elearning for Building & Managing the Balanced Scorecard Course Manual

Transcription

1 elearning for Building & Managing the Balanced Scorecard Course Manual

2 Contents Introduction Course 1: Curriculum Introduction Course 2: Introduction to the Balanced Scorecard Course 3: Getting Started Course 4: Conducting Leadership Interviews Course 5: Mapping the Strategy Course 6: Workshop I Course 7: Determining Strategic Measures Course 8: Identifying Targets Course 9: Workshop II Course 10: Aligning Initiatives Course 11: Workshop III Course 12: Balanced Scorecard Reporting Course 13: Curriculum Summary Course 14: Managing Change with the BSC Course 15: Building Strategic Analysis Course 16: Preparing Strategy Analysis Course 17: Presenting Strategic Analysis Course 18: Using Measures and Targets Course 19: Alignment for Teams and Individuals Course 20: Strategy Refresh 2

3 Introduction This student handbook is intended for use with the on-line Balanced Scorecard elearning courses. It is not intended for use as standalone training material. Each chapter contains an overview of the key learning points from the corresponding on-line course. Users should use this handbook as a reference guide and for note-taking while taking the courses. 3

4 Course 1: Curriculum Introduction The Strategy Focused Organization TRANSLATE STRATEGY INTO OPERATIONAL TERMS MOBILIZE CHANGE THROUGH EXECUTIVE LEADERSHIP ALIGN THE ORGANIZATION TO THRE STRATEGY GOVERN TO MAKE STRATEGY A CONTINUAL PROCESS MOTIVATE TO MAKE STRATEGY EVERYONEÕS JOB Strategy Focused Organizations (SFO) address three key dimensions: Strategy establish strategy as central to an organization's agenda. Focused create focus. Align every resource and activity in an organization with the organization's strategy. Organization assign all members of an organization independent roles guided by the organization's strategy. Create linkages across "silo" business units, services, and individuals. Successful SFOs demonstrate a consistent pattern of achieving their strategic goals. They practice five common principles; they: Mobilize change through leadership. Translate the strategy into operational terms. Align the organization with the strategy. Motivate to make strategy everyone's job. Govern to make strategy a continual process. 4

5 Successful Strategy Focused Organizations Course 1 Curriculum Introduction MOBILIZE change through senior leadership. Transforming any organization into a Strategy-Focused Organization is a large-scale change that requires the active involvement of a Leadership Team. First, the organization's leadership must create the climate for change by demonstrating the need for change. Sometimes this need is obvious, as when an organization is clearly failing and must change to survive. In other cases, the reasons are less obvious. Effective leaders can motivate organizations to change by establishing stretch targets that break down complacency among organization members and provide inspiration. Throughout the scorecard development process, leadership must lead and participate in changing the culture of the organization. TRANSLATE the strategy to all members in their organization so that they can all understand it and implement it efficiently. You can't execute something you can't describe. The problem with traditional management methods is that they generally apply only to financial strategies. The BSC offers a way to describe an organization's overall strategy with the use of the Strategy Map. The Strategy Map is a visual representation of an organization's strategy and the processes and systems necessary to implement that strategy; it shows employees how their jobs are linked to the organization's overall objectives. The Strategy Map leads to a shared vision throughout an organization and creates a common language for describing an organization's strategy. In this way, the Strategy Map builds leadership team consensus; developing it is as important as developing the product. ALIGN with their strategy. This creates a line of sight from "flagpole to front line." While a Balanced Scorecard provides a framework for organizations to describe and implement their strategies, an SFO requires more than for each unit of the organization to use its own scorecard. To be effective, each unit should have its scorecard aligned with its parent scorecard and linked, where appropriate, with other units' scorecards; this process is known as "cascading. MOTIVATE to make strategy everyone's job and empowering them with roles guided by the strategy. Ultimately, the people in an organization are responsible for implementing the strategy once it is defined. For an organization to achieve the objectives of its strategy, all of its participants must understand their independent roles in the successful implementation of the strategy and must also recognize how the success of the strategy will reward them. GOVERN to make strategy a continuous process through organization-wide learning and adjusting. An SFO must have the information and flexibility to update its strategy as the environment changes and as the strategy matures. Organizations monitor performance on their BSC against the data that is gathered and continually interpret performance data. They formulate new strategic direction, update their BSC as necessary, and reallocate resources as necessary. 5

6 Course 2: Introduction to the Balanced Scorecard Learning Objectives Define what a BSC is and how it fits into an SFO. Explain why the BSC approach is effective. Identify what differentiates the BSC from other forms of organizational measurement. Identify what creates balance in the scorecard. Define each of the components of the BSC. Identify the purpose of strategic measures. Identify the key benchmark of a good BSC. Explain why the Army is implementing the BSC. List the five basic BSC process steps. 6

7 Course 2 Introduction to the Balanced Scorecard The Balanced Scorecard The Balanced Scorecard (BSC) is a strategic management system that helps organizations translate their strategies into objectives that drive both behavior and performance. The scorecard illustrates an organization's strategy in terms that all members of an organization can understand. Objectives drive performance. They are action statements that create measurable results indicating the success level of executing the strategy. The BSC focuses on and aligns an organization to its strategy. The BSC works because it maximizes an organization's ability to execute strategy by clearly defining an organization's goals and objectives and by involving people, resources, and processes at every level of the organization. 7

8 Course 2 Introduction to the Balanced Scorecard Four Barriers to Strategy Implementation There are four barriers to strategy implementation: Vision Resource Management People The BSC addresses all of these barriers through an integrated approach that accounts for strategy and success across multiple perspectives, rather than just the traditional "bottom line" perspective. The BSC helps an organization define the value of non-tangible assets, such as internal processes and learning and growth. These perspectives indicate the areas an organization needs to improve in order to achieve its goals. 8

9 Course 2 Introduction to the Balanced Scorecard Characteristics of a Good Balanced Scorecard Leadership Involvement Strategic decision makers validate and own the strategy and the BSC. Cause-and-effect Relationships Every assigned objective is a part of a chain of cause-and-effect relationships that represents the strategy. Performance Drivers A balance of outcome measures and leading measures facilitates anticipatory management. Linkages to Stakeholder Perspective Every objective ultimately relates to a desired outcome from the stakeholder's perspective. Change Initiatives Actions align with strategic objectives to achieve the objectives and, hence, close the performance gap. 9

10 Course 2 Introduction to the Balanced Scorecard Cause and Effect Relationships The BSC process treats strategy as if it is a series of linked hypotheses that describe cause-and-effect relationships. For example, an employee satisfaction" measurement may indicate improvement, but if employee retention and employee productivity" measurements do not also indicate improvement, a hypothesis that links the two measures may be invalid. This type of linked measurement is what differentiates the BSC from other forms of organizational measurement. BSC measurements provide an ongoing account of the validity of projected cause-and effect relationships across perspectives and, therefore, are essential to making informed decisions about changing course direction. 10

11 Course 2 Introduction to the Balanced Scorecard Development Process Steps Developing a BSC involves five basic steps: Getting Started Mapping the Strategy Defining Measures and Targets Aligning Initiatives Reporting Although it appears linear, the process is iterative; as you progress through the steps and learn more about your organization, you are likely to revisit previous steps and adjust your scorecard. 11

12 Course 2 Introduction to the Balanced Scorecard Balanced Scorecard Components The basic components of the Balanced Scorecard are: Perspectives Themes Objectives Measures Targets Initiatives 12

13 Course 2 Introduction to the Balanced Scorecard Balanced Scorecard Perspectives There is a standard four perspective framework: Financial Customer Internal Business Process Learning and Growth Perspectives form the basic architecture of the BSC, accounting for all relevant factors in an organization's execution of strategy and, thus, creating balance in the scorecard. Perspectives allow an organization to: Balance long-term and short-term objectives Link desired outcomes and the drivers of those outcomes Perspectives allow leaders to evaluate outcomes by accounting for the drivers of those outcomes. 13

14 Course 2 Introduction to the Balanced Scorecard Themes Themes are the major components of an organization's strategy, and provide an overview of how an organization will carry out its mission. An organization's mission will usually be broken down into three or four basic themes that may cross all perspectives. A theme consists of a collection of objectives that enables the execution of the theme. 14

15 Course 2 Introduction to the Balanced Scorecard Objectives, Measures, Targets and Initiatives Objectives are a statement of what an organization must achieve and what s critical to its success. Measures allow an organization to determine whether it has been successful in executing its strategy. There are two fundamental purposes to strategic measures: Organizational motivation Evaluation of the strategy and strategic learning Targets define the level of performance or rate of improvement needed Initiatives are key action programs required to achieve objectives 15

16 Course 3: Getting Started Learning Objectives List the major activities that are necessary to launching the BSC project. State the role, membership composition, and time commitment for each of the three types of teams in the BSC. Identify the attributes of the Project Manager and Core Team members. List the information needed to identify the strategy. State the purpose of the kick-off meeting. List the critical success factors in launching the BSC process. 16

17 Course 3 Getting Started Development Teams To successfully launch the BSC process, an organization must employ the right people, prepare its people, and gather the resources required for the success of the project. Three teams are involved with scorecard development: Leadership Team consists of the organization s leaders and specific functional leaders as assigned and provide strategic guidance for the process. Their time commitment includes a 90 minute interview and follow-up meetings as needed. Core Team consists of a project lead and two to five experienced midlevel staff and represent the organization as a whole. The Core team guides the development of the BSC, manages the process, scheduling, and all details of the scorecard components. They typically dedicate % of their time to scorecard development. Sub-Teams are lead by Core team members and typically have four to five members. Sub-Teams provide the Core Team with detailed input, especially on measures and targets. They typically spend 20-50% of their time over a four week period supporting the Core team. 17

18 Course 3 Getting Started Core Team Members An organization's Project Manager and Leadership Team collaboratively select Core Team members. Core Team members are selected for their qualifications, rather than for their availability. Core Team members should have: The ability to represent their organization as a whole. A broad base of experience. The ability to effectively interact with their organization's leaders. Respect among peers. The Core Team is responsible for the execution of the entire BSC design process, specifically: Collect and analyze initial data. Interview leaders. Create a straw model strategy map for leadership approval. Guide measurement and initiative gathering. Lead Measurement Sub-teams. Develop implementation plan. 18

19 Course 3 Getting Started Critical Success Factors and Project Kick-off The critical success factors are: Involve the right people Ensure that the leadership team truly understands and endorses the BSC High level sponsorship to ensure the BSC project's sponsors are able to effectively command the attention of everyone in the organization Ensure the leadership team's time commitment to the BSC project demonstrates high level sponsorship The development typically starts with a kick-off meeting to clearly define the projects intent and tasks and to establish organization-wide commitment to the project. Outcomes of the BSC kick-off meeting include: A better understanding among leaders and Core Team members of the BSC and its prospective benefits to their organization An overall agreement on a project plan An assignment of resources to the BSC project A BSC development agenda for the Core Team that ensures each Core Team member understands and knows how to implement 19

20 Course 3 Getting Started Developing the Straw Model Strategy Map The information required to develop a BSC rarely exists in one document or source. Sources of information include: Strategic Plan Annual Budget Annual Reports Operational Plans The Core Team uses information in relevant documents to determine the organization's goals and objectives and to form hypotheses of the organization's strategy. The Core Team then creates a straw model strategy map, which is the first document developed from the strategic information collected by the core team. 20

21 Course 4: Conducting Leadership Interviews Learning Objectives Recognize the purpose and importance of the leadership interview and identify its chronological place in the BSC process. Understand the importance of constructing a straw model strategy map to use during leadership interviews. List the purpose and components of an interview guide and recognize key questions that should be asked during leadership interviews. Identify the components and techniques of an effective interview and know when to use them. Identify how the Core Team synthesizes information from leadership interviews. 21

22 Course 4 Conducting Leadership Interviews Leadership Interviews Leadership interviews allow you to work one-on-one with key leaders to determine the strategy for your organization. You conduct these interviews to understand each leader's concept of the organization's mission and strategy. Then you use the information you obtain from the interviews to confirm your organization's overall strategic destination, refine the perspectives and themes within your BSC, and confirm potential objectives in your straw model strategy map. Leadership interviews are a part of the second step in the development of the BSC. These interviews provide the Core Team with the information it needs to begin mapping the strategy. Ideally, the Core Team completes leadership interviews within two weeks of the start of the BSC development process. 22

23 Course 4 Conducting Leadership Interviews Drafting the Straw Model Strategy Map Draft a straw model of your organization's strategy map prior to conducting your interviews Interviews tend to move along and stay more focused with the aid of a straw model, which elicits discussion and comments from the interviewee. Drafting a Straw Model Strategy Map Review Collected materials Collect and review all materials that describe your organization's vision, mission, strategies, and internal structure. Clarify Strategic Destination Document your organization's three-to-five year vision and how your organization should achieve this vision. Develop high-level architecture Identify the major strategic themes that drive your organization and place them in the appropriate perspectives. Draft a straw model Add strategic objectives to your high-level architecture. 23

24 Course 4 Conducting Leadership Interviews The Interview Guide After drafting the straw model, develop an interview guide that will help focus and lend consistency to each interview you conduct. The interview guide includes: A meeting agenda A project plan A BSC overview Interview questions Use your straw model to develop your interview questions. Begin with high level questions that address the strategic initiatives of your overall organization and then ask about each of the four perspectives in the BSC. 24

25 Course 4 Conducting Leadership Interviews Interview Guidelines Schedule individual interviews Interview only one person at a time. Individual interviews generally result in more frank and open discussions than group interviews. Plan 90-minute interviews. If an interviewee cannot commit to that amount of time, accept whatever amount of time is offered. Often, once you begin the interview, the interviewee will see its value and extend its time. Use the aid of a peer during the interview. This person may take notes documenting the interview, thereby enabling you to focus on the interviewee and ask important follow-up questions to his or her responses and comments. Listen carefully during the interview. Ask the leader to repeat or re-explain his or her comments and responses when you need further clarification. Be consistent Resist the temptation to revise your interview guide and/or your high-level architecture between interviews. Your goal is to identify points of agreement and disagreement, and your consistent use of interview materials will help you achieve this goal. Prioritize questions if your interviews must be less than 90 minutes in length. You may need to adapt your interview to fit a limited time frame by asking fewer questions. 25

26 Course 4 Conducting Leadership Interviews Interview Techniques Interview Techniques What They Are When to Use Example Open-ended questions Questions that require analysis; usually begin with words such as "who", "what," "where," "when," or "why"; cannot be answered by "yes" or "no" When you want to encourage the interviewee to speak freely "What process will accomplish that goal?" Confirming questions or summary statements Questions or statements used to verify an interviewee's ideas or responses When your time is limited; when you think you know what the interviewee's response to a question will be; when you need to focus the discussion "Do you agree that the main themes are readiness and transformation?" Response Interview Brief presentations or illustrations that elicit a response from the interviewee When you want to receive the interviewee's feedback on something you've already created After you present the straw model, you ask: "What do you think about this diagram?" Provide Options Provide Options Options interviewees may select their response from When the interviewee's idea of the strategy isn't clear to you and you are trying to narrow down the focus "In your opinion, which one of these four objectives is the top priority?" 26

27 Course 4 Conducting Leadership Interviews Summarizing the Interview Information Collect, review, and synthesize the interview information to confirm strategic objectives and uncover any issues that need to be resolved in order for the scorecard process to move forward. To facilitate the process, look for information such as: The strategic destination Points of agreement and disagreement about the strategy Where the organization will be in the short and long term The organization's stretch goals Threats to the organization Opportunities for the organization Points of general consensus among leaders After reviewing the interview information, create a document that summarizes all of the interview findings. 27

28 Course 5: Mapping the Strategy Learning Objectives Identify the purpose of the strategy map. Identify the components of a strategy map. List perspectives on a strategy map. Note strategic themes on a strategy map. List objectives on a strategy map. Identify cause-and-effect relationships on a strategy map. 28

29 Course 5 Mapping the Strategy The Strategy Map A strategy map is a one-page visual representation of an organization's strategy and the steps that must be taken to implement that strategy. The strategy map is based on the high-level architecture and straw model developed prior to the leadership interviews. A strategy map: is an ideal way to communicate an organization's strategy provides a framework for testing assumptions about the strategy 29

30 Course 5 Mapping the Strategy Building the Strategy Map The strategy map is based on the high-level architecture and straw model developed prior to the leadership interviews. While there are many ways to build a strategy map, it is best to work from the high-level architecture and straw model you developed prior to your leadership interviews. First, use the information you collected from your leadership interviews to modify your perspectives and themes. Then incorporate objectives and cause-and-effect linkages to create the map. The four steps to building a strategy map are: List perspectives Define themes Create objectives Build linkages 30

31 Course 5 Mapping the Strategy Perspectives There is a standard four-perspective model: Financial Customer Internal Business Process Learning and Growth Collaboratively, the perspectives account for the various dimensions of a strategy and tell the story of a strategy in a concise and balanced framework. Begin building your strategy map with the BSC perspectives. Perspectives provide the architecture for the BSC; they expand an organization's strategic vision to account for more than stakeholder outcomes. BSC perspectives are placed on the far left of the strategy map. 31

32 Course 5 Mapping the Strategy Themes Themes provide a concise, big-picture overview of the steps that need to be taken to implement a strategy. Most strategies can be represented in three to five themes. Themes typically appear in the internal process perspective. In some instances, however, themes cross two or more perspectives. This organization s theme s are: Technology Leadership, Strong Partnerships, and Operational Excellence. The theme illustrates how an organization plans to accomplish its mission. These themes are in the Internal Process perspective since it represents things that this organization must do to accomplish the theme. 32

33 Course 5 Mapping the Strategy Objectives After you identify your BSC themes, you incorporate objectives into your strategy map. Objectives are brief action statements that communicate what an organization must do to achieve its strategic goals. They represent what must be achieved in order to successfully realize its mission and reach its strategic destination. Objectives are measured; you assign these measures later in the BSC process. Objectives are typically written in a verb-adjective-noun format that describes an action, description, and result, respectively. 33

34 Course 5 Mapping the Strategy Linkages After adding your objectives to your strategy map, incorporate cause-andeffect linkages. Linkages connect objectives to show the primary cause and effect relationships between objectives. The cause-and-effect linkages also illustrate connections between different aspects of the strategy. For example, they may show how different perspectives are related to one another and/or how different objectives are interlinked. 34

35 Course 6: Workshop I Learning Objectives Recognize the purpose and importance of Workshop I Identify where Workshop I falls within the BSC process Identify activities and pre-work done in preparation for Workshop I List BSC elements reviewed and validated during Workshop I List the Workshop I deliverables 35

36 Course 6 Workshop I Preparing for Workshop I Best Practices: Setting the Ground Rules: Before the meeting, ask the Leadership Team to agree on the decision-making process they will use in Workshop I. Attendees should agree to work within the organizationally accepted process. Here are some questions you can ask to finalize the decision-making process: How will the Leadership Team deal with issues that surface? Ask the key decision-maker for direction on how to handle controversies that arise among members of the Leadership Team. Who will make the ultimate decision? Find out who the ultimate decision-maker is on the Leadership Team. Will it be a democratic or dictated process? Find out what the organizationally accepted process is: democratic or dictated. Use that method when the members of the Leadership Team cannot reach consensus. Finalize Inputs for Workshop I: Before Workshop I occurs, the Core Team completes several activities. The information gathered and synthesized during these efforts provides the input for Workshop I. The pre-workshop activities include: Reviewing strategic documents Collect, analyze, and synthesize all strategic documents in preparation for the interviews. Conducting leadership interviews After the interviews are done, summarize the results and integrate them with document review data. Drafting the straw model strategy map Using the data you've accumulated, narrow the strategic objectives down to the "critical few." 36

37 Course 6 Workshop I Finalizing Logistics Recommended Supplies and Materials for Workshop Flip charts/markers LCD projector/screen Hard copies of the presentation Pens and notepads for all attendees Tape (make sure it is OK to tape flip chart paper on walls) Food/snacks and refreshments Optional: some teams bring a placemat-sized, color version of their straw model strategy map 37

38 Course 6 Workshop I Conducting Workshop I Workshop I Agenda: BSC concept review BSC project plan Mission and destination confirmation Straw model review Key issues Objective statements Next steps Review BSC Project Progress The work that has been completed The place where Workshop I fits in the project plan The work that lies ahead Review Mission and Strategic Destination You may have to negotiate. You may have to facilitate a discussion. You may have to take a vote. You may have to ask the head of the Leadership Team to make a command decision. 38

39 Course 6 Workshop I Reviewing the Strategy Map Review Perspectives Walk them through each perspective: financial, customer, internal, and learning & growth. They will start to see how each perspective represents a different area of their strategy. Reviewing Themes After walking through the perspectives, you will next explain the meaning behind each theme. Emphasize that themes typically will run through the entire strategy map or just be in the internal perspective. Themes will help organize the strategy into several strategic thrusts. Reviewing Objectives and Cause-and-Effect Linkages The first step is to read through each objective and make sure all participants understand the meaning behind the objective. This is where the objective statements come in handy. They will provide clarification on what each objective means. Addressing Specific Issues As the Leadership Team continues to validate and approve the strategy map, certain issues will have to be addressed. 39

40 Course 6 Workshop I Identifying Next Steps Assigning Sub-teams The sub-teams finalize the objective statements, draft measures, and suggest targets for their assigned objectives. The work they do forms the basis for the Workshop II discussion. Establish Accountability for Objectives An important part of Workshop I is assigning responsibility for the objectives. All objectives should be "owned" by a member of the Leadership Team. One way to assign objective owners is by theme. The owners would then be responsible for all of the objectives contained in their theme. Identify Leadership Champions and Core Team Facilitators The role of the Leadership Team Champion Monitors and "owns" the work that is done within his/her theme. Presents the team's measure recommendations to the Leadership Team in Workshop II. The role of the Core Team Facilitator Guides and manages the sub-team's deliverable for Workshop II. 40

41 Course 7: Determining Strategic Measures Learning Objectives Describe what good strategic measures do for a BSC organization. Identify good strategic measures. Determine good lag measures. Develop good lead measures that predict outcomes. Identify best practices for measurement in the BSC. 41

42 Course 7 Determining Strategic Measures Strategic Measures Measures allow organizations to test how well their BSC process is achieving their strategic objectives. Measures illustrate the relationship among strategic objectives and constantly test the validity of the strategy. Good strategic measures make the strategy "real" and impact the execution of the strategy by providing: Organizational motivation. A means to evaluate the strategy and strategic learning. An organization has selected good strategic measures if they are: Useful for strategic communication Repeatable and reliable Appropriate for update frequency Useful for target setting Useful for establishing accountability Aligned with objectives on the parent organization's scorecard 42

43 Course 7 Determining Strategic Measures Developing Measures Some organizations assemble a sub-team that creates BSC strategic measures with the materials provided by the Core Team. In some organizations, a sub-team is not a formal team, but rather a collection of individuals who help the Core Team determine appropriate measures, measure formula, and gather information. Whatever the makeup of your team, you should roughly follow the following procedure for developing measures: Start by reviewing the strategy map: Strategic objectives Key linkages between objectives Potential measures Determine the types of measures that can support the cause-and-effect linkages and strategic objectives in your strategy map: If a core organizational process is not working, the existing measurement may be inadequate. The best measure may be one that the organization does not currently maintain. Identify and organize existing measures that are good strategic measures. If your parent organization has a BSC, review its measures for ideas. Clarify and finalize measures. 43

44 Course 7 Determining Strategic Measures Measure Traps As you begin the process of determining measures, avoid these three traps: Determining a target before determining whether or not its measure is appropriate Limiting measurements to only those that already exist Creating new measures for every objective when serviceable measures are already in use; "better is the enemy of good enough" Realize that some existing measures may serve as a structure for the development of new measures. Also, you may need to revisit your strategic objectives for clarity and precision. 44

45 Course 7 Determining Strategic Measures Measure Types Measures take on many forms. Each type of measure has its own advantages and disadvantages. Use the type of measure that best accommodates what you want to measure. Common types of measures are: Absolute Numbers Indices Rankings Ratings Ratios Percentages One way to offset the various disadvantages is to make sure you have a mix of different types of measurement forms in your scorecard so that you get an accurate picture. 45

46 Course 7 Determining Strategic Measures Outcome Measures Outcome measures: Focus on the performance results at the end of a time period or activity; examples include: Year-end budget expenditures. Employee satisfaction. Net-Profit margin. Describe a success or failure of the past. Are usually objective and easily captured; i.e. dollars, numbers, ratios, or percentages. Every strategic objective in the BSC requires at least one outcome measure. If more than one outcome measure is applicable, use the one that best tracks and communicates the intent of the strategic objective. If two outcome measures seem absolutely necessary for the objective, re-evaluate the objective, to determine if it should be separated into two objectives instead of one. 46

47 Course 7 Determining Strategic Measures Lead Measures Sometimes you need to do more than measure outcomes to focus on your organization's strategy. You should prescribe behaviors that support the strategic objectives in order to effectively lead future performance. This is accomplished with Lead Measures. Lead measures are used to predict future performance and have the following characteristics. They: Measure intermediate processes and activities Provide insight on the ability to accomplish an objective Predict future performance Allow organizations to adjust behaviors for performance Lead Measures communicate how your unit aims to accomplish its strategy. Lead measures are powerful because they allow you to look into the future. They let you see well you are going to perform and can be used to drive behaviors. 47

48 Course 7 Determining Strategic Measures Measure Best Practices To recap, as you determine your scorecard's measures, keep in mind these best practices: Use one outcome measure for every strategic objective (for all 18 to 25 objectives on your scorecard). Use lead measures to predict future performance where early intervention is needed in order to prevent undesirable outcomes. Lead measures are usually in the internal process and learning and growth perspectives. As a rule of thumb, a Balanced Scorecard typically has an average of 1.5 measures per objective. For example, if you have 18 objectives, you would have approximately 27 measures. Remember that these are best practices. Some organizations may need more lead or outcome measures than other organizations do. 48

49 Course 8: Identifying Targets Learning Objectives Describe what makes a good target List and offer examples of the sources of target levels Apply the process of setting appropriate target levels Evaluate relationships among targets Identify best practices for target setting in the BSC 49

50 Course 8 Identifying Targets Targets Targets are crucial because they: Set and communicate the expected performance level. Targets serve to communicate the strategy's tangible goals to an organization's personnel. Focus the organization on improvement. Measure allows an organization to evaluate its performance, but does not indicate the level of performance that is required to achieve the objective. When you add targets to measures, you focus on specific improvements you aim to achieve. 50

51 Course 8 Identifying Targets Good Targets A good target is a quantifiable performance level to be reached within a specific timeframe. Without a performance level, the objective is not very useful. How much improvement is required? Without a timeframe, there is no tangible incentive to begin, keep up or finish the process. By when? How fast? 51

52 Course 8 Identifying Targets Setting Targets Targets setting steps: Determine a source for your targets Establish stretch targets Set intermediate targets Ensure that your targets support status indicators for reporting purposes 52

53 Course 8 Identifying Targets Target Sources Derived from overall goal Whenever the measures on a child scorecard are derived from measures on their parent scorecard, the child units can derive their targets from the parent organization's overall target. Benchmark leaders Benchmarking similar organizations can provide useful target information. It is often hard to get good benchmark information and benchmarks may not represent what your organization can or needs to do. Incremental improvement based on historical performance Targets are incremental improvements based on historical performance. Most organizations use historical performance as the source of their targets. Establish baseline and define targets over time When there is no basis for defining the performance level required, many organizations monitor performance before identifying desired target levels. After collecting some data, the organization can begin to plot the required performance levels. 53

54 Course 8 Identifying Targets Target Sources 54

55 Course 8 Identifying Targets Establish Stretch Targets Establish your long-term goal, or "stretch target," for where you want your organization to be on the long-term planning horizon, usually 3-5 years out. The stretch target should be at a level that will ensure achievement of the strategic objective. There are two reasons to establish the stretch target before setting short-term targets. Doing so: Takes the focus off short term Forces you to look at the intermediate goals and the stretch target as a collective set 55

56 Course 8 Identifying Targets Set Intermediate Targets Once you have the long-term or stretch target established, you can work backward to figure out the intermediate targets. These mark the path to the long-term stretch goal and communicate to individuals in the organization what they need to do to stay on track. For example, a retail bank sets an intermediate target of 2 million customers converted to online. This translated into intermediate targets as follows: The Year 4 target meets their stretch target goal. Years 1 3 determine how quickly they will improve performance. 56

57 Course 8 Identifying Targets Support Status Indicators For status purposes, you need a quick view of where you are at a point in time in relationship to where you want to be. Organizations often use a color signifiers to denote "on track" and "off track" performance. The following are typical colors used by organizations: If the status of a measure is green, no time needs to be spent "managing it." It's where it is supposed to be and progress is "on target." If the status of a measure is yellow, it's below target level. It should be watched. If the status of a measure is red, it signals to leadership it needs to be reviewed and evaluated to determine the causes. 57

58 Course 8 Identifying Targets Status Indicator Traps The green, yellow, and red indicators (GAR) are useful to leadership in managing strategy. But be careful not to let these color signifiers influence your target setting negatively. Avoid setting targets so that the status is always "green." You should not set targets so that they will always be met. If you set all of the targets low, everything will always be green, and there will be no change within the organization. Avoid setting targets so that the status is always yellow" or "red." You do not want to set targets at a level that causes wasted leadership and management time investigating a "red" status, merely because the target levels were set too high or inappropriately. 58

59 Course 8 Identifying Targets Target Relationships There are several ways targets relate to one another. Child organizations often derive their targets from the targets of the parent organization. In these situations, review your targets to make sure they support the parent organization's targets. Targets must work together. Make sure the target's order of magnitude is appropriate to close the gap. Targets are a comprehensive set Set each target in such a way to optimize overall outcome for the entire strategy. Tensions among Targets If treated in isolation, instead of as part of a comprehensive set, targets can send the organization in conflicting directions. So it is important to view all the targets in a Balanced Scorecard together as a comprehensive whole to see if any potential conflicts might surface. Keep in mind that sometimes the tension is "natural" and actually positive for the organization. It is up to leadership to determine which target should be met to best achieve the organization s strategic goals 59

60 Course 8 Identifying Targets Target Best Practices Be quantifiable. Targets should be a number or an amount--a quantity. Targets that are not quantifiable can lead to subjective evaluation later on in the BSC process. It must be clear whether or not the target was met within a specified timeframe. Communicate expected level of performance. There must be no doubt in an organization as to what is expected of the organization. Be limited to only one per measure, per reporting period. More than one target may cause confusion in an organization and may communicate an unfocused strategy. Set targets so that they relate to the other targets throughout the scorecard. Make sure that the target's order of magnitude is appropriate to close the performance gap. When in doubt, look back to your strategy and performance gap. 60

61 Course 9 Workshop II Learning Objectives Recognize the purpose and importance of Workshop II Identify where Workshop II falls in the BSC process Identify activities and documents completed in preparation for Workshop II List BSC elements reviewed and validated during Workshop II List the Workshop II deliverables 61

62 Course 9 Workshop II Preparing for Workshop II Finalizing Inputs for Workshop II: In Workshop II the Core Team presents the Leadership Team with the following inputs: Revised strategy map with linked objectives This strategy map represents the most current version of the map that was created in Workshop I. The objectives should be connected with causeand-effect linkages. The strategy map should be finalized as much as possible before Workshop II so that the Leadership Team can start reviewing the measures. Refined set of objective statements These are the statements that further clarify the meaning behind each objective on the strategy map. List of draft measures and targets This is the list of measures and targets that the Measurement Sub-teams draft in preparation for this meeting. Preparing the Workshop II Document: The Workshop II presentation document contains the output from Workshop I as well as the measures and target work that has been completed since that first workshop. Pre-present to Key Leaders Before Workshop II, you should again set up time to meet one-on-one with the key leaders. Use these meetings to review changes to the strategic objectives, objectives statements, and the measures and targets that the Measurement Sub-teams recommended. Highlight areas of disagreement or inconsistency. 62

63 Course 9 Workshop II Preparing for Final Logistics Recommended Supplies and Materials for Workshop II Flip charts/markers LCD Projector/screen Laptop Hard copies of the presentation Pens and notepads for all attendees Food/snacks and refreshments Tape (Make sure it is OK to tape flip chart paper on the walls.) 63

64 Course 9 Workshop II Conducting Workshop II Conducting Workshop II Conducting Workshop II Once you have taken care of the pre-work for the workshop, it's time to think about the agenda. One of the most important items is presenting the BSC project plan to the teams, showing them how far you have come in the BSC process. By the end of Workshop II you will be more than halfway through building your scorecard. Facilitation Tips Review agenda/timing/ground rules Engage attendees Monitor the mood Record comments/suggestions Maintain momentum Encourage leaders to take ownership of their measures Reviewing the Strategy Map Go back through the strategy map from Workshop I and make sure the Leadership Team agrees that the map still accurately represents their strategy. Validate the themes, strategic objectives, and cause-and-effect linkages. As you review each objective, read through the corresponding objective statement, making sure that the wording is accurate and concise. If necessary, make changes to get the wording right. 64

65 Course 10: Aligning Initiatives Learning Objectives Distinguish between strategic initiatives and non-strategic projects. Identify the purpose of initiatives. Identify the steps in the process of collecting, taking an inventory of, and mapping current initiatives. Identify the correct use of the initiative map. 65

66 Course 10 Aligning Initiatives What Are Strategic Initiatives? Strategic initiatives are actions taken to close the gap between desired and actual levels of performance. A strategic initiative may be considered as an "intervention project." A strategic initiative represents change to an organization's normal operations. It addresses an organization's performance gap between one of the strategic objectives in the organization's BSC and the expected performance as defined in the measurement of that objective. A good strategic initiative should have: Accountability at the senior leadership level A timeline A budget Committed resource allocation Expected benefits 66

67 Course 10 Aligning Initiatives What's Not a Strategic Initiative? Not all projects or activities in an organization are strategic initiatives. A strategic initiative is an organization-sponsored project that bridges a gap between current and expected performance on a strategic objective. It's not a project that supports the normal, day-to-day activities of the organization. Examples of non-strategic initiatives often include: Intentions They are outcomes or operational objectives (not strategic objectives). Unlike strategic initiatives, intentions do not have scheduled start and stop dates or budgets. Pet Projects Some activities that are not organization-sponsored are often "pet projects." A leader may be investing resources in a favorite program that does not benefit the overall enterprise. Required Projects There are projects that are required to be part of an organization's operations; these projects include preventive maintenance programs, safety programs, financial reporting to regulators, and building firewalls for IT systems. These projects may be necessary, but they are not strategic. Lower-level Activity Another type of project that falls into the "activity" category is a project that is being done deep within the organization and is not sponsored across the organization. A strategic initiative is broad-based; a lower- level activity does not affect more than one command within the organization. 67

68 Course 10 Aligning Initiatives The Purpose of Initiatives Objectives articulate the strategy's components. Measures communicate the information used to monitor performance and drive behaviors. Targets set the expected level of performance. Initiatives are strategic projects that help close the gap between desired and actual levels of performance. 68

69 Course 10 Aligning Initiatives Linking Objectives and Initiatives Strategic initiatives link to strategic objectives because initiatives are intended to close performance gaps between where you are and where you need to be in achieving your strategic objectives. The initiative will close the gap between your target and actual performance and will thus drive the achievement of your overall objective. 69

70 Course 10 Aligning Initiatives Managing Initiatives Organizations usually have more initiatives than they have resources to support, which is why they need a good initiative management program. They process steps are: Collect all initiatives. Map initiatives to strategic objectives. Prioritize initiatives. Rationalize initiatives to meet the resources available. 70

71 Course 10 Aligning Initiatives Collect Initiatives The Core Team drives the process for inventorying and mapping initiatives. First, the Core Team collects the current initiatives within its organization. The Core Team then screens these initiatives for fit with the organization's strategy. The result of this screening is a shorter list of strategically aligned initiatives. 71

72 Course 10 Aligning Initiatives Mapping the Initiatives The Core Team maps or links initiatives to the objectives that these initiatives support. While examining initiatives and relating them to objectives, you may find the following questions helpful: "Will completing this initiative influence the measure for the objective?" or "Will this initiative help accomplish the objective? On the Initiative Map, initiatives are listed across the top of the chart and objectives are listed down the left side. The circles in the chart represent points at which initiatives support particular objectives. Reviewing the initiative map to see how initiatives align with strategic objectives is the best way to determine which strategic objectives are supported by current initiatives. Aligning initiatives also allows you to assess how well initiatives fit with the strategy. 72

73 Course 10 Aligning Initiatives Prioritizing Initiatives The next step in managing initiatives is to prioritize them. Your organization may have more initiatives than resources, even after you've correctly mapped them to objectives. When this happens, you must prioritize these initiatives to match the resources available. Factors to consider when setting priorities include: Completion time Interdependencies Strategic value Overall size in resources and dollars 73

74 Course 10 Aligning Initiatives Rationalizing Initiatives After sifting through all of your organization's initiatives and prioritizing them according to value in supporting strategic objectives, you are ready for the final step of rationalizing the initiatives. Based on resources available and resources required for each initiative, you make the difficult decisions on which initiatives to keep. You should: Create the criteria (weighing/scoring) to be used in evaluating strategic initiatives. Create a common format to review the strategic initiatives. Evaluate strategic initiatives using your stated criteria. With the leadership team, select which initiatives to implement. 74