BALANCED SCORECARD FOR STRATEGIC PLANNING AND MEASUREMENT

www.myCNI.com.my www.OOBEY.com

BALANCED SCORECARD FOR STRATEGIC PLANNING AND MEASUREMENTCase Study, Concepts and Debatable Ideas

Kenny OngCNI Holdings Berhad

Intro: CNI

1. 20 years old2. Core Business: MLM3. Others: Contract Manufacturing, F&B Retail,

Export/Trading, eCommerce, Shared Services4. Malaysia, Singapore, Brunei, Indonesia, India,

China, Hong Kong, Philippines, Italy, Taiwan, Oman, United States, Vietnam

5. Staff force: ± 5006. Distributors: 200,0007. Products: Consumer Goods and Services

Introduction to Balanced Scorecard and Strategy

"The digital watch didn't come from established watch companies, the calculator

didn't come from slide rule or adding machine companies, video games didn't come from board-game manufacturers Parker Bros or Mattel, the ballpoint pen didn't come from

fountain pen manufacturers, and Google didn't come from the Yellow Pages"

Bob Seidensticker, Futurehype

What’s wrong with Strategic Planning Today?

Long-term Plans

Objectives

Strategies

Enablers

Resources

Also known as L.O.S.E.R.

What’s wrong with Strategic Planning Today?

1. Biggest Threats often come from OUTSIDE your normal industry

2. Planning from the base of an ‘Existing’ organization vs. zero-based

3. Traditional Analysis (e.g. SWOT) based only on known or existing assumptions or knowledge

4. Spending too much time in market research and analysis

5. Defining the company from a Product/Service perspective vs. Category vs. JTBD (e.g. Coca-cola)

6. Wrong Benchmark – already successful vs. what made them successful

7. Implementing BSC and PMS to improve Business Model and Strategy

8. New strategy, same people

Why BSC?

• Reason 1: Balanced

• Reason 2: Cause-and-Effect

Financial

“To satisfy our stakeholders, what Financial objectives must we accomplish?”

Internal Process

“To satisfy our customers, in which internal business processes must we excel?"

Customer

“Who are our target customers?

What is our value proposition?”

Learning & Growth

“What capabilities and tools do our employees require to help them execute our strategy?

Balanced Scorecard: Corporate

Mission

“Who are our targets?

What is our value proposition?”

Internal Process

“To satisfy our targets, in which internal processes must we excel?"

Learning & Growth

“What capabilities and tools do our staff require to help them execute our strategy?

Financial

“To fulfill the Mission, what Financial, how do we fund Internal Processes?”

Balanced Scorecard: NGOs, Non-Profits, Governments

Side notes on BSC

1. BSC should be a Thought Process and a Tool not a Religion (e.g. Excel™ vs. Budgeting)

2. BSC ≠ Appraisal3. New BSC implementations should start linking

with Budgeting right from the beginning4. The ‘proper’ BSC approach should rightly fully

be heavily customized to the organization5. ‘Strategic Planning’ trainings should be

provided before ‘BSC’ trainings6. Clear definitions for Accountability vs. Impact

vs. Influence vs. Assistance

Today’s Agenda

Summary: Today’s presentation

1. Business Model + BSC = Boundaries

2. Strategy + BSC = How

3. PMS + BSC = Execution

What is the Business Model?

Market Discipline

Profit Model

•Google

•Air Asia

•Tata Nano

Market Discipline

Profit Model

Business Model: Profit Model

Revenue

MarginCash Flow

Assets

RevenueFinancial

Learning & Growth

Internal Process

Customers

Cost Margin

Strategy + BSC

Cash Flow Asset

Market Discipline

Profit Model

Intro: Market Discipline

"They are the most innovative"

"Constantly renewing and creative"

"Always on the leading edge"

"A great deal!"

Excellent/attractive price

Minimal acquisition cost and hassle

Lowest overall cost of ownership

"A no-hassles firm"

Convenience and speed

Reliable product and service

"Exactly what I need"

Customized products

Personalized communications

"They're very responsive"

Preferential service and flexibility

Recommends what I need

"I'm very loyal to them"

Helps us to be a success

Product Leadership

OperationalExcellence

CustomerIntimacy

Operational Excellence(low cost producer)

Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995

Product Leadership(best product)

Customer Intimacy(best total solution)

Strategy: Value Disciplines

Operational Excellence

• Competitive price

• Error free, reliable

• Fast (on demand)

• Simple

• Responsive

• Consistent information for all

• Transactional

• 'Once and Done'

• Simple

• Responsive

• Transactional

• 'Once and Done'

Customer Intimacy

• Management by Fact

• Easy to do business with

• Have it your way (customization)

• Market segments of one

• Proactive, flexible

• Relationship and consultative selling

• Cross selling

Customer Intimacy

• Cross selling

Product Leadership

• New, state of the art products or services

• Risk takers

• Meet volatile customer needs

• Fast concept-to- counter

• Never satisfied - obsolete own and competitors' products

• Learning organization

Product Leadership

• Risk takers

The McPlaybook*

Make it easy to eat• 50% drive-thru• Meals held in one

Make it easy to prepare• High Turnover• Tasks simple to learn

& repeat

Make it quick• “Fast Food”• Tests new products

for Cooking Times

Make what customers want• Prowls market for new

products• Monitored field tests

*Adapted from: Businessweek , Februrary 5th 2007

Strategy: Disciplines

HP well-balanced portfolio, mass customization

Acer super lean cost structure, aggressive pricing

Apple powerful products, premium

pricing, limited range

Still Doing well in 2009

Market Discipline

Profit Model

•Google

•Air Asia

•Tata Nano

1. Business Model + BSC = Boundaries Done

‘Hope’ is not a strategy

What is your Goal?

1. Cost Reduction

2. Growth

3. Both?

Growth Strategy

1.Base Retention

2.Share Gain

3.Positioning4.Adjacent Market

5.New Business

GROWTH

“Double-Digit Growth”, Michael Treacy

Growth Strategy

1. Base Retention

2. Share Gain

3. Positioning4. Adjacent Market

5. New Business

GROWTH

“Double-Digit Growth”, Michael Treacy

•Increase switching cost

•Customize products

•Preempt Defections

•Brand

•Neutralize Competitor advantages

•Superior Value

•Buy market share

•Spot growth opportunities

•Organized search

•Promising Market?

•Make or Buy?

How Markets determine Growth Strategies (1)

• Growth Rate

Growth Rate

Strategy Why?

Fast 1. Market Positioning

2. Share Gain

3. Base Retention

•Maintain market share in strategic segments•Prepare for market decline•Competitors focus too much on getting new customers

Flat 1. Base Retention

2. Share Gain (Acquisitions)

•Lose customers slower than competitors•Create scale economics, squeeze costs

• Churn RateChurn Rate

Strategy Why?

Low 1. Share Gain (Acquisitions)

2. Adjacent Markets

•Buying customer base is cheaper than own efforts•New products, old customers strategy

High 1. Base Retention

2. Share Gain

3. Adjacent Market

•Lose customers slower than competitors•Customers are always open to the best value and offer•Desperate to gain revenue

Fast Growth,

Low Churn

1.Market Positioning

2.Share Gain3.Base Retention

4.Adjacent Markets

•Example: XYZ Sector

Side Notes on Cost Reduction Strategy

Cost Reduction

Business Model

•USP

•Profit Model

•Market Discipline

•Invest/Divest

Operational

•Finance, HR, IT

•Supply Chain

•R&D

•Sales & Marketing

5% - 30%

30% - 80%

Revenue

Base Retention

Share Gain Positioning Adjacent Market

New Business

Financial

Learning & Growth

Internal Process

Customers

Cost Margin

Strategy + BSC

Cash Flow Asset

Satisfaction

Strategy: Disciplines, Priorities, and KPIs

• Simple

• Responsive

• Transactional

• 'Once and Done'

• Simple

• Responsive

• Transactional

• 'Once and Done'

Customer Intimacy

• Cross selling

Customer Intimacy

• Cross selling

Product Leadership

• Risk takers

Product Leadership

• Risk takers

Strategy: Disciplines, Priorities, and KPIs

• Operational Excellence• Move know-how from top performing

units to others• Benchmark against best in class• Ensure operations training for all

employees• Use disciplines like TQM for continuous

learning to reduce costs and improve quality

• Customer Intimacy• Capture knowledge about customers• Understand customer needs• Empower front line employees• Ensure that everyone knows the

customer• Make company knowledge available to

customers

• Product Leadership• Reduce time to market• Commercialize new products fast• Ensure that ideas flow• Reuse what other parts of the company

have already learned• Ensure there are multiple sources of

funding

Revenue

Base Retention

New Business

Financial

Learning & Growth

Internal Process

Customers

Cost Margin

Strategy + BSC

Cash Flow Asset

Product Leadership

Customer Intimacy

Investment Strategy

Satisfaction

Alignment: 4-Wheels Model

Culture

Business

ModelStrategic Planning

StructurePerson

Leadership

Resources

Alignment: Framework

• Focus point• Alignment• Quality• Innovation & Differentiation• Risk taking• Performance Management• Corporate obsession• Decision making

Culture

Alignment: Framework

• Org Structure• Job Design• C&B• Policies & procedures• Decision making• Job fit• Management Systems• BSC and KPIs• Decentralized & Empower

Structure

Strategy: Framework

• Role modeling• Vision/Mission/Philosophy• Leadership Style• Delegation & Empowerment• C&B, Promotions• Sense of Urgency• Speak regularly about Performance

Leadership

Strategy: Framework

• Recognition• Recruitment• Training• Profit sharing• Values• Motivation• Self Efficacy• Awareness• Useful Competencies• Career aspirations• Attribution (control)

Person

Strategy: Framework

Enablers• Technology• Equipment• Materials• Human• Intellectual

Property• Partners• Property

Resources

Funding • CAPEX• OPEX

Culture

Business

StructurePerson

Leadership

Resources

Customer Intimacy

Product Leadership

Organization, jobs,skills

Management systems

Information and systems

Culture, values,norms

Each Discipline Requires Different Priorities & Resources

•Central authority, low level of empowerment•High skills at the core of the organization

•Disciplined Teamwork•Process, product- driven•Conformance, 'one size fits all' mindset

• Integrated, low cost transaction systems•The system is the process

•Command and control•Quality management

•Central authority, low level of empowerment•High skills at the core of the organization

•Disciplined Teamwork•Process, product- driven•Conformance, 'one size fits all' mindset

• Integrated, low cost transaction systems•The system is the process

•Command and control•Quality management

Organization, jobs, skills

Management systems

Product Leadership

•Ad hoc, organic and cellular•High skills abound in loose-knit structures

•Concept, future-driven•Experimentation and 'out of the box' mindset

•Person-to-person communications systems•Technologies enabling cooperation

•Rewarding individuals' innovative capacity•Risk and exposure management•Product Life Cycle profitability

Product Leadership

•Ad hoc, organic and cellular•High skills abound in loose-knit structures

•Concept, future-driven•Experimentation and 'out of the box' mindset

•Person-to-person communications systems•Technologies enabling cooperation

•Rewarding individuals' innovative capacity•Risk and exposure management•Product Life Cycle profitability

Management systems

Customer Intimacy

•Empowerment close to point of customer contact•High skills in the field and front-line

•Customer-driven•Variation and 'have it your way' mindset

•Strong customer databases, linking internal and external information

•Strong analytical tools

•Customer equity measures like life time value•Satisfaction and share management•Focus on ‘Share of Wallet’

Customer Intimacy

•Empowerment close to point of customer contact•High skills in the field and front-line

•Customer-driven•Variation and 'have it your way' mindset

•Strong customer databases, linking internal and external information

•Strong analytical tools

•Customer equity measures like life time value•Satisfaction and share management•Focus on ‘Share of Wallet’

Revenue

Base Retention

New Business

Financial

Learning & Growth

Internal Process

Customers

Cost Margin

Strategy + BSC

Cash Flow Asset

Product Leadership

Customer Intimacy

Investment Strategy

Competencies Information Systems

Motivation, empowerment,

alignment

Satisfaction

1. Business Model + BSC = Boundaries Done

KPIs and PMS

Reminder: Why BSC?

• Reason 1: Balanced

• Reason 2: Cause-and-Effect

Before we start…

Which comes first?

1. Strategies -> KPI?

2. KPI -> Strategies?

Before we start…

Which comes first?

•already know our priorities, aware of all strategy options available

•creating something UNIQUE, INNOVATIVE and DISRUPTIVE e.g. Air Asia

•conducting a business Turnaround e.g. MAS

Before we start…

Which comes first?

•want to find out possible strategies,

•determine our priorities first thru selection of important KPIs;

•growing through ‘normal’ business, not a Turnaround.

Example: Selection of KPIs for BSC

•Customer satisfactionCustomer loyaltyMarket shareCustomer complaintsComplaints resolved on first contactReturn ratesResponse time per customer requestPrice relative to competitionTotal cost to customerAverage duration of customer relationshipCustomers lostCustomer retentionCustomer acquisition ratesPercentage of revenue form new customersNumber of customersAnnual sales per turnover

•Win rate (sales closed/sales contact)•Customer visits to the companyHours spent with customersMarketing cost as a percentage of salesNumber of ads placedNumber of proposals madeBrand recognitionResponse rateNumber of trade shows attendedSales volumeShare of target customer spendingSales per channelAverage customer sizeCustomers per employeeCustomer service expense per customerCustomer profitabilityFrequency (number of sales transactions)

Wrong KPIs

“What is the moral of the story?”

KPIs and Behavior

Before: “Handle Time” Per Call• Motivated Call Centre staff to transfer callers,

getting rid of complainers, making them someone else’s problem

• Callers at 45% chance of being transferred• 7,000 customers each week suffered transfers 7

times or more

KPIs and Behavior

After: “Minutes Per Resolution” of a problem

• Resolution in ONE CALL become the core goal• Reduced probability of call transfers from 45% to

Revenue

Base Retention

New Business

Financial

Learning & Growth

Internal Process

Customers

Cost Margin

Cause and Effect

Cash Flow Asset

Product Leadership

Customer Intimacy

Investment Strategy

alignment

Satisfaction

Financial

Learning & Growth

Internal Process

Customers / Distributors

Revenue Growth

ProductivityMarket Value

Department Operations

Supplier & Alliances

External Involvement

Target Markets

Products/ Services

Channel Strategies

Human Resources

Technology

Information & IntelligenceSystems &

Processes

Cause and Effect: An Example

Sample: Other 1st Level KPIs across industries…

Financial Services Retail Telecommunications

•Maximize ARPU•Minimize Churn•Mutichannel customer service

•Understand customer behavior related to customer conversion, acquisition, and retention•Single view of customer•Multichannel customer experience•Personalized customer experience

•Anticipate and prevent churn despite compensation•Increase number of products per customer•Turn call center information opportunity to up-sell and cross-sell•Increase customer satisfaction and loyalty

Hospitality Travel & Leisure Manufacturing

•Personalized customer experience•Maximize share of wallet•Player/customer loyalty•Multichannel customer service

•Increase customer loyalty and preference•Maximize customer revenue•Improve service quality and efficiency•Capture and close sales opportunities

•Single view of customers across supply chain•Zero-error order capture•Streamline opportunity to cash processes•Leverage investment in ERP and backoffice systems

Sample KPIs for Each Discipline

• Price• Selection• Convenience• Zero Defects• Growth

Customer Intimacy

• Customer Knowledge

• Solutions Offered• Penetration• Customer Data• Customer-success

Customer Intimacy

• Customer Knowledge

• Solutions Offered• Penetration• Customer Data• Customer-success

Product Leadership

• Marketing• Functionality• # of Successes• # of Failures• Learn from key

users• Interdisciplinary

teams• Pipeline

Product Leadership

• Marketing• Functionality• # of Successes• # of Failures• Learn from key

users• Interdisciplinary

teams• Pipeline

B2B/B2G BSC Matching

Revenue

Base Retention

New Business

Financial

Learning & Growth

Internal Process

Customers

Cost Margin Cash Flow Asset

Product Leadership

Customer Intimacy

Investment Strategy

alignment

Satisfaction

Customer/Client/ Government BSC

Revenue

Base Retention

New Business

Financial

Learning & Growth

Internal Process

Customers

Cost Margin Cash Flow Asset

Product Leadership

Customer Intimacy

Investment Strategy

alignment

Satisfaction

Your BSC

1. Draw your ‘customer’s’ BSC

2. Match their CP/IP with your CP

3. Identify IPs that support/conflict

Cascading

Customer Perspective

Goals Strategies Targets Direct Indirect

Base Retention

Share Gain Mkt

New Business

E3 – Department BSC

Customer Perspective – Marketing Department

Goals Strategies Targets CAPEX OPEX

Base Retention

Share Gain

Budgeting

Individual MBO

Employee A – Marketing Executive

KRAs Action Plans

Targets Weight (%)

Class A Customer Retention

Class B Customer Retention

Competition Crossovers

Re: Base Retention

What’s In Between Planning and Execution?

Succession Planning (Business Continuity)

Talent Management

Differentiation

Performance Management System

Budgeting + Planning

Business Model

What’s In Between Planning and Execution?

Succession Planning (Business Continuity)

Talent Management

Differentiation

Performance Management System

Budgeting + Planning

Business Model

a.k.a. Strategy Planning

a.k.a. Strategy Implementation

Performance Execution Clarity

A Excellent

B Good

C Average

D Poor

E Useless

A Excellent

B Good

C Average Good

D Poor

E Useless

A Excellent Excellent

B Good Very Good

C Average Good

D Poor Not Good

E Useless Commit Suicide

A Excellent Consistently achieved 4 for 3 quarters

B Very Good Higher than planned results

C Good Achieved Planned Results

D Not Good Did not fully meet planned results

E Commit Suicide

Unacceptable performance

Performance and Pay Clarity

• Pay for Service

• Pay for Job

• Pay for Performance

• Pay for Competency

• Increment

• Bonus

• Promotion

Compa Ratio Table

Use this if your company: • Pays for Performance, and • Pays for Job rates

Mid-Point = Mid Point of Pay Grade

Grade E2

Min RM2,000

MID RM2,500

Max RM3,000

< 0.7 ≥0.7 - ≤0.9

>0.9 - <1.1

≥1.1 - ≤1.3

5 9 8 7 6 5

4 8 7 6 5 4

3 7 6 5% 4 3

2 6 5 4 3 2

1 5 4 3 2 1

< 0.7 ≥0.7 - ≤0.9

>0.9 - <1.1

≥1.1 - ≤1.3

5 20 15 12 8 5

4 18 12 9 5 3

3 9 7 5% 4 3

2 1 1 1 0 0

1 0 0 0 0 0

Curse of the Bell Curve

‘A’ Staff

‘B’ Staff

‘D’ Staff

‘E’ Staff

‘C’ Staff

End Notes

Tying it all up

Review processes

1. Result Planning schedule inc. BSC, Budget

2. Quarterly Performance Appraisals

3. Sales performance reviews

4. Non-sales performance reviews

5. Annual Appraisals

6. Specialized KPI committees

7. CAR, PAR, SCAR KPI improvements

8. Internal Audit & MSD – process problems

9. HRM & TND – people problems

Problems, problems and more problems…

Culture

Business

StructurePerson

Leadership

Resources

Thank You.

soft copy of slides: www.totallyunrelatedrandomanddebatable.

blogspot.com

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