1. Introducing Global Standards to Build a Strategy-
Based Culture at Bank of Tokyo-Mitsubishi
BSCol North American BSC Summit Presentation
October 7-10, 2003
Takehiko Nagumo, VP, Corporate Planning Group, Planning Office
for the Americas, HQA
Balanced Scorecard Collaborative, Inc. • 55 Old Bedford Road • Lincoln, MA 01773 • Tel: 781.259.3737 • Fax: 781.259.3389 • bscol.com

2. Discussion Topics
• Background and Context
– Overview of BTM for the Americas
– Japanese and American corporate culture
• The Balanced Scorecard design and re-design process
– Initial Design: Taking a “bottom up” assessment
– Re-Design: Re-aligning strategy from the “top down”
• Implementation: Linking the BSC to key programs
– COSO-based control self-assessment
– HQA committee structure
– Regional banking network
• Key takeaways
2

3. BTM Overview: The NY-based regional headquarters of BTM, BTM HQA manages
Overview
one of the largest foreign-owned wholesale banking businesses in the Americas.
• BTM is the largest subsidiary of Mitsubishi
Tokyo Financial Group, a bank holding
company listed on the Tokyo, Osaka, NY
and London stock exchanges.
• Formed in 1996 by the merger between
Bank of Tokyo and Mitsubishi Bank, BTM is
•Subsidiary: 6
a leading Japanese bank providing retail,
•Branch/Agency: 8
commercial, and investment banking
products and services. •Loan Production Office: 2
•Rep Office: 2
• BTM operates in 44 countries and
territories with more than 350 offices
located in all of the major commercial
centers of the world.
• In the Americas region, BTM focuses on
•Subsidiary: 4
wholesale banking business with 11
•Branch: 3
branches/agencies, 10 subsidiaries, 2 loan
•Rep Office: 4
production offices, and 4 representative
offices.
3

4. BTM for the Americas Organizational Structure
Level I
BTM for the Americas
BTM for the Americas
[Enterprise Level]
[Enterprise Level]
Business
Business Business
Business Business
Business
Business
Level II
Business Unit 2:
Unit 2: Unit 3: Unit 4:
Unit 1: Unit 3: Unit 4:
Unit 1: Global
Global
Corporate
Corporate Investment
Investment Corporate
Corporate
Treasury
Treasury
Banking
Banking Banking
Banking Center
Center
Division 1
Division 2
Division 2
Division 3
Division 1
Division 3
Division 1
Division 2
Division 3
Division 1
Division 2
Division 3
Level III
Level IV
Groups Groups Groups Groups
4

5. Why Introduce the BSC at BTM? - BTM needed a modern corporate governance
framework to cope with 7 major organizational challenges.
7 Major Challenges
Diversified Cultures Expatriate vs. Local
4 Business Units housed in a single legal entity, each reporting
Complex Organization
independently to respective Head Office in Tokyo
Sub-Optimized Network Centralized direction vs. Local Autonomy
Tug-of-War Misalignment between business promotion and credit approval
Red Tape Ambiguous goal-setting in support and oversight functions
Bottleneck Insufficient communication along the supply chain
Accountability Insufficient internal controls in some areas
5

6. What is Strategy for BTM?: In many ways, BTM’s Headquarters for the Americas
(BTM HQA) represents the merging of two distinct cultures.
Japanese companies American companies
Vague Mission and Vision Defined
Incremental Strategy Formulation Process Grand Design
Operational Efficiency Competitive Edge Differentiation / Uniqueness
Bottom Up
Decision Making Top Down
(or Middle-Up-Down)
Implicit / Nonverbal / Closed Communication Style Explicit / Verbal / Open
Process Orientation Performance Evaluation Outcome Orientation
Diversified Culture /
Single Culture / Cooperative Work culture
Competitive
Adapted from “Essence of Failure,” by I. Nonaka
6

7. BSC Initiative at BTM: BTM adopted the Balanced Scorecard to create strategic
BTM
alignment, improve risk management, and enhance corporate governance.
Balanced Scorecard Vision at BTM
• Clarify and articulate strategy at Strategy Execution Level
multiple levels in the organization.
• Integrate risk control framework into High
the Balanced Scorecard. Good
Corporate
Governance
• Use measurement to ensure greater
accountability and promote
collaboration.
• Enhance internal and external
communication of the BTM strategy.
Low
• Link compensation and performance Low High
evaluation to strategy.
Risk Management Level
7

8. Program Timeline: BTM first attempted“Bottom-up”approach, but soon shifted to
Timeline
“Top-down.” Now, everyone has a strong sense of BSC ownership.
3Q01 4Q01 1Q02 2Q02 3Q02 4Q02
Soul Searching Awakening Alignment Test Run First Reporting Improvement
“Strategy “Strategy is “Good. But
“What is our “See if it “OK. Let’s try
should be everybody’s some metrics
strategy?” works…” new version”
Top Down!” job!” are weak…”
Internalize
Make Our
Measure
Own Balanced
performance
Scorecards
Review
Socialize
Cascade
Advisory support from BSCol consultants
CEO’s Completed Discuss
strategy Balanced Improvements
(Top Down) Scorecards
Externalize Combine
Link to Many facilitated
existing discussion sessions
processes
Map your Determine and
Externalize
strategy map CEO’s
New Ideas
(Bottom Up) strategy
8

9. Program Timeline: Now, BTM’s BSC is moving toward a new stage:
Timeline
globalization - Tokyo and UK are conducting a feasibility study on BSC.
1Q03 2Q03 3Q03 4Q03 • Tokyo Head Office
Tokyo Head Office
Expansion Accomplishment Going Global
has established a
has established a
BSC Project Team at
BSC Project Team at
corporate level
corporate level
“Let‘s apply “We have “Recommend The BSC story
BSCs in Latin become an BSCs to HO” Continues….
America” SFO!” • The European
The European
Headquarters has
Headquarters has
Internalize
started a feasibility
started a feasibility
BSC as our Feel the study on BSC.
study on BSC.
common cultural
language change
• BTM has started a
BTM has started a
Socialize
Moving onto a new project to
new project to
new stage: enhance linkages
enhance linkages
Globalization between BSC and
between BSC and
CSA.
CSA.
Externalize Combine
Complete the
Enhance BSC-
new BSC-CSA
CSA linkages
approach
• BTM is developing
BTM is developing
its proprietary BSC-
its proprietary BSC-
CSA application
CSA application
software
software
9

10. Initial BSC Design Process: The initial bottom-up approach revealed the need for
Process
greater consistency and improved horizontal and vertical alignment.
Strategy Theme：Increase in Net Income Through Increased
Transaction Volume
Financial Increase in Net
Ex
am
• Over 30 groups and
Income through
Increased Transaction
pl
e
departments built
Increase in Fee
Volume
Increase in Interest
Revenue from
strategy maps (like
Revenue
Deposit
these) within a 30 day
Customer period.
Ability to
Recognition Ability to Secure
Accurate
Process-
as a Stable
Source of
Competitive
Pricing
Provide
Account
Information
Liquidity on
Profitable Terms
• Only a handful of
ing Credit Promptly employees in the
Internal Process organization had
Align to
Study
Promote
STP
Build
Relationships
experience building
Strategy of
Improve
Operation
Credit
Divisions
Competitors’
Pricing
Improve
Operation
Collaborate
with Industry
Counter-
Balanced Scorecards.
with Bene.
in Charge Trends System parties
Learning & Growth
Develop and
• In many cases,
Rationalize/
Streamline
Organization
Retain
Experienced
individuals worked
Re-engineer
Operation
Structure for Global
Correspondent
Align Individuals’
Assignments to the
Staff
Members
independently to
center Overall Strategy
Banking Business
complete the exercise.
10

11. Initial BSC Design Process: While the initial effort to design scorecards
Process
demonstrated a lot of progress, several key gaps in alignment were apparent.
Observations Decisions
• Beyond the four perspectives, the • Re-build maps from the top-down.
scorecards lacked a unifying structure.
• Focus on a high-level story of the
• The expression of cause and effect strategy (Strategy maps should describe
through arrows created confusion. cause and effect generally, not
precisely).
• On most strategy maps, the internal
perspective lacked a sufficient • Re-group or re-define objectives
description of the key processes according to a limited number of
required for success. themes.
• The interdependencies between groups • Categorize objectives according to topic
was not clear on the scorecards, and organize them according to type –
suggesting the need for making common, shared, or unique.
horizontal alignment more explicit on the
strategy maps.
11

12. BSC Re-Design Process: To align the organization vertically, BTM established a
Process
strategic foundation upon which all scorecards would be built.
BTM Strategy Map Foundation
BTM Strategy Map Foundation
Increase Net Income
Increase Net Income
Category #1:
Category #1: Category #2:
Category #2: Category #3:
Category #3:
Financial
Financial
Revenue
Revenue Ris k
Ris k Eff iciency
Eff iciency
••Interest Income
Interest Income ••Credit Costs
Credit Costs ••Reduce Costs
Reduce Costs
••Non-Interest Income
Non-Interest Income ••Litigation Costs
Litigation Costs ••Incr ease Pr oductivity
Incr ease Pr oductivity
Customer: Internal // External (Descr iption)
Customer: Internal External (Descr iption)
Category #1:
Category #1: Category #2:
Category #2: Category #3:
Category #3:
Customer
Customer
Relationship
Relationship Product
Product Service
Service
••Understanding customer needs
Understanding customer needs ••Features
Features ••Timely
Timely
••Being a trusted advisor
Being a trusted advisor ••Price
Price ••Accurate
Accurate
Theme #1:
Theme #1: Theme #2:
Theme #2: Theme #3:
Theme #3:
GROW REVENUE
GROW REVENUE MANAGE RISK
MANAGE RISK ENHANCE
ENHANCE
PRODUCTIVITY
PRODUCTIVITY
Internal Process
Internal Process
•• Customer Relationships
Customer Relationships •• CO SO Self-Assessment
CO SO Self-Assessment
•Cross-selling eff orts
•Cross-selling eff orts •• Regulatory Risk
Regulatory Risk •• Reengineering
Reengineering
•• Market Research
Market Research •• Technology Risk
Technology Risk •• IIT Init iatives
T Init iatives
•• Etc.
Etc. •• Etc.
Etc. •• Q ualit y Control
Q ualit y Control
•• Etc.
Etc.
Human
Category #1: Category #2: Category #3:
Capital
Human
Category #1: Category #2: Category #3:
Capital
Skills
Skills Work Environment
Work Environment Com pe ns ation
Com pe ns ation
••Tr aining, sucession planning, etc.
Tr aining, sucession planning, etc. ••Ethics, culture, etc.
Ethics, culture, etc. Pay-for -performance, etc.
Pay-for -performance, etc.
12

13. BSC Re-Design Process: In revising their strategy maps, each group defined its
Process
strategic objectives according to bank-wide themes, categories, and types.
Key steps:
1. Referring to the BTM strategic foundation (on the preceding page) as a starting point,
each group created a customized version according to how its goals align to the
themes and categories defined in the foundation.
2. Each group discussed and agreed upon how to express its strategic objectives within
this framework. (For each perspective, questions were provided in a workbook to
guide answers.)
3. Each group re-built its strategy map so that its objectives corresponded to the strategic
themes and categories defined on the foundation page. Objectives were depicted in
three types of ovals:
Type Definition Example
Bank-wide objectives, mandated throughout the “Enhance cost efficiency” (financial
Common organization on every scorecard perspective objective)
Inter-divisional objectives shared between two or more “Streamline credit approval process”
Shared units expected to cooperate in order to achieve the result (internal perspective operational
efficiency objective)
Intra-divisional objectives describing an activity expected “Maintain know your customer files”
Unique to be fulfilled independently by that group (internal risk management theme
objective for Treasury)
13

14. BSC Re-Design Process: Using the strategic foundation, strategy maps were re-
Process
built from the top-down. Interdependent groups shared objectives.
Increase net income
Increase net income
Financial
Perspective
Maximize
Maximize
Increase fee
Increase fee income from
income from Minimize
Minimize
Enhance
Enhance
cost
cost
Sample
Sample
income
income core
core credit costs
credit costs efficiency
efficiency
customers
customers
Strategy Map
Strategy Map
Customer Be #1 foreign Provide Provide
Perspective Be #1 foreign Be a reliable Provide Provide
wholesale Be a reliable global speedy and
wholesale source of global speedy and
bank in the source of network accurate
bank in the credit network accurate
Americas credit banking service
Americas banking service
Grow Revenues
Grow Revenues Manage Risk
Manage Risk Enhance Productivity
Enhance Productivity
Tie-up between
Tie-up between
business strategy
business strategy Execute major
Execute major
and risk appetite
and risk appetite Bankwide common objective
technology and
technology and
Strategically
Strategically Proactive risk
Proactive risk efficiency projects
efficiency projects
focus on regional
focus on regional management and
management and
Internal opportunities
opportunities compliance
compliance
Process Enhance
Enhance
Perspective Close
Close collaboration
collaboration
Enhance risk
Enhance risk
collaboration
collaboration throughout
throughout
management in
management in Objective unique to GCBU
between RMs
between RMs supply chain
supply chain
Latin America
Latin America
and POs*
and POs*
Enhance disaster
Enhance disaster
Segmentation
Segmentation Streamline credit
Streamline credit
recovery/business
recovery/business
and tier up
and tier up approval process
approval process
continuity plan
continuity plan
Predetermined shared objective
Human Provide
Provide Competitive
Competitive
Develop
Develop
Capital training on
training on environment:
environment: Competitive
Competitive
succession
succession
Perspective plan
credit and
credit and teamwork,
teamwork, compensation
compensation
plan products safe and fair
products safe and fair
14

15. Implementation – Linking COSO to the BSC: With strategies clearly articulated,
BSC
BTM integrates COSO-based risk management framework into BSC.
Strategy-Risk Management Double Loop • Once BTM articulated the strategy for all
levels of the organization from the top-
down, it became easier to identify and
Proactive Risk
Proactive Risk assess risks associated with
Management and
Management and
Compliance
Compliance
implementing strategy.
Corporate level
• COSO-based control risk assessment
(CSA) was introduced on a bankwide
Cascading Aggregating basis to proactively manage risks
Strategy Risk derived from the strategy execution
BU level
(Top-down) (Bottom-up) process. This process was adopted as a
bank-wide common objective called
“Proactive Risk Management and
Division 1 Compliance” in Balanced Scorecards.
Division 2
• CSA was conducted at the lowest
organization level and CSA results were
aggregated from the bottom.
Division 3
• The BSC-CSA linkage created a
Strategy-Risk management double loop
for BTM.
15

16. Implementation – Linking COSO to the BSC: Risks in the strategy execution
BSC
process are proactively identified and controlled through COSO-based CSA.
Goals &
Goals & Performance
Performance
Execution Process
Execution Process
Objectives
Objectives Evaluation
Evaluation
Financial COSO-Based CSA: Financial
• Business environment risk
Customer Customer
• Legal and compliance risk
• Data security risk
Internal Process: Internal Process:
• Technology risk
“Grow Revenue” “Grow Revenue”
“Manage Risk” • Business continuity risk “Manage Risk”
“Enhance Productivity” “Enhance Productivity”
• People risk
Human Capital • etc. Human Capital
Feedback
16

17. Implementation – Linking Compensation to the BSC
• Linking compensation to the BSC, of
which COSO is a key strategic priority,
encourages all employees to consider Business Risk
the balance between business and
risk. BSC COSO
• One powerful metric being used is
“share of issues identified by business
lines”, which has a target of 50%.
This metric immediately had the effect
of making the business lines
proactively identify risks they had Compensation
Compensation
previously ignored or waited to react
to. The associated metric “share of Reward
issues closed during period” (target:
100% by deadline) is now forcing The idea of linking COSO to the Balanced
quicker resolution of risk issues. Scorecard is considered unique among
financial institutions – even in the United States
17

18. Implementation – Committees: Major meetings were not explicitly linked to strategy;
Committees
now they are clearly linked to the strategic themes and goals of the organization.
Discussions at all major periodic management meetings focus on relevant areas of the
scorecard; all areas are reviewed quarterly at the Business Strategy Committee meeting.
Committee Business Monthly Operations Bankwide Credit Risk Human
Compliance IT Steering
Strategy Profit Control Risk Mgmt Mgmt Resources
Theme Committee Committee
Committee Review Committee Committee Committee Committee
Frequency Quarterly Monthly Monthly Monthly Monthly Quarterly Monthly Quarterly
Financial
Customer
Grow Revenues
Manage Risk
Improve
Productivity
Human Capital
18

19. Implementation – Rollout to Branches: BTM HQA has already begun cascading
Branches
its scorecards by business area to the branches.
• Balancing centralized HQA
business policy and local Financial
Perspective
autonomy at branches 60%
60%
– HQA determines objectives and
weighting of emphasis by Customer
Perspective 5%
5%
perspective.
Grow
Grow Manage
Manage Enhance
Enhance
– The predetermined objectives revenues
revenues risk
risk Produc-
Produc-
and weighting work as “rules of Internal
tivity
tivity
the game” for branches to Process
Perspective
compete among each other.
30%
– Branches have autonomy to
select metrics and weighting /
emphasis within perspective.
Human
• Weighting may change over time – Capital
Perspective 5%
5%
depends on business environment
19

20. Key Takeaways (1 of 2)
Key Challenge Resulting Changes and Improvements
• BTM successfully articulated and communicated its strategy to
Diversified Culture both cultures (multicultural environment).
Complex • Through the BSC Initiative, the CEO’s strategy for the Americas
Organization was clearly cascaded down to all areas of the organization
beyond the organizational boundary and shared among
employees.
Sub-Optimized • Rollout to branches helps clarify which items should be governed
Network centrally versus locally.
• The vertical and horizontal alignment promoted cooperation
between the business promotion side and the credit approval
Tug-of-War side – parties that were formerly isolated. This increased efforts
to make service to the customer more consistent.
20

21. Key Takeaways (2 of 2)
Key Challenge Resulting Changes and Improvements
• Support and oversight functions (HR, audit, credit examination,
etc.) are now familiar with quantitative approaches to managing
Red Tape performance. They are more focused on the bottom line, and
senior management has better control over what they are doing.
• Front, middle, and back offices cooperated more proactively to
Bottleneck enhance productivity and minimize operational errors.
• Employees realize that performance against strategy has to be
Accountability measured and rewarded – Balanced Scorecard is not just a
conceptual exercise.
21