2www.exploreHR.orgContents :Contents :1. Corporate Performance Scorecard2. Strategy Map Framework3. Four Perspectives in Balanced Scorecard4. Identifying Key Performance Indicators5. Strategy Map in Corporate Functions (HR, IT,Finance and Marketing)If you find this presentation useful, please consider tellingothers about our site (www.exploreHR.org)(www.exploreHR.org)
5www.exploreHR.orgThree critical components for effective process ofperformance managementPerformanceManagementInfrastructurePerformanceManagementCulturePerformanceManagementProcessPerformance managementcycle is continuous andconsistentCulture that is basedon performanceaccountabilityLogistic support andperformance managementadministrationPerformance Management ComponentPerformance Management Component
6www.exploreHR.orgSTRATEGYPlan and ExecuteMonitor and EvaluateReward and CoachSet Measures and TargetPerformance Management CyclePerformance Management Cycle
7www.exploreHR.orgManaging Performance withManaging Performance withBalanced ScorecardBalanced ScorecardBalanced Scorecard is a management tool thatprovides stakeholders with a comprehensivemeasure of how the organization is progressingtowards the achievement of its strategic goals.
8www.exploreHR.org• Balances financial and non-financial measures• Balances short and long-term measures• Balances performance drivers (leading indicators)with outcome measures (lagging indicators)• Leads to strategic focus and organizationalalignment.Managing Performance withManaging Performance withBalanced ScorecardBalanced Scorecard
9www.exploreHR.org4 Perspectives in Balanced Scorecard4 Perspectives in Balanced ScorecardIf we succeed, how willwe look to ourshareholders?Financial PerspectiveTo achieve our vision,how must we look to ourcustomers?Customer PerspectiveTo satisfy our customers,which processes must weexcel at?Internal PerspectiveTo achieve our vision, howmust our organization learnand improve?Learning & GrowthPerspectiveThe Strategy
10www.exploreHR.orgStrategy and Balanced ScorecardStrategy and Balanced ScorecardMission –Why WeExistVision –What WeWant to BeValues –What’sImportantto UsStrategy :Our GamePlanStrategyMap :Translate theStrategyBalancedScorecard :Measure andFocusStrategicOutcomesSatisfiedShareholdersDelightedCustomersExcellentProcessesMotivatedWorkforce
11www.exploreHR.org• The strategy map framework is presented in thefollowing slides.• This framework describes the types of strategictarget that should be presented in each perspective,namely the financial perspective, customers, internalbusiness process, and learning & growth perspective.Strategy Map FrameworkStrategy Map Framework
12www.exploreHR.orgCost EfficiencyLong-term ShareholderValueRevenue GrowthPrice Availability BrandServiceQualityOperationsManagementProcessesHuman CapitalCustomerManagementProcessesInnovationProcessesRegulatoryand SocialProcessesOrganization Capital Information CapitalStrategy Map FrameworkStrategy Map FrameworkFinancialCustomerInternal ProcessLearning & Growth
13www.exploreHR.orgFinancial PerspectiveFinancial Perspective• In private companies, the financial perspective is themain objective (ultimate goal) – without having tosacrifice the interests of other relevant stakeholders(community, environment, government, etc.)• In the financial perspective, the strategic goal is thelong-term shareholder valuelong-term shareholder value. This goal is driven bytwo factors, namely : revenue growthrevenue growth and costcostefficiency.efficiency.
14www.exploreHR.orgLong-termShareholder ValueRevenue GrowthImprove Cost StructureIncrease Asset UtilizationCost EfficiencyStrategic Objectives in FinancialStrategic Objectives in FinancialExpand RevenueOpportunitiesEnhance Customer Value
15www.exploreHR.orgCustomer PerspectiveCustomer Perspective• This perspective is very instrumental, because withoutcustomers, how can a company survive?• Customer perspective covers the following elements:• Customer acquisition• Customer retention• Customer profitability• Market share• Customer satisfaction
16www.exploreHR.orgPrice Availability BrandServiceQualityCustomer AcquisitionCustomer AcquisitionCustomer SatisfactionCustomer SatisfactionCustomer RetentionCustomer Retention Customer ProfitabilityCustomer ProfitabilityMarket ShareMarket ShareStrategic Objectives in CustomerStrategic Objectives in Customer
17www.exploreHR.orgInternal Process PerspectiveInternal Process Perspective• This perspective reflects the processes in key businessthat should be optimized in order to meet the needs ofthe customers.• There are four main themes in this perspective, namely:• Operations Management Process• Customer Management Process• Innovation Process• Regulatory and Social Process
18www.exploreHR.orgOperationsManagementProcessesCustomerManagementProcessesInnovationProcessesRegulatoryand SocialProcessesProcesses thatproduce anddeliver productsand servicesProcesses thatenhance customervalueProcesses thatcreate newproducts andservicesProcesses thatimprovecommunities andthe environment• Supply• Production• Distribution• Selection• Acquisition• Retention• Growth• New Ideas• R&D Portfolio• Design/Develop• Launch• Environment• Safety &Health• Employment• CommunityStrategic Objectives in Internal ProcessStrategic Objectives in Internal Process
19www.exploreHR.orgLearning & Growth PerspectiveLearning & Growth Perspective• This perspective reflects the capability that a companyshould have, namely:• Human Capital• Organization Capital• Information Capital• This perspective shows us that good human resourcedevelopment system, organizational system andinformation system forms a solid foundation for improvingcompany performance.
21www.exploreHR.orgStrategy Map TemplateStrategy Map Template• The following slide displays the strategy map templatecomprising of four perspectives : financial, customer,internal business process, and learning & growth.
24www.exploreHR.orgVisionMissionand ValuesStrategyFinanceCustomerInternal BusinessProcessHRDevelopmentKey PerformanceIndicatorsKey PerformanceIndicatorsKey PerformanceIndicatorsStrategic ObjectivesStrategic ObjectivesKPI = Measurement orindicator that providesinformation on how far wehave succeeded inachieving the strategicobjectivesKey Performance Indicators (KPI)Key Performance Indicators (KPI)
25www.exploreHR.org• The measure of success must show clear, specific andmeasurable performance indicators.• The measure of success should be declared explicitly and indetail so that it is clear what is being measured.• Costs to identify and monitor the measure of success shouldnot exceed the value that will be known from the measurement.Guidelines in Formulating the KPIGuidelines in Formulating the KPIKPI GuidelinesKPI Guidelines
26www.exploreHR.orgRelevant to theStrategic ObjectiveDoes KPI have a linkage with the strategicobjectives?Controllable Are the KPI achievements still under control?Actionable Can any action be taken to improve theperformance?Simple Is the KPI easy to explain?Credible Is the KPI not easy to manipulate?KPI GuidelinesKPI Guidelines
27www.exploreHR.orgKPIKPI Family DimensionFamily DimensionProductivity Measures employee output (units/transactions/ dollars), the uptime levels andhow employees use their time (sales-to-assets ratio, dollar revenue from newcustomers, sales pipeline).Measures the ability to meet and/or exceedthe requirements and expectations of thecustomer (customer complaints, percentreturns, DPMO -- defects per millionopportunities).Quality
28www.exploreHR.orgKPIKPI Family DimensionFamily DimensionProfitability Measures the overall effectiveness of themanagement organization in generatingprofits (profit contribution bysegment/customer, margin spreads).Measures the point in time (day/week/month) when management and employeetasks are completed (on-time delivery,percent of late orders).Timeliness
29www.exploreHR.orgKPIKPI Family DimensionFamily DimensionProcessEfficiencyMeasures how effectively the managementorganization incorporates quality control, SixSigma and best practices to streamlineoperational processes (yield percentage,process uptime, capacity utilization).Measures how effectively the managementorganization leverages existing businessresources such as assets, bricks and mortar,investments (sales per total assets, sales perchannel, win rate).ResourceUtilization
30www.exploreHR.orgKPIKPI Family DimensionFamily DimensionCostSavingsMeasures how successfully the managementorganization achieves economies of scale andscope of work with its people, staff andpractices to control operational and overheadcosts (cost per unit, inventory turns, cost ofgoods).Measures the ability of the managementorganization to maintain competitive economicposition in the growth of the economy andindustry (market share, customeracquisition/retention, account penetration).Growth
31www.exploreHR.orgKPI Category DimensionKPI Category DimensionDirectThe actual raw data value as measured (e.g.,sales volume).PercentThe comparison of the changes inperformance of one value relative to thesame value at a different time, geography,etc. (e.g., percentage change in sales vs.last year).
32www.exploreHR.orgKPI Category DimensionKPI Category DimensionSimpleRatioThe comparison of one value relative to another toprovide a benchmark for comparison ofperformance (e.g., average sales per day).IndexA combination of several separate measuresadded together that result in an overall indicatorof performance (e.g., (company sales growth)/(industry sales growth) for a specific geography).
33www.exploreHR.orgKPI Category DimensionKPI Category DimensionCompositeAverageThe addition of the weighted averages of severalsimilar measures that result in an overall compositeindicator of performance (e.g., customer satisfactioncomposite is mixture of results from surveys, focusgroups and product returns).StatisticsMultiple measures such as mean, variance,standard deviation and variance that capture thespread and distribution of the performancemeasures (e.g., sales distribution by demographics,geography, channel).
35www.exploreHR.orgVisionMissionStrategyIntegration between Corporate andIntegration between Corporate andDivision/DepartmentDivision/DepartmentCorporateScorecardDivisionScorecardThe Division Scorecardis built by referring to thecorporate scorecard
36www.exploreHR.orgFinancialCustomerInternal ProcessLearning & GrowthCorporateFinanceCorporateMarketingProductionSupply ChainR & DCorporate HRInfoTechnologyCorporate and Division ScorecardCorporate and Division Scorecard
37www.exploreHR.orgCorporate and Division ScorecardCorporate and Division Scorecard• Division Scorecard is formulated by looking at the fourperspectives in Corporate Scorecard.• As shown in the previous slides, the learning & growthperspective provides guidelines for developing scorecard atthe Human Resource and IT divisions, while the internalprocess perspective provides guidelines for developingscorecard at the supply chain division or R&D.
38www.exploreHR.orgCorporate and Division ScorecardCorporate and Division ScorecardSample from GE Lighting Business GroupLevel of Organization Financial Customer Internal Process Learning & GrowthCorporate Scorecard Increase profit margin Improve customer Increase inventory turns Increase level ofsatisfaction level Improve internal process employee competencyDivision Scorecard Optimize cost of production Improve customer Increase inventory turns Increase level ofReduce inventory levels satisfaction level Improve internal process employee competencyPlant Scorecard Optimize cost of production Increase percent of Increase inventory turns Number of "on theIncrease yields ratio on time delivery Reduce number of defects job training" deliveredIncrease labor productivity Reduce customer per million Number of performanceReduce inventory levels complaints per million Improve quality incoming coaching sessionmaterialsMaintain optimum equipmentspeedFrontline Employee Reduce waste Reduce equipment downtime Number of "on theScorecard Reduce overtime Reduce number of poor job training" attendedIncrease production rates solders Number of performanceReduce number of cracked coaching sessionbulbs attendedThe above example shows how the scorecard at corporate level iscascaded to division level, and further to plant level and employee level.
39www.exploreHR.orgDivision Strategy Map TemplateDivision Strategy Map Template• The strategy map for HR Division, Information TechnologyDivision, Finance Division, and Marketing Division arepresented in the following slides.
41www.exploreHR.orgOptimize IT EfficiencyDrive Long termShareholder ValueEnhance IT Impact onEnterprise OutcomeMaintain aReliable ITInfrastructureDevelop Strategic &Functional IT CompetenciesDevelop EffectiveDecisionSupport SystemPropose and DeliverTransformationalApplicationsEnhance IT Tools thatEnhance the IT FunctionPromote Customer-focused CultureIT Strategy Map TemplateIT Strategy Map TemplateFinancialCustomerIT Internal ProcessLearning & GrowthDeliver Consistent, HighQuality IT ServiceProvide Business Units withInnovative IT Solutions
44www.exploreHR.orgRecommended Further Readings:1. Robert Kaplan and David Norton, Strategy Map : Converting IntangibleAssets into Tangible Outcomes, HBS Press2. Robert Kaplan and David Norton, Alignment : Using the BalancedScorecard to Create Corporate Synergies, HBS Press