Creating Alignment with Non-financial Performance Measures Neale O'Connor PhD, GDip(Acc), FCPA(Aust) Associate Professor National University of Singapore Email:
[email protected] Home page: www.nealeoconnor.com
1
Takeaway of This Session Why is measurement Important? Measurement, Management and Control – But need stories and decisions Strategy Alignment FWK • Focusing • Competitors • Customers
Systems Thinking • Visualizing • Strategy Map
Measurement • Formalizing • Implementation mistakes • Attributes • Development 2
Creating alignment with non-‐financial performance measures
• What do we have to do today?
• To get what we want tomorrow?
Visualizing, • System – role of Formalizing employees the System • Creating alignment with strategy (Long term)
Outcomes • Empowerment • Learning • Fun place to work • Word of mouth marketing
Decision • Employee skills, making attitude, teamwork (Problem • Customer behavior -‐ Solving) satisfaction (Short term)
Outputs • Low employee turnover • On-‐time delivery • Less Errors • Fast cycle time • Cheques processed • Customer return 3
Strategic Objectives
What is the BSC
Measurement
Systems Thinking
The Balanced Scorecard
♣ Strategic ♣ Learning ♣ Accurate ♣ Decision ♣ Making
♣ Objectives
♣ SMS ♣ GOAL
♣ Systems ♣ Thinking
♣ On-Time ♣ Decision ♣ Making
© Neale O'Connor 2010
♣ Measures
♣ Goal ♣ Alignment
4
What decision and/or story can this measure help with? Unmetric score - Facebook popularity, fans growth rate, posts vs engagement, Twitter, follower growth rate, proactive tweets, Average reply time (source: simpliflying.com)
Number one challenge among Chinese suppliers 2011 (n=644) Long term Issues are not big
Environmental / Rate of expansion Sustainability issues 0.31% (2) 0.93% (6) Currency Appreciation/ Paradigm shift / Fake Quick response to the market Depression Market uncertainty product 0.16% (1) 1.24% (8) 1.86% (12) 0.62% (4) Management Partnership Capital/ investment 1.24% (8) 0.16% (1) Feedback 1.71% (11) 0.16% (1) Quality improvement Poor economy/ Culture 1.86% (12) Go international inancial crisis 0.16% (1) 1.40% (9) 2.48% (16) Delivery & OM 2.33% (15)
Cost control Competition Sales growth HR & productivity Lower price & profit Product Development, R& D Technology innovation Brand building Maintain market share
Maintain market share 2.64% (17)
Cost control 28.42% (183)
Brand building 3.11% (20)
Poor economy/ financial crisis Delivery & OM
Paradigm shift / Market uncertain
Technology innovation 5.28% (34)
Quality improvement Capital/ investment
Competition 12.73% (82) HR & productivity 7.92% (51)
roduct Development, R& D
5.28% (34)
Go international
Currency Appreciation/ Depressio Management
Sales growth 11.80% (76)
Environmental / Sustainability iss
Lower price & profit 6.21% (40)
Fake product Rate of expansion
Touch screen manufacturer 6�
HR & Productivity – Labour turnover, Min wages etc ♣ COPYRIGHT © 2012 Neale G. O'Connor. www.ChinaSupplier1000.com All rights reserved.
Quick response to the market Feedback Partnership Culture
Major Challenges Facing Chinese Owned Factories April – September 2012 (n = 342)
Poor Economy 2.4% à 6%
Product Development 5% à 9%
Compe&&on 12% à 23%
Strategic Objectives
What is the BSC
Systems Thinking
Simulation Game
Case Example #1 CTI Ltd’s Incentive System Appendix A
© Neale O'Connor 2010
8
Case Study
Critical factors in CTI’s strategy CTI § Two factors were critical to CTI’s profit growth
strategy: ú Reliance on sales of higher margin products ú Cash collection.
§ Incentive plan change
ú With increasing introduction of new products and growth in sales –
these two factors drove CTI to change the incentive plan to direct management effort towards these objectives.
© Neale O'Connor 2010
9
Case Study
n
Situation n
n n
Introduction
Old incentive plan – sale bonus (up to 40%)… resulted in
Cash collection problemsà 6-‐10 months of sales in ACCREC New products were being developed with increasing numbers of
features that allowed CTI to gain higher margins from the units sold n
Other problems n n n
n
How to manage uncontrollable factors – market factors? How to encourage communication, teamwork, and managerial skill development?
Elaborate performance measurement and incentive plan introduced
© Neale O'Connor 2010
10
Case Study
n
Setting of this study Quotes on the incentive plan “We want people to be able to see everything. They should
not just be able to make sales, but should be able to motivate people, organize things strategically, putting down their thoughts into paper, think logically, and express themselves in a coherent fashion.”
© Neale O'Connor 2010
11
Case Study
Components of General multiple measure formula Bonus compensation formula = (Employees + 1) * (General formula) + (Direct sales formula) Direct sales formula = Products -‐ 50 cents per old product sold, 1.00 per new product sold. General formula = 5000 + (Points – 60) * 100
Points awarded according to Objective assessment formula and Objective (Financial) Measures (45 points)
Points awarded according to Subjective assessment and Objective (Non-‐Financial) Measures (30 points)
Points awarded according to Subjective assessment and Subjective measures (25-‐ 35 points)
Sales components - Cash collection (40)a - Relative branch office costs (5)a
Service level components - Execution of routine maintenance (5)b - Major incident complaint (10)b - Customer satisfaction survey (15)b
Management capability components - Regional office daily management (15) - Evaluation by VP – Teamwork, cooperativeness (10) - Evaluation by President and VP sales – proactive, innovative e.g., Making suggestions doing things beyond responsibility and solving difficult problems -‐ Bonus points (10)
© Neale O'Connor 2010
12
What is the BSC
Strategic Objectives
Measurement
Systems Thinking
Seminar Task
T
What is the Balanced Scorecard? Which of the following areas does your firm emphasize the most in communications?
LOW
MEDIUM
HIGH
-‐ Financial -‐ Customer -‐ Internal processes -‐ Learning & Growth
© Neale O'Connor 2010
13
What is the BSC
Strategic Objectives
Systems Thinking
Measurement
Managing the Balance
in measures, business system and internal and external components Financial
Revenue – Costs -‐ No control
Customer
Increasing amount of control over the business model
Product/Service attributes, Relationship, Image -‐ Low control over change -‐ Change can be fast = more attention
Internal Business Process
Increasing amount of attention that is typically given by management
– Innovation, Operations, Customer Service, Regulatory requirements - Medium control over change - Change can be fast (ie BPR)
Learning and Growth
– People (Skills, Satisfaction) -‐ Information system -‐ Organization culture (Norms & Values) - Highest control over change - Change takes longer = less attention © Neale O'Connor 2010
14
Strategic Objectives
What is the BSC
Measurement
Systems Thinking
The Balanced Scorecard – Benefits
Exhibit 2.7. Benefits to Adopters (Page 13)
Benefits to Adopters Ability to measure performance Increased communication Organizational alignment Ability to align employee behavior w ith strategy Understand measure and strategy cause and effect Ability to link performance to compensation Decreased costs Ability to make strategic decisions faster w ith better data Increased revenues Other 0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
% of Adopters
Source: Lawson, Raef, Hatch, Toby, & Denis Desroches, Scorecard Best Practices: Design, Implementation and Evaluation. Wiley 2008
© Neale O'Connor 2010
15
Strategy Alignment FWK • Focusing • Competitors • Customers 16
Strategic Objec&ves
What is the BSC
Measurement
Systems Thinking
How do we implement strategy? Strategy Formulation
1. Focusing
Competitors
SCA
2. Visualizing
3. Formalizing
Strategy Map-‐Business Model
MKT
Customer
Internal Processes
Learning & Growth
Balanced Scorecard
Customer OP
Initiatives
Action Plans
Measure (KPI)
Target
MKT OP HRM Rank
Action
Date
HRM
Strategy Execution
3. Formalizing
Cannot manage what you cannot measure Aligning (role clarity) Action controls (dos and don’ts) Results controls (incentives) © Neale O'Connor 2010
Communicating
People controls -Personnel -Culture
Formulation of actions + targets Action controls
Formulation of targets + rewards
-Behavioral Constraint (Locks) -Preaction Reviews (Budget setting) -Action Accountability (Standard operating procedures) -Redundancy
-Measure
Results controls -Targets -Rewards
MEASUREMENT Benchmarking , Memory, Learning
17
What is the BSC
Strategic Objectives
Systems Thinking
Measurement
1. Strategic Objectives What is the basis for success? What is the Sustainable Competitive Advantage (SCA)? ú
Implementation steps
ú
Why do we start with strategy? -‐ Direction of effort
ú
How do we implement?
Learn how to beat competitors and provide value to customer Develop consensus as to the priorities and initiatives to undertake in the short term (next 12 months)
© Neale O'Connor 2010
18
Takeaway of Tonight’s Session
Systems Thinking • Visualizing • Strategy Map 19
Strategic Objectives
What is the BSC
Systems Thinking
Measurement
2. Systems Thinking 系统考虑 What would success look like? ú
Use strategy map (systems thinking) to link long term success (strategy) to daily operational success
© Neale O'Connor 2010
20
2. Systems Thinking
Systems Thinking • Visualizing • Strategy Map • Connecting the Dots 21
Systems Thinking
Strategic Objectives
What is the BSC
Measurement
Strategic Theme: Customer Service at British Airways Net Yield per Revenue Passenger Kilometer
+ Willingness To Recommend
Departure on Time
+ Customer Satisfaction
Meal Rating
+ Check-in Service
+
+
+ Cabin Crew Service
+ Management Practices and Work Relationships
Employee Satisfaction
+ Leadership and Strategic Direction
+ Personal Development and Growth
Source: “Management Learning not Management Control: The True Role of Performance Measurement” A. Neely & M. Al Najjar, Californian Management Review, Spring 2006. Vol 38, No. 3, pp 101 – 113.
Systems Thinking
Strategic Objectives
What is the BSC
Measurement
Strategic Theme: Operations Management Rapid Ground Turnaround Time Balanced Scorecard
Strategy Map Process: Operation Management Theme: Ground Turnaround - - -
Profit and RONA Grow revenues
Measurement
Objectives Profitability Grow revenues Fewer planes
- - -
- Attract and retain more customers - Flight is on time - Lowest price
-
Mark value Seat revenue Plane lease cost
Action Plan
Target - - -
Initiative
Budget
30% CAGR 20% CAGR 5% CAGR
Fewer planes
Attract and retain more customers
On-time service
Lowest prices
Fast ground turnaround
Strategic job Ramp agent Strategic systems Crew scheduling
Ground crew alignment
#repeat customers - #customers -
FAA on-time arrival rating - Customer ranking
-
70%
-
Increase 12% annually - #1 -
#1
- Fast ground turnaround
- -
On-ground time On-time departure
- -
30 minutes 90%
- Develop the necessary skills - Develop the support system - Ground crew aligned with strategy
-
Strategic job readiness
-
Yr.1-70% Yr.2-90% Yr.3-100%
-
Info system availability - Strategic awareness - % ground crew stockholders
-
100%
-
100%
-
Implement CRM system - Quality management - Customer loyalty program
-
$XXX
-
$XXX
-
$XXX
- Cycle-time optimization
-
$XXX
-
Ground crew training
-
$XXX
-
$XXX
-
Crew scheduling system rollout -
$XXX
-
$XXX
- -
100%
Communication s program -
Employee Stock Ownership Plan
Adapted from: “The Strategic Focused Organization” Robert S. Kaplan, David P. Norton (2001)
Factors leading to failure of BSC at Philips Lighting § Fishbone diagram
No clear link to strategy
Unreliable
and untimely information
Information overload
FAILUR E
What is the BSC
Strategic Objectives
Measurement
Systems Thinking
A Strategy Map describes what you need to do to deliver competitive advantage • EXAMPLE – FAST FOOD RESTAYRANT
Financial
Profit
Customer
Customer Loyalty
Internal Business Process
Learning & Growth
Quality Food
Fast Service
Employee Skills & Attitude
What is the BSC
Strategic Objectives
Systems Thinking
Measurement
Strategic Themes (The “Strategies”!)
1. Drive Sales through fantastic coffee 2. Improve loyalty by providing a great customer experience 3. Improve margins by being an efficient business Format for a Strategic Theme – Desired “Business” Outcome [by the means to achieve it]
What is the BSC
Financial Results
Our Customers
Strategic Objectives
Our Business Process
Quick, Reliable & Friendly, ServiceDon’t Keep Customers Waiting
Offer a Great Coffee Sensation!
Standardize the New Coffee Making Process
Serve Customers
Facilities Management
Reduce Operating Costs as a % of Sales
Increase Operating Profit
Increase Sales Revenue
Increase Customer Loyalty – Get the Customers to Come Back!
Measurement
Systems Thinking
Buy a High-Tech Italian Coffee Machine
Modernize the Look of the Coffee Shop – Refurbish With Glass & Stainless
Supply Chain Management
Product Innovation
Change from Nescafe Instant to an Expensive Italian Blend
Move to Purchasing Raw Materials OnLine
Improve Inventory Management of Our Raw Materials – Cups, Milk etc
Our People Train Staff to get a Barista Qualification At www.coffeeshop.com.au
Develop a Customer-Focused Culture
Train Staff to Order On-Line
What is the BSC Theme 1: Drive Sales Financial Results Through Fantastic Coffee
Our Customers
Strategic Objectives
Our Business Process
Quick, Reliable & Friendly, ServiceDon’t Keep Customers Waiting
Offer a Great Coffee Sensation!
Standardize the New Coffee Making Process
Serve Customers
Facilities Management
Reduce Operating Costs as a % of Sales
Increase Operating Profit
Increase Sales Revenue
Increase Customer Loyalty – Get the Customers to Come Back!
Measurement
Systems Thinking
Buy a High-Tech Italian Coffee Machine
Modernize the Look of the Coffee Shop – Refurbish With Glass & Stainless
Supply Chain Management
Product Innovation
Change from Nescafe Instant to an Expensive Italian Blend
Move to Purchasing Raw Materials OnLine
Improve Inventory Management of Our Raw Materials – Cups, Milk etc
Our People Train Staff to get a Barista Qualification At www.coffeeshop.com.au
Develop a Customer-Focused Culture
Train Staff to Order On-Line
What is the BSC Theme 2: Improve Loyalty Providing Financial Rby esults a Great Customer Experience
Our Customers
Strategic Objectives
Our Business Process
Quick, Reliable & Friendly, ServiceDon’t Keep Customers Waiting
Offer a Great Coffee Sensation!
Standardize the New Coffee Making Process
Serve Customers
Facilities Management
Reduce Operating Costs as a % of Sales
Increase Operating Profit
Increase Sales Revenue
Increase Customer Loyalty – Get the Customers to Come Back!
Measurement
Systems Thinking
Buy a High-Tech Italian Coffee Machine
Modernize the Look of the Coffee Shop – Refurbish With Glass & Stainless
Supply Chain Management
Product Innovation
Change from Nescafe Instant to an Expensive Italian Blend
Move to Purchasing Raw Materials OnLine
Improve Inventory Management of Our Raw Materials – Cups, Milk etc
Our People Train Staff to get a Barista Qualification At www.coffeeshop.com.au
Develop a Customer-Focused Culture
Train Staff to Order On-Line
Strategic Objectives
What is the BSC
Theme Improve Financial 3: Results Margins by Being an Efficient Business Our Customers
Our Business Process
Quick, Reliable & Friendly, ServiceDon’t Keep Customers Waiting
Offer a Great Coffee Sensation!
Standardize the New Coffee Making Process
Serve Customers
Facilities Management
Reduce Operating Costs as a % of Sales
Increase Operating Profit
Increase Sales Revenue
Increase Customer Loyalty – Get the Customers to Come Back!
Measurement
Systems Thinking
Buy a High-Tech Italian Coffee Machine
Modernize the Look of the Coffee Shop – Refurbish With Glass & Stainless
Supply Chain Management
Product Innovation
Change from Nescafe Instant to an Expensive Italian Blend
Move to Purchasing Raw Materials OnLine
Improve Inventory Management of Our Raw Materials – Cups, Milk etc
Our People Train Staff to get a Barista Qualification At www.coffeeshop.com.au
Develop a Customer-Focused Culture
Train Staff to Order On-Line
What is the BSC Theme Drive Sales Financial R1: esults Through Fantastic Coffee
Our Customers
Strategic Objectives
Our Business Process
Reduce Operating Costs as a % of Sales
Quick, Reliable & Friendly, ServiceDon’t Keep Customers Waiting
Offer a Great Coffee Sensation!
Standardize the New Coffee Making Process
Serve Customers
Facilities Management
Increase Operating Profit
Increase Sales Revenue
Increase Customer Loyalty – Get the Customers to Come Back!
Measurement
Systems Thinking
Buy a High-Tech Italian Coffee Machine
Modernize the Look of the Coffee Shop – Refurbish With Glass & Stainless
Supply Chain Management
Product Innovation
Change from Nescafe Instant to an Expensive Italian Blend
Move to Purchasing Raw Materials OnLine
Improve Inventory Management of Our Raw Materials – Cups, Milk etc
Our People Train Staff to get a Barista Qualification At www.coffeeshop.com.au
Develop a Customer-Focused Culture
Train Staff to Order On-Line
Strategic Objectives What is the BSC Theme 2: Improve Loyalty Financial Results by Providing a Great Increase Sales Revenue Customer Experience
Our Customers
Increase Customer Loyalty – Get the Customers to Come Back!
Our Business Process
Reduce Operating Costs as a % of Sales
Increase Operating Profit
Quick, Reliable & Friendly, ServiceDon’t Keep Customers Waiting
Offer a Great Coffee Sensation!
Standardize the New Coffee Making Process
Serve Customers
Facilities Management
Measurement
Systems Thinking
Buy a High-Tech Italian Coffee Machine
Modernize the Look of the Coffee Shop – Refurbish With Glass & Stainless
Supply Chain Management
Product Innovation
Change from Nescafe Instant to an Expensive Italian Blend
Move to Purchasing Raw Materials OnLine
Improve Inventory Management of Our Raw Materials – Cups, Milk etc
Our People Train Staff to get a Barista Qualification At www.coffeeshop.com.au
Develop a Customer-Focused Culture
Train Staff to Order On-Line
Strategic Objectives
What is the BSC
Financial Results
Theme 3: Improve Margins by Being an Efficient Business Our Customers
Increase Sales Revenue
Increase Customer Loyalty – Get the Customers to Come Back!
Our Business Process
Measurement
Systems Thinking Increase Operating Profit
Reduce Operating Costs as a % of Sales
Quick, Reliable & Friendly, ServiceDon’t Keep Customers Waiting
Offer a Great Coffee Sensation!
Standardize the New Coffee Making Process
Serve Customers
Buy a High-Tech Italian Coffee Machine
Facilities Management
Modernize the Look of the Coffee Shop – Refurbish With Glass & Stainless
Supply Chain Management
Product Innovation
Change from Nescafe Instant to an Expensive Italian Blend
Move to Purchasing Raw Materials OnLine
Improve Inventory Management of Our Raw Materials – Cups, Milk etc
Our People Train Staff to get a Barista Qualification At www.coffeeshop.com.au
Develop a Customer-Focused Culture
Train Staff to Order On-Line
Measurement • Formalizing • Implementation mistakes • Attributes • Development 35
Non-‐financial performance measures: Customer Satisfaction with MTRC Train Services and Facilities
T
AIributes
Importance (0-‐10)
Enough space in carriages
Cleanliness and tidiness of carriages
Ventilation in trains
Reliability of Journey time
Waiting time at platform and frequency of services
Safety precaution and facilities
Announcements in trains – clear and useful to passengers
© Neale O'Connor 2010
36
Relation between Incentive Plan, Nonfinancial Measures, and Financial Performance +
LRETURN
+ REVENUE
+
Plan
PROFIT
-
COMPLNTS
-
COSTS
+ Nonfinancial Performance
Financial Performance
+ + + 37
1. Checklist of the criteria for excellent measures A. Does it have clear link to strategy? • Idea: design your measures at the same time you formulate your goals.
B. Is it owned by someone? • Idea: find a person who has enough authority to respond to the measure.
C. Can it be brought to life? • Idea: define the details (how to calculate it, how often and from which data) of bringing your measure to life to test its viability.
D. Are you able to track it regularly over time? • Idea: measure more frequently or find a lead indicator that you can measure more frequently.
38
1. Checklist of the criteria for excellent measures E. Does it give you more value than it costs? • Idea: remove waste and duplication from data collection and reporting, e.g. use sampling instead of measuring it all.
F. Do users understand it? • Idea: find the simplest measure that can convey the needed information.
G. Does it inspire the right behavior? • Idea: involve staff in designing the measures so they have more understanding and buyin. 39
Types of Measures / Indicators § Key Result Indicators ú Customer Satisfaction
Key Result Indicator
Performance Indicator
ú Profitability/campaign
§ Performance Indicators ú % Sales Increase ú % Campaign Conversion
§ Key Performance
Indicator Key Performance Indicator
ú Availability ú Delays in delivary ú Resolution on 1st touch
Source Key Performance Indicators. D. Pamenter
40
What is the BSC Financial Results
Strategy Map Our Customers
Strategic Objectives
Increase Customer Loyalty – Get the Customers to Come Back!
Measurement
Increase Operating Profit
Increase Sales Revenue
Our Business Process
Reduce Operating Costs as a % of Sales
Quick, Reliable & Friendly, ServiceDon’t Keep Customers Waiting
Offer a Great Coffee Sensation!
Standardize the New Coffee Making Process
Serve Customers
Facilities Management
Systems Thinking
Buy a High-Tech Italian Coffee Machine
Modernize the Look of the Coffee Shop – Refurbish With Glass & Stainless
Supply Chain Management
Product Innovation
Change from Nescafe Instant to an Expensive Italian Blend
Move to Purchasing Raw Materials OnLine
Improve Inventory Management of Our Raw Materials – Cups, Milk etc
Our People Train Staff to get a Barista Qualification At www.coffeeshop.com.au
Develop a Customer-Focused Culture
Train Staff to Order On-Line
Systems Thinking
Strategic Objectives
What is the BSC Financial Results
Sales x Product
Our Customers Sales Repeat Customers/ Total Sales %
Increase Customer Loyalty – Get the Customers to Come Back!
Our Business Process
Increase Operating Profit
Increase Sales Revenue
Offer a Great Coffee Sensation!
Facilities Management
Service Quality Index Quick, Reliable & Friendly, ServiceDon’t Keep Customers Waiting
Refurbishment Project (On Time, On Budget, On Spec)
Modernize the Look of the Coffee Shop – Refurbish With Glass & Stainless
Buy a High-Tech Italian Coffee Machine
Cleanliness Index
Supply Chain Management
Product Innovation
Reduce Operating Costs as a % of Sales
Standardize the New Coffee Making Process
Serve Customers Install Italian Coffee Machine (Y/N?)
Expenses/Sales %
NOPAT Net Operating Profit After Tax
Customer Satisfaction Survey Result
Non-Conformances to Standardized Coffee Making Process
Measurement
Change from Nescafe Instant to an Expensive Italian Blend
Move to Purchasing Raw Materials OnLine
% Materials Ordered On-Line
Number & Type of Stockouts
Improve Inventory Management of Our Raw Materials – Cups, Milk etc
Our People % Progress Barrista Training
Train Staff to get a Barista Qualification At www.coffeeshop.com.au
Develop a Customer-Focused Culture
Train Staff to Order On-Line
Staff Satisfaction Survey
% Staff Trained On-Line Ordering
Common Mistakes Firms Make in Measuring Non-‐ financial Performance 1
2
Strategy Maps – Link Measures with Strategy
Validate the Links
© Neale O'Connor 2010
3
Choice of Measures – Avoid Overload
5
4
Right Targets
Measurement , Weighting
& Updating
43
Your Challenge § Take a look at a sample of measures your
organisation has now, and work out which are tracking activities, which are tracking outputs and which are tracking outcomes. See if there is a sensible cause-effect relationship between them.
44
Creating alignment with non-‐financial performance measures
• What do we have to do today? Visualizing, Formalizing the System (Long term) Decision making (Problem Solving) (Short term)
• To get what we want tomorrow?
• System – role of employees • Creating alignment with strategy
Outcomes • Empowerment • Learning • Fun place to work
• Employee skills, attitude, teamwork • Customer behavior satisfaction
• Low turnover Outputs • On-time delivery • Less Errors • Fast cycle time • Cheques processed • Customer return • Word of mouth marketing
45
Takeaway of This Session Why is measurement Important? Measurement, Management and Control – But need stories and decisions Strategy Alignment FWK • Focusing • Competitors • Customers
Systems Thinking • Visualizing • Strategy Map
Measurement • Formalizing • Implementation mistakes • Attributes • Development 46
Strategic Objectives
What is the BSC
Measurement
Systems Thinking
The Balanced Scorecard
♣ Strategic ♣ Learning ♣ Accurate ♣ Decision ♣ Making
♣ Objectives
♣ SMS ♣ GOAL
♣ Systems ♣ Thinking
♣ On-Time ♣ Decision ♣ Making
© Neale O'Connor 2010
♣ Measures
♣ Goal ♣ Alignment
47
Strategic Objectives
What is the BSC
Systems Thinking
Simulation Game
Case Example #2 Xinan JV Balanced Scorecard System Appendix A © Neale O'Connor 2010
48
Case Study
Xinan JV -‐ Two Challenges 1. Product development à Pharmaceutical Market reform by the Chinese government, through the State Drug Product Council.
2. Sales manager development à Sales force had an “old Chinese way of thinking” (short term) mindset.
© Neale O'Connor 2010
49
Case Study
Xinan JV -‐ Product development
1.
Reduced drug prices à Reforms in the Chinese pharmaceutical market, such as the reduction of drug prices of between 30% to 50% across the board,
2.
Increased competition à Introduction of tendering in hospitals, which increased the competition for the supply of drugs. For example, local generic product manufacturers were bidding between 30% and 50% below Xinan JV’s price.
3.
Speed up the development of new products à This served as a wake-‐up call for Xinan JV, which had an aging portfolio of products that were largely protected from competition, and the challenge for the company was to speed up the development of new products.
© Neale O'Connor 2010
50
Case Study
Xinan JV -‐ Sales manager development 1. “old Chinese way of thinking” mindset à Fail to develop customer relationships à Lack of motivation to develp product knowledge Faced with these two challenges, Xinan JV set up an action plan that focused on the development and management of its intangible assets. This included the development of new products and the restructuring and development of the skills of its sales managers.
© Neale O'Connor 2010
51
Case Study
Xinan JV -‐ Balanced Scorecard Implementation (2002) § Objective p
p
Strategy -‐ Making medicine accessible – To be a leader in China branded generic business in 5 years time. Improve communication and control over strategy and the associated objectives and initiatives
© Neale O'Connor 2010
52
Case Study
Productivity Strategy
Financial
F2. Operating margin: 10%
Customer – Desired marketplace outcomes – Customer benefits Internal – Internal DoWell’s
F3. ROCE: 5%
Growth Strategy
F1. Revenue increase annual growth rate: 10%
M1. Increase market share
M2. Build strong brand image
M3.Competitive prices
M4. Attractive core product portfolio (AB, CV, GI, CNS,OTC,etc.)
M5. Enhance Gov. relationship
M6.High service level
Innovation Processes I2. Portfolio selection, speedy registration & launch I3. Reengineering R&D capability
Learning and Growth – Competencies , culture, systems
Long-Term Shareholder Value
Human Capital L1. Up-grade skill of employees
© Neale O'Connor 2010
Customer Management Processes I4. Restructure sales & marketing team I9. Tender management I5. Improve customer relation
Information Capital L4. ERP system (2003)
Operation Management Processes I1. Improve cost of goods I7. Improve internal operation I6. GMP updgrading I8. National HR Policy & management
Organizational Capital L3. Commitment & Result Orientated Culture L2. Improve internal & external communication
53
Case Study
Problems in implementing the balanced scorecard
1.
Training and participation
2.
Frequent reviews
3.
Contingency plans were difficult to show
© Neale O'Connor 2010
54
Why is measurement important? Measurement, Management and Control Stories and decision making The Balanced Scorecard • Strategy • Systems thinking • Measurement 55
