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BALANCED SCORECARD FOR STRATEGIC PLANNING AND MEASUREMENTCase Study, Concepts and Debatable Ideas
Kenny OngCNI Holdings Berhad
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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
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Introduction to Balanced Scorecard and Strategy
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"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
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What’s wrong with Strategic Planning Today?
Long-term Plans
Objectives
Strategies
Enablers
Resources
Also known as L.O.S.E.R.
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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
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Why BSC?
• Reason 1: Balanced
• Reason 2: Cause-and-Effect
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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
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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
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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
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Summary: Today’s presentation
1. Business Model + BSC = Boundaries
2. Strategy + BSC = How
3. PMS + BSC = Execution
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What is the Business Model?
USP
Market Discipline
Profit Model
•Air Asia
•Tata Nano
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What is the Business Model?
USP
Market Discipline
Profit Model
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Business Model: Profit Model
Revenue
Cost
MarginCash Flow
Assets
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RevenueFinancial
Learning & Growth
Internal Process
Customers
Cost Margin
Strategy + BSC
Cash Flow Asset
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What is the Business Model?
USP
Market Discipline
Profit Model
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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
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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
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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
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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
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Operational Excellence
• Competitive price
• Error free, reliable
• Fast (on demand)
• Simple
• Responsive
• Consistent information for all
• Transactional
• 'Once and Done'
Operational Excellence
• Competitive price
• Error free, reliable
• Fast (on demand)
• Simple
• Responsive
• Consistent information for all
• 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
• 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
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
• 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
Strategy: Value Disciplines
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The McPlaybook*
Make it easy to eat• 50% drive-thru• Meals held in one
hand
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
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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: Disciplines
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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: 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
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What is the Business Model?
USP
Market Discipline
Profit Model
•Air Asia
•Tata Nano
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Summary: Today’s presentation
1. Business Model + BSC = Boundaries Done
2. Strategy + BSC = How
3. PMS + BSC = Execution
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2. Strategy + BSC = How
‘Hope’ is not a strategy
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What is your Goal?
1. Cost Reduction
2. Growth
3. Both?
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Growth Strategy
1.Base Retention
2.Share Gain
3.Positioning4.Adjacent Market
5.New Business
GROWTH
“Double-Digit Growth”, Michael Treacy
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Growth Strategy
1. Base Retention
2. Share Gain
3. Positioning4. Adjacent Market
5. New Business
GROWTH
“Double-Digit Growth”, Michael Treacy
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•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?
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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
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• 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
How Markets determine Growth Strategies (2)
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How Markets determine Growth Strategies (3)
Fast Growth,
Low Churn
1.Market Positioning
2.Share Gain3.Base Retention
4.Adjacent Markets
•Example: XYZ Sector
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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%
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Revenue
Base Retention
Share Gain Positioning Adjacent Market
New Business
Financial
Learning & Growth
Internal Process
Customers
Cost Margin
Strategy + BSC
Cash Flow Asset
Satisfaction
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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: Disciplines, Priorities, and KPIs
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Operational Excellence
• Competitive price
• Error free, reliable
• Fast (on demand)
• Simple
• Responsive
• Consistent information for all
• Transactional
• 'Once and Done'
Operational Excellence
• Competitive price
• Error free, reliable
• Fast (on demand)
• Simple
• Responsive
• Consistent information for all
• 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
• 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
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
• 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
Strategy: Disciplines, Priorities, and KPIs
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• 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
Strategy: Value Disciplines
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Strategy: Value Disciplines
• 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
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• 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
Strategy: Value Disciplines
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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
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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
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Revenue
Base Retention
Share Gain Positioning Adjacent Market
New Business
Financial
Learning & Growth
Internal Process
Customers
Cost Margin
Strategy + BSC
Cash Flow Asset
Operational Excellence
Product Leadership
Customer Intimacy
Investment Strategy
Satisfaction
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Alignment: 4-Wheels Model
Culture
Business
ModelStrategic Planning
StructurePerson
Leadership
Resources
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Alignment: Framework
• Focus point• Alignment• Quality• Innovation & Differentiation• Risk taking• Performance Management• Corporate obsession• Decision making
Culture
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Alignment: Framework
• Org Structure• Job Design• C&B• Policies & procedures• Decision making• Job fit• Management Systems• BSC and KPIs• Decentralized & Empower
Structure
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Strategy: Framework
• Role modeling• Vision/Mission/Philosophy• Leadership Style• Delegation & Empowerment• C&B, Promotions• Sense of Urgency• Speak regularly about Performance
Leadership
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Strategy: Framework
• Recognition• Recruitment• Training• Profit sharing• Values• Motivation• Self Efficacy• Awareness• Useful Competencies• Career aspirations• Attribution (control)
Person
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Strategy: Framework
Enablers• Technology• Equipment• Materials• Human• Intellectual
Property• Partners• Property
Resources
Funding • CAPEX• OPEX
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Alignment: 4-Wheels Model
Culture
Business
ModelStrategic Planning
StructurePerson
Leadership
Resources
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Operational Excellence
Operational Excellence
Customer Intimacy
Customer Intimacy
Product Leadership
Product Leadership
Organization, jobs,skills
Management systems
Information and systems
Culture, values,norms
Each Discipline Requires Different Priorities & Resources
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Operational Excellence
•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
Operational Excellence
•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
Information and systems
Culture, values,norms
Each Discipline Requires Different Priorities & Resources
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Organization, jobs,skills
Management systems
Information and systems
Culture, values,norms
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
Each Discipline Requires Different Priorities & Resources
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Organization, jobs,skills
Management systems
Information and systems
Culture, values,norms
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’
Each Discipline Requires Different Priorities & Resources
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Revenue
Base Retention
Share Gain Positioning Adjacent Market
New Business
Financial
Learning & Growth
Internal Process
Customers
Cost Margin
Strategy + BSC
Cash Flow Asset
Operational Excellence
Product Leadership
Customer Intimacy
Investment Strategy
Competencies Information Systems
Motivation, empowerment,
alignment
Satisfaction
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Summary: Today’s presentation
1. Business Model + BSC = Boundaries Done
2. Strategy + BSC = How
3. PMS + BSC = Execution
Done
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3. PMS + BSC = Execution
KPIs and PMS
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Reminder: Why BSC?
• Reason 1: Balanced
• Reason 2: Cause-and-Effect
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Before we start…
Which comes first?
1. Strategies -> KPI?
2. KPI -> Strategies?
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Before we start…
Which comes first?
1. Strategies -> KPI?
2. KPI -> Strategies?
•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
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Before we start…
Which comes first?
1. Strategies -> KPI?
2. KPI -> Strategies?
•want to find out possible strategies,
•determine our priorities first thru selection of important KPIs;
•growing through ‘normal’ business, not a Turnaround.
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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)
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Wrong KPIs
“What is the moral of the story?”
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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
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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
18%
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Revenue
Base Retention
Share Gain Positioning Adjacent Market
New Business
Financial
Learning & Growth
Internal Process
Customers
Cost Margin
Cause and Effect
Cash Flow Asset
Operational Excellence
Product Leadership
Customer Intimacy
Investment Strategy
Competencies Information Systems
Motivation, empowerment,
alignment
Satisfaction
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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
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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
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Sample KPIs for Each Discipline
Operational Excellence
• Price• Selection• Convenience• Zero Defects• Growth
Operational Excellence
• Price• Selection• Convenience• Zero Defects• Growth
Customer Intimacy
• Customer Knowledge
• Solutions Offered• Penetration• Customer Data• Customer-success
focus
Customer Intimacy
• Customer Knowledge
• Solutions Offered• Penetration• Customer Data• Customer-success
focus
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
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B2B/B2G BSC Matching
Revenue
Base Retention
Share Gain Positioning Adjacent Market
New Business
Financial
Learning & Growth
Internal Process
Customers
Cost Margin Cash Flow Asset
Operational Excellence
Product Leadership
Customer Intimacy
Investment Strategy
Competencies Information Systems
Motivation, empowerment,
alignment
Satisfaction
Customer/Client/ Government BSC
Revenue
Base Retention
Share Gain Positioning Adjacent Market
New Business
Financial
Learning & Growth
Internal Process
Customers
Cost Margin Cash Flow Asset
Operational Excellence
Product Leadership
Customer Intimacy
Investment Strategy
Competencies Information Systems
Motivation, empowerment,
alignment
Satisfaction
Your BSC
1. Draw your ‘customer’s’ BSC
2. Match their CP/IP with your CP
3. Identify IPs that support/conflict
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Cascading
Customer Perspective
Goals Strategies Targets Direct Indirect
Base Retention
Mkt
Share Gain Mkt
New Business
BD
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E3 – Department BSC
Customer Perspective – Marketing Department
Goals Strategies Targets CAPEX OPEX
Base Retention
Share Gain
Budgeting
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Individual MBO
Employee A – Marketing Executive
KRAs Action Plans
Targets Weight (%)
Score
Class A Customer Retention
Class B Customer Retention
Competition Crossovers
Re: Base Retention
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What’s In Between Planning and Execution?
Succession Planning (Business Continuity)
Talent Management
Differentiation
Performance Management System
Budgeting + Planning
KPIs
BSC
Business Model
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What’s In Between Planning and Execution?
Succession Planning (Business Continuity)
Talent Management
Differentiation
Performance Management System
Budgeting + Planning
KPIs
BSC
Business Model
a.k.a. Strategy Planning
a.k.a. Strategy Implementation
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Performance Execution Clarity
A Excellent
B Good
C Average
D Poor
E Useless
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Performance Execution Clarity
A Excellent
B Good
C Average Good
D Poor
E Useless
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Performance Execution Clarity
A Excellent Excellent
B Good Very Good
C Average Good
D Poor Not Good
E Useless Commit Suicide
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Performance Execution Clarity
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
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Performance and Pay Clarity
• Pay for Service
• Pay for Job
• Pay for Performance
• Pay for Competency
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Performance and Pay Clarity
• Increment
• Bonus
• Promotion
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Compa Ratio Table
Use this if your company: • Pays for Performance, and • Pays for Job rates
Def:
Mid-Point = Mid Point of Pay Grade
Grade E2
Min RM2,000
MID RM2,500
Max RM3,000
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Performance and Pay Clarity
< 0.7 ≥0.7 - ≤0.9
>0.9 - <1.1
≥1.1 - ≤1.3
> 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
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Performance and Pay Clarity
< 0.7 ≥0.7 - ≤0.9
>0.9 - <1.1
≥1.1 - ≤1.3
> 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
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Curse of the Bell Curve
‘A’ Staff
‘B’ Staff
‘D’ Staff
‘E’ Staff
‘C’ Staff
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End Notes
Tying it all up
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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
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Problems, problems and more problems…
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Alignment: 4-Wheels Model
Culture
Business
ModelStrategic Planning
StructurePerson
Leadership
Resources
Thank You.
soft copy of slides: www.totallyunrelatedrandomanddebatable.
blogspot.com