ITU BDT Workshop Cairo Egypt 19 22 December
ITU / BDT Workshop Cairo, Egypt, 19 – 22 December 2005 Corporate Strategic Management Lecture 10 Introduction to the Balanced Scorecard Method * ITU/BDT/ HRD Corporate Strategic Management
BALANCED SCORECARD A Balanced Scorecard is a tool that translates an organization’s mission and strategy into a comprehensive set of performance measures and targets. The Balanced Scorecard is a Performance Management Program, that puts strategy at the Center of the Process. The Balanced Scorecard is a tool and a process that uses measurement to enable effective strategy implementation through focus and alignment. * ITU/BDT/ HRD Corporate Strategic Management 2
Balanced scorecard: The origin Previous management approaches were too focused on short term financial performance indicators and that day to day practices were not aligned on the corporate strategy. They use only financial metrics to judge corporate performance. Balanced scorecard approach measures such factors as quality and customer satisfaction as well. Initially, the Balanced Scorecard approach was developed to solve a performance measurement problem. Then, it dealt with a bigger problem: how to implement new strategies and how to move in new directions, particularly directions focused on customer-value. * ITU/BDT/ HRD Corporate Strategic Management 3
The Balanced Scorecard approach Intense global competition requires that companies continually improve their capabilities for delivering value to customers and shareholders. The « Balanced Scorecard » method emphasizes that financial and non financial measures must be part of the information system for employees at all levels of the organization. The Balanced Scorecard approach provides a clear prescription as to what companies should measure in order to « balance » the financial perspective. * ITU/BDT/ HRD Corporate Strategic Management 4
Balanced scorecard: analyzing the past, but also forward-looking The Balanced Scorecard analyses the financial measures and the actual results. It is important to explain the past, but it is not enough for anticipating the future environment in a rapidly changing world. The Balanced Scorecard also investigates the resources to prepare for satisfying the future customers with new services. Internal business process should be continuously adapted and a culture of permanent change should be developed. The objective is not only to offer good services now, but to be better and faster than competitors in the future. * ITU/BDT/ HRD Corporate Strategic Management 5
The four perspectives Financial: To succeed financially, how should we appear to our shareholders? Customers: To achieve our vision, how should we appear to our customers? Vision and Strategy Internal Business Processes: To satisfy our shareholders and customers, what business processes must we excel at? Learning and Growth: To achieve our vision, how will we sustain our ability to change and improve? * ITU/BDT/ HRD Corporate Strategic Management 6
FINANCIAL: To succeed financially, how should we appear to our shareholders? Objectives Measures Targets Initiatives The first perspective defines the shareholders’ objectives for long-term value, for growth and for productivity. "For most organizations, the financial themes of increasing revenues, improving cost and productivity, enhancing asset utilization, and reducing risk can provide the necessary linkages across all four scorecard perspectives. " * ITU/BDT/ HRD Corporate Strategic Management 7
CUSTOMERS: To achieve our vision, how should we appear to our customers? Objectives Measures Targets Initiatives The second perspective has to do with the customer and a value proposition. "Identifying the value propositions that will be delivered to targeted segments becomes the key to developing objectives and measures for the customer perspective. " * ITU/BDT/ HRD Corporate Strategic Management
INTERNAL BUSINESS PROCESSES: To satisfy our shareholders and customers, what business processes must we excel at? Objectives Measures Targets Initiatives The third perspective defines the internal business processes you are going to emphasize to satisfy that customer. "Managers identify the processes that are most critical for achieving customer and shareholder objectives. " * ITU/BDT/ HRD Corporate Strategic Management
LEARNING AND GROWTH: To achieve our vision, how will we sustain our ability to change and improve? Objectives Measures Targets Initiatives The fourth perspective is learning and growth (skills and knowledge). The foundation is the people, the technology and the organizational climate – the intangible assets. "The Balanced Scorecard stresses the importance of investing for the future, and not just in traditional areas for investment. " * ITU/BDT/ HRD Corporate Strategic Management
SMART objectives for everybody Specific : clearly related to the priorities given to the team, linked to a particular activity; Measurable : appropriate follow-up and reporting, not subjective, unambiguous, understood by all; Attainable (Acceptable) : challenging but realistic, not easy, but possible to reach; Relevant (Reasonable) : meaningful to the staff that is committed; Timely : agenda of actions, milestones and deadline, regularly measured and reviewed. * ITU/BDT/ HRD Corporate Strategic Management 11
Translating Strategy into Action The Balanced Scorecard is a management system, and not only a measurement system, that enables organizations to clarify their vision and strategy and translate them into action. The Balanced Scorecard enables company managers to bridge a major gap that formerly existed in their organizations: a fundamental disconnect between the development and formulation of strategy and its implementation. « The difference between the few organizations that are highly successful, and those that remain mediocre or fail, turns out to be their ability to execute strategy. A good strategy, effectively implemented, delivers far more value than a brilliant strategy which the organization cannot deliver » Robert Kaplan. * ITU/BDT/ HRD Corporate Strategic Management 12
Balanced scorecard: the nerve centre of the company Balanced Scorecard provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. Variation between objectives and actual results should be analyzed at every step in the production chain and the whole staff should be involved at every level of the hierarchy. Each manager should determine the causes of such variation by investigating the related business processes. The Balanced Scorecard is the cornerstone of an organization's management system since it aligns and supports key processes * ITU/BDT/ HRD Corporate Strategic Management 13
Adaptation of balanced scorecard method to telecommunications operators • The literature about the balanced scorecard method is huge, but their related recommendations are generic, and not easy to implement for the telecommunications operators : – The range of possible strategies about new services and new technologies is larger and larger; – The cause-effect relationships are difficult to analyze; – Quantitative measures may be difficult; – Incumbent operators meet a strong internal resistance of change, there is a historical gap between their past administrative practices and the current needs in management. * ITU/BDT/ HRD Corporate Strategic Management 14
How to implement balanced scorecards in a telecommunication operator ? * • How to align the action plans on the strategic objectives to improve the profitability of the company in a competitive e n v i r o n m e n t ? ITU/BDT/ HRD Corporate Strategic Management INITIATIVES TARGETS MEASURES LEARNING & GROWTH OBJECTIVES INITIATIVES TARGETS MEASURES PROCESS OBJECTIVES • How to fill in the four tables of the balanced scorecards with the impact of Internet, Intranet, Voice over IP, ADSL, 3 G mobiles ? INITIATIVES TARGETS MEASURES CUSTOMERS OBJECTIVES INITIATIVES TARGETS MEASURES OBJECTIVES FINANCIAL 15
Example 1 Improve Asset Utilization * • Financial • Higher occupancy rate of local exchanges and outside plant (main cables, subscriber loops) • Customer • Better knowledge of the location of customers (socio-demographic forecasting, field surveys) • Process • Better forecasting, network planning and engineering (methods, and computer tools) • Postpone investments when profitability is not sufficiently ensured • Learning • & Growth • Training for engineers, partnerships with University and Chambers of Commerce ITU/BDT/ HRD Corporate Strategic Management 16
Example 2 Improve Cost Structure * • Financial • Decrease administrative expenses providing that some investments are made for IT / IS • Customer • Employees in front office and back office should be better informed to better serve customers • Process • Use Intranet et e-mail for improving productivity • New procedures based on more available data • BPR (Business Process Reengineering) • Learning • & Growth • Training on IT / IS and personal computers • Better support for computer usage, ITU/BDT/ HRD Corporate Strategic Management 17
Example 3 New services used by internet • • • Financial Customer Process • Learning • & Growth * • To increase the revenues by improving the diffusion of Internet in the mass market (dial-up) • • To improve the customer segmentation, better identification of major accounts better statistics for each market segment To carry out market research studies Impact of potential competitors on the market shares • To determine the tariffs of the new services • To develop sales • To improve commercial skills of present employees ITU/BDT/ HRD Corporate Strategic Management 18
Example 4 Broadband services • • • Financial Customer Process • Learning • & Growth * • To increase the revenues by improving the diffusion of broadband services • To improve the knowledge of customer expectations for multimedia, VOD and advanced services, • To carry out market research studies • To develop the networks, (design, engineering) • To determine the tariffs of the new services • To develop sales • To improve the skills of present employees on new technologies ITU/BDT/ HRD Corporate Strategic Management 19
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