifferent to losing customers, and bad at selling them products. Implementation of the BSC helped the Chemical to be distinguished by customers for the knowledge and reliability of its advisors and employees; this was achieved specifically with the help of the "Learning and Growth" part of the BSC. As a concluding comment, Chemical Bank was able to improve in many of its financials and, in general, overall achievements. The foregoing because of, not only the implementation, but the correct adaptation and continuous improvement of the BSC. Chemical Bank Report Questions 1) What is Hegarty attempting to accomplish with the Balanced Scorecard? Provided that Mike Hegarty at Chemical Bank's retail division, was an exMarine officer. The typecast of military officers is one who succeeds through command and control. However, military officers, particularly in

the Marines, know that when the confrontation is taking place, the generals are far from the front lines. He also was aware that in uncertain environments, where Marine battles occur, whatever has been previously planned is almost surely not going to occur, among others: (i) Front-line officers may have been killed, (ii) equipment may have been dropped off at the wrong location, and (iii) the enemy may have appeared in unexpected places. Thus, at certain point, the mission depends on front-line troops with the capabilities of reorganizing, improvising and adapting to the local situation. Thereafter, in the heat of battle, the intangible assets the troops can draw upon are: 1.<Tab/>A clear knowledge of the mission and objectives they are expected to accomplish, and, 2.<Tab/>An ability to improvise and work together to achieve the mission and objectives. Michael Hegarty attempted to achieve that the senior executives and management, initiate change projects as part of a new strategic track for the bank, adapting new ways of doing business, even though they faced no palpable crisis or problems in that regard. The Bank's retail division was marginally profitable, but revenue growth in its basic products had slowed. *<Tab/>Deposits were leaving the bank for non-banking intermediaries, such as mutual funds and money market funds, leaving fewer resources for the bank to invest, which in turn drove down revenues. *<Tab/>Core operating expenses were increasing, and new investments were required for expensive new hi Tech systems. Hegarty thought on implementing a system, whereby his knowledge in the military field, be of great help. Hegarty also realized that launching a major organizational change, however, needed to be done not out of fear. Leaders should motivate change by establishing stretch targets, in order to break down organizational satisfaction and provide inspiration and true goals about the future. Mr. Hegarty drove the development of the BSC because he believed it would help Chemical Bank employees deliver on the basis of vision and thereafter mission, pursuant to setting a goal to become the number one retail internet banking company in the globe. The Online Financial Services division already enjoyed first-mover advantages and seemed to be doing good. But in the extremely dynamic Emarketplace, Hegarty knew that continuous development was far from enough. Thus, he also motivated the development of the Balanced Scorecard by setting stretch targets: triple the customer base in less than three years; become the first Internet bank with 1 million customers; increase the revenue per customer by more than 50%; and reduce the cost per customer served by more than 35%. By implementing the BSC, Hegarty wished to transform the bank, into a market-focused organization, that would be a preferred financial service provider to target customer groups, task which was accomplished successfully.

2) Why use a balanced scorecard with all this measures? A Balanced Scorecard is useful in order to: 1.<Tab/>Create Strategic Focus - The Balanced Scorecard. Create a Balanced Scorecard to help clarify, consolidate, and gain consensus around the strategy of the organization. 2.<Tab/>Translate Strategy to Action - Strategic Enterprise Management (SEM). A successful BSC program begins with the recognition that it is not a "metrics" project, or at least, not only; it's a change project. Senior executives and management must clearly communicate why change is needed, unfreezing the organization and creating a sense of urgency for change, even though it's not necessary for the short-term survival of the firm. It is necessary to link the BSC to all stages of the management process, to ensure that change is focused on the strategy. Using the Balanced Scorecard, executives are able to measure how their business units create value for current and future customers. Executives can also learn what investments in either people, systems, and procedures are necessary to improve future performance. While retaining an interest in financial performance, the Balanced Scorecard was able to reveal the drivers of superior, long-term value and competitive performance. In other words, the BSC tells the story of the strategy of the firm. Even if the BSC seemed too bulky for the Bank, its basic structural principles were not only the foundations, but the main drivers for the firms success, and also they are surely essential and applicable to any organization. As so often in management, the BSC's principles flow in an unbroken virtuous circle, and have neither beginning nor end. However, the Bank choose to enter the circle by placing the customer first (which was an excellent idea), and then go round the circle to answer the following questions: 1.<Tab/>To achieve our vision, how should we appear to our customers? 2.<Tab/>To succeed financially, how should we appear to our owners? 3.<Tab/>To satisfy our owners and customers, what business processes must we excel at? 4.<Tab/>To achieve our vision, how will we sustain our ability to change and improve? Each of the four questions has the same set of sub-questions: *<Tab/>What are the relevant (a) objectives, (b) measures, (c) targets and (d) initiatives? Quality of thought, however, was hard to include in the BSC, although its absence explains some of Renaissance's research findings - that under 60% of managers in its survey didn't have a clear understanding of their company's strategy, which was (naturally enough) only implemented effectively in less than 30% of the cases.

Finally, as Hagerty summarized, the BSC provided a forward-thinking tool, that will supply the measures that will drive improved performance in the Bank's branches. The dozens of things, (data and trends) they tracked (from satisfaction data to cleanliness in ATM areas) help the executives and branch managers how they were performing on key issues. These tracking also helped the firm to evaluate his executives and even branch managers an employees on how they perform on designated measures, having bonuses determined by said multiple measures, weighted by revenue contribution to the Bank. The BSC's measures provided the Bank with feedback about their strategies, whether they were working and whether they set their targets accordingly. Bottom-line, the BSC helped learn and enable change. 3) How can you assess the quality of a business unit's BSC?

Provided that the BSC approach begins with the idea that financial measures are not enough to manage an organization. Financial measures tell the story of past events. Thus, they are not helpful to guide the creation of future value through investments in either customers, suppliers, employees, technology, or innovation. Furthermore, the BSC complements measures of past performance (lagging indicators) with measures of the drivers of future performance (leading indicators). Thereafter, the objectives, measures and performance of a Unit's BSC are derived from an organization's vision and strategy. These objectives and measures provide a view of unit's performance from four perspectives: 1.<Tab/>Financial - the strategy for growth, profitability, and risk viewed from the perspective of the shareholder. 2.<Tab/>Customer - the strategy for creating value and differentiation from the perspective of the customer. 3.<Tab/>Internal Business Processes - the strategic priorities for various business processes, which create customer and shareholder satisfaction. 4.<Tab/>Learning and Growth - the priorities to create a climate that supports organization change, innovation, and growth. A BSC uses the language of measurement to more clearly define the meaning of strategic concepts like quality, customer satisfaction, and growth. Once a scorecard that accurately describes the strategy has been developed, it then serves as the organizing framework for the management system. Clearly, the BSC works best when used to communicate vision and strategy, not to control the actions of subordinates. This is paradoxical to those who think that measurement is a control tool, not a communication tool. Leaders recognize that the biggest challenge they face in implementing change and new strategies is getting alignment throughout the organization. Success in using the BSC to become a Strategy-Focused Organization is most likely when the leader of the unit has a management style which emphasizes vision, communication, participation, employee initiative and innovation.

Thus, BSC should: 1.<Tab/>Avoid organizational units where the leader likes to be completely in control. and 2.<Tab/>Avoid leaders who use management control systems to ensure that all sub-units and employees are following directions and adhering to plans determined at the top of the organization. Finally, assessment of a business unit's BSC is totally linked with having the right leader, who can create the climate for change, the vision for what the change can accomplish, and the governance process that promotes communication, interactive discussions, and learning about the strategy. General assessment of a unit's BSC should be focused in the grade of alignment to the vision, mission and strategy of the firm, as well as to the performance in the four perspectives: 1.<Tab/>Financial. 2.<Tab/>Customer. 3.<Tab/>Internal Business Processes. 4.<Tab/>Learning and Growth. References KLEIN, Norman and KAPLAN, Robert S., CHEMICAL BANK: IMPLEMENTING THE BALANCED SCORECARD, Harvard Business Review, 1995. The Balanced Scorecard Institute's Web Page, http://www.balancedscorecard.org KAPLAN, Robert S., and BOWER, Marvin, EXECUTIVE TEAM LEADERSHIP , Harvard Business Review, 2006. http://www.rocketsoftware.com/files/23/exec_team_lead.pdf