strategic map and balanced score card with case study

PERFORMANCE MANAGEMENT BALANCED SCORE CARD

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Term paper

ON

Performance management

[A case study on PMS USING BALANCED SCORE CARD]

SUBMITTED BY

M. SRAVANTHI (09246)

SYAMLY SATHYAN (09254)

S. KALKI RUPINI (09259)


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Contents

INTRODUCTION TO BALANCED SCORE CARD ................................................................... 3

BALANCED SCORECARD PERSPECTIVES ........................................................................ 3

FROM MEASUREMENT DASHBOARDS TO STRATEGY MAPS ..................................... 4

CAUSE-AND-EFFECT LOGIC ................................................................................................ 5

THE KEY BENEFITS OF USING BALANCED SCORECARDS .......................................... 5

STRATEGY MAP: ......................................................................................................................... 7

BENEFITS OF STRATEGY MAPS .......................................................................................... 7

CASE STUDY .............................................................................................................................. 11

SOLUTION FOR THE CASE: ................................................................................................. 12

STEPS FOR IMPLEMENTING BALANCED SCORE CARD: ......................................... 12

MISSION STATEMENT: .................................................................................................... 13

STRATEGY MAP: ............................................................................................................... 13

SELECTING PERSONAL OBJECTIVES: ......................................................................... 16

LEARNINGS FROM THE CASE................................................................................................ 21

CONCLUSION ............................................................................................................................. 21

BIBLIOGRAPHY ......................................................................................................................... 22

APPENDIX-1 ............................................................................................................................... 23


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INTRODUCTION TO BALANCED SCORE CARD

The Balanced Scorecard (BSC) is a strategic performance management framework that allows

organizations to manage and measure the delivery of their strategy. The concept was initially

introduced by Robert Kaplan and David Norton in a Harvard Business Review Article in 1992

and has since then been voted one of the most influential business ideas of the past 75 years.

Like most good ideas, the concept of the Balanced Scorecard is very simple. Kaplan and Norton

identified four generic perspectives that cover the main strategic focus areas of a company. The

idea was to use this model as a template for designing objectives and measures in each of the

following perspectives.

BALANCED SCORECARD PERSPECTIVES

The Financial Perspective covers the financial objectives of an organization and allows

managers to track financial success and shareholder value. This is concerned with the

shareholders view of performance. Shareholders are concerned with many aspects of

financial performance Amongst the measures of success like Market share, Revenue

growth, Profit ratio, Return on investment, Economic value added, Return on capital

employed, Operating cost management, Operating ratios and loss ratios, Corporate goals,

Survival, Profitability, Growth, Process cost savings and Increased return on assets etc.

The Customer Perspective covers the customer objectives such as customer satisfaction,

market share goals as well as product and service attributes. This seeks to identify how

well the business is performing, whether the products and services offered meet customer

expectations, the critical processes for satisfying customers, Activities in which the firm

excels, and in what must it excel in the future. The internal processes that the company

must be improved if it is to achieve its objectives and this perspective is concerned with

assessing the quality of people and processes. Potential goals for the internal perspective

include Improve core competencies, Improvements in technology, Streamline processes,

Manufacturing excellence, Quality performance, Inventory management, Quality and

Motivated workforce.


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The Internal Process Perspective covers internal operational goals and outlines the key

processes necessary to deliver the customer objectives. This perspective deals how

customers perceive the firm. This focuses on the analysis of different types of customers,

their degree of satisfaction and the processes used to deliver products and services to

customers. Particular areas of focus would include Customer service, new products, new

markets, Customer retention, Customer satisfaction, and what does the organization need

to do to remain that customer‟s valued supplier. Potential goals for the customer

perspective could include Customer satisfaction, new customer acquisition, Customer

retention, Customer loyalty, Responsiveness, Efficiency, Reliability and Brand Image.

The Learning and Growth Perspective covers the intangible drivers of future success

such as human capital, organizational capital and information capital including skills,

training, organizational culture, leadership, systems and databases. This perspective is

concerned with issues such as how can they continue to improve and create value, in

which areas must the organization improve. How can the company continue to improve

and create value in the future and what should do to make this happen. Potential goals for

the innovation and learning perspective include new product development, Continuous

improvement, Technological leadership, HR development and Product diversification.

FROM MEASUREMENT DASHBOARDS TO STRATEGY MAPS

When it was first introduced the Balanced Scorecard perspectives were presented in a four-box

model. Early adopters created Balanced Scorecards that were primarily used as improved

performance measurement systems and many organizations produced management dashboards to

provide a more comprehensive at a glance view of key performance indicators in these four

perspectives.

However, this four box model has now been superseded by a Strategy Map, which is the heart of

modern Balanced Scorecards. A Strategy Map places the four perspectives in relation to each

other to show that the objectives support each other.


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CAUSE-AND-EFFECT LOGIC

A Strategy Map highlights that delivering the right performance in the one perspective (e.g.

financial success) can only be achieved by delivering the objectives in the other perspectives

(e.g. delivering what customers want). You basically create a map of interlinked objectives. For

example:

The objectives in the Learning and Growth Perspective (e.g. developing the right

competencies) underpin the objectives in the Internal Process Perspective (e.g. delivering

high quality business processes).

The objectives in the Internal Process Perspective (e.g. delivering high quality business

processes) underpin the objectives in the Customer Perspectives (e.g. gaining market

share and repeat business).

Delivering the customer objectives should then lead to the achievement of the financial

objectives in the Financial Perspective.

Strategy maps therefore outline what an organizations wants to accomplish (financial and

customer objectives) and how it plans to accomplish it (internal process and learning and growth

objectives). This cause-and-effect logic is one of the most important elements of best-practice

Balanced Scorecards. It allows companies to create a truly integrated set of strategic objectives.

For best practice examples please visit our case study section. The danger with the initial four-

box model was that companies can easily create a number of objectives and measures for each

perspective without ever linking them. This can lead to additional activities as well as a strategy

that is not cohesive or integrated.

THE KEY BENEFITS OF USING BALANCED SCORECARDS

Research has shown that organizations that use a Balanced Scorecard approach tend to

outperform organizations without a formal approach to strategic performance management. The

key benefits of using a Balanced Scorecard include:

http://www.ap-institute.com/resources_casestudies.asp


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1. Better Strategic Planning – The Balanced Scorecard provides a powerful framework for

building and communicating strategy. The business model is visualized in a Strategy Map

which forces managers to think about cause-and-effect relationships. The process of

creating a Strategy Map ensures that consensus is reached over a set of interrelated

strategic objectives. It means that performance outcomes as well as key enablers or

drivers of future performance (such as the intangibles) are identified to create a complete

picture of the strategy.

2. Improved Strategy Communication & Execution – The fact that the strategy with all

its interrelated objectives is mapped on one piece of paper allows companies to easily

communicate strategy internally and externally. We have known for a long time that a

picture is worth a thousand words. This „plan on a page‟ facilities the understanding of

the strategy and helps to engage staff and external stakeholders in the delivery and review

of strategy. In the end it is impossible to execute a strategy that is not understood by

everybody.

3. Better Management Information – The Balanced Scorecard approach forces to design

key performance indicators for their various strategic objectives. This ensures that

companies are measuring what actually matters. Research shows that companies with a

Balanced Scorecard approach tend to report higher quality management information and

gain increasing benefits from the way this information is used to guide management and

decision making.

4. Improved Performance Reporting – Companies using a Balanced Scorecard approach

tend to produce better performance reports than without such a structured approach to

performance management. Increasing needs and requirements for transparency can be

met if companies create meaningful management reports and dashboards to communicate

performance both internally and externally.

5. Better Strategic Alignment – Balanced Scorecard enables better alignment of the

organization‟s strategic objectives. In order to execute a plan well, organization need to

ensure that all business and support units are working towards the same goals. Cascading


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the Balanced Scorecard into those units will help to achieve that and link strategy to

operations.

6. Better Organizational Alignment – Well implemented Balanced Scorecards also help to

align organizational processes such as budgeting, risk management and analytics with the

strategic priorities. This will help to create a truly strategic focused organization.

These are compelling benefits and however, they will not be realized if the Balanced Scorecard

is implemented half-heartedly or if too many short cuts are taken during the implementation.

STRATEGY MAP:

A strategy map is a diagram that is used to document the primary strategic goals being pursued

by an organization or management team. It is an element of the documentation associated with

the Balanced Scorecard.

BENEFITS OF STRATEGY MAPS

They tell the story of the strategy:

Well designed strategy maps enable you to tell the story of the strategy easily and allow people

to read the story of the strategy as well. This dramatically increases understanding of the strategy

so people can contribute to it.

They put the strategy on a single page:

They are extremely powerful at creating a conversation around the strategy and checking

understanding. Instead of strategy being in thick documents, it is on a single page. Many say this

is the most powerful part of strategy maps. They describe how the strategy will be executed with

a simple cause and effect model.

Strategy maps don't just say what you are trying to achieve. They explain very simply, how you

plan to get there because they contain a simple, but powerful cause and effect model, they

http://en.wikipedia.org/wiki/Balanced_Scorecard


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explain what differences you want to make in the organization, that will filter through to better

results for your customers and ultimately improved financial outcomes.

They provide objectives rather than measures:

Strategy maps help you avoid behaviors caused by a poor choice of measures by starting with

objectives, so that you describe what you want to achieve (as well as how to measure it). That

way, inappropriate measures get replaced with more suitable ones that better represent what you

are trying to achieve.


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They show the themes of the strategy:

Strategy maps help you explain the themes and components of your strategy. Quite often you

will have a strategy with tensions and internal pressures like build more sales, but don't increase

costs, or improve quality and service with less people. Most strategies have these tensions;

otherwise they would not be interesting or challenging.

Strategy maps help to explain these on a single page, so that the organization does not become

like a car with the brake and accelerator being used alternatively. They also provide the

framework for designing and managing the programmed change in an organization.

They ensure the cascading of balanced scorecards:

If you have ever tried to cascade measures through an organization you will have hit problems

relatively quickly. Whilst some do drill down easily, others are incompatible with different

departments, functions, areas, and levels of management.


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So strategy maps are a powerful way to cascade objectives through the organization so people

can understand them and contribute to them.

They can be used to review progress against the strategy:

Strategy maps are not static tools. They are tools of management that get refined and developed

as management learns from their strategy. When management teams use strategy maps in their

meetings the conversation rises to a highest level, there is less operational detail and more time

spent reviewing whether the strategy is working or not, and why. This also raises the heads of

people in the organization who are also then able to discuss, understand and contribute to the

strategy so that it is more likely to be delivered.


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CASE STUDY

The organization in this case is a large insurance company named “SKS insurance company”

based in the city of Hyderabad, India. Its main activities involved under-writing business risk for

large corporate clients through a network of agents, advice clients on financial plans, different

types of insurances, obtain information on claims, applications and related documents, and

acquire cash reserves to ensure payment of future benefits.

The company was established in 2001, and had grown rapidly with 110 staff by September 2004.

Minimum educational qualification for employees in SKS is Bachelor’s degree in mathematics,

actuarial science, statistics, or a business-related discipline, such as economics, finance, or

accounting. Job profiles and responsibilities in SKS insurance company is given in Appendix-1.

The existing management systems are not efficiently supporting the current activities of the

organization. The company‟s top level management believed that the organization‟s strategy is

not inline with the individual objectives as a result the company performance has decreased

when compared with the previous year‟s performance.

Due to this reason the top management arranged a meeting on a project to address the following

objectives. To

1. Build a more effective way of informing individual objectives and aligning them with

organizational and departmental goals

2. Create an individual performance management process that supported the needs of the

organization and encouraged the correct behaviors from staff and teams.

The executive board appointed a new Development team consists of quality manager, HR

manager and Finance manager. After conducting a research they understood that the primary

issue was the problem with strategic management.


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SOLUTION FOR THE CASE:

To deliver these objectives, the executive team decided to introduce a performance management

approach based on Balanced Score Card. It was hoped that the BSC would inform individual

objectives while aligning corporate, team and individual goals.

STEPS FOR IMPLEMENTING BALANCED SCORE CARD:

WORKSHOP NO: 1

During the first workshop each Department was given instruction to review the Corporate

mission and adjusted this to reflect how they saw their Division‟s performance and achievements

five years ahead. Then they were asked to work from this shared view of the future to build a

Strategy Map and produced first draft Objective definitions. In total this work took each team

about one and half days of workshop based activity.

The team proposed to adopt different objective setting approaches at three levels

1. Top Level: In the BSC approach they should formulate mission statement (3 year goals)

and strategy map (annual objectives). The objective should be developed by the senior

management team through goal setting exercise.

2. Department Level: Here the strategy maps (annual objectives) need to be developed that

would support top level goals.

3. Individual Level: Annual individual task and developmental objectives should be chosen

by the employ inline with their line managers.

WORKSHOP NO: 2

In order to finalize the definition of the objectives selected during the first workshop the second

workshop was used. Here the measures and targets were chosen to track these objectives, and to

agree how the resulting Balanced Scorecard was going to be used in the management of the

Department.

The outcomes for each of the three levels were developed in a four step design process.


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MISSION STATEMENT:

The design process began with the construction by the executive board and this was a well

defined picture of the future (next 5years).

The mission statement is to:

1. Gain consensus on strategy;

2. Provide an effective tool for internal strategic communication;

3. Enable departments, teams and staff to identify their potential contribution to achieving

the mission;

4. Provide a degree of long-term context and scale for the setting the targets.

STRATEGY MAP:

The development team started developing a strategic map by mapping strategic objectives and

the relationships amongst objectives.

The strategic map describes the strategic objectives at corporate level.

The departmental management team had to next design mini strategic maps for their

departments. Each strategic map should document the department‟s strategic objectives. It

should be derived from the corporate mission statement strategic map and the strategic objective

definition. Thus the departmental strategic map will identify how the department would

contribute to achieve corporate goals. The objectives were revised and validated with the

executive board.


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Finally, each department strategic map will be shared with all other departments thus promoting

strategic communication. The figure below shows the strategy map for IT department.

The idea behind building these departmental strategic map was that the enabled departmental

consensus on short to medium term priorities.


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SELECTING PERSONAL OBJECTIVES:

All staff defined a handful of personal objectives for the year ahead. The principles of personal

objective selection were as follows:

1. A maximum of 5 business objectives and 2 development objectives (eg. training) were

selected per person.

2. Personal (business) objectives were to directly support a departmental or corporate

Strategic Objective.

3. Objectives would be weighted for importance, with a maximum weighting for

development goals: 20% for new hires, and 5% for experienced staff.

4. Managers were expected to concentrate more on financial and business process

perspectives.

5. Each personal objective was to have a measure and target for the year ahead.

6. Objectives and targets across individual members of a department should „add up‟ to

departmental objectives and targets.

EXAMPLE: PERSONAL OBJECTIVES FOR SALES EXECUTIVE

The approach taken in personal measure selection ensured employee objectives directly

supported strategy. Additionally, the work fostered team dialogue on goals and targets, both

shared and individual. Also developed a clear, shared understanding of personal objectives

between staff member and manager was also developed in the process. Balanced sets of personal

objectives (with measures and targets) were defined, and the activity also supported the

employee-capabilities development strategy.

In the personal objective, we have to analyze perspectives of financial, customer, internal business

process and learning and growth for building strategic map. For each perspective we have given weight-

age for calculating performance. If you take an example of financial perspective, the employee

performance is only 38.42%. Here the performance is based on annual salary, incentives as % of salary,

increase in profit per sales executive and percentage increase in training cost and weight-age of 3, 2, 2 and

3 was given respectively for each area. The total weight-age for financial perspective is 3. This weight-

age will tell which area is more important for that perspective.


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To calculate total performance of a sales executive below formula can be used:

Total performance = ∑ (% performance of each perspective * weight-age of each perspective)

--------------------------------------------------------------------------------------

∑ (weight-age of each perspective)


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LEARNINGS FROM THE CASE

1. Rather than a traditional directive “top-down” objective setting process, allowing local

autonomy in the choice of the objectives to support the organization ensured that the

content of departmental objectives was more relevant to employees.

2. Engaging teams and individuals in setting objectives helped create more buy-in to their

delivery. With its simple structure and engaging process, the Balanced Scorecard

approach proved a particularly effective mechanism to clearly communicate and gain

value to objectives.

3. Using different management processes to set objectives at different levels of the

organization produced a flexible, simple and efficient system of control.

4. It helped to ensure that HR strategies could support improvement and more specifically

helped inform the design of the individual performance management process.

CONCLUSION

The idea of the Balanced Scorecard is simple but extremely powerful if implemented well. As

long as you use the key ideas of the Balanced Score Card to create a unique strategy and

visualize it in a cause-and-effect map it will give wonderful results. It will help us align the

organization and its processes to the objectives identified in the strategic map, design meaningful

key performance indicators and use them to facilitate learning and improved decision making.

Thus it will lead to better performance in the long term. A case on how to improve the internal

communication process in an insurance company was used to describe the process of

implementing a balanced score card. Thus the Balanced Score Card helped the organization

towards continual improvement in internal communication and also to achieve share holder,

customer, business process and employee in term of finance, service, operations and learning

perspectives respectively.


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BIBLIOGRAPHY

Text Books:

1. “Performance Management” by Gary Cokins.

2. “Armstrong‟s handbook of performance management” by Michael Armstrong.

Articles:

1. “Turning great Strategy into Great Performance” by Michael C.Mankins and Richard

Steele.

2. “Using the Balanced Score Card as Strategic Management System” by Robert S.Kaplan

and David P.Norton.

3. “ Building a Strategy Map to Drive Performance Accountability and Improvement” by

Bernard Marr and James Creelman


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APPENDIX-1

JOB PROFILES AND RESPONSIBILITIES

ACTUARY:

Analyze statistical data, such as mortality, accident, sickness, disability, and retirement rates and

construct probability tables to forecast risk and liability for payment of future benefits. May

ascertain premium rates required and cash reserves necessary to ensure payment of future

benefits.

INSURANCE AUDITORS:

Examine and analyze accounting records to determine financial status of establishment and

prepare financial reports concerning operating procedures.

CLAIMS EXAMINERS PROPERTY CASUALTY INSURANCE:

Review settled insurance claims to determine that payments and settlements have been made in

accordance with company practices and procedures. Also have to Report overpayments, under

payments, and other irregularities. Confer with legal counsel on claims requiring litigation.

INSURANCE CUSTOMER SERVICE REPRESENTATIVES:

Interact with customers to provide information in response to inquiries about products and

services and to handle and resolve complaints.

FINANCE MANAGER:

Direct and coordinate financial activities of workers in a branch, office, or department of an

establishment, such as branch bank, brokerage firm, risk and insurance department or credit

department.


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INSURANCE ADJUSTERS, EXAMINERS, AND INVESTIGATORS:

Investigate, analyze, and determine the extent of insurance company's liability concerning

personal, casualty, or property loss or damages, and attempt to effect settlement with claimants.

Correspond with or interview medical specialists, agents, witnesses, or claimants to compile

information. Calculate benefit payments and approve payment of claims within a certain

monetary limit.

INSURANCE APPRAISERS, AUTO DAMAGE:




benefits.

INSURANCE CLAIMS CLERK:

Obtain information from insured or designated persons for purpose of settling claim with

insurance carrier.

INSURANCE CLAIMS AND PROCESSING CLERKS:

Process new insurance policies, modify existing policies, and claims forms. Obtain information

from policyholders to verify the accuracy and completeness of information on claims forms,

applications and related documents, and company records. Update existing policies and company

records to reflect changes requested by policy holders and insurance company representatives.

INSURANCE POLICY PROCESSING CLERKS:

Process applications of insurance; apply changes to policies, re-state existing policies and

cancellation of insurance policies. Duties include reviewing insurance applications to ensure that

all questions have been answered, compiling data on insurance policy changes, changing policy

records to conform to insured party's specifications, compiling data on lapsed insurance policies


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to determine automatic reinstatement according to company policies, canceling insurance

policies as requested by agents, and verifying the accuracy of insurance company records.

INSURANCE SALES AGENTS:

Sell life, property, casualty, health, automotive, or other types of insurance. May refer clients to

independent brokers, work as independent broker, or be employed by an insurance company.

INSURANCE UNDERWRITERS:

Review individual applications for insurance to evaluate degree of risk involved and determine

acceptance of applications.

PERSONAL FINANCIAL ADVISORS:

Advise clients on financial plans utilizing knowledge of tax and investment strategies, securities,

insurance, pension plans, and real estate. Duties include assessing clients' assets, liabilities, cash

flow, insurance coverage, tax status, and financial objectives to establish investment strategies.

SALES MANAGER:




benefits.

Documents

strategic map and balanced score card with case study