Balanced Scorecard

Building Strategy Focused Organizations
with the Balanced Scorecard
Dr. Robert S. Kaplan

Marvin Bower Professor of Leadership Development
HARVARD BUSINESS SCHOOL
and
Chairman
BALANCED SCORECARD COLLABORATIVE
The Balanced Scorecard:
A Good Idea in 1992
Balanced Scorecard in 1992
“The Balanced Scorecard –

Measures that Drive
Performance”
Harvard Business Review,
1992
©2002 Balanced Scorecard Collaborative, Inc and Robert S. Kaplan. All rights reserved. 2
The Balanced Scorecard:
A Great Idea by 2002
Balanced Scorecard by 2002
21 translations
17
translations
50% usage in Fortune 500

Harvard Business Review “Hall of Fame”
50,000+ BSC on-line members
Balanced Scorecard Hall of Fame Implemented
Strategies and Achieved Breakthrough Results… Fast
Mobil
Saatchi & Saatchi • Last to first ATT Canada
3 years • Cash flow +$1.2b 3 years
• ROI 6% --> 16%
+ $2b + $7b
2-5 years
Cigna Brown & Root

2-5 years 3 years
• #1 in growth &
+ $3b profitability
City of Charlotte Duke Children’s

3 years 3 years
• Customer Satisfaction = 70% • Customer Satisfaction #1
• Public Official Award • Cost/Case 33%
Southern Garden Wells Fargo

3-5 years 3 years
• # Customers 450%
• Least Cost Producer • Best Online Bank
2 years
Chemical Bank UPS

3 years Hilton Hotels 2 years
• Revenues 9%
• 99% Merged Target
Asset Retention • Customer Satisfaction • Net Income 33%
• Market Revenue Index
Question:
Question:
How Answer:
Answer:
Howcan
cancomplex
complexorganizations
organizations
achieve
achieve results likethis
results like thisininsuch
short periods of time?
short periods of time?
such Alignment!
Alignment!
The Balanced Scorecard process allows an organization
to align and focus all its resources on its strategy
BUSINESS UNITS EXECUTIVE TEAM

STRATEGY
HUMAN RESOURCES INFORMATION

TECHNOLOGY
BUDGETS AND CAPITAL

INVESTMENTS
A Gap Exists Between Mission-Vision-Strategy and
Employees’ Everyday Actions
MISSION
Why we exist
VALUES
What’s important to us
VISION
What we want to be
STRATEGY
Our game plan
TOTAL QUALITY MANAGEMENT

What we must improve
EMPOWERMENT / PERSONAL OBJECTIVES

What I need to do
The Balanced Scorecard Links Vision and Strategy to
Employees’ Everyday Actions
MISSION
Why we exist
VALUES
What’s important to us
VISION
What we want to be
STRATEGY
Our game plan
BALANCED SCORECARD
Translate, Focus and Align
STRATEGIC INITIATIVES
What are the priorities
TOTAL QUALITY MANAGEMENT
What we must improve
EMPOWERMENT / PERSONAL OBJECTIVES
What I need to do
STRATEGIC OUTCOMES
Satisfied Delighted Efficient and Effective Motivated & Prepared

SHAREHOLDERS CUSTOMERS PROCESSES WORKFORCE
The Principles of a Strategy-Focused Organization
TRANSLATE EXECUTIVE
STRATEGY LEADERSHIP
• Mission / Vision • CEO Sponsorship

• Strategy Maps • Executive Team Engaged
• Balanced Scorecard • “New Way of Managing”
• Targets • Accountable for Strategy
BALANCED • A Performance Culture
• Initiatives SCORECARD
ORGANIZATION CONTINUAL
ALIGNMENT PROCESS
• Corporate Role • Linked to Budgeting
• Corporate - SBU • Linked to Ops. Mgmt.
• SBU - Shared Services • Management Meetings
• External Partners EVERYONE’S • Feedback System
JOB • Learning Process
• Strategic Awareness
• Goal Alignment
• Linked Incentives
#1 Principles of the Strategy Focused Organization:
TRANSLATE THE STRATEGY TO OPERATIONAL TERMS
The Strategy
Financial Perspective
Measurement is the "If we succeed, how will

we look to our
language that gives clarity shareholders?”
to vague concepts.
Customer Perspective
"To achieve my vision,
Measurement is used to how must I look to my
customers?”
communicate, not to
control. Internal Perspective
"To satisfy my customer,
at which processes must
I excel?”
Building the scorecard
develops consensus and Organization Learning
teamwork throughout the "To achieve my vision, how
organization must my organization learn
and improve?”
The Complete Balanced Scorecard Strategy Map
Improve Shareholder Value
Financial Productivity Strategy Shareholder Value Revenue Growth Strategy
ROCE
Perspective:
the drivers of Improve Cost Create Value from
Increase Asset Enhance Customer
shareholder Structure Utilization Value New Products &
Services
value Customer
Cost per Unit Asset Turnover New Revenue
Profitability Sources
Market and Account Share Customer Acquisition Customer Retention Customer Satisfaction
Customer Product Leader
Perspective: Customer Solutions
the
Customer Value Proposition Low Total Cost
differentiating
Product/Service Attributes Relationship Image
value
proposition Price Quality Time Function Service Relations Brand
Internal Customer
Perspective: Operations Theme Innovation Theme Regulatory and
Management Society Theme
how value is Theme (Processes that (Processes that
Create New
created and (Processes that Produce (Processes that
Products and
Improve the
and Deliver Products Enhance Customer Environment
sustained & Services) Value) Services) and
Communities)
Learning & Growth

Human, Information, and Organizational Capital
Perspective: role for
intangible assets – Strategic Strategic Climate for
people, systems, Competencies Technologies Action
climate and culture
Mobil NAM&R Strategy Map
Increase ROCE to 12%
Financial Revenue Growth Strategy ROCE Productivity Strategy
Net Margin (vs. industry)
Perspective
New Sources of Increase Customer
Become Industry Maximize Use of
Non-Gasoline Profitability Through
Cost Leader Existing Assets
Revenue Premium Brands
T Non-Gasoline T Volume vs. Industry T Cash Expense (cpg) T Cash Flow
Customer Revenue & Margin T Premium Ratio vs. Industry
Perspective “Delight the Consumer” “Win-Win Dealer Relations”
Basic Differentiators T Dealer Profit
T Share of
Growth
Targeted T Clean More Help Develop
Segment Speedy Friendly Helpful Recognize T Dealer
T Safe Consumer Business Satisfaction
T Mystery T Quality Product Purchase Employees Loyalty
Products Skills
Shopper T Trusted Brand
Score
“Build the Franchise” “Increase Customer Value” “Achieve Operational Excellence” “Be a Good Neighbor”
Understand Improve Improve
Create Consumer Hardware Inventory
Non-Gasoline Segments Performance Management Improve
Products & Environmental,
Internal Services T Yield Gap T Inventory Health and
T Unplanned Levels
Perspective Downtime T Run-Out Rate
Safety
Best-In-Class
T New Product Franchise On-Spec Industry Cost
Acceptance Rate Teams On-Time Leader T Environment
Incidents
T Dealer Quality T Activity Cost T Safety Incidents
Rating vs. Competition
A Motivated and Prepared Workforce

Climate for Action Competencies Technology
Learning & • Aligned • Functional Excellence • Process Improvement
Growth • Personal Growth • Leadership Skills
• Integrated View
Perspective
T Personal BSC T Strategic Skill T Systems Milestones
T Employee Feedback Coverage Ratio
New Source of Revenues and Customer Loyalty
Attractive Convenience Store
The Balanced Scorecard Framework Is Readily Adapted to
Non-Profit and Government Organizations
The Mission
"If we succeed, how will ”To achieve our vision,

we look to our how must we look to
taxpayers (or donors)?” our customers?”
“To
“To satisfy
satisfy our
our customers,
customers,
financial
financial donors
donors and
and mission,
mission,
what
what business
business processes
processes
must
must we
we excel
excel at?"
at?"
“To
“To achieve
achieve our
our vision,
vision, how
how
must
must our
our people
people learn,
learn,
communicate,
communicate, and
and work
work
together?”
together?”
The Mission, rather than the financial / shareholder objectives,

drives the organization’s strategy
Boston Lyric Opera Strategy Map
Our mission is to ensure the long-term future of opera in Boston and New England by (1) producing the highest quality professional productions of diverse opera
repertoire that are artistically excellent as well as musically and theatrically innovative; (2) developing the next generation of opera talent; (3) engaging and educating
a diverse community about opera to become enthusiastic audience members, educators, supporters, and volunteers.
(HBS Case #9-101-111)
Supporters/Subscribers National/International Opera Scene Community
Target Focus on Build Artistic Launch Unique Focus on

CUSTOMER Generous and Loyal Board Reputation Residency
Present
Promote
Build
Educ./Comm.
Diverse Community
Contributors/ Investment and for High Program for Collaborations Programs for
Repertory Support
Prospects Recruitment Standards Artists Greater Boston
Enhance Customer Relationships Insure Operational Excellence Increase Brand Awareness

INTERNAL
BUSINESS
Streamline Develop Develop Develop
PROCESSES Ticketing/Gift
Increase Improve
Web-based
Contract
Innovation
Increase Cost Launch
New
One-on-One Board Support “Best” Efficiency/Quality Comprehensive
Acknowledgement Service/ Review Products/
Contact Systems Talent Assurance PR Campaign
Processes Products Process Program
Develop Strategic Job Competencies Strengthen Strategic Alignment Build Growth-Enabling Infrastructure
LEARNING
AND Provide Leverage Board Develop
Incorporate Invest in
Develop
GROWTH Staff with Effectiveness with Strategic Create Administrative
Milestone Strategic
Skill Education and Communications HR Plan Residency
Evaluations Technologies
Training Fundraising Training Plan Program
Fiscal Health Growth Planning
FINANCIAL Systematize Build

Create
Develop Institutionalize
Increase Long-Term
Financial Multi-Year Realistic Multi-Year
Revenue Investment
Processes Support Pro Formas Budgeting
Strategy
Medical Readiness for the Transformed Army
Mission
Core Competencies
Protect and Sustain A Healthy and Medically Protected Force
Deploy a Trained and Equipped Medical Force that Supports Army Transformation
Stakeholder
Manage the Care of the Soldier and Military Family
Performing Our Home

Battlefield
Internal Process
Mission in Any
Environment Station
Learning & Growth
Focus on Customers / Sound Business Practices
Enable Mission Readiness

Resources
Achieve Fiscal Accountability

Army Medical Command Strategy Map
Project and Sustain A Healthy and Medically Protected Force DoD/Army/Soldiers
Financial
Healthy soldiers Protected from Lower Army’s medically
C-1 disease and injury related costs F-1
C-2
Mission
Deploy a Trained and Equipped Medical Force that Supports Army Transformation DoD/Army
Financial
Trained Medics Smaller Footprint Reduce cost of
Flexible Medical ownership of the
C-3 Forces C-4 C-5
deployable force F-2
Stakeholder
Manage the Care of the Soldier and the Military Family Beneficiary/DoD/Army
Financial
Quality, Passion for Healthy Patients Eliminate the Optimize Total
Compassionate Eliminating and Families are #1 Hassle Factor (MCSC+ Direct)
Healthcare C-8 Wasted Time C-9 C-7 C-10 System Efficiency F-3
Provide State of the Art

Health Risk Assessments
IP1
and Countermeasures Expedient,
Products to Market to
Compassionate
Support the Transforming
Disposition of Medically
Army
Unfit Soldiers
Internal Process
Monitor Medical
IP - 4
Threats and the
IP-13 Home
Battlefield Return Soldiers Fitness of the Force Safe Patient
to Duty IP- 2 Care Station
IP-6 Leverage IP-7
Capabilities of Streamline
Institutional Access to Care
AMEDD IP 10
IP - 5
Leverage Science Integrate Direct
& Technology and Network Care
IP- 3 Develop Fast Accurate Market the Army Maintain a Reliable
IP-11
Analysis, Forecasting, Healthcare System Facility and
Modeling and Planning Installation Implement Clinical
Align Resources with IP- 9 Infrastructure and Business Best
Population IP- 14
Requirements IP- 12 Practices
IP- 8 Focus on Our Customers / Sound Business Practices IP- 15
& Growth
Learning
Leverage Information
Enable Mission Recruit & Retain a Develop Train the Medical
Management and
Quality AMEDD Force Leaders Force
Readiness L1 L-3 L-4
Information Technology L-2
Resources
Achieve Fiscal Predict and Secure Levels

Operate Within Budget
of Funding Required
Responsibility F-4 F-5
Goal 1: Project and Sustain a Healthy and Medically Protected Force
Strategic Theme: Objective Statement Measures
C-1 Improve and sustain the general health C-1 Percent of units reporting medical readiness.
Mission/ Customer
Healthy Soldiers of soldiers to ensure medically-ready

C-1 deployable forces.
Protected From C-2 Sustain the health and fitness of the

Disease and Injury C-2 Number of Man-Years Lost Due to Disease,
C-2 deployed forces, preventing casualties from
Injury, Stress Reactions.
disease, injuries, and stress reactions.
IP-1 Enhance health and performance IP-1 Percent of threats (Infectious Disease,
through strategies, tools, products and chemical and biological warfare) on the validated,
Internal
Provide State of the Art

Health Risk
other countermeasures to reduce risks of prioritized threat lists for which effective
Assessments and disease, non-battle injury, chemical and countermeasures are available to deployable and
Countermeasures
biological warfare casualties, and stress deployed forces .
IP-1
reactions. Promote the use and assess
the effectiveness of these
countermeasures throughout their life
Monitor Medical cycle.
IP-2 Percent of requested medical threat/risk
Threats and the Fitness
of the Force IP-2 Improve monitoring and reporting on assessments and health status reports delivered
IP-2 demand the medical risk assessments and electronically on demand to operational
Financial
the health status of units and individuals. commanders and their staffs.
F-1 Identify, Target & Reduce the Army’s F-1a Number of injury/illness driven claims (Rate
Lower Army’s Medically-Related Costs and Increase per 100 employees);
Medically Related Return to Duty Rates Through Improved
Costs
F-1
Management
F-1b Cost of injury/illness driven claims.
Several Different Types of “Balanced Scorecards”
Have Emerged in Practice
Strategy Stakeholder KPI

Card Card Card
A KPI Scorecard: The Four “P’s”
• Profits
• Portfolio (loan volume)
• Process (ISO certification)
• People (diversity)
What’s missing from the 4P’s KPI scorecard?
• Where are the customers?
• What is the value proposition?
• How does ISO certification lead to increases in loan

volume?
• How does a more diverse work force lead to ISO

certification?
• Is there no role for information technology?
• Is innovation not important?
A Good Balanced Scorecard Tells the Story of
Your Strategy
• Every measure is part of a chain of cause and effect

linkages
• All measures eventually link to organizational outcomes
• A balance exists between outcome measures (financial,

customer) and performance drivers (value proposition,
internal processes, learning & growth)
TRANSLATE EXECUTIVE
STRATEGY LEADERSHIP

ALIGNMENT PROCESS
• Goal Alignment
Principles of the Strategy-Focused Organization:
LINK AND ALIGN THE ORGANIZATION AROUND ITS
STRATEGY
#3.
#1. Each Support Unit develops a
A Corporate Scorecard defines plan and BSC for “best
overall strategic priorities. practice” sharing to create
synergies across SBUs.
CORPORATE
CORPORATE SCORECARD LINE BUSINESSES SUPPORT UNITS EXTERNAL PARTNERS

(Shared Strategic Agenda)
SBU SBU SBU SBU
Themes Measures
A B C D
1. Financial Growth xxx • Finance
2. Delight the Consumer xxx • Marketing • Customer Scorecards
3. Win-Win Relationships xxx • Distribution • Distributor Scorecard
4. Safe & Reliable xxx • Procurement • Joint Venture Scorecard
5. Competitive Supplier xxx • Purchasing • Vendor Scorecard
6. Good Neighbor xxx • Safety • New Venture Scorecard
7. Motivated & Prepared xxx xx xx xx xx • Human Resources • Outsourcer Scorecard
8. Quality xxx • Information Technology
#2. #4.
Each SBU develops a Plans and BSC’s define
long-range plan and BSC relationships with external
consistent with corporate partners consistent with
strategic agenda. SBU strategy.
Strategies Are Executed Through Business Units. The Strategies of the Business
Units Must Be Integrated If Organization Purpose and Synergies Are to Be Achieved.
Principles of the Strategy-Focused Organization:
LINK AND ALIGN THE ORGANIZATION AROUND ITS
STRATEGY
#3.
#1. Each Support Unit develops a
A Corporate Scorecard defines plan and BSC for “best
overall strategic priorities. practice” sharing to create
synergies across SBUs.
CORPORATE
CORPORATE SCORECARD LINE BUSINESSES SUPPORT UNITS EXTERNAL PARTNERS

(Shared Strategic Agenda)
SBU SBU SBU SBU
Themes Measures
A B C D
1. Financial Growth xxx • Finance
2. Delight the Consumer xxx • Marketing • Customer Scorecards
3. Win-Win Relationships xxx • Distribution • Distributor Scorecard
4. Safe & Reliable xxx • Procurement • Joint Venture Scorecard
5. Competitive Supplier xxx • Purchasing • Vendor Scorecard
6. Good Neighbor xxx • Safety • New Venture Scorecard
7. Motivated & Prepared xxx xx xx xx xx • Human Resources • Outsourcer Scorecard
8. Quality xxx • Information Technology
#2. #4.
Each SBU develops a Plans and BSC’s define
long-range plan and BSC relationships with external
consistent with corporate partners consistent with
strategic agenda. SBU strategy.
Washington State: The
Salmon Recovery Problem
• Endangered Species Listing of 18 Species
• Federal Approval of Recovery Plans -- or
– no government or private entity make “take” any salmon - - thus
– forestry, agriculture, hydro power production, transportation
improvements and land use changes stopped or curtailed
– i.e.. A train wreck
• Fractured governance
– six states, another country (Canada) and 27 Indian tribes
– eight US agencies, 12 state agencies, 39 counties, 277 cities
– 300 water and sewer districts, 170 local water suppliers
Many Regulations and Constituents Influence Salmon
Recovery Projects
U.S. & State NMFS Salmon
NMFS
Agencies Independent “Evolutionarily
Recovery Team
Science Panel Significant Units”
Water
Legislation
SRF Board Salmon Sec 7 Salmon

HB2514 HB2496 Consultation
Restoration Sec 4(d) Rules
WRIA
Planning Projects
Salmon, Bull Trout, Tri-Co

Watershed Environmental Quality, and Early Action
Councils Hydropower Development Package
Bull Trout Sec

US/Canada 4(d) Rules
Treaty Bull Trout Sec 7
Consultation
FWS Bull Trout

Tribes SSHIAP NGO’s and “Definable Population
Enhancement Groups Segments”
Salmon Recovery Scorecard
Goal: Restore salmon, steelhead, and trout populations to healthy and harvestable levels
and improve habitats on which fish rely.
Customer: To protect an important element of Washington’s quality of life
• We will have productive and diverse wild salmon populations.
• We will meet the requirements of the Endangered Species Act/Clean Water Act.
Processes: Our habitat, harvest, hatchery, and hydropower activities

will benefit wild salmon.
• Freshwater and estuarine habitats are healthy and accessible
• Rivers and streams have flows to support salmon.
• Water is clean and cool enough for salmon
• Harvest management actions protect wild salmon.
• Enhance compliance with resource protection laws.
Collaboration: We are engaged with citizens and our salmon recovery

partners.
• We will reach out to citizens
• Salmon recovery roles are defined and partnerships strengthened.
Financial and Infrastructure: Our building blocks for success include

• Achieve cost-effective recovery and efficient use of government resources
• Use best available science and integrate monitoring and research with planning and implementation
• Citizens, salmon recovery partners and state employees have timely access to the information, technical assistance, and funding they need to be
successful.
Summary: Top-to-Bottom Strategy Alignment
Unleashes Full Organization Potential
• The Corporate Strategy is communicated to business

units and agencies through key themes, opportunities
for integration and synergies, and shared measures
• Cooperation and greater synergy between business

units, staff and shared service functions, and across
diverse organizational units becomes formalized
through the Scorecard
TRANSLATE EXECUTIVE
STRATEGY LEADERSHIP

ALIGNMENT PROCESS
• Goal Alignment
#3 Principles of the Strategy Focused Organization:
MAKE STRATEGY EVERYONE’S EVERYDAY JOB
HR Processes Are Essential for Moving Strategy From the Top to the Bottom
CORP
SBU
Top-Down “Bridging • EDUCATION Bottom-Up Process

Process” To Share to Internalize &
the Strategy & Align Execute the Strategy
the Workforce • PERSONAL GOAL
ALIGNMENT
• BALANCED PAYCHECKS
The Strategy Focused Workforce
Making Strategy Everyone’s Job
Creating a Climate
to Support
Strategic Change
1 • Insure that each individual has sufficient

Create Strategic
Awareness understanding of the strategy (You can’t execute
what you don’t understand)
2
Align Personal • Insure that each individual knows where they fit
Objectives into the overall game plan
3
Align Incentive • Reinforce desired behavior and increase
Compensation intensity of awareness
USM&R Strategic Themes ... Win/Win Relationship Good Neighbor
Improve Dealer/Wholesale Marketer Protect the health and safety of our people,
will guide us to our vision and are profitability through customer-driven the communities in which we work, and the
defined above each graph. products and services and by developing environment we all share.
their business competencies.
Dealer/Mobil Gross Profit Environmental Index

• Total profit • Composite of:
USM&R Strategic Measures ... earned at Mobil - reportable
outlets and split releases to air
between our and water
that will keep us focused on achieving
dealers/whole-s - reportable spills
USM&R’s strategic themes are ale marketers
explained in the graphs and the and Mobil.
- community
reported
bulleted text accompanying them. incidents.
1993 1994 Target 1993 1994 Target
Financially Strong Safe & Reliable On Spec On Time

Reward our shareholders by providing a Maintain a leadership position in safety while Provide quality products supported by quality
superior long-term return which exceeds that keeping our refineries fully utilized. business processes that are on time and done
of our peers. right the first time.
USM&R Days Away Manufacturing
ROCE Quality Index
From Work Reliability Index
• Income divided • Composite of
12% incidents of:
by capital
employed 8% - product off spec
including all - order shipped late
7%
allocations. - business process
errors
- customer
complaints
1993 1994 Target 1993 1994 Target 1993 1994 - cost of rework. 1993 1994 Target
Target
Delight the Customer Competitive Supplier Motivated & Prepared

Understand our consumers’ needs better than Provide product to our terminals at a cost equal Develop and value teamwork and the ability to
anyone and offer them products and services to or better than the competitive market maker. think Mobil, act locally.
which exceed their expectations.
Mystery Shopper Laid-down Cost Climate Survey
• The Mystery • Our cost to deliver • Survey of

Shopper program product to the employees to
rates how well terminal vs. measure how
each of our lowest cost people perceive
stations is provider. the Mobil
delivering the workplace
“best buying environment.
experience.”
1993 1994 Target 1993 1994 Target 1993 1994 Target
Employee Innovations: Mobil Speedpass™
Creating a Climate
to Support
Strategic Change

Create Strategic
2
Align Personal • Insure that each individual knows where he
Objectives or she fits into the overall game plan
3
Ultimately, Team and Individual Goals and
Objectives Are Aligned to the Strategy
A performance model provides A personal scorecard focuses individuals

the framework for cascading and on the part of the performance model they
aligning personal goals can impact
Customer Example Financial Example
Corporate Measures Balanced Scorecard Business Unit Measures Individual Goals

Corporate
Parent • Operating Margin 1993 1994 1995 1996 1997 1993 1994 1995 1996 1997 And Near Term Action Steps
Targets Financial Targets 1.
100 120 160 180 250 • Earnings
• Customer Division • Operating Margin 100 450 200 210 225 • Net Cash Flow
• Overhead & Operating Expense
Satisfaction 100 85 80 75 70
Targets Operating Targets 2.
• Variable Costs 100 75 73 70 64 • Overhead & Operating Costs
• Customer VP of Opns • Period Expenses

100 97 93 90 82 • Finding & Development Costs
• Total Annual Production
100 105 108 109 110
retention
(Indexed: 1993=100)
3.
Plant Manager • Variable Costs •
Corporate Objectives
Double our value in 10 years.
Individual Measures
1.
• Mfg Overhead
• Increase our earnings by an average of 20% a
• On time •
year
Achieve an internal rate of return 2% above the
2.
3.
cost of capital.
delivery • Reduce our overhead & operating costs by a
4. 4.
Shift Supervisor 5.
further 30% by 1997.
• Reduce our 5-year average finding &
• Scrap •
development costs by 20%.
Reach the top quartile of industry profitability by
• First Pass Yield rate

1997.
• Increase production by 10% by 1997.
If we can achieve all these Name: 5.
• Schedule • Labor/ business objectives, we will be
a top quartile competitor Location:
Adherence Unit
• Line
Availability
• Schedule
adherence
Creating a Climate
to Support
Strategic Change

Create Strategic
2
Align Personal • Insure that each individual knows where he or
Objectives she fits into the overall game plan
3
Mobil USM&R Incentive Plan
Poor Average Best-in

Industry
Base Pay 90% 90% 90%
Corporate Award 0-1 3-6 10
(Return-on-Capital,
Earnings Growth)
USM&R/SBU
M&R (30%) 0 5-8 20
SBU (70%)
Total Pay 91% 98-104% 120%
(% of Market)
Linking Compensation to the Balanced Scorecard
Experience with successful BSC users indicates that linking the
BSC to incentive compensation is essential to success
Executive Perspectives Supported by Research
“People got that scorecard out and did Mercer survey of compensation
the calculations to see how much practices in 214 companies (1999)
money they were going to get. We
could not have got the same focus on • 88% of responding companies
the scorecard if we didn’t have the link consider the use of balanced
to pay.” scorecard measures linked to
Brian Baker, Mobil reward systems to be effective.
“It would be hard to get people to

accept a totally different way of
measurement - which the BSC is - if
you don’t reinforce that change
through incentive compensation.”
Gerry Isom, CIGNA
TRANSLATE EXECUTIVE
STRATEGY LEADERSHIP

ALIGNMENT PROCESS
• Corporate - SBU • Linked to Operational
• SBU - Shared Services Improvements
• External Partners • Management
EVERYONE’S
Meetings
JOB
• Feedback System
• Strategic Awareness • Learning Process
• Goal Alignment
Making Strategy a Continual Process
Imbed the Strategy
in Ongoing
Management
Processes
1 Integrate Strategy • Establish stretch targets; Select initiatives, Align

with Planning and operational improvement programs (TQM, Six
Budgeting Sigma, Activity Based Management); Allocate
resources to projects
2
Introduce the New • Develop systems for data collection, analysis,
Reporting System and reporting
3 Conduct the New

Management • Open discussion of performance shortfalls;
Meeting team problem-solving; adapting and learning
Mobil NAM&R: Setting Targets and Performance
Factors
Business Group Variable Pay Opportunity . . . . . .
Variable
Pay Performance
Percent Factor Qualitative
20 1.25 BEST IN CLASS
1.20 Well How to think about
1.15 Average performance factors:
1.12 " Objective:
1.09
External Benchmark
1.06 Above Average
1.00 means target equals
1.03 the average of competition
7 1.00 Average
1.25 means target equals the
0.90 top of the competitive group
0.80
" Subjective:
1 0.75 Below Average
Internal Benchmark
1.00 means the difficulty
of the dive is average
- 13
©2002 Balanced Scorecard Collaborative, Inc -and Robert S. Kaplan. All rights reserved. 41
Achieving Stretch Target Performance May
Require
• Strategic Initiatives
• Capital Investments
• New Products/Services
• New Customers
• New Regions
• New Partners
The Scorecard Process Provides Rigor for
Selecting and Managing Initiatives
—1—
Identify All Potential
Candidates for Development
Strategic Initiative OFS Projects, Projects,
Consideration Activities, etc. Activities, etc.
Marketing
Projects, Other Projects,
Activities, etc. Activities, etc.
Criteria
Primary Strategic Objective
Initiative: Strategic Thrust(s):
Continue Leadership in Su
E-Bill Presentment AC/IR/RC Products
—2— Area Score Points Comments
Screen Candidates to Strategic Importance 8

• The “killer” application
•X
Identify Those That Cost -2 •$
Qualify as “Strategic” Benefit 4 •$
Required for Other

1 •X
Initiatives/Dependencies
Time to Implement -2 • # months
Overall Score 9 •X
Strategic Thrust(s) Strategic Required for Other Overall

Ranking Initiiative Cost Benefit Initiatives/ Time to Implement Overall Score
and Objectives(s) Importance Dependencies Points
AC/IR/RC
—3—
E-Bill
1 Cont. Leadership in 9
Presentment Superior Products
2 A 9
Select Strategic
3
4
B
C
8
8
Prioritized List of
Initiatives Strategic Initiatives
5 D 7
6 E 7
7 F 7
N G X
TRANSLATE EXECUTIVE
STRATEGY LEADERSHIP

ALIGNMENT PROCESS
• External Partners • Management Meetings
EVERYONE’S
JOB • Feedback System
• Learning Process
• Goal Alignment
Using the BSC to Link Strategy to Operational
Management
Activity-Based Costing
• Cost of Internal Processes
• Customer Profitability
Shareholder Value
• Explicit Value Proposition
• Path for Revenue Growth Strategy
Quality Programs
• Link to Customer and Financial Outcomes
• Identify New Processes; Set Priorities
• Integrated Strategic Management Approach
BSC Adds to Total Quality Programs
• Explicit Causal Links from Operational

Improvements to a Customer-Based Value
Proposition
• Explicit Linkages to Productivity Enhancements

and Financial Outcomes
• Identify Entirely New Processes for Improvement
• Set Priorities among Processes to Improve
TRANSLATE EXECUTIVE
STRATEGY LEADERSHIP

ALIGNMENT PROCESS
• External Partners • Management
EVERYONE’S
Meetings
JOB
• Feedback System
• Strategic Awareness • Learning Process
• Goal Alignment
Reporting and Feedback:
Monthly Scorecard Summary
Maximize Shareholder
Financial
Value
Meet or Exceed Manage Investment

Commitments Base e
u ssttrraattiivve
IIllllu
Customer
Satisfaction
Customer
and Loyalty
Competitive
Service Quality Price
Reputation,
Brand and
Priority On Safety
Trust
Develop, Acquire and Favorably Positioned for Profitably Acquire,

Internal Processes
Reliability and Cost Retain Profitable Success in a Competitive Retain and Manage
Excellence Supply Positions Environment Customers
Legend
Above target
Priority on Safety Effectively Manage On Track (within limits)
and Environmental Risks Significantly below target
Excellence Data Not Available
Learning & Growth
Develop, Promote Regulatory

Live Co Values
Acquire and Innovation and Promote and
(common
Retain Needed Best Practices Diversity Legislative
version)
Skills Sharing Compliance
The New Management Meeting:
Strategic Learning Replaces Control
The Shift In Focus (At City of Charlotte)
Control Learning
What is the impact of
Is the project… the project on…
on-time? – neighborhoods
– jobs
on-budget?
– transportation
Effective Strategic Management Is Based Upon a
“Double Loop” Learning Approach
The Strategy
Financial
Perspective
Customer
Perspective
Strategic Feedback That
Encourages Learning
Internal
Perspective
update the Learning

Perspective
incorporate
• Test hypotheses
strategy learning
about your strategy
• Assess changes in
Strategic Learning Loop the environment
Balanced Scorecard • Identify emerging
strategies
Financial
Strategic Objectives Strategic Measures

" Financially Strong " Return of Capital Employed
" Delight the Consumer " Mystery Shopper Rating
Cust
" Win-Win Relationship " Dealer/Pioneer Gross Profit Split

" Safe & Reliable " Manufacturing Reliability Index
corrections result
Internal
" Days Away from Work Rate

" Competitive Supplier " Laid Down Cost vs. Best
Competitive Ratable Supply
" Motivated & Prepared " Strategic Competency Availability

L&G
Operational Control Loop

Performance
Initiatives & Programs

input output
Store 24 Introduced an Innovative Strategy to
Build Customer Intimacy: “Ban Boredom”
GROWTH PRODUCTIVITY
Sales Growth* Gross Profit $ / Labor $
ROCD*
Financial ROI
Perspective
EBITA*
EBITDA
Gross
Profit
Gross Profit Growth*
New New Asset
Concepts Customers Contribution
Utilization
Net gross profit Growth in core Contribution $ Inventory turns*
from concepts <2 categories* And % change* Hurdle rate on
years old* Customer count* projects*
Customer Basic Requirements Differentiators

Value Survey:
Proposition Quality, Value, Cleanliness, Enjoyable Interesting
Friendly Enjoyable
Selection Experience Promotions
experience
Internal Build the Franchise Increase Customer Value Operational Excellence

Perspective Continually develop and Enhance the customer Focus on store, in stock,
successfully roll out new experience with flawless and associate productivity
and innovative programs implementation
Roll-out rating (Ban Pride rides* In stock average*

Boredom Programs)* Mystery shoppers* Gross profit $ / labor $*
Gross profit $ / labor hour*
Learning &
Growth Competencies Climate for Action
Technology
Perspective Required competencies are Ability to implement
Focus on technology is on
built on tenure and capability relies heavily on
information systems use
rating employee satisfaction
Tenure* Technology evaluation sheet* Gallup poll*

Capability evaluation*
* Measures
Testing the Strategy in Real Time Leads to
Strategic Learning
Updated Strategy: “Cause You Just
Can’t Wait”
ROCD*
Financial ROI
Perspective
EBITA*
EBITDA
Gross
Profit
Gross Profit Growth*
New New Asset
Contribution
Items Customers Utilization
Net sales from Growth in core Contribution $ Inventory turns*
new items* categories* And % change* Hurdle rate on
Customer count* projects*
Customer Basic Requirements Differentiators

Value Competitive
Proposition Quality, Value, Cleanliness, comparison*
Friendly Fast & Efficient
Selection
Internal Build the Franchise

Increase Customer Value
Operational Excellence
Perspective Enhance the customer
Rapid rollout of new Focus on store, in stock,
experience of speed and
merchandise and associate productivity
efficiency
New item program rating* Average in/out time* In stock average*

Gross profit $ / labor $*
Gross profit $ / labor hour*
Learning &
Growth Competencies Climate for Action
Technology
Perspective Required competencies are Ability to implement
Focus on technology is on
built on tenure and relies heavily on
information systems use
capability rating employee satisfaction
Capability evaluation* Technology evaluation sheet* Gallup poll*

* Measures
TRANSLATE EXECUTIVE
STRATEGY LEADERSHIP

• Strategy Maps • Executive Team
• Balanced Scorecard Engaged
• Targets • “New Way of Managing”
• Initiatives
BALANCED • Accountable for Strategy
SCORECARD
• A Performance Culture
ALIGNMENT PROCESS
• External Partners • Management Meetings
EVERYONE’S
JOB • Feedback System
• Goal Alignment
To Succeed, the Executive Leader Must be Engaged in
the Strategic Change Process…
Breakthrough
Unfreeze Change
and Sustain
Achieve commitment and Align and focus the Institutionalize capabilities

momentum at the top organization on change and culture required for
breakthrough results
“The Case for Change” “Early Wins” “Irreversible Momentum”
“A successful Balanced Scorecard program is a

transformation process not a “metrics” project.”
Pitfalls
• Middle Management Team: Lack of Senior
Management Commitment (“Bacon and Eggs
Breakfast”)
• Done Only 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”
“Just Do It!”
• Treating the Balanced Scorecard as a Systems Project
• Just a “checklist” for compensation purposes (the 4
P’s)
Typical Balanced Scorecard Project Schedule
Week 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
Task 1: Define Strategic 2 Wks

Architecture
Project Kickoff
Task 2: Draft the Balanced 4 Wks

Scorecard
Workshop I
Task 3: Develop Measures, 4 Wks

High Level Targets &
Initiatives
Workshop II
Task 4: Develop
Implementation Plan 2 Wks
Workshop III
An Effective Balanced Scorecard Development Process
Encourages Focused Participation by Leadership Team and
Leverages Knowledge Within the Organization
The Balanced Scorecard Design Program
Workshop No. 1 Workshop No. 2 Workshop No. 3

Leadership Team • Establish executive • Finalize objectives and • Review implementation
Workshops consensus on strategic measures plan
issues • Review strategic initiatives • Discuss implications on
• Review draft Balanced and high level targets change management
Scorecard objectives and
strategy map
Task 1 Task 2 Task 3 Task 4

Core Define Develop Develop Develop
Team
Analysis &
Balanced Objectives Measures, Implemen-t
Preparation Scorecard and Strategy Targets and ation Plan
Architecture Map Initiatives
Balanced Scorecard Project Team
BSCol • Overall project ownership
Executive • Consultations/pre-presents
Engagement
Sponsor/ as needed
Officer/
Steering
Principal
Committee
(part-time)
• 2 days/week
BSCol • 3 half- to full-day
Client Executive workshops
Project
Project Leadership • One 90-minute
Leader
Leader Team briefing/
(full-time)
interview
• Consultations/
pre-presents
as needed
Client • 1-2 staff
BSCol Core • 2-3 days/week
Project Team • Briefings with others
Team as needed
Staff
1-2 knowledgeable
Consultants of business
(full-time) strategies and
organization
BSCol’s Framework for Building the SFO
12-16 Weeks
4 –6 Weeks
Assessment Phase I: BSC
Phase 0 Design and
Mobilization
1 - 2 Years
•Rapid BSC Cascading and Deployment
Phase II: Build the SFO •Planning and Budgeting
•Governance
•Feedback and Learning
•Performance Management
0.5 - 2 Years
Business Process Improvements
Stream 1 Order Fulfillment
Stream 2 Customer Service/CRM
Stream 3 Product Innovation
Stream 4 Infrastructure
• HR
• IT
• Etc
How are Organizations Doing on the Journey?
A survey of online members of the BSCol:

500 responses; 250 reported, “Yes, we have BSC.”
50% of these: too early to tell about impact.
Of the 125 who had sufficient experience with the program:
Achieved breakthrough results 15% (n = 19)

Some progress 64% (n = 80)
No or limited results 21% (n = 26)
What Separates the Winners from the Losers?
Breakthrough Results Some Progress No Results

Executive Team has created a
sense of urgency 84% 53% 20%
Strategy translated to a strategy
map and Balanced Scorecard 84% 41% 0%
Corporate/Business Unit
measures are linked & aligned 72% 39% 0%
Employees are aware of the
strategy 56% 32% 0%
Individual and team goals are
aligned with the strategy 42% 26% 0%
The BSC is an integral part of the
strategic planning process 100% 40% 0%
The budget is driven by the
strategy 42% 29% 0%
Based On What You Have Learned in This Conference, Rate
Your Organization’s Readiness to Execute Its Strategy
EXECUTIVE ORGANIZATION
LEADERSHIP ALIGNMENT
• Corporate
• CEO Sponsor TRANSLATE • Corporate – SBU
• Executive Team Engages STRATEGY
• SBU – Shared Services
• “New Way of Managing”
• Mission / Vision
• Accountable for Strategy
• Strategy Maps
• A Performance Culture
• Balanced Scorecard
• Targets
• Initiatives
EVERYONE’S CONTINUAL
JOB PROCESS
Rate Yourself
• Strategic • Linked to Budgeting
E “Best Practice”
Awareness • Linked to Ops. Mgmt.
D We’re OK
• Goal Alignment • Management Meetings
Moving Slowly
• Linked Incentives C
• Feedback System
B Thinking About It
A Clueless
The SFO Readiness Profile: Plot Yourself
TRANSLATE E EXECUTIVE
STRATEGY LEADERSHIP
D
Develop strategy Mobilize the
maps and Balanced C organization
Scorecards
B
A
tings
Corp
Mee
.
Corp
ALIGNMENT PROCESS
.
IT
- SB
U
Cascade the scorecard Feedback systems to
Ops ting &

to create linkage facilitate learning
SBU
t.
Mgm
Sup
e
Budg
rtpo
Communicate Personal Incentives

Scorecard
EVERYONE’S
A B C D E
JOB
Thinking OK
Mobilize Change through
Moving Best
Executive Leadership Clueless
Slowly Practice
Building the SFO: Some Thoughts on Priority
and Sequence
TRANSLATE EXECUTIVE
STRATEGY LEADERSHIP
#1
tings
Corp
Mee
.
Corp
ALIGNMENT PROCESS
.
IT
- SB
U
Ops ting &

SBU
t.
Mgm
Sup
e
Budg
rtpo

Scorecard
A B C D E
EVERYONE’S
JOB Thinking OK
Moving Best
Clueless
Slowly Practice
and Sequence
TRANSLATE EXECUTIVE
STRATEGY LEADERSHIP
Top-down #2 #1
First Wave of
Results
tings
#2
Corp
Mee
.
ORGANIZATION #2 CONTINUAL
Corp
ALIGNMENT PROCESS
.
IT
- SB
U
Ops ting &

SBU
t.
Mgm
Sup
e
Budg
rtpo

Scorecard
A B C D E
EVERYONE’S
JOB Thinking OK
Moving Best
Clueless
Slowly Practice
and Sequence
TRANSLATE EXECUTIVE
STRATEGY LEADERSHIP
Top-down #2 #1
First Wave of
Results
tings
#2
Corp
Mee
.
ORGANIZATION #2 #4 CONTINUAL
Corp
ALIGNMENT PROCESS
.
IT
- SB
#5
U
Ops ting &

SBU
#3 #4 #4
t.
Mgm
Sup
e
Budg
Bottoms-up
rtpo

Sustained Results Scorecard
A B C D E
EVERYONE’S
JOB Thinking OK
Moving Best
Clueless
Slowly Practice
For further information, visit www.bscol.com
Our Mission:
“To facilitate the worldwide awareness,
use, enhancement, and integrity of the
Balanced Scorecard as a value-added
management process”
Conferences Membership Research Consulting

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Building Strategy Focused Organizations

with the Balanced Scorecard

Dr. Robert S. Kaplan

Balanced Scorecard in 1992

“The Balanced Scorecard –

50% usage in Fortune 500

Cigna Brown & Root

City of Charlotte Duke Children’s

Southern Garden Wells Fargo

Chemical Bank UPS

BUSINESS UNITS EXECUTIVE TEAM

HUMAN RESOURCES INFORMATION

BUDGETS AND CAPITAL

TOTAL QUALITY MANAGEMENT

EMPOWERMENT / PERSONAL OBJECTIVES

Satisfied Delighted Efficient and Effective Motivated & Prepared

• Mission / Vision • CEO Sponsorship

 Measurement is the "If we succeed, how will

Learning & Growth

A Motivated and Prepared Workforce

"If we succeed, how will ”To achieve our vision,

The Mission, rather than the financial / shareholder objectives,

Supporters/Subscribers National/International Opera Scene Community

Target Focus on Build Artistic Launch Unique Focus on

Enhance Customer Relationships Insure Operational Excellence Increase Brand Awareness

Fiscal Health Growth Planning

FINANCIAL Systematize Build

Manage the Care of the Soldier and Military Family

Performing Our Home

Focus on Customers / Sound Business Practices

Enable Mission Readiness

Achieve Fiscal Accountability

Provide State of the Art

Achieve Fiscal Predict and Secure Levels

Healthy Soldiers of soldiers to ensure medically-ready

Protected From C-2 Sustain the health and fitness of the

Provide State of the Art

Strategy Stakeholder KPI

• Portfolio (loan volume)

• Process (ISO certification)

• What is the value proposition?

• How does ISO certification lead to increases in loan

• How does a more diverse work force lead to ISO

• Is there no role for information technology?

• Is innovation not important?

• Every measure is part of a chain of cause and effect

• All measures eventually link to organizational outcomes

• A balance exists between outcome measures (financial,

• Mission / Vision • CEO Sponsorship

CORPORATE SCORECARD LINE BUSINESSES SUPPORT UNITS EXTERNAL PARTNERS

1. Financial Growth xxx • Finance

2. Delight the Consumer xxx • Marketing • Customer Scorecards

3. Win-Win Relationships xxx • Distribution • Distributor Scorecard

4. Safe & Reliable xxx • Procurement • Joint Venture Scorecard

5. Competitive Supplier xxx • Purchasing • Vendor Scorecard

6. Good Neighbor xxx • Safety • New Venture Scorecard

7. Motivated & Prepared xxx xx xx xx xx • Human Resources • Outsourcer Scorecard

8. Quality xxx • Information Technology

CORPORATE SCORECARD LINE BUSINESSES SUPPORT UNITS EXTERNAL PARTNERS

1. Financial Growth xxx • Finance

2. Delight the Consumer xxx • Marketing • Customer Scorecards

3. Win-Win Relationships xxx • Distribution • Distributor Scorecard

4. Safe & Reliable xxx • Procurement • Joint Venture Scorecard

Measurement is the "If we succeed, how will