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1© Rajesh Naik, 2009
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Organizational Alignment Using Strategy Maps & Balanced Scorecard
Organizational Alignment Using Strategy Maps & Balanced Scorecard
Presented by Rajesh Naik
@ Bangalore SPIN, Nov 2009
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Do these sound familiar?
• The organization says it will do business only with Fortune 500 companies
– But keeps signing small projects from small customers
• Cost reduction is a focus
– But you are asked to travel by train, spend billable time and stay in hotels (costlier than airfare!)
• New skills are a must for promotion and growth
– But the best people are busy (fire fighting) with existing projects and the mediocre folks get trained on new technologies
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Do these sound familiar?
• CEO says low cycle-time, low-cost and feature-richness are critical to their success– But the project and process goals are
schedule variance, effort variance and defect density – do these match with the critical success factors?
• CEO says we MUST grow in new products– But the sales targets (for salespersons) are
based on total order value – there are no product line specific targets
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Initiatives – What Direction?
Lean
Reuse
CMMI
Innov
ation
Organization
Agile
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How Do They All Tie Together?
• Employees
– Do not know why they are doing something
– Do not understand how various initiatives are interlinked
• Management
– Often starts new initiatives without fitting into a bigger picture
– Does not explain relationship between initiatives and overall objectives
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We Need to Execute Strategy(not just formulate it…)
Of the strategies effectively formulated, less than 10% are effectively executed”
Fortune
“It better to effectively implement a mediocre strategy, than to ineffectively implement a great strategy”
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But what is strategy?
The art or skill of careful
planning towards an
advantage or a desired end
‘Oxford English Dictionary’
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Key Elements of Effective Strategy Implementation
• Clarify strategies
• Understand and explain inter-linkages
• Resolve conflicts of alignment
• Communicate to employees
• Relate internal process goals to organizational strategic goals
• Align investments in people, technology and organizational capital for greatest impact on strategic objectives
• Prioritize initiatives based on potential impact
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How do we get Breakthrough Results?
World Class Strategy Implementation =
Describe theStrategy
Measure theStrategy
Manage the Strategy+ +
StrategyMaps
BalancedScorecard
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A Software Products/ Services Org
Revenue Profits EPS
Financial (Shareholder/ Owner) Perspective
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……
A Software Products/ Services Org
Revenue Profits EPS ……
High SpeedImplementation
Cost-EffectiveServices
High QualitySolutions
Fortune 500 Customers
Single Pointfor Insurance
Industry
Customer Perspective
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Large Scale Implementations
A Software Products/ Services Org
Revenue Profits EPS ……
ProgramManagement
Hi FidelityProcesses
SoftwareProducts
High SpeedImplementation
Cost-EffectiveProd/ Svcs
High QualitySolutions
Fo500 C
Single Pointfor Insurance
Industry
Brand Building inInsurance Industry
Reuse
Large AccountManagement
Cross Selling
Internal Perspective
Cost EffectiveInfrastructure
Cost EffectiveFinancingRegulatoryCompliance
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A Software Products/ Services Org
Large Scale Implementations
Revenue Profits EPS ……
ProgramManagement
Hi FidelityProcesses
SoftwareProducts
High SpeedImplementation
Cost-EffectiveProd/ Svcs
High QualitySolutions
Fortune 500 Customers
Single Pointfor Insurance
Industry
Brand Building inInsurance Industry
Reuse
Large AccountManagement
Cross Selling
InsuranceCOE
KnowledgeManagement
IP CreationAutomation
Of Processes
EmployeeEngagement
InnovationTech/ Domain
CompetencyDevelopment
Cost EffectiveInfrastructure
Cost EffectiveFinancing
RegulatoryCompliance
ContinuousImprovement
People, knowledge, systems, innovation and improvement perspective
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Vision & Strategy
Financial/ Owners/ Shareholders
Customers
Business Processes
Learning & GrowthPeople, Systems & Technology
The Concept
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FINANCIAL PERSPECTIVEFINANCIAL PERSPECTIVE
How should we appear to ourOwners/ shareholders?”
LEARNING PERSPECTIVELEARNING PERSPECTIVE
What do we need to change, learn, innovate and improve?
What business processes must we excel in?
INTERNAL PERSPECTIVEINTERNAL PERSPECTIVE
How should we appear to our customers?• What products/ services?• What markets?
CUSTOMER PERSPECTIVECUSTOMER PERSPECTIVE
The Four Perspectives
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Learning & Growth
Business Processes
Customer
Financial
Cause & Effect Relationship
ROCE
Customer Loyalty
On Time Delivery
Process Quality Process Cycle Time
Employee Skills
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Successful Balanced Scorecards start with a strategy map Example Mobil (US Marketing & Refining)
Growth Theme
Improve quality of revenue by understanding customer
needs and differentiating ourselves accordingly.
Productivity Theme
Maximize utilization of existing assets and integrate
the business to reduce total delivered cost.
Financial Perspective
Return on Capital
Increased from 6% to 16%
Competitive Position(profitability)
From last (1993)to first (95, 96, 97, 98)
Volume Growth
Exceeds industry by 2-2.5% annually
Reduce Cash Expenses
Down by 20%
Improve Cash Flow
From -$500 M/Yr to +$700 M/Yr
Customer Perspective
Internal Perspective
Customer Satisfaction
Continuous improvement for 3 consecutive years
Speedpass Active
Increasing at rate of 1M per year
Dealer Quality Perfect Orders
Continuous improvement for 4 consecutive years
Learning & Growth
Perspective
Quality Capacity Utilization Safety
Lost work incidents down from 150 to 30
per year
Environmental
Number of incidents reduced by 63%
Continuous improvement for 4 consecutive years
Annual value of lost yield reduced from
$175m to $50m
Product Innovation Customer Management
Operational Excellence Good Neighbor
Motivated & Prepared Workforce
Continuous improvement for 4 consecutive years
Strategic Awareness
Annual employee survey shows awareness of strategy increased from 20% to 80%
Source:Source:
The Balanced ScorecardThe Balanced Scorecard
D. Norton & R. KaplanD. Norton & R. Kaplan
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Cascading and Layering of Goals
Delivery Group
HR Group
Organization
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Purpose of Strategic Measures
–Convert a strategic objective (stated in English) into a measurable target (stated in numbers)
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Objectives
• Fast ground turnaround
Statement of the strategy
Target
• 30 Minutes• 90%
Performance Needed
• Cycle time optimization
Key action programs
InitiativeMeasurement
• On Ground Time• On-Time
Departure
How success will be
measured
Strategic Theme: Operating Efficiency
ProfitabilityFinancial
Learning
Morecustomers
Ground crew alignment
Lowest prices
Fewer planes
Customer
Internal
Fast ground turnaround
Strategy Map: Cause-and-effectbetween strategic objectives
Flight Is on time
Balanced Scorecard: Airline example
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Objectives
• Fast ground turnaround
Statement of the strategy
Target
• 30 Minutes• 90%
Performance Needed
• Cycle time optimization
Key action programs
InitiativeMeasurement
• On Ground Time• On-Time
Departure
How success will be
measured
Strategic Theme: Operating Efficiency
ProfitabilityFinancial
Learning
Morecustomers
Ground crew alignment
Lowest prices
Fewer planes
Customer
Internal
Fast ground turnaround
Strategy Map: Cause-and-effectbetween strategic objectives
Flight Is on time
Balanced Scorecard: Airline example
INITIATIVE
LEAD MEASURE
LAG MEASURE
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• % Ground crew trained
• % Ground crew stockholders
Objectives Measurement
• Market Value• Seat Revenue• Plane Lease Cost
• FAA On Time Arrival Rating
• Customer Ranking (Market Survey)
• On Ground Time• On-Time Departure
Strategic Theme:Operating Efficiency
Initiative
• Cycle time optimization program
• ESOP
• Ground crew training
• Quality management• Customer loyalty
program
Target
• 30% CAGR• 20% CAGR• 5% CAGR
• #1
• #1
• 30 Minutes• 90%
• yr. 1 70%yr. 3 90%yr. 5 100%
ProfitabilityFinancial
Learning
MoreCustomers
Ground Crew Alignment
Lowest Prices
Fewer Planes
Customer
Internal
Fast Ground Turnaround
Flight Is on Time
• Profitability• More Customers• Fewer planes
• Flight is on -time• Lowest prices
• Fast ground turnaround
• Ground crew alignment
Balanced Scorecard: Airline Example
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The Balanced Scorecard Measures
Lag MeasuresEg : Year-end-sales,
Market Share
Strategic Objective
Outcome MeasuresAt the end of a
time period
Lead MeasuresEg : Hours spent,
Product Mix
Performance DriversIntermediate
Processes
Hours Studied forEntrance Exam
Marks/ Rank inEntrance Exam
College Admitted to
Efforts inCollege
Marks/ Rank in College
CategoryOf
HiringCompany
PreparationFor Job Interview
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Selecting BSC Measures
•Caution
•Do not select what can be measured: select what “should” be measured
•Ensure balance between lead and lag measures
•Have a practical number of measures
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Attributes of Measures in BSC
• Identify measure(s) for each goal
• Each measure will have the following elements– The corresponding goal/ objective in the strategy
– The measure
– The operational definition of the measure
– Type (Lead or Lag)
– Past values for measure (for defined time period)
– Target (values and time periods they correspond to)• For different periods (1 year, 2 year, 5 year)
– Reporting Vehicle and Frequency
– Person responsible for measuring and reporting
– Person responsible for meeting target
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A completed Balanced Scorecard example
Obj
No.Objective Measure Type Unit Frq.
Obj.
Resp.
Data
Resp.Actual Target Initiatives
PBT Lag Rs Cr m TS
Revenue Market Share Lag % q TS
Revenue Lag Rs Cr m TS P1
Monthly Churn Lag nos m MK
Subscriber base Lag nos m OM
F3 Manage risk effectively Average collections/bill cycle after 25 days Lag % m TA AR P5
Average collections/bill cycle after 60days Lag % m SNK
Bad Debt Lag % 1/2y CP
Acquisition cost per subscriber Lag Rs 1/2y KS P4
Cost to serve per subscriber Lag Rs 1/2y KS
Cost of funds Lag % q KSC1 Offer VFM & reward loyalty Average customer lifetime Lag Months q MI DS P2
Calls per 1500 subscribers Lead nos m GA
Complaints per 1500 subscribers Lead nos m GA
Customer survey index Lag Index q GA
Average acquisitions/dealer Lead nos m GA P11
Average activations & recharges/ distributor Lead nos m GA
C4 Receive superior training for team Dealer Satisfaction Index Lag Index q AA CR P10, P6
C5 Get HR support for identification & recruitment of sales executives Dealer Satisfaction Index Lag Index q CS BB P9,P11
C6 Receive adequate ROI opportunity Average ROI for dealers Lag % q RN KSK P22
I1 Significantly reduce churn Monthly Churn YK P14,15
# sales executives per dealer Lag % q VS
# outlets per distributor Lag % q VS
% penetration of new products, services Lag % q DS
Average channel cost/acquisition Lag Rs q KSK
Advtg & promo cost as % of sales revenue Lead % q KSK
I4 Target product to appropriate segments Penetration in targeted segment Lag % q TK RD
Customer service delivery index Lead Index q ON
Network service delivery index Lead Index q MK
I6 Improve collection
processes
Average collection period IM
Subscribers/employee Lag nos q RCX
Revenue/employee Lag Rs. q RC
Employee Satisfaction Survey Rating Lead Index 1/2y RC
L2 Close skill gaps by regular training Skill gaps closed Lead % q OR RC
L3 Rationalize organizational structure KMS achieved Lead % q MK RF
L4 Build strong systems support & knowledge-base IT Delivery Index Lag Index 1/2y SR PP
L5 Improve coordination between all departments # forum meetings held Lead nos q OJ KK
AR
RJ
GS
KD
PL
C3 Receive sustained demand
Ensure superior service delivery levels at contact points
MRD
AS
UP
LK
F1
I3 Create and execute a coordinated sales & marketing plan by key segments
F4
Achieve sustained profitability (PBT) from March 2000
Improve operating efficiency
C2 Get reliable & consistent service
Meet volume & revenue targets by significantly increasing subscriber baseF2
L1 Improve employee motivation & productivity
I2 Grow dealer sales force to increase customer reach; and increase width in retail
I5
Illustrative
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Initiatives and the Strategy
• We need initiatives to achieve the objectives
• Initiatives may impact different objectives in different ways
– Strongly or weakly
– Directly or indirectly
– Positive or negatively
– In the short-term and the long-term
• We must evaluate each proposed initiative, and prioritize and select
LeanLean
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Where do Strategy Maps and BSC fit in the overall scheme of things?
Individual Performance Goals(What I need to do)
Values(What is important to us)
Vision(What we want to be)
Strategy(Our Game Plan)
Strategy Maps(How the strategy translates)
Balanced Scorecard(Measure and Focus)
Initiatives(What we need to do and change)
Mission(Why we exist)
Adapted from Strategy Maps by Kaplan and Norton
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BSC and Individual Performance Goals
Individual Performance GoalsFor Shredni VashtaarBNS LOB Goals1. Revenue2. Profits 3. New Orders4. Repeat Orders5. Order of New Services6. Compliance to Statutory ..7. Productivity8. Cycle Time9. Customer Satisfaction10. Attrition11. Employee Engagement12. Competency Growth13. Ready Successors14. Patents RegisteredShared Goals1. Company Revenue2. Company Profits3. Success of eMAGE project4. Making Shegdeng facility operationalAdditional Goals1. Learning and Developing …
• % Ground crew trained
• % Ground crew stockholders
Objectives Measurement
• Market Value• Seat Revenue• Plane Lease
Cost
• FAA On Time Arrival Rating
• Customer Ranking (Market Survey)
• On Ground Time• On-Time
Departure
Strategic Theme:Operating Efficiency
Initiative
• Cycle time optimization program
• ESOP
• Ground crew training
• Quality management
• Customer loyalty program
Target
• 30% CAGR• 20% CAGR• 5% CAGR
• #1
• #1
• 30 Minutes• 90%
• yr. 1 70%yr. 3 90%yr. 5 100%
ProfitabilityFinancial
Learning
MoreCustomers
Ground Crew Alignment
Lowest Prices
Fewer Planes
Custome
r
Interna
lFast Ground Turnaround
Flight Is on Time
• Profitability• More
Customers• Fewer planes
• Flight is on -time• Lowest prices
• Fast ground turnaround
• Ground crew alignment
• % Ground crew trained
• % Ground crew stockholders
Objectives Measurement
• Market Value• Seat Revenue• Plane Lease
Cost
• FAA On Time Arrival Rating
• Customer Ranking (Market Survey)
• On Ground Time• On-Time
Departure
Strategic Theme:Operating Efficiency
Initiative
• Cycle time optimization program
• ESOP
• Ground crew training
• Quality management
• Customer loyalty program
Target
• 30% CAGR• 20% CAGR• 5% CAGR
• #1
• #1
• 30 Minutes• 90%
• yr. 1 70%yr. 3 90%yr. 5 100%
ProfitabilityFinancial
Learning
MoreCustomers
Ground Crew Alignment
Lowest Prices
Fewer Planes
Custome
r
Interna
lFast Ground Turnaround
Flight Is on Time
• Profitability• More
Customers• Fewer planes
• Flight is on -time• Lowest prices
• Fast ground turnaround
• Ground crew alignment
LOB BSC
• % Ground crew trained
• % Ground crew stockholders
Objectives Measurement
• Market Value• Seat Revenue• Plane Lease
Cost
• FAA On Time Arrival Rating
• Customer Ranking (Market Survey)
• On Ground Time• On-Time
Departure
Strategic Theme:Operating Efficiency
Initiative
• Cycle time optimization program
• ESOP
• Ground crew training
• Quality management
• Customer loyalty program
Target
• 30% CAGR• 20% CAGR• 5% CAGR
• #1
• #1
• 30 Minutes• 90%
• yr. 1 70%yr. 3 90%yr. 5 100%
ProfitabilityFinancial
Learning
MoreCustomers
Ground Crew Alignment
Lowest Prices
Fewer Planes
Customer
Internal
Fast Ground Turnaround
Flight Is on Time
• Profitability• More
Customers• Fewer planes
• Flight is on -time• Lowest prices
• Fast ground turnaround
• Ground crew alignment
• % Ground crew trained
• % Ground crew stockholders
Objectives Measurement
• Market Value• Seat Revenue• Plane Lease
Cost
• FAA On Time Arrival Rating
• Customer Ranking (Market Survey)
• On Ground Time• On-Time
Departure
Strategic Theme:Operating Efficiency
Initiative
• Cycle time optimization program
• ESOP
• Ground crew training
• Quality management
• Customer loyalty program
Target
• 30% CAGR• 20% CAGR• 5% CAGR
• #1
• #1
• 30 Minutes• 90%
• yr. 1 70%yr. 3 90%yr. 5 100%
ProfitabilityFinancial
Learning
MoreCustomers
Ground Crew Alignment
Lowest Prices
Fewer Planes
Customer
Internal
Fast Ground Turnaround
Flight Is on Time
• Profitability• More
Customers• Fewer planes
• Flight is on -time• Lowest prices
• Fast ground turnaround
• Ground crew alignment
Org BSCeMAGE Scorecard
Shengdeng Scorecard
• % Ground crew trained
• % Ground crew stockholders
Objectives Measurement
• Market Value• Seat Revenue• Plane Lease
Cost
• FAA On Time Arrival Rating
• Customer Ranking (Market Survey)
• On Ground Time• On-Time
Departure
Strategic Theme:Operating Efficiency
Initiative
• Cycle time optimization program
• ESOP
• Ground crew training
• Quality management
• Customer loyalty program
Target
• 30% CAGR• 20% CAGR• 5% CAGR
• #1
• #1
• 30 Minutes• 90%
• yr. 1 70%yr. 3 90%yr. 5 100%
ProfitabilityFinancial
Learning
MoreCustomers
Ground Crew Alignment
Lowest Prices
Fewer Planes
Customer
Internal
Fast Ground Turnaround
Flight Is on Time
• Profitability• More
Customers• Fewer planes
• Flight is on -time• Lowest prices
• Fast ground turnaround
• Ground crew alignment
• % Ground crew trained
• % Ground crew stockholders
Objectives Measurement
• Market Value• Seat Revenue• Plane Lease
Cost
• FAA On Time Arrival Rating
• Customer Ranking (Market Survey)
• On Ground Time• On-Time
Departure
Strategic Theme:Operating Efficiency
Initiative
• Cycle time optimization program
• ESOP
• Ground crew training
• Quality management
• Customer loyalty program
Target
• 30% CAGR• 20% CAGR• 5% CAGR
• #1
• #1
• 30 Minutes• 90%
• yr. 1 70%yr. 3 90%yr. 5 100%
ProfitabilityFinancial
Learning
MoreCustomers
Ground Crew Alignment
Lowest Prices
Fewer Planes
Customer
Internal
Fast Ground Turnaround
Flight Is on Time
• Profitability• More
Customers• Fewer planes
• Flight is on -time• Lowest prices
• Fast ground turnaround
• Ground crew alignment
• % Ground crew trained
• % Ground crew stockholders
Objectives Measurement
• Market Value• Seat Revenue• Plane Lease
Cost
• FAA On Time Arrival Rating
• Customer Ranking (Market Survey)
• On Ground Time• On-Time
Departure
Strategic Theme:Operating Efficiency
Initiative
• Cycle time optimization program
• ESOP
• Ground crew training
• Quality management
• Customer loyalty program
Target
• 30% CAGR• 20% CAGR• 5% CAGR
• #1
• #1
• 30 Minutes• 90%
• yr. 1 70%yr. 3 90%yr. 5 100%
ProfitabilityFinancial
Learning
MoreCustomers
Ground Crew Alignment
Lowest Prices
Fewer Planes
Customer
Internal
Fast Ground Turnaround
Flight Is on Time
• Profitability• More
Customers• Fewer planes
• Flight is on -time• Lowest prices
• Fast ground turnaround
• Ground crew alignment
• % Ground crew trained
• % Ground crew stockholders
Objectives Measurement
• Market Value• Seat Revenue• Plane Lease
Cost
• FAA On Time Arrival Rating
• Customer Ranking (Market Survey)
• On Ground Time• On-Time
Departure
Strategic Theme:Operating Efficiency
Initiative
• Cycle time optimization program
• ESOP
• Ground crew training
• Quality management
• Customer loyalty program
Target
• 30% CAGR• 20% CAGR• 5% CAGR
• #1
• #1
• 30 Minutes• 90%
• yr. 1 70%yr. 3 90%yr. 5 100%
ProfitabilityFinancial
Learning
MoreCustomers
Ground Crew Alignment
Lowest Prices
Fewer Planes
Customer
Internal
Fast Ground Turnaround
Flight Is on Time
• Profitability• More
Customers• Fewer planes
• Flight is on -time• Lowest prices
• Fast ground turnaround
• Ground crew alignment
Personal development
Other Scorecards
An individual’s performance targets should be derived from all relevant scorecards.Depends on
•roles and responsibilities, •initiatives involved in
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Elements to Balance and Align
• Align objectives across multiple perspectives (financial, customer,…)
• Align measures to the objectives
• Ensure balance between lead and lag measures
• Align initiatives to the objectives
• Maintain alignment while cascading
– Org� division/ dept � projects � individuals
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Success Factors for Strategy Implementation
• Roll–out needs to be driven as a “Project”
• Initial co-ordination
• Integration amongst the individual objectives, measures & initiatives
• Senior level Strategy Implementation Project Leader
• A Strategy Implementation Core Team
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Common Pitfalls
• Middle Management Team: Lack of Senior Management Commitment
• Done by One or Two Individuals
• Held at the Top: For Senior Management Only
• Too Long a Development Process: “Best Becomes the Enemy of the Good”
• Done Only for Compensation
• Ignoring the aspect of Change Management
• Lack of communication & awareness
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Communication and Awareness
• Every employee should be able to related his/ her goal to a higher level goal
• Every action by the management is a communication – many actions need explicit communication to provide a perspective– Why did we take up the retail supply chain
management project when we said we are specializing in the insurance domain?
– Why are we hiring so many senior level managers when we said that we will promote internal talent?
– Why have we signed up many projects with small customers when we said we will focus on Fortune 500 companies?
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The Journey - How Balanced Scorecard has evolved
Measurement
System
Strategy Implementat
ion
Total Strategy Management
Articles in Harvard Business Review:
� “The Balanced Scorecard —Measures that Drive Performance” January -February 1992
� “Putting the Balanced Scorecard to Work”September - October 1993
� “Using the Balanced Scorecard asStrategic Management
System” January - February 1996 1996 2000 2004
1992 1996 2000 2004
Managing
Alignment
2006
2006
Note: Concepts in this presentation have been sourced from these books
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About this Presentation
More resources on the subject are available from the creator of this presentation at:
http://www.rajeshnaik.com
© Rajesh Naik, 2009
This work is released under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 Unported License license. This means you can use it for non-commercial purposes so long as you include the copyright line “© Rajesh Naik, 2009". If you create derivative works using this work, they should also be made available under a similar license. For further information go to http://creativecommons.org/licenses/by-nc-sa/3.0/ For uses outside the scope of the license, contact Rajesh Naik at naik.rajeshnaik@gmail.com
Author: Rajesh NaikConsulting Partner
QAI India Limited
rajesh.naik@qaiglobal.com
naik.rajeshnaik@gmail.com
+91 9845488767
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Thank YouRajesh Naik
Consulting PartnerQAI India Limited
rajesh.naik@qaiglobal.comOR
naik.rajeshnaik@gmail.com
Mobile
+91 9845488767
Website
www.rajeshnaik.com
Also, have a look at the latest “business novel”:
Aligning Ferret: How an Organization MeetsExtraordinary Challenges
By Swapna Kishore & Rajesh Naik
Website: http://www.postscript-impressions.com