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Balanced Scorecard Strategy For Dummies


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Table of Contents

Introduction 1

About This Book 2

Conventions Used in This Book 2

What You’re Not to Read 3

Foolish Assumptions 3

How This Book Is Organized 3

Part I: The ABC’s of Balanced Scorecard 3

Part II: The Customer — The Critical Leg 4

Part III: Financial Measurement — The Foundation Leg 4

Part IV: Internal Business Processes — The Value Creation Leg 4

Part V: Knowledge, Education, and Growth — the Learning Leg 4

Part VI: The Part of Tens 5

Icons Used in This Book 5

Where to Go from Here 5

Part I: The ABC’s of Balanced Scorecard 7

Chapter 1: Goals, Scores, and the Balanced Scorecard 9

Getting Familiar with Balanced Scorecard 10

Just what is Balanced Scorecard, anyway? 10

Leaning on the four legs of the scorecard 10

Achieving Organizational Balance 11

Analyzing Your Customers: Critical Leg 12

Knowing who you sell to 12

Focusing on future customers 13

Considering your internal customers 14

Following the Money: Foundation Leg 14

Measuring your financial health 15

Common mistakes made in finance 17

Tracking Your Internal Business Processes: Value-Creation Leg 18

Assessing the current state of your business 18

Installing effective measures for tracking processes 19

Anticipating your business’s future state 20

The top five process-tracking problems 20

Managing Company-wide Knowledge, Education, and Growth: Learning Leg 21

Understanding the importance of taking care of your own 22

Measuring knowledge, education, and growth 23

Staying on the right course in the fourth leg of the scorecard 25

Using Dashboards to Apply Balanced Scorecards to Your Business 25

Market, environmental, and technology considerations for your dashboards 27

Reviewing strategy, operational, and tactical scorecards and dashboards 28

Chapter 2: Building and Balancing Scorecard Strategies 31

Understanding How the Four Legs Interact and Link to Strategies 32

Putting strategies in the driver’s seat 32

Focusing resources on your strategies 33

Borrowing from Other Companies’ Success 34

Translating strategies into operational terms 35

Aligning your organization to the strategies 36

Making strategies everyone’s daily job 36

Turning strategic deployment into a continual process 36

Mobilizing change through your executive leadership team 37

Developing Your Strategy Map: A Balancing Act 38

Doing your mapping homework 38

Drafting the strategy map 39

Ensuring a Balanced Scorecard (And What to Do When Yours Isn’t) 40

Adapting to Changes in Your Markets or Business 43

Spotlighting external influences and their effect on your business 43

Recognizing early warning signals 47

Balancing in today’s environment — a moving platform 48

Chapter 3: Planning For the Balanced Scorecard 49

Getting Your Planning in Order 49

Planning Your Work and Working Your Plan 51

Planning for the resources you will need 51

Garnering support from management and others 52

Building the Foundation and the Structure of a Scorecard 53

Stacking the building blocks for implementing a scorecard 54

Adding flexibility so you can adjust a scorecard for effectiveness 55

Contingency planning methods 57

Adding the Final Touches 58

Taking care of the details 58

Ensuring that your scorecard is fireproof 59

Performing a final inspection 59

Chapter 4: Putting Your Balanced Scorecard into Action 61

Deciding When to Launch Your Balanced Scorecard 61

The Scorecard passed the pilot, and everyone knows it! 61

The Scorecard is seen as genuinely adding value 62

Sustaining the Balanced Scorecard 62

Promoting the scorecard concept 63

Making scorecard the talk of the town 64

Cooking up the best time to launch 66

Mastering the Art of Communicating Your Balanced Scorecards 66

The view from the top: Senior executives 67

Surviving scorecards as a middle manager 68

Spreading the word from the front line 69

Avoiding communication pitfalls 70

Part II: The Customer — The Critical Leg 73

Chapter 5: Understanding Your Role with Customers 75

Five Things You Must Know about Customers 76

Not all customers are created equal 76

Customers can go away 77

You must master the art of customer service 78

Customers watch you closely 79

Do right by your customer 79

Using Customer Info to Keep Your Customers Happy 80

Gathering info about your customers’ satisfaction levels 80

Being proactive to find out what your customers desire 82

Walking miles (and miles) in your customers’ shoes 84

Setting customer-based strategic measures 84

Linking Customer Measures to Your Strategies, Policies, and Plans 85

Developing customer strategies 85

Creating customer plans and tactics 86

Taking action when your customers don’t get what they want 86

Following Up With Your Customers for Adjustments 87

Chapter 6: Creating a Customer Scorecard 89

Zeroing In on the Right Customer Measures 90

Weeding out the wrong measures 91

Discovering customer measures that matter 91

Understanding customer loyalty 92

Taking customer measurements 94

Getting Dependable Data 96

Hocus, pocus — the focus group 97

Asking all the wrong questions 98

Keeping data charts simple 99

Avoiding Interpretation Pitfalls 100

Drawing wrong conclusions 100

Communicating timely with your customers 102

Reading between the lines 102

Building the Customer Scorecard 103

Strategic-level scorecards 103

Operational-level scorecards 105

Tactical-level scorecards 106

Analyzing a Scorecard and Determining a Course of Action 107

Knowing which way to go 107

Making sure you stay on course 109

Chapter 7: Building the Customer Leg Dashboard 111

Customer Dashboard Fundamentals 112

Dashboard basics 112

Determining ownership and responsibility 113

Taking appropriate action: Who, when and how 114

Building the Customer Dashboard 115

Keeping-it-simple-style dashboards (KISS) 115

High-end dashboards with all the fluff 116

Just-in-time versus just-too-late dashboards 118

Tracking and Analyzing the Customer Dashboard 120

Figuring out who needs to know 121

Updating the customer dashboard 122

Drilling down to root causes 123

Part III: Financial Measurement — The Foundation Leg 125

Chapter 8: Understanding Your Role in Financial Measurement 127

Five Things You Must Know About Financial Measurement 128

Your financial measures must be accurate and highly dependable 128

Your financial measures must truly reflect the value of your business 129

Your financial measures must cascade easily from top to bottom 131

Your financial measures must be easy to use and explain 132

Your financial measures must adhere to current regulatory and tax laws 134

Finding The Financial Data Gold Mines 135

Scratching the surface of a goldmine 135

Knowing your business equals leveraging your financial data 135

Using key measures to gain a significant competitive edge 136

Turning difficulties to your advantage 137

Measuring and Interpreting with Accuracy 139

Making sure the right people do your measuring 140

Using consistent and dependable measures 141

Avoiding measurement pitfalls 141

Turning Numbers into Information 142

Examining reporting pitfalls 142

Showing financial info simply 143

Linking Financial Measurements To Strategies, Plans And Tactics 144

Financial measurement is dependant on strategic focus 145

What you do depends on what you want 145

Using Failure Mode Effects Analysis (FMEA) to assess risk 146

Chapter 9: Building the Financial Leg Scorecard 149

Key Aspects of Financial Measures 150

Focusing on the right things 150

The WIIFM (What’s in it for me?) station everyone tunes into 151

Timeliness is your competitive edge 152

Financial Measures That Matter 152

Key questions help you see what to measure 153

Selecting key performance indicators (KPIs) 155

Tips for finding key measures 155

How measures differ 156

Ensure competitive success by revisiting measurement 158

Creating The Financial Scorecard 159

Select either a strategic, operational, or tactical level 159

Customizing your financial measures, and how to score them 160

Examining examples 162

A word or two (or three) about information management 166

Interpreting Financial Measures for Balanced Scorecards 168

Understanding scorecard financial measures, and what they tell you 168

Pointing toward additional information and insight 170

Structures for decision making from scorecard financial measure 171

Understanding the Essence of Accuracy 173

Oh no, the numbers are wrong! 174

The right numbers, the wrong analysis 174

Tracking the numbers by automatic pilot 175

Chapter 10: Building the Financial Leg Dashboard 177

The Basics of Financial Dashboards 177

Determining ownership and responsibility of the financials 178

An emphasis on real-time measurement and response 179

Taking appropriate action: Who, when, and how 180

Creating Financial Dashboards That Have Impact 181

Keep it simple, complete, and effective! 182

Types of dashboards 183

Some examples of dashboards that work! 186

Enabling response and adjustment agility and flexibility 189

Avoiding Pitfalls While Designing Dashboards 190

Selecting the wrong measures 190

Organizing goals and objectives poorly 191

Having the wrong number of financial measures 191

Thinking in the short-term thinking 191

Understanding Your Financial Dashboard 192

Make it part of your daily work 193

So what does it mean, and how will I know what to do next? 194

Follow through — it’s what’s for breakfast 196

Part IV: Internal Business Processes — The Value-Creation Leg 197

Chapter 11: Understanding Your Role in Internal Business Processes 199

Five Things You Must Know about Internal Business Processes 200

Waste abounds in your processes 200

Many process measures don’t link to the customer 202

Your measurement system is probably broken 202

Process workers are under-utilized and unappreciated 203

Technology isn’t always the right answer 204

Creating Value 205

Looking at your value streams’ current state 205

Where you want to be when: The future state 206

You Get What You Reward 207

Sending mixed messages 207

Old rewards do not create new behaviors 208

Rewards that matter 209

Building-In Continuous Improvement 210

Process improvement in a nutshell 211

Determining, what, when, and where to measure 211

How to measure your performance 213

Acceptance and ownership means getting everyone involved 213

Pitfalls to Continuous Improvement 215

Implementing continuous improvement 215

Identifying core processes and outsourcing 217

Technology isn’t always the answer 218

The Weakest Links in Internal Business Processes 219

The problem with integrating strategies, plans, and tactics 220

Systems thinking and internal business processes 222

It’s a people thing 224

Tying Internal Processes to Your Strategies, Plans, and Tactics 226

Playing catchball: The art and science of deployment 226

Developing your process strategies, plans, and tactics 227

Chapter 12: Building the Internal Business Process Scorecard 229

Finding the Right Measures for Internal Business Processes 230

Identifying the critical few measures 230

The Input-Process-Output diagram: Your best friend 232

Waste, scrap, and other bad things 233

Where’s the variation? 234

Building Scorecards for Internal Business Processes 235

Strategic level scorecards 235

Operational level scorecards 236

Tactical level scorecards 236

Making Process Decisions That Give Competitive Advantage 239

Involving the right people in process decisions 239

Staying ahead of the competition: Tools that help 240

Common mistakes made with internal business process scorecards 241

Chapter 13: Building Dashboards for Internal Business Processes 243

Understanding Internal Business Process Dashboards 244

The what and why of internal process dashboards 244

Getting to real-time data and information 246

Drilling down to get the gold 247

Creating Your Internal Business Process Dashboards 248

Who should be involved with your dashboards and how 248

Making sure you’re hitting the right targets 250

Ten common mistakes with business process dashboards 251

What Your Internal Business Process Dashboard is Telling You 251

Analyzing your dashboards 252

What to do if you’re not getting there 253

Five common mistakes made in business process dashboard analysis 254

Part V: Knowledge, Education, and Growth — The Learning Leg 255

Chapter 14: Understanding Your Role in Learning and Growth 257

Getting Schooled on Knowledge, Education, and Growth 258

Putting your finger on the elements of productivity 258

Understanding how information flows 260

Examining leadership style and culture 261

Identifying and filling competency needs 262

Aligning your employees organization 263

Have a Clear Direction for the Future 264

Growing means changing: the concern of complacency 265

Getting clarity from learning and growth chaos 266

Having a plan for growth and development 267

Knowing and Understanding Liabilities 269

Turning liabilities into assets, weaknesses into strengths 270

The dangers of shortcutting training for growth 272

Inventorying Knowledge, Skills, and Abilities 273

Your company’s wish list: Defining what you need 274

Step away from the office! Getting to know your people 275

Mind the gaps: Determining knowledge and skill gaps and filling them 277

Linking Your Strategies, Operations, and Tactics for Learning and Growth 280

Balancing at the strategic level for organizational knowledge and growth 281

Having an operational focus for the future 282

Acting tactically for growth, capability improvement, and retention 283

Chapter 15: Creating the Knowledge, Education, and Growth Scorecard 285

Finding The Right Measures For Knowledge, Education And Growth 286

Determine key growth goals for the future 286

Identifying operational goals, measurements for growth 287

Indicators at the action level 288

Constructing The Knowledge Management Growth Scorecard 291

Aligning key growth measurements, for strategies and their impact 291

Determining the right measures for today and tomorrow 292

Always reassess and adjust, per market changes as well 293

Some examples of growth and development scorecards 294

Determining What Your Scorecard Is Telling You 300

How to read your future 301

Adjusting when it’s not what you want 302

Some mistakes to avoid in interpretation 303

Chapter 16: Creating The Knowledge, Education, and Growth Dashboard 305

Requirements For Knowledge, Education, and Growth Dashboards 306

Translating growth goals into meaningful daily measures 306

Selecting key short- and long-term measures 307

Wait! It’s time to do a sanity check! 308

Creating Dashboards That Increase Knowledge Management 309

Formulating the structure of your growth dashboard for action 309

Setting up feedback systems 311

Using the dashboard to achieve greater potential 311

Analyzing Your Knowledge, Education And Growth Dashboard 312

How to use the growth dashboard to make adjustments to scorecard balance 313

What your dashboard is telling you as you work toward achieving your future 314

The importance — and the risks — of being truthful 315

Understanding the Pitfalls of Analysis 316

Performance results alone do not a benchmark make 317

Comparing apples and elephants: best practices where? 318

Beware of cookbook approaches and case studies 319

Part VI: The Part of Tens 321

Chapter 17: Ten Tips for Balanced Scorecard Success 323

Establish (and Remember) Where Your Company is Headed 323

Understand and Stay Current with What Your Customers Want 324

Define Your Scorecard and Dashboard Roles and Responsibilities 325

Charter Effective Steering Committees 325

Establish and Maintain Accountability 326

Link Your Scorecards and Dashboards to Your Strategies, Goals, and Objectives 326

Communicate Your Personalized Four - Legs Approach to Everyone 327

Use Feedback and Feed-Forward Loops 327

Plan and Execute Your Balanced Scorecards Relentlessly 328

Synergize Your Scorecards for Competitive Advantage and New-Market Entrance 329

Chapter 18: Ten Biggest Scorecard Mistakes to Avoid 331

Cherry Picking 331

Following Case Studies Too Closely 332

Delegating Responsibility without Authority 333

Ignoring the Soft Stuff 333

Focusing Too Much on the Tools 335

Overanalyzing 335

Not Dealing with Key Detractors 336

Sending Mixed Messages 337

Exaggerating the Returns 337

Ignoring the Customer 338

Chapter 19: Ten Tips for Overcoming Barriers 339

Empower Your Employees 339

Be Flexible 341

Apply Psychology 341

Identify and Use Influential People 342

Limit the Use of Force 342

Don’t Shoot the Messenger; Make Everyone the Messenger 342

Implement Stage-Gate Reviews 343

Reward, Recognize, and Celebrate Success 343

Communicate, Communicate, Communicate (And Don’t Forget to Talk) 344

Provide Structure for Coaching, Mentoring, and Learning from Mistakes 344

Index 345

About the Author

Chuck Hannabarger: Chuck (Tyler, Texas) is founder and president of PSI Associates, a business consulting and training firm founded in 1992 with headquarters in Tyler, Texas. As a business consultant, Chuck has consulted with many of the Fortune 100 companies and is recognized throughout the world for his work in the areas of Balanced Scorecards, Six Sigma, Lean Manufacturing, Business Process Reengineering and Project Management. Chuck’s course on Project Management has been offered at UC Berkeley, Pepperdine University, San Diego State University, and Michigan State University, to name a few. He received his BSBA and his MBA in technology management from the University of Phoenix.

Rick Buchman: Rick, who lives in Woodland Hills, CA, has worked with many of the Fortune 100 companies for over 20 years, as both an organizational member of executive management, and as an external consultant, in designing, developing, and implementing operational excellence and continuous improvement programs worldwide. He received his bachelor’s degree in mathematics from Western Illinois University, his MBA in business from California Coast University in Santa Ana, CA, and has completed all but the dissertation for his PhD in management as well. Currently, Rick is working as a consultant with several major global clients toward designing and implementing their continuous improvement programs, focusing on lean leadership and improving the flow of value to deliver products and services to their customers worldwide.

Peter Economy: Peter is Associate Editor for the award-winning magazine Leader to Leader, Senior Consultant for The Jana Matthews Group, a member of the National Advisory Council of the Creativity Connection of the Arts and Business Council of Americans for the Arts, and bestselling coauthor of The SAIC Solution: How We Built an $8 Billion Employee-Owned Technology Company, as well as Managing For Dummies, The Management Bible, Enterprising Nonprofits: A Toolkit for Social Entrepreneurs, Writing Children’s Books For Dummies, and many others.

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