BALANCED SCORECARD FOR STRATEGIC PLANNING AND MEASUREMENT Case

BALANCED SCORECARD FOR STRATEGIC PLANNING AND MEASUREMENT Case Study, Concepts and Debatable Ideas Kenny Ong CNI Holdings Berhad www. my. CNI. com. my www. OOBEY. com

Intro: CNI 1. 20 years old 2. Core Business: MLM 3. Others: Contract Manufacturing, F&B Retail, Export/Trading, e. Commerce, Shared Services 4. Malaysia, Singapore, Brunei, Indonesia, India, China, Hong Kong, Philippines, Italy, Taiwan, Oman, United States, Vietnam 5. Staff force: ± 500 6. Distributors: 200, 000 7. Products: Consumer Goods and Services www. my. CNI. com. my www. OOBEY. com

Introduction to Balanced Scorecard and Strategy www. my. CNI. com. my www. OOBEY. com

"The digital watch didn't come from established watch companies, the calculator didn't come from slide rule or adding machine companies, video games didn't come from board-game manufacturers Parker Bros or Mattel, the ballpoint pen didn't come from fountain pen manufacturers, and Google didn't come from the Yellow Pages" Bob Seidensticker, Futurehype www. my. CNI. com. my www. OOBEY. com

What’s wrong with Strategic Planning Today? Long-term Plans Objectives Strategies Enablers Resources Also known as L. O. S. E. R. www. my. CNI. com. my www. OOBEY. com

What’s wrong with Strategic Planning Today? 1. Biggest Threats often come from OUTSIDE your normal industry 2. Planning from the base of an ‘Existing’ organization vs. zero-based 3. Traditional Analysis (e. g. SWOT) based only on known or existing assumptions or knowledge 4. Spending too much time in market research and analysis 5. Defining the company from a Product/Service perspective vs. Category vs. JTBD (e. g. Coca-cola) 6. Wrong Benchmark – already successful vs. what made them successful 7. Implementing BSC and PMS to improve Business Model and Strategy 8. New strategy, same people www. my. CNI. com. my www. OOBEY. com

Why BSC? • Reason 1: Balanced • Reason 2: Cause-and-Effect www. my. CNI. com. my www. OOBEY. com

Balanced Scorecard: Corporate Financial Customer “To satisfy our stakeholders, what Financial objectives must we accomplish? ” “Who are our target customers? What is our value proposition? ” Learning & Growth Internal Process “What capabilities and tools do our employees require to help them execute our strategy? “To satisfy our customers, in which internal business processes must we excel? " www. my. CNI. com. my www. OOBEY. com

Balanced Scorecard: NGOs, Non-Profits, Governments Internal Process Mission “To satisfy our targets, in which internal processes must we excel? " “Who are our targets? What is our value proposition? ” Financial Learning & Growth “To fulfill the Mission, what Financial, how do we fund Internal Processes? ” “What capabilities and tools do our staff require to help them execute our strategy? www. my. CNI. com. my www. OOBEY. com

Side notes on BSC 1. BSC should be a Thought Process and a Tool not a Religion (e. g. Excel™ vs. Budgeting) 2. BSC ≠ Appraisal 3. New BSC implementations should start linking with Budgeting right from the beginning 4. The ‘proper’ BSC approach should rightly fully be heavily customized to the organization 5. ‘Strategic Planning’ trainings should be provided before ‘BSC’ trainings 6. Clear definitions for Accountability vs. Impact vs. Influence vs. Assistance www. my. CNI. com. my www. OOBEY. com

Today’s Agenda www. my. CNI. com. my www. OOBEY. com

Summary: Today’s presentation 1. Business Model + BSC = Boundaries 2. Strategy + BSC = How 3. PMS + BSC = Execution www. my. CNI. com. my www. OOBEY. com

What is the Business Model? • Google • Air Asia USP • Tata Nano Profit Model www. my. CNI. com. my Market Discipline www. OOBEY. com

What is the Business Model? USP Profit Model www. my. CNI. com. my Market Discipline www. OOBEY. com

Business Model: Profit Model Revenue Assets Cash Flow www. my. CNI. com. my Cost Margin www. OOBEY. com

Strategy + BSC Financial Revenue Cost Margin Cash Flow Asset Customers Internal Process Learning & Growth www. my. CNI. com. my www. OOBEY. com

What is the Business Model? USP Profit Model www. my. CNI. com. my Market Discipline www. OOBEY. com

Intro: Market Discipline "They are the most innovative" Product Leadership "Constantly renewing and creative" "Always on the leading edge" "A great deal!" Operational Excellence Excellent/attractive price Minimal acquisition cost and hassle Lowest overall cost of ownership "A no-hassles firm" Convenience and speed Customer Intimacy "Exactly what I need" Customized products Personalized communications "They're very responsive" Preferential service and flexibility Recommends what I need "I'm very loyal to them" Helps us to be a success Reliable product and service www. my. CNI. com. my www. OOBEY. com

Strategy: Value Disciplines Product Leadership (best product) Operational Excellence (low cost producer) Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995 www. my. CNI. com. my Customer Intimacy (best total solution) www. OOBEY. com

Strategy: Value Disciplines Operational Excellence • Competitive price • Error free, reliable • Fast (on demand) • Simple • Responsive • Consistent information for all • Transactional • 'Once and Done' Product Leadership Customer Intimacy • • Management by Fact • Easy to do business with • Risk takers • Meet volatile customer needs • Have it your way (customization) • Fast concept-tocounter • Market segments of one • Never satisfied obsolete own and competitors' products • Proactive, flexible • Relationship and consultative selling • Cross selling • www. my. CNI. com. my New, state of the art products or services Learning organization www. OOBEY. com

The Mc. Playbook* Make it easy to eat • 50% drive-thru • Meals held in one hand Make it easy to prepare • High Turnover • Tasks simple to learn & repeat Make it quick Make what customers want • “Fast Food” • Prowls market for new products • Tests new products for Cooking Times • Monitored field tests *Adapted from: Businessweek , Februrary 5 th 2007 www. my. CNI. com. my www. OOBEY. com

Strategy: Disciplines Product Leadership (best product) Operational Excellence (low cost producer) Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995 www. my. CNI. com. my Customer Intimacy (best total solution) www. OOBEY. com

Strategy: Disciplines Apple powerful Product Leadership (best product) products, premium pricing, limited range Acer super lean cost structure, aggressive pricing Still Doing well in 2009 Operational Excellence (low cost producer) Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995 www. my. CNI. com. my HP well-balanced portfolio, mass customization Customer Intimacy (best total solution) www. OOBEY. com

What is the Business Model? • Google • Air Asia USP • Tata Nano Profit Model www. my. CNI. com. my Market Discipline www. OOBEY. com

Summary: Today’s presentation 1. Business Model + BSC = Done Boundaries 2. Strategy + BSC = How 3. PMS + BSC = Execution www. my. CNI. com. my www. OOBEY. com

2. Strategy + BSC = How ‘Hope’ is not a strategy www. my. CNI. com. my www. OOBEY. com

What is your Goal? 1. Cost Reduction 2. Growth 3. Both? www. my. CNI. com. my www. OOBEY. com

Growth Strategy “Double-Digit Growth”, Michael Treacy 1. Base Retention 2. Share Gain 5. New Business GROWTH 4. Adjacent Market www. my. CNI. com. my 3. Positioning www. OOBEY. com

Growth Strategy • Increase switching cost “Double-Digit Growth”, Michael Treacy 1. Base Retention • Customize products • Preempt Defections • Brand 2. Share Gain 5. New Business GROWTH • Neutralize Competitor advantages • Superior Value • Promising Market? • Buy market share • Make or Buy? 4. Adjacent Market 3. Positioning • Spot growth opportunities www. my. CNI. com. my • Organized search www. OOBEY. com

How Markets determine Growth Strategies (1) • Growth Rate Growth Strategy Rate Fast 1. Market Positioning 2. Share Gain 3. Base Retention Flat 1. Base Retention 2. Share Gain (Acquisitions) www. my. CNI. com. my Why? • Maintain market share in strategic segments • Prepare for market decline • Competitors focus too much on getting new customers • Lose customers slower than competitors • Create scale economics, squeeze costs www. OOBEY. com

How Markets determine Growth Strategies (2) • Churn Rate Low Strategy Why? 1. Share Gain (Acquisitions) 2. Adjacent Markets • Buying customer base is cheaper than own efforts • New products, old customers strategy High 1. Base Retention 2. Share Gain 3. Adjacent Market • Lose customers slower than competitors • Customers are always open to the best value and offer • Desperate to gain revenue www. my. CNI. com. my www. OOBEY. com

How Markets determine Growth Strategies (3) • Example: XYZ Sector Fast Growth, 1. Market Positioning Low Churn 2. Share Gain 3. Base Retention 4. Adjacent Markets www. my. CNI. com. my www. OOBEY. com

Side Notes on Cost Reduction Strategy Cost Reduction 30% 80% Business Model Operational 5% 30% • USP • Finance, HR, IT • Profit Model • Supply Chain • Market Discipline • R&D • Invest/Divest • Sales & Marketing www. my. CNI. com. my www. OOBEY. com

Strategy + BSC Financial Revenue Cost Customers Base Retention Share Gain Margin Satisfactio n Positioning Cash Flow Adjacent Market Asset New Business Internal Process Learning & Growth www. my. CNI. com. my www. OOBEY. com

Strategy: Disciplines, Priorities, and KPIs Product Leadership (best product) Operational Excellence (low cost producer) Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995 www. my. CNI. com. my Customer Intimacy (best total solution) www. OOBEY. com

Strategy: Disciplines, Priorities, and KPIs Operational Excellence • Competitive price • Error free, reliable • Fast (on demand) • Simple • Responsive • Consistent information for all • Transactional • 'Once and Done' Product Leadership Customer Intimacy • • Management by Fact • Easy to do business with • Risk takers • Meet volatile customer needs • Have it your way (customization) • Fast concept-tocounter • Market segments of one • Never satisfied obsolete own and competitors' products • Proactive, flexible • Relationship and consultative selling • Cross selling • www. my. CNI. com. my New, state of the art products or services Learning organization www. OOBEY. com

Strategy: Value Disciplines • Operational Excellence • Move know-how from top performing units to others • Benchmark against best in class • Ensure operations training for all employees • Use disciplines like TQM for continuous learning to reduce costs and improve quality www. my. CNI. com. my www. OOBEY. com

Strategy: Value Disciplines • Customer Intimacy • Capture knowledge about customers • Understand customer needs • Empower front line employees • Ensure that everyone knows the customer • Make company knowledge available to customers www. my. CNI. com. my www. OOBEY. com

Strategy: Value Disciplines • Product Leadership • Reduce time to market • Commercialize new products fast • Ensure that ideas flow • Reuse what other parts of the company have already learned • Ensure there are multiple sources of funding www. my. CNI. com. my www. OOBEY. com

Strategy: Value Disciplines Product Leadership (best product) Operational Excellence (low cost producer) Ref: The Discipline of Market Leaders, Michael Treacy & Fred Wiersema; 1995 www. my. CNI. com. my Customer Intimacy (best total solution) www. OOBEY. com

Strategy + BSC Financial Revenue Cost Customers Base Retention Share Gain Margin Satisfactio n Positioning Cash Flow Adjacent Market Internal Process Operational Excellence Product Leadership Customer Intimacy Asset New Business Investment Strategy Learning & Growth www. my. CNI. com. my www. OOBEY. com

Alignment: 4 -Wheels Model Business Person Structure Strategic Planning Model Culture Leadership Resources www. my. CNI. com. my www. OOBEY. com

Alignment: Framework Culture www. my. CNI. com. my • • Focus point Alignment Quality Innovation & Differentiation Risk taking Performance Management Corporate obsession Decision making www. OOBEY. com

Alignment: Framework Structure www. my. CNI. com. my • • • Org Structure Job Design C&B Policies & procedures Decision making Job fit Management Systems BSC and KPIs Decentralized & Empower www. OOBEY. com

Strategy: Framework Leadership www. my. CNI. com. my • • Role modeling Vision/Mission/Philosophy Leadership Style Delegation & Empowerment C&B, Promotions Sense of Urgency Speak regularly about Performance www. OOBEY. com

Strategy: Framework Person www. my. CNI. com. my • • • Recognition Recruitment Training Profit sharing Values Motivation Self Efficacy Awareness Useful Competencies Career aspirations Attribution (control) www. OOBEY. com

Strategy: Framework Enablers Resources • Technology • Equipment • Materials • Human • Intellectual Property • Partners • Property www. my. CNI. com. my Funding • CAPEX • OPEX www. OOBEY. com

Alignment: 4 -Wheels Model Business Person Structure Strategic Planning Model Culture Leadership Resources www. my. CNI. com. my www. OOBEY. com

Each Discipline Requires Different Priorities & Resources Organization, jobs, skills Culture, values, norms Information and systems Operational Excellence Product Leadership Customer Intimacy Management systems www. my. CNI. com. my www. OOBEY. com

Each Discipline Requires Different Priorities & Resources Operational Excellence Organization, jobs, skills • Central authority, low level of empowerment • High skills at the core of the organization Culture, values, norms • Disciplined Teamwork • Process, product- driven • Conformance, 'one size fits all' mindset Information and systems • Integrated, low cost transaction systems • The system is the process Management systems • Command control • Quality management www. my. CNI. com. my www. OOBEY. com

Each Discipline Requires Different Priorities & Resources Product Leadership Organization, jobs, • Ad hoc, organic and cellular skills • High skills abound in loose-knit structures Culture, values, norms • Concept, future-driven • Experimentation and 'out of the box' mindset Information and systems • Person-to-person communications systems • Technologies enabling cooperation Management systems • Rewarding individuals' innovative capacity • Risk and exposure management • Product Life Cycle profitability www. my. CNI. com. my www. OOBEY. com

Each Discipline Requires Different Priorities & Resources Customer Intimacy Organization, jobs, • Empowerment close to point of customer contact skills • High skills in the field and front-line Culture, values, norms • Customer-driven • Variation and 'have it your way' mindset Information and systems • Strong customer databases, linking internal and external information • Strong analytical tools Management systems • Customer equity measures like life time value • Satisfaction and share management • Focus on ‘Share of Wallet’ www. my. CNI. com. my www. OOBEY. com

Strategy + BSC Financial Revenue Cost Customers Base Retention Share Gain Margin Satisfactio n Positioning Cash Flow Adjacent Market Internal Process Operational Excellence Product Leadership Customer Intimacy Asset New Business Investment Strategy Learning & Growth Competencies www. my. CNI. com. my Information Systems Motivation, empowerment, alignment www. OOBEY. com

Summary: Today’s presentation 1. Business Model + BSC = Done Boundaries 2. Strategy + BSC = How Done 3. PMS + BSC = Execution www. my. CNI. com. my www. OOBEY. com

3. PMS + BSC = Execution KPIs and PMS www. my. CNI. com. my www. OOBEY. com

Reminder: Why BSC? • Reason 1: Balanced • Reason 2: Cause-and-Effect www. my. CNI. com. my www. OOBEY. com

Before we start… Which comes first? 1. Strategies -> KPI? 2. KPI -> Strategies? www. my. CNI. com. my www. OOBEY. com

Before we start… Which comes first? 1. Strategies -> KPI? 2. KPI -> Strategies? • already know our priorities, aware of all strategy options available • creating something UNIQUE, INNOVATIVE and DISRUPTIVE e. g. Air Asia • conducting a business Turnaround e. g. MAS www. my. CNI. com. my www. OOBEY. com

Before we start… Which comes first? 1. Strategies -> KPI? 2. KPI -> Strategies? • want to find out possible strategies, • determine our priorities first thru selection of important KPIs; • growing through ‘normal’ business, not a Turnaround. www. my. CNI. com. my www. OOBEY. com

Example: Selection of KPIs for BSC • Customer satisfaction ·Customer loyalty ·Market share ·Customer complaints ·Complaints resolved on first contact ·Return rates ·Response time per customer request ·Price relative to competition ·Total cost to customer ·Average duration of customer relationship ·Customers lost ·Customer retention ·Customer acquisition rates ·Percentage of revenue form new customers ·Number of customers ·Annual sales per turnover www. my. CNI. com. my • Win rate (sales closed/sales contact) • Customer visits to the company ·Hours spent with customers ·Marketing cost as a percentage of sales ·Number of ads placed ·Number of proposals made ·Brand recognition ·Response rate ·Number of trade shows attended ·Sales volume ·Share of target customer spending ·Sales per channel ·Average customer size ·Customers per employee ·Customer service expense per customer ·Customer profitability ·Frequency (number of sales transactions) www. OOBEY. com

Wrong KPIs “What is the moral of the story? ” www. my. CNI. com. my www. OOBEY. com

KPIs and Behavior Before: “Handle Time” Per Call • Motivated Call Centre staff to transfer callers, getting rid of complainers, making them someone else’s problem • Callers at 45% chance of being transferred • 7, 000 customers each week suffered transfers 7 times or more www. my. CNI. com. my www. OOBEY. com

KPIs and Behavior After: “Minutes Per Resolution” of a problem • Resolution in ONE CALL become the core goal • Reduced probability of call transfers from 45% to 18% www. my. CNI. com. my www. OOBEY. com

Cause and Effect Financial Revenue Cost Customers Base Retention Share Gain Margin Satisfactio n Positioning Cash Flow Adjacent Market Internal Process Operational Excellence Product Leadership Customer Intimacy Asset New Business Investment Strategy Learning & Growth Competencies www. my. CNI. com. my Information Systems Motivation, empowerment, alignment www. OOBEY. com

Cause and Effect: An Example Financial Market Value Customers / Distributors Internal Process Learning & Growth Revenue Growth Products/ Services Channel Strategies Supplier & Alliances Department Operations Productivity Target Markets External Involvement Technology Human Resources www. my. CNI. com. my Systems & Processes Information & Intelligence www. OOBEY. com

Sample: Other 1 st Level KPIs across industries… Financial Services • Maximize ARPU • Minimize Churn • Mutichannel customer service Hospitality • Personalized customer experience • Maximize share of wallet • Player/customer loyalty • Multichannel customer service www. my. CNI. com. my Retail • Understand customer behavior related to customer conversion, acquisition, and retention • Single view of customer • Multichannel customer experience • Personalized customer experience Telecommunications • Anticipate and prevent churn despite compensation • Increase number of products per customer • Turn call center information opportunity to up-sell and cross-sell • Increase customer satisfaction and loyalty Travel & Leisure Manufacturing • Increase customer loyalty and preference • Maximize customer revenue • Improve service quality and efficiency • Capture and close sales opportunities • Single view of customers across supply chain • Zero-error order capture • Streamline opportunity to cash processes • Leverage investment in ERP and backoffice systems www. OOBEY. com

Sample KPIs for Each Discipline Operational Excellence Product Leadership Customer Intimacy • • • Price Selection Convenience Zero Defects Growth www. my. CNI. com. my Marketing Functionality # of Successes # of Failures Learn from key users • Interdisciplinary teams • Pipeline • • Customer Knowledge Solutions Offered Penetration Customer Data Customer-success focus www. OOBEY. com

B 2 B/B 2 G BSC Matching Customer/Client/ Government BSC Your BSC 1. Draw your ‘customer’s’ BSC 2. Match their CP/IP with your CP 3. Identify IPs that support/conflict www. my. CNI. com. my www. OOBEY. com

Cascading Customer Perspective Goals Base Retention Strategies Targets Direct Mkt Share Gain Mkt New Business BD www. my. CNI. com. my Indirect www. OOBEY. com

E 3 – Department BSC Customer Perspective – Marketing Department Goals Base Retention Strategies Targets CAPEX OPEX Share Gain Budgeting www. my. CNI. com. my www. OOBEY. com

Individual MBO Employee A – Marketing Executive KRAs Action Plans Targets Re: Base Retention Weight (%) Score Class A Customer Retention Class B Customer Retention Competition Crossovers www. my. CNI. com. my www. OOBEY. com

What’s In Between Planning and Execution? Business Model BSC KPIs Budgeting + Planning Performance Management System Differentiation Talent Management www. my. CNI. com. my Succession Planning (Business Continuity) www. OOBEY. com

What’s In Between Planning and Execution? Business Model BSC KPIs a. k. a. Strategy Planning Budgeting + Planning Performance Management System Differentiation a. k. a. Strategy Implementation www. my. CNI. com. my Talent Management Succession Planning (Business Continuity) www. OOBEY. com

Performance Execution Clarity A Excellent B Good C Average D Poor E Useless www. my. CNI. com. my www. OOBEY. com

Performance Execution Clarity A Excellent B Good C Average D Poor E Useless www. my. CNI. com. my Good www. OOBEY. com

Performance Execution Clarity A Excellent B Good Very Good C Average Good D Poor Not Good E Useless Commit Suicide www. my. CNI. com. my www. OOBEY. com

Performance Execution Clarity Consistently achieved 4 for 3 quarters A Excellent B Very Good Higher than planned results C Good Achieved Planned Results D Not Good Did not fully meet planned results E Commit Suicide Unacceptable performance www. my. CNI. com. my www. OOBEY. com

Performance and Pay Clarity • • Pay for Service Pay for Job Pay for Performance Pay for Competency www. my. CNI. com. my www. OOBEY. com

Performance and Pay Clarity • Increment • Bonus • Promotion www. my. CNI. com. my www. OOBEY. com

Compa Ratio Table Use this if your company: • Pays for Performance, and • Pays for Job rates Def: Mid-Point = Mid Point of Pay Grade E 2 Min RM 2, 000 www. my. CNI. com. my MID RM 2, 500 Max RM 3, 000 www. OOBEY. com

Performance and Pay Clarity < 0. 7 5 9 ≥ 0. 7 ≤ 0. 9 8 4 8 7 6 5 4 3 7 6 5% 4 3 2 6 5 4 3 2 1 www. my. CNI. com. my >0. 9 <1. 1 7 ≥ 1. 1 ≤ 1. 3 6 > 1. 3 5 www. OOBEY. com

Performance and Pay Clarity < 0. 7 5 20 ≥ 0. 7 ≤ 0. 9 15 4 18 12 9 5 3 3 9 7 5% 4 3 2 1 1 1 0 0 0 0 0 www. my. CNI. com. my >0. 9 <1. 1 12 ≥ 1. 1 ≤ 1. 3 8 > 1. 3 5 www. OOBEY. com

Curse of the Bell Curve ‘A’ Staff www. my. CNI. com. my ‘B’ Staff ‘C’ Staff ‘D’ Staff ‘E’ Staff www. OOBEY. com

End Notes Tying it all up www. my. CNI. com. my www. OOBEY. com

Review processes 1. 2. 3. 4. 5. 6. 7. 8. 9. Result Planning schedule inc. BSC, Budget Quarterly Performance Appraisals Sales performance reviews Non-sales performance reviews Annual Appraisals Specialized KPI committees CAR, PAR, SCAR KPI improvements Internal Audit & MSD – process problems HRM & TND – people problems www. my. CNI. com. my www. OOBEY. com