Implementing A Balanced Scorecard Approach For Manufacturers - Gilroy

Implementing a Balanced Scorecard
Approach for Small/Mid-sized

Manufacturers
Balanced Scorecard Overview with XPP
Presented by Leo Gilroy

Kaplan-Norton Balanced Scorecard Certified Graduate
Balanced Scorecard w/
XPP
o General Information
o The Four Perspectives & Strategy Maps
o Execution Premium Process (Six stages)

o Leadership, Change and Support
o Certification
Palladium Group, Inc.
XPP
a framework that translates an organization's

strategy into a set of objectives and measures and
aligns the organization to them through its
planning and control processes.
XPP
1992 - Performance measurement tool
1993 - Connection between performance metrics and strategy

1996 - Performance management system (1st book)
2000 - Strategic management and control system
2004 - Strategy Maps
2005 - Office of Strategic Management
2008 - Integration between strategy and operations
XPP
1. Nine out of 10 organizations fail to execute their strategies
2. Research has shown that 70% of organizations that use a formal

process to manage strategy out-perform their peers by:
o Growing Revenue
o Gaining Customer Loyalty
o Strengthening Employee Commitment
o Optimizing Resource Allocation

o Reducing Cycle Times
o Managing Risk
XPP
XPP
Strategy Maps
&
the Four Perspectives
Strategy Maps & the Four Perspectives

Perspectives
1. FINANCIAL performance, a lag indicator, measures the tangible
outcomes from the strategy.
2. CUSTOMER value proposition defines the source of value.
3. PROCESSES create value for customers and shareholders.
4. LEARNING and GROWTH: intangible assets that drive

improvement in the strategic processes.

Net Income
New Product Sales
Gross Profit
Customer Perspective
Improve client
satisfaction
Outcomes
Outcomes
Financial Perspective
Improve brand
perception
Develop New
Services
Improve core
processes
Create new
partnerships aligned
with Core
Use the preferred

method of selling
Learning & Growth Perspective

Promote a culture of
innovation
Attract & retain

people w/key skills
Enhance staff
competencies &
satisfaction
Drivers
Drivers
Process Perspective
The Execution Premium Process (XPP)

Strategic Themes Articulate the Strategy
Help to focus the organization on arriving at the strategic destination
Are usually limited to 3 5 major business thrusts
Regulatory & Societal Processes
Innovation Processes
Customer Management Processes
Operational Management Processes
Include a stream of linked objectives
Financial
Customer
Internal
Learning & Growth
2010 Palladium Group, Inc.


The Execution
Premium Process
(XPP)

XPP a management process that describes how the
strategy will be executed.
Stage 1: Develop the Strategy
Stage 2: Translate the Strategy

Stage 3: Align the Organization
Stage 4: Plan Operations

Stage 5: Monitor and Learn
Stage 6: Test and Adapt

Stage 1: Develop the Strategy - an integrated set of
choices that position a firm to earn superior returns over the long run.
1. What will our economic model look like?

2. Which customers will we serve, where, and what will we
provide them?
3. How can our organization serve these customers?
4. What skills do we need to have in our organization?
5. What is the portfolio of initiatives and their timing that we
need to execute?

Stage 1: Develop the Strategy
Affirm Mission and Values & Quantify the Vision
Perform Strategic Analysis
Formulate the Strategy
Develop Value Gap

Implement Planning Cycle
Enhance Vision with Themes


Stage 2: Translate the Strategy
Design Strategy Map
Define Measures
Define Targets
Prioritize Strategic Initiatives
Authorize and Protect Strategy Funding
Assign Accountability
Identify Key Risk Indicator

Strategy Map
Balanced Scorecard
Theme: operating efficiency
Profitability
Profit
Grow Revenues
Fewer
Planes
Atract & Retain

More Customers
On-time Service
Lowest prices
Fast Ground
Turnaround
Ground Crew
Alignment
Strategic Systems
Crew Scheduling
Objective
Strategic Job
Ramp agent
Measurement
Target
Market value
30% CAGR
Grow revenues Seat revenue
20% CAGR
Fewer planes
Plane lease cost
5% CAGR
Flight is ontime
FAA on-time arrival

rating
#1
Lowest prices
Customer ranking
#1
# Repeat customers 70%
Attract &
retain more
customers
Fast ground
turnaround
# Customers
Increase
12% annually
On ground time
30 minutes
On-time departure
90%
Ground crew
aligned with
strategy
Develop the
necessary skills
Develop the
support system
% ground crew
100%
stakeholders
Strategic awareness Yr 1 - 0%
Strategic readiness Yr 3 - 90%
Yr 5 - 100%
Info systems
available
100%
Action Plan
Initiative
Customer
loyalty program
On ground
cycle time
optimization
Quality Mgmt
ESOP
Ground crew
training
Crew
scheduling
system rollout
CRM system
Budget
$XXX
$XXX
$XXX
$XXX
$XXX
$XXX
$XXX
Total Budget
Communicate
Measure
Execute
2010 Palladium Group, Inc.

Align Business Units to Corporate Strategic Priorities
Align Support Units
applies to large organizations
Communication Strategy
Align Individual Goals

Align Key Customers
Align Key Suppliers

Align Board
Align Compensation

Identical Cascading Method - objectives and measures are
Transferred "One for One" Where They Apply.

Stage 3: Communication Strategy
Statement of intent
Communicate that organization will use the BSC

Communicate the strategy
Scope - could include
Corporate and cascaded scorecards
sequence (Corporate, SBUs,)
North America region first
Purpose and objectives
Get commitment from the organization to execute
Communications measures
and targets:
the strategy
Process: multiple feedback channels to check
understanding of the BSC and of the organization's
strategy:
Test understanding among executives in the short-term
Periodically survey the organization for understanding
in the long term - 90% Understanding of Strategy
Overall nature and tone of

delivery (e.g., formal or
informal)
Tailored messages: tone will vary based on who is

receiving the message and through what medium
Message tone should confirm the fact that the
BSC is not optional
Stage 3: Communication Strategy

Role
Executive Sponsor/Champion
Leadership Team/Rollout
Champion(s)
BSC Communications Lead
Managers/Supervisors
All Employees
Responsibilities
Takes visible role as primary BSC champion including
obtaining budget approval
Approves the final communications plan and materials
Provides information about target audiences within their
organization
Validates the viability of proposed plans for their
organization
Actively participates in communications
Visible champion and point-person for ongoing scorecard
Coordinates process of ongoing communications effort
Ensures that project milestones are achieved (drives the
execution of the plan)
Presents ideas/materials to Executive Sponsor for review
Presents and supports a consistent message
Takes primary responsibility for communicating
departmental strategy and role of the individual
Provide timely feedback on the effectiveness of
communications program

A One-Up Review - Ensures Alignment of the
Unit/Group Strategy Map, Measures, Targets and Next
Steps
Unit/Group will:
Corporate Group will:
Describe contribution to
Confirm contribution to
corporate objectives
corporate objectives
Identify objectives that are
Reconcile objectives not
not relevant to the unit's
thought relevant to the unit's
strategy
strategy
Recommend additional
Approve new objectives
objectives relevant to the unit
relevant to the unit

Stage 3: Align the Organization (Compensation)
Questions - when designing a balanced paycheck program
1.
What is the current compensation philosophy?
2. Is it compatible with the Balanced Scorecard?
3. Will the compensation program be a team or individual based?

4. Will it be an incentive pay program or base pay program?
5. What will be the payout frequency - long term, annual, quarterly, ?
6. How will the compensation be tied to the achievement of the BSC?
Gain 1-2 years experience with BSC before linking to compensation

Stage 4: Plan Operations: What process change
does the strategy require?
Integrate Financial and Resource Capacity Planning w/the Strategy
Use Process/Driver Models to Operationalize the Strategy
Perform HR Planning
Perform IT Planning
Create Operational Dashboards

Develop Risk Mitigation Initiatives

Stage 4: Use Process Models to Operationalize the Strategy

Stage 4: Use Process Models to Operationalize the Strategy

Developing the Driver Relationships and Validating the Models is an
ITERATIVE PROCESS!!

Stage 4: Plan Operations - Create Operational Dashboards
The Organizational struggle to explicitly link Strategy and Operations
manifests itself in numerous ways:
Organization lacks a standardized framework for reporting, analyzing, and
executing proactive action plans
Tendency to "manipulate the numbers" vs. "manage the business

Limited "institutional" knowledge about the operational levers (business
drivers) and causal relationships impacting strategic objectives
Leading organizations embrace best practices and deploy
strategic and operational dashboards as an integral
component of a world class performance management

Stage 4: Plan Operations - Create Operational Dashboards

Stage 5: Monitor and Learn
Conduct Strategy Review Meetings
Manage Initiatives
Review Risk Management Plans and Processes

Conduct Strategy Review Meetings
1.
Focus on big picture long term horizon
2. Balanced Scorecard report

3. Strategic themes
o Objectives
o Measures (RYG)
o Initiatives (RYG)
5. Strategic Issue Review

6. Strategic Risks Review

Stage 5: Leader's Role in Strategy Review Meeting
Management Focus
Provide an early warning system
Generate action plans
Create a record of next steps
Leadership Focus
Comprehend root cause of performance
issues
Test the hypothesis that underpins your
strategy - are we still doing the right
things?
Promote cross-functional problem
solving - how can we resolve this issue as
a TEAM?

Stage 5: Manage Initiatives

Stage 5: Initiatives Link Strategy to Tactical Planning & Budgeting
OBJECTIVE: Develop Spandex Manufacturing
INITIATIVE: Joint Venture Program
Executive Sponsor:
John Smith
Project Duration:
January - August
(1) 5 people half time
Dedicated Resources:
(2) 5 x $1,500 = $9,500
Year 1
Anticipated Benefits (Total)
Q1
Revenue
Cost
Q2
Year 2
Q3
Q4
$80k
$9.5K
$9.5K
Q1
Q2
Q3
$100K
$9.5K
$12K
$12K
Q4
$200K
$15K
$15K
$20K
Capital
Cumulative Cash Flow
Impact on Objective & Theme: Develop ability to meet 70% of our product requirements internally by Q1.

Stage 5: Value of Initiative Management Process
Companies that align initiatives to strategic objectives can
achieve significant savings - up to 20%.
- Palladium research
Companies that actively manage their initiative portfolios
can create significantly more value - up to 30% more.
-McKinsey research

Stage 6: Test and Adapt
Test the Strategy's Cause and Effect Relationships
Test Robustness of the Strategy
Use Decision Analytic Models

Stage 6: Test the Strategy's Cause and Effect Relationships
Fishbone/Ishikawa
Driver tree diagram - 5 Whys
It is important to test the cause-and-effect relationships underlying the

strategy assumptions and drivers in order to make adjustments and adapt
the strategy as necessary

Stage 6: Test the Strategy's Cause and Effect Relationships
People drivers and results
RESULTS
TYPICAL DRIVERS
Confidence in Senior Leadership
a. Employee Commitment
Company Direction and Role/Fit

Relationship with Supervisor
Praise & Recognition
b. Employee Productivity
Support - Tools and Information
c. Employee Retention
Job Skills Levels
d. Growth of Valued Employee

Skills/ Competencies
Teamwork
Career Growth Opportunities

Stage 6: Test Robustness of the Strategy
Perform scenario modeling, war gaming, stress testing and
other analyses to assess the risk and robustness of the strategy
Scenario planning and war games are two methods for testing
how the strategy might be affected based on changes in the external
environment, for example the potential effect of a competitor's action
Scenario planning describes "alternative futures"- the plausible range

of changes in the environment A

Stage 6: Use Decision Analytic Models - the discipline of
evaluating complex alternatives in terms of values and uncertainty, using
statistical techniques and business data which, to derive probabilities
Some common techniques include:
Statistical Analyses like Regression Analysis, Correlation Analysis
Decision Trees and Diagrams
Influence Diagrams
Sensitivity Analysis
Time-series Analysis and Forecasting
Activity-based Costing
Industry Benchmarking
Economic Profit Tree
Leadership, Change
and Support

Lead the Campaign Lead the campaign
Executive leadership takes an ownership/active role in
leading the campaign to formulate, drive and execute the

strategy (Model necessary behavior)
Defining the organization's vision, mission and core values
Driving strategy execution
Achieving commitment across the executive and top leadership team
Defining an agenda of strategic change

Lead the Campaign align executive team behavior
Consensus - means fostering and achieving general
agreement among members of a group
Principles for building Commitment:
Use actions and words to demonstrate your own commitment
Create consequences for non-support
Clarify what will happen if leadership-team members don't commit
Follow through with action, if necessary
Define meaningful stakes

Lead the Campaign create strategic change agenda
As is
Undifferentiated, unknown, individual pockets of
renown
"small potatoes", "job shop" mentality, practical
orientation, opportunistic
Low cost provider, under investing
Aging, poorly maintained, inadequate
Contractor oversight and micromanagement,
operational "clean-up", too large
Transactional relationship
Maverick. lone wolf, insular
Best kept secret, bureaucratic obstacles, not
relevant
Dogs and cats, small, disconnected programs
Disconnected, silos, lack of standards
Disconnected, individual efforts
Burdensome processes
Requirement, "Star status"
Multiple, fragmented, "clean and close" culture
Aging workforce, integrating clean-up staff
Change / Performance
Dimension
Reputation
Focus
"To be"
Pre-eminent national lab renowned for its focus
on nuclear energy and national security
Mission-driven research, larger scale, focused
Cost effectiveness, reinvestment AND meeting

growth objectives
Physical infrastructure
Premier, world class R&D campus of the future
Broad contract oversight and R&D oversight,
Operations Office Relationship
right size
Customer relationships
Solution provider, partner, anticipate needs
External Collaboration
Rich, collaborative, mutual interdependence
Partnering, sharing-risk, commercializing ideas,
Industry relationship
easy to do business with, relevant and needs based
programs
Sources of growth
Large multi-year programs
Process management
Integrated and aligned, flawless execution
Problem solving
Holistic, solutions oriented
Cost effective, attack process barriers that get in
Operational excellence
our way
Essential, flawless, unrelenting, recognized world
Safety
leader
Forward focus, one team, nuclear focus, best
Culture
practice
Bring in young blood, diversity, world famous
People
scientists in key areas
Financial management
Leading Change
1. INCREASE URGENCY Raise a feeling of urgency so that people
say lets go, making a change effort well positioned for launch
2. FORMING A POWERFUL COALITION help form a group

that has the capability-in membership and method of operating-to guide a
very difficult change process.
3. CREATING A VISION and strategies to guide action in all of the

remaining stages of change.
4. COMMUNICATE CHANGE VISIONS and strategies effectively

so as to create both understanding and a gut-level buy-in.
John P. Kotter and Dan S. Cohen, The Heart of Change, Harvard Business School Press, Boston, 1999
Leading Change
5. EMPOWERING ACTION - deal effectively with obstacles that block
action, especially disempowering bosses, lack of information, the wrong
performance measurement and reward systems.
6. PRODUCE SUFFICIENT SHORT-TERM WINS sufficiently

fast, to energize the change helpers, enlighten the pessimists, defuse the cynics,
and build momentum for the effort.
7. DONT LET UP Continue with wave after wave of change, not
stopping until the vision is a reality.

8. MAKE CHANGE STICK - changes are embedded in the very
culture of the enterprise so the new way of operating will stick.

John P. Kotter and Dan S. Cohen, The Heart of Change, Harvard Business School Press, Boston, 1999
Leading Change
DENIAL
COMMITMENT
RESISTANCE
EXPLORATION
Change Curve

Build Technology Infrastructure
Information Management Delivery
Data Governance

Information Management Delivery
FROM
TO
Departmental Focus
Historical
Enterprise Focus
Focus
Real-time
Tactical
Decision
Strategic, Tactical, Operational
Analysts
Users
Enterprise
Reactive
Orientation
Proactive
Strategic Analysis
Output
Strategic Action
Open-ended
Process
Closed Loop
Metrics
Measures
Generic
Views
Tables/Charts
Informal/Email
Pull (adhoc)
Trends
Numeric
Visuals
Collaboration
Interaction
Analysis
Data
KPI's
Personalized
Dashboards/Scorecards
Built-in
Push (alerting)
Exceptions
Numeric, Text

Data Governance - is the collection of decision rights, processes,
standards, policies and technologies required to manage, maintain and
exploit information as an enterprise resource.
o Data governance is a cross-functional process and is NOT owned,

operated or managed by anyone business unit
o The goal of Data Governance is to implement mechanisms that ensure
accuracy, integrity, accessibility and security of information across the
enterprise
o Data Governance requires accountability cascaded through multiple
levels of the organization
o Data Governance is NOT a one-time project that has an end date, it is an
ongoing process and competency

Critical Success Factors
Ensure that project sponsorship is from a high enough
level to command the organization's attention
Make sure the ENTIRE Leadership Team has a real
understanding and gives endorsement of time
commitment
Involve the right people

The Palladium KaplanNorton Balanced Scorecard

Certification Program
The Palladium Kaplan-Norton Balanced

Scorecard Certification Program
The number of Certified Candidates in the Program is now over
1,200 strategy management professionals globally, with over 400

having successfully earned the distinction of Kaplan-Norton
Balanced Scorecard Certified Graduate

1. *Balanced Scorecard Certified Practitioner - BSC Boot Camp course
and exam completion + application: one letter of testimonial and BSC work
examples
2. *Balanced Scorecard Certified Graduate - BSC Boot Camp course

and exam completion
3. Balanced Scorecard Certified Candidate BSC Boot Camp course
*Annual renewal required to maintain Kaplan-Norton Balanced Scorecard Certification

Thank you!
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Implementing a Balanced Scorecard

Approach for Small/Mid-sized

Presented by Leo Gilroy

o Execution Premium Process (Six stages)

a framework that translates an organization's

planning and control processes.

Palladium Group, Inc.

1992 - Performance measurement tool

1993 - Connection between performance metrics and strategy

1. Nine out of 10 organizations fail to execute their strategies

2. Research has shown that 70% of organizations that use a formal

o Optimizing Resource Allocation

Palladium Group, Inc.

Strategy Maps & the Four Perspectives

4. LEARNING and GROWTH: intangible assets that drive

Palladium Group, Inc.

Strategy Maps & the Four Perspectives

Use the preferred

Learning & Growth Perspective

Attract & retain

The Execution Premium Process (XPP)

Regulatory & Societal Processes

Customer Management Processes

Operational Management Processes

Include a stream of linked objectives

Strategy Maps & the Four Perspectives

Palladium Group, Inc.

Strategy Maps & the Four Perspectives

Palladium Group, Inc.

The Execution Premium Process (XPP)

Palladium Group, Inc.

The Execution Premium Process (XPP)

Stage 2: Translate the Strategy

Stage 4: Plan Operations

Palladium Group, Inc.

The Execution Premium Process (XPP)

1. What will our economic model look like?

Palladium Group, Inc.

The Execution Premium Process (XPP)

Develop Value Gap

Enhance Vision with Themes

The Execution Premium Process (XPP)

The Execution Premium Process (XPP)

Theme: operating efficiency

Atract & Retain

Grow revenues Seat revenue

Plane lease cost

FAA on-time arrival

The Execution Premium Process (XPP)

Palladium Group, Inc.

The Execution Premium Process (XPP)

2010 Palladium Group, Inc.

The Execution Premium Process (XPP)

applies to large organizations

Align Individual Goals

Align Key Suppliers

The Execution Premium Process (XPP)

Palladium Group, Inc.

The Execution Premium Process (XPP)

Communicate that organization will use the BSC

Scope - could include

Corporate and cascaded scorecards

sequence (Corporate, SBUs,)