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A Tale of Two Companies 3 Immutable Laws (and their implications) Balanced Scorecard Budgeting Keys to Success Q&A PowerPoint Presentation
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Outline. A Tale of Two Companies 3 Immutable Laws (and their implications) Balanced Scorecard Budgeting Keys to Success Q&A. Sales Growth. 8%. 0%. Gross Margin %. 55%. 35%. SG&A as a % of Sales. 5%. 15%. EBITA as a % of Revenue. 15%. 3%. RONA %. 20%. 2%.

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A Tale of Two Companies 3 Immutable Laws (and their implications) Balanced Scorecard Budgeting Keys to Success Q&A


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slide2

Outline

  • A Tale of Two Companies
  • 3 Immutable Laws (and their implications)
  • Balanced Scorecard Budgeting
  • Keys to Success
  • Q&A
a tale of two companies

Sales Growth

8%

0%

Gross Margin %

55%

35%

SG&A as a % of Sales

5%

15%

EBITA as a % of Revenue

15%

3%

RONA %

20%

2%

A Tale of Two Companies

Company snapshot: which company has been more successful?

Company A

Company B

slide5

Customer Satisfaction Index

90

75

5

20

# Defects per Thousand

70%

% On Time Delivery

95%

18 mos.

New Product Dev. Cycle Time

6 mos.

Employee Satisfaction Index

90%

70%

% of Sales Coming From Products Introduced in the Last 2 Years

20%

1%

% Product Returns

1%

8%

Company snapshot (part 2): why has Company A been more successful?

Company A

Company B

slide6

Sales Growth

Customer Satisfaction Index

# Defects per Thousand

Gross Margin %

% On Time Delivery

SG&A as a % of Sales

New Product Dev Cycle Time

Employee Satisfaction Index

EBITA as a % of Revenue

% of Sales Coming From Products Introduced in the Last 2 Years

RONA %

% Product Returns

Which way should the arrow go? Which set of measures drives the other?

slide7

Customer Satisfaction Index

# Defects per Thousand

% On Time Delivery

New Product Dev Cycle Time

Employee Satisfaction Index

% of Sales Coming From Products Introduced in the Last 2 Years

% Product Returns

Measures for What ReallyDrives Success in the Business

=

slide8

Set annual plan targets (numerical)

Bake into the budget

Report on every month to sr. exec team

Analyze variances

Set annual plan targets (numerical)

Bake into the budget

Report on every month to sr. exec team

Analyze variances

slide9

Most companies manage to the P&L while the actual drivers of business performance “fade into the background”.

slide10

Highly successful companies manage to the real drivers of success…

…and also understand how and why they impact the P&L

slide11

Set annual plan targets (numerical)

Bake into the budget

Report on every month to sr. exec team

Analyze variances

Customer Satisfaction Index

Customer Satisfaction Index

Customer Satisfaction Index

# Defects per Thousand

# Defects per Thousand

# Defects per Thousand

% On Time Delivery

% On Time Delivery

% On Time Delivery

Employee Turnover

Employee Turnover

Employee Turnover

Employee Satisfaction Index

Employee Satisfaction Index

Employee Satisfaction Index

% of Sales Coming From Products

% of Sales Coming From Products

% of Sales Coming From Products

Introduced in the Last 2 Years

Introduced in the Last 2 Years

Introduced in the Last 2 Years

% Product Returns

% Product Returns

% Product Returns

Balanced Scorecard Budgeting

slide12

Outline

  • A Tale of Two Companies
  • 3 Immutable Laws (and their implications)
  • Balanced Scorecard Budgeting
  • Keys to Success
  • Q&A
slide13

3 Immutable Laws

Immutable Law #1: Strategy has no value on it’s own other than to achieve specific goals. Strategy for strategy’s sake is corporate make work.

Implication

Set corporate targets first, then build a strategy to meet them. That’s purpose built strategy.

slide14

3 Immutable Laws

Immutable Law #2: It’s all about execution. A plan exists only in PowerPoint until it’s executed.

Implication

Build the ongoing monitoring and reporting mechanisms to ensure plans are being followed through on.

slide15

3 Immutable Laws

Immutable Law #3: Any project, strategic or operational, will die unless resources are allocated to it.

Implication

The resources necessary to see a project though must be identified and included in the operating budget.

slide16

Outline

  • A Tale of Two Companies
  • 3 Immutable Laws (and their implications)
  • Balanced Scorecard Budgeting
  • Keys to Success
  • Q&A
slide17

Balanced Scorecard Budgeting

KPIs

Plan

Monitor

Budget

slide18

Balanced Scorecard Budgeting

KPIs

Step 1: Identify Company KPIs

slide19

Step 1: Identify Company KPIs

Best KPIs

Worst KPIs

Used to make better decisions

Shelfware

Embraced by line managers

Seen as not really relevant to line managers

Reflects what actually drives success in the business

Nothing but Financial Stats

Cocktail Napkin

Telephone Directory

slide20

Step 1: Identify Company KPIs

The Value Driver Workshop

Who: The Senior Management Team (or designates)

What: A one day Workshop to identify what really drives success in the business (e.g, Innovation, being the Low Cost Producer, etc.)

How: A series of facilitated workshop exercises

Next

slide21

Step 1: Identify Company KPIs

Identification of KPIs

Who: The project work team

What: A Workshop to translate what Senior Management has identified as driving the success of the business into Key Performance Indicators (KPIs)

How: A series of facilitated brainstorming exercises

slide22

Step 1: Identify Company KPIs

Customer Satisfaction Index

# Defects per Thousand

% On Time Delivery

New Product Dev Cycle Time

Employee Satisfaction Index

% of Sales Coming From Products Introduced in the Last 2 Years

% Product Returns

Step 1 Deliverables: A Company Scorecard of KPIs

slide23

Balanced Scorecard Budgeting

KPIs

Plan

Step 2: Establish targets for the KPIs

slide24

Step 2: Establish Targets for KPIs

KPI Target Setting

Who: KPI Teams

What: Benchmarking and historical analysis to determine both long term (strategic) and short term targets for each KPI

How: After a kick off meeting led by the KPI team leader, the group conducts benchmarking and historical trend analysis to establish long term (i.e., 3 to 5 years) targets as well as targets for the upcoming year. Depending upon the circumstances, this may take a few days to a few weeks.

slide25

Step 2: Establish Targets for KPIs

Step 2 Deliverables: Targets for KPIs

2005

2006

2007

80

85

90

Customer Satisfaction Index

# Defects per Thousand

% On Time Delivery

New Product Dev Cycle Time

Employee Satisfaction Index

% of Sales Coming From Products Introduced in the Last 2 Years

% Product Returns

slide26

Balanced Scorecard Budgeting

KPIs

Plan

Step 2: Establish targets for the KPIs

Step 3: Develop Strategy to Achieve Targets

slide27

Step 3: Develop Strategy to Achieve Targets

Develop Strategy to Achieve Targets

Who: KPI Teams & SMEs (subject matter experts)

What: Each KPI team develops a strategy that is designed to achieve the targets for their KPIs. This is a long term view that incorporates strategic initiatives.

How: Each KPI team, working with internal experts and other subject matter experts develops a strategy, including long term initiatives, that if executed will achieve the targets established for the KPIs.

slide28

Step 3: Develop Strategy to Achieve Targets

Step 3 Deliverables: Strategic Initiative Summary

KPI: Employee Satisfaction

‘05-’07 Targets

2005: 80

2006: 85

2007: 90

Strategy Description

Through investments job rotation and other programs, we will make our employees the most sought after in the industry. Clearly this will be “a win” for our employees, but it will also be a “win” for the company. If, in fact, our employees are the most sought after in the industry, that will be a major selling point in recruiting new talent. It also serves as an acid test for us, for in fact our employees are the most sought after in the industry, they most sought after skills and know how. We will be known as the company that enables employees to build their marketable skills and understanding of the business.

Leader

Hans Bergen [V.P., Career Development]

  • Integrate the goal of developing employees into each manager’s bonus calculation
  • Develop a career rotation program
  • Set standards for hours of training per year for each job level and monitor
  • Create a job shadowing program
  • Launch an alumni network

Strategic Initiatives

slide29

Balanced Scorecard Budgeting

KPIs

Plan

Step 2: Establish targets for the KPIs

Step 3: Develop Strategy to Achieve Targets

Step 4: Develop Action Plans to Achieve Near Term Targets

slide30

Step 4: Create Action Plans to Achieve Near Term Targets

Develop Action Plans

Who: KPI Teams

What: Each KPI team develops Action Plans that are designed to achieve the targets for their KPIs. Particular attention is paid to what can be done in the first year.

How: Each KPI team, working with internal experts and other subject matter experts develop Action Plans; complete with Activities, Tasks, and Milestones.

slide31

Step 4: Create Action Plans to Achieve Near Term Targets

Develop Action Plans

Who: KPI Teams

What: Each KPI team develops Action Plans that are designed to achieve the targets for their KPIs. Particular attention is paid to what can be done in the first year.

How: Each KPI team, working with internal experts and other subject matter experts develop Action Plans; complete with Activities, Tasks, and Milestones.

slide32

Step 4: Create Action Plans to Achieve Near Term Targets

Step 4 Deliverables: Action Plans (Summary View)

Career Rotation Program

DEADLINE

PROJECT LEADER

Margaret Cho

December

BRIEF DESRIPTION

Enable employees to rotate through various business units/ functional areas to build their skills and understanding of the business.

(HIGH LEVEL) RESOURCE REQUIREMENTS

KEY MILESTONES

1) Organize a cross functional team – April ’05

2) Draft a complete project charter (Objectives, Scope, Approach, Structure) – May ’05

3) Complete RFP process for outside expert – July ’05

4) Develop program blueprint – Oct ’05

5) Validate program with Sr. Management – Nov ’05

6) Implement program -- 2006

  • INTERNAL
  • 8 Person cross functional team (on average 2 hours a week for 9 months)
  • 1 Procurement specialist to help us through the RFP process
  • EXTERNAL
  • HR Specialist (TBD)
slide33

Step 4: Create Action Plans to Achieve Near Term Targets

Step 4 Deliverables: Action Plans (Gant Chart)

slide34

Balanced Scorecard Budgeting

KPIs

Plan

Step 5: Develop Action Plan Budgets

Budget

slide35

Step 5: Develop Action Plan Budgets

Develop Action Plan Budgets

Who: KPI Teams, working closely with Finance

What: Each KPI team works with the Finance build budgets for their Action Plans

How: Each KPI team, working with Finance, identifies the resources they need to execute their Action Plans. Finance then translates these resource requirements into SG&A line item detail and CAPEX requests for budget purposes.

slide36

Step 5: Develop Action Plan Budgets

Step 4 Deliverables: Action Plans Budgets

slide37

Balanced Scorecard Budgeting

KPIs

Plan

Step 5: Develop Action Plan Budgets

Budget

Step 6: Combine with the Baseline Budget

slide38

Step 6: Combine with the Baseline Budget

Create a Baseline Budget

Who: Finance and budget managers

What: The Finance area facilitates the development of a baseline budget (“keep the lights turned on”) that can then be combined with the Action Plan budgets to produce a total company plan

How: Working with managers, the Finance area develops a baseline budget, that incorporates all elements of the annual plan P&L, that is then combined with the Action Plan budgets.

slide39

Step 6: Combine with the Baseline Budget

Step 6 Deliverables: A Combined Budget (Incorporating both Action Plan Budgets and the Baseline Budget

slide40

Balanced Scorecard Budgeting

KPIs

Plan

Monitor

Budget

Step 7: Establish ongoing reporting and review

slide41

Step 7: Establish Ongoing Reporting

Establish Ongoing Reporting & Review

Who: Finance and IT work team.

What: Finance and IT work together to build an ongoing reporting mechanism for: Financial Results, KPIs and the progress of the Action Plans.

How: A combined Finance and IT work team identify requirements and select the tools that will enable monthly monitoring of results (both financial and KPIs). In addition, the work team will develop a process for the monthly review of progress of Action Plans alongside of the financial results.

slide42

Step 7: Establish Ongoing Reporting

Step 7 Deliverables: Reporting and monitoring tools for KPI results

slide43

Step 7: Establish Ongoing Reporting

Step 7 Deliverables: Reporting and monitoring tools for progress of Action Plans

Career Rotation Program

DEADLINE

PROJECT LEADER

Margaret Cho

December

BRIEF UPDATE

We’ve slipped 60 days due to a delay in reaching a decision on our RFP vendor, but we should be able to make up half that time.

KEY QUESTIONS

KEY MILESTONES

1) Organize a cross functional team – April ’03

2) Draft a complete project charter (Objectives, Scope, Approach, Structure) – May ’03

3) Complete RFP process for outside expert – July ’03

4) Develop program blueprint – Oct ’03

5) Validate program with Sr. Management – Nov ’03

6) Implement program -- 2004

Project on Schedule?

NO

# Days Delayed:

60

Reasons?

Senior management approval of vendor by 60 days.

Actions to get back on track?

Streamlining brainstorming and documentation should result in a savings of 30 days

slide44

Outline

  • A Tale of Two Companies
  • 3 Immutable Laws (and their implications)
  • Balanced Scorecard Budgeting
  • Keys to Success
  • Q&A
slide45

Keys to Success

Keys to Success #1: Benchmark your company against national averages to quantify if your organization could benefit (or not):

  • Do people know what the strategy is?
  • Do they know how it links to the plan/budget?
  • Do they know what the company’s key performance measures are?
  • Do they think they have anything to do with them?
  • Do goals really cascade down through the organization?
  • Are we any different from national averages?
slide46

Keys to Success

Keys to Success #2: Don’t create a separate budget exercise; bring balanced scorecard budgeting into your current process

  • Many companies make the mistake of creating a separate process for budgeting balanced scorecard initiatives.
  • But the “real” budgeting process still dictates how resources are allocated.
slide47

Keys to Success

Keys to Success #3: Know thyself.Customize Balanced Scorecard Budgeting to suit your culture & planning processes

  • If you currently employ a rolling six quarter forecast, for example, then tailor the Balance Scorecard Budgeting approach to synch up with it.
  • If your strategic planning process looks out five years, for example, then your KPI targets should go out five years.
slide48

Keys to Success

Keys to Success #4: Pick the right technology tools to enable Balanced Scorecard Budgeting.

  • After designing your Balanced Scorecard Budgeting process, develop a set of requirements for a planning/reporting system.
  • Determine if your current set of tools can meet the requirements
  • If the current set of tools will not adequately meet the needs, conduct a vendor selection process (with a minimum of three vendors).
slide49

Outline

  • A Tale of Two Companies
  • 3 Immutable Laws (and their implications)
  • Balanced Scorecard Budgeting
  • Keys to Success
  • Q&A