Balanced Scorecard as a means of Strategic and Operative Planning

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1 Balanced Scorecard as a means of Strategic and Operative Planning Markku Paakkanen Jukka Siekkinen

2 Strategic Management in Tapiola

3 Strategy process in Tapiola SITUATION TODAY VALUES AND BENEFITS FOR CUS TOMERS, MUTUAL SUCCESS, ENTREPRENEURSHI P, ET HICAL OPERATIONS OPERATIONAL ENVIRONMENT CUSTOMER MISSION STATEMENT TARGETS AND LEVELS PERSONNEL PROCESS QUALITY EFFICIENCY SUCCESS FACTORS VISION CRITICAL SUCCESS FACTORS SUPERIOR COMPETITIVE ADVANTAGES COMPETITION ENVIRONMENT ECONOMY AND MARKET POSITION

STATEMENT TARGETS AND LEVELS PERSONNEL PROCESS QUALITY EFFICIENCY SUCCESS FACTORS VISION

4 Four perspectives in measuring performance Economy and market position Measuring the operational and financial result Customer Measuring customer satisfaction Process Efficiency of internal operations in the functions chain Personnel Innovation capacity Corporate perspective Customer perspective Corporate/customer perspective Personnel/corporate perspective

Efficiency of internal operations in the functions chain Personnel Innovation capacity

5 Preconditions for successful implementation: Strategy must be measurable Operational targets Numeral path

6 TAPIOLA S VISION SCHEDULE TAPIOLA 2006 VISION TARGETS AS BALANCED SCORECARD ANALYSES ANNUAL STEPS AS BALANCED SCORECARD MISSION STATEMENT AND VALUES

7 FROM VISION TO ACTION WITH BALANCED SCORECARD VISION Customers Personnel Processes Economy and market position BSC 2006: Targets and target levels BSC 2004: Focuses, targets, measures and target levels Action and follow-up

position BSC 2006: Targets and target levels BSC 2004:

8 Why is it important to measure? Measures make the strategy concrete and enable the follow-up reporting - you get what you measure - you can control only what you measure

9 Why is it important to measure? The outcome depends on the choice of the measures If you measure you are able to focus the energy of the organization

10 Challenges in the use of measures Operational targets which can t be defined in terms of monetary units or unit counts Difference in the character of targets, apples and oranges phenomenon

11 Challenges in the use of measures Confidence on the reliability of the measurements within the organization The continuous updating of the measurements The analyses of the cause and effect relations in the operations

12 Preconditions for a successful implementation: BSC with a clear measurement hierarchy Cause and effect relations Parallel measures All perspectives represented equally Unit based measures

13 Preconditions for a successful implementation: Dynamic family of scorecards Frequently updated Three levels: long (strategic), medium (year) and short (part year) Mainly automatic interfaces (especially in part year evaluation)

long (strategic), medium (year) and short (part year)

14 Preconditions for a successful implementation: Communication Illustrative and frequent communication of strategic targets and critical success factors within the organization

15 Preconditions for a successful implementation: Remuneration Degree of target achievement in the scorecard determines the level of remuneration

16 BSCs used through the entire organization Group Company Unit BSC Department Team Individual performance card

17 Annual planning -from strategy into action Annual plans*) January - Quality evaluation - Analyses of competition - Annual report and analyses Performance reviews*) September March Strategy adjustment*) Starting point of planning*) June *) As BSC -> balance -> link to strategy

analyses Performance reviews*) September March Strategy adjustment*)

18 Summary 1. Measurable strategies 2. Choice of measures 3. Defining the cause and effect relations 4. Setting the target values of the measures 5. Follow-up of the results and remuneration according to the degree of target achievement 6. Vivid communication within the organization

19 Implementation of Balanced Scorecard project in Tapiola Changing the operational culture System application

20 Implementation of Balanced Scorecard Project in Tapiola From strategy to operative activities Cause and effect relations Scorecard hierarchies Consolidation of data in the hierarchies Future perspective

Cause and effect relations Scorecard hierarchies

21 From strategy to operative activities Strategic level = main goals Annual level = annual results Operational level = activities and short term results

22 Different measures in different levels Main goals Annual results * market position * degree of solvency * balance sheet of competency * market share * customer satisfaction * development of competence * sales Operational level * time spent in upskilling * time of response

23 Cause and effect relations Cause service level Measure time of response Effect customer satisfaction sales activities offer stock sales learning time in upskilling competency development

24 Scorecard Hierarchy Division Drill down Department Aa Unit A Department Ac Unit B Department B Consolidation Team a1 Team a2 Team c1 Team c2

25 Consolidation three basic methods 1. Add up same measure in use trough the hierarchy e.g. sales, expenditures

26 Consolidation three basic methods 2. Consolidation of performance consolidation of performance indexes to a degree of success index weights can be used 110 % 120 % 100 %

27 Consolidation three basic methods 3. Web of measures a logical correlation between measures drill down in hierarchy Market share Sales Stability in customer relations

28 Future perspective Implementation in the whole organization Even more intense connection between short term planning and follow up Extensive linkage between Balanced Scorecard and remuneration

Balanced Scorecard: & Challenges. 23rd July 2007. Organized by: SMR

Balanced Scorecard: & Challenges. 23rd July 2007. Organized by: SMR Balanced Scorecard: Implementation & Challenges 23rd July 2007 Organized by: SMR 1 Program Schedule» 9.00 am 10.30am» 2.00pm 3.30pm > Introduction PMS > BSC Terminology & Principles > Understanding BSC