Unit 05 MBO & BSC PDF

GOAL SETTIN G: FROM MBO & BALANC ED SCORECA RDS A GE N DA Goal setting BSC System What are goal Explain the systems & Management How to set System Based on goals?. Balanced MBO Explained Scorecar...

GOAL SETTIN G: FROM MBO & BALANC ED SCORECA RDS A GE N DA Goal setting BSC System What are goal Explain the systems & Management How to set System Based on goals?. Balanced MBO Explained Scorecard How goals are set Objectives & Key in an effective way Results Explain OKRs and its application. and its Application Balanced Scorecards Q&A Explained Explain the content of BSC and application  APPROACHES TO ESTABLISHING GOALS Traditional Goal Setting 1. Broad goals are set at the top of the organization. 2. Goals are then broken into sub- goals for each organizational level. 3. Assumes that they best because top management can see the “big picture.” knows 4. Goals are intended to direct, constrain guide, andfrom above. managers 5. Goals lose attempt to focus as clarity and define theand interpret goals for their lower-level areas of responsibility. Goal-Setting Theory 16–4 Effect of Goal Difficulty on Performance High Task Performance Area of Optimal Goal Difficulty Low Moderate Challenging Impossible Goal Difficulty NGO QUY NHAM, MBA APPROACHES TO ESTABLISHING GOALS Management By Objectives PARTICIPATIVE DECISION MAKING Specific performance goals are jointly determined by employees and A managers. EXPLICIT GOAL PERFORMANCE SPECIFIC D B PERIOD Simple, Every goal needs a sensible, target date, so that C employees have a significant deadline to focus on and something to PERFORMANCE work toward FEEDBACK Progress toward accomplishing goals is periodically reviewed and rewards are allocated on the basis of progress towards the goals. Steps in a Typical MBO Program 1. The organization’s overall objectives and strategies are formulated. 2. Major objectives are allocated among divisional and departmental units. 3. Unit managers collaboratively set specific objectives for their units with their managers. 4. Specific objectives are collaboratively set with all department members. 5. Action plans, defining how objectives are to be achieved, are specified and agreed upon by managers and employees. 6. The action plans are implemented. 7. Progress toward objectives is periodically reviewed, feedback is provided. 8. Successful achievement of objectives is reinforced by performance- based rewards. Does MBO Work? Reason for MBO Success Top management commitment and involvement Potential Problems with MBO Programs Not as effective in dynamic environments that require constant resetting of goals. Overemphasis on individual accomplishment may create problems with teamwork. Allowing the MBO program to become an annual paperwork shuffle. MOST ORGANIZATIONS HAVE DIFFICULTY EXECUTING THEIR STRATEGIES “The prize for closing the strategy- “Less than performance gap is 10% of huge – increasing strategies performance by at effectively least 50% for most formulated are organization.” effectively Harvard Business Fortun Review executed” e “In the majority of 80% of cases – 70% - enterprises fail the real at strategy problems isn’t execution bad Harvard Business strategy….. It’s Review bad execution.” Bossidy & Charan Strategy HARVARD’S RESEARCH IDENTIFIED FOUR BARRIERS TO STRATEGY EXECUTION The Vision Barrier Only 5% of the workforce understands the The People strategy The Management barrier Barrier 80% of 85% of executive Only 25% of enterprises teams spend less than managers have fail at one hour per month incentives linked to strategy discussing strategy strategy execution 60% of organizations don’t link budgets to strategy The resource barrier BALANCED SCORECARD Southwest Airlines’ Strategy The Balanced Scorecard connects a strategy map to measures, targets, and initiatives. WHAT IS BALANCED SCORECARD? A method implementing a business strategy by … translating into a set of performance measures drived from strategic goals …allocating rewards to executives and managers based on their success at meeting or exeeding the performace measures.  Benefits of Balance Scorecard? A balanced scorecard seeks to uncover the answers to four (4) questions: 1. How do customers see us? 2. What must we excel at? 3. Can we continue to improve and create value? 4. How do we look to shareholders? Here are a few more benefits of using a balanced scorecard: Improves focus Puts all measures in one document Forces consideration of all operational measures Improves communication with senior managers Removes control bias  A management system built around a Strategy Map and Balanced Scorecard helps to address both problems. Financial Perspective Sustained #1. Financial performance, a lag Shareholde r Value indicator, measures the tangible outcomes from the strategy. Productivit Revenue y Growth Customer Perspective Product/Service Attributes Relationship Image #2. The customer value proposition Price Quality Time Function Relation Brand defines the source of value. Process Perspective #3. Strategic processes create value for Operations Customer customers and shareholders. Innovatio Regulatory and Managemen Managemen n Social Processes t t Processes Processes Processes Learning & Growth Perspective Human Capital #4. Aligned intangible assets drive Information Capital improvement in the strategic processes Organization Capital Copyright © Robert S. Kaplan, 6 2013 FINACIAL PERSPECTIVE To satisfy our shareholders, what financial and regulatory objectives must we accomplish? FINACIAL PERSPECTIVE To satisfy our shareholders, what financial and regulatory objectives must we accomplish?  CUSTOMER PERSPECTIVE To achieve our vision and financial goals, what customer needsmust we serve?  CUSTOMER PERSPECTIVE To achieve our vision and financial goals, what customer needsmust we serve? Customer Perspective Possible Performance Measures o Customer Satisfaction (Average) o Satisfaction Gap Analysis (Satisfaction vs. level of Importance) o Satisfaction Distribution (% of each area scored) INTERNAL BUSINESS PROCESS PERSPECTIVE To satisfy our customers, in which business processes must we excel?  INTERNAL BUSINESS PROCESS ToPERSPECTIVE satisfy our customers, in which business processes must we excel?  Internal Perspective To satisfy our customers, in which business processes must we excel? Possible Performance Measures o Cycle Time o Completion Rate o Workload and Employee Utilization o Transactions per employee o Errors or Rework Learning and Growth To achieve our goals and accomplish core activities, how must we learn, communicate and work together? Possible Performance Measures o Employee Satisfaction o Retention and Turnover o Training Hours and Resources o Technology Investment  Volkswagen do Brasil Balanced Scorecard: Metrics and Accountability Achieve Market VP Sales & Marketing Achieve sustainable Metrics: V P Finance & Corporate Strategy Metrics: and positive Share growth 1. Market Share 1. EBITDA 2. Price Index financial results 2. Return on Investment 3. Contribution 3. Operating Profit as % of Revenue Margin 4. Facility & Tool Investments 4. Vertriebsleistung 5. Net Cash Flow Director Quality Director Corp. Affairs & Satisfy the Assurance Press Metrics: Improve company customer’s Metrics: 1. Image Quality Index image expectations 1. Things Gone Wrong 2. New Car Buyer 2. Repair per 1000 3. Employees Image 3. Costumer Satisfaction Index Index 4. Audit Note Develop dealer Guarantee VP Product VP Create and manage VP Increase direct a robust production organization into customer oriented Developme Operations volume strategy to Operations processes more service innovation nt adapt to industry Metrics: efficiency Metric: direction management Metrics: volatility 1.Accomplish 1. Hours per 1.Implementatio Prod. Planning. Vehicle VP Sales & n of unique selling 2. Achieve VP HR & Guarantee reliable Installed Mkt Achieve launch point Increase indirect Supplier → Capacity Metrics: Organization Program management VP Product processes Metrics: Manufacturer VP Supply efficiency efficiency processes. 5.1 5.2 High Performance Quality Index Developme 2.Efficien Metrics: Service cy Indicator 3. Cripple Index 5.3 Customer nt 3. # of 4. Supply Program 5.4 Repeated Satisfaction withRepair Last Metrics: Management Kaizen Visit Develop attractive and Become sectorial Achieve2.Releases high performance at Projects Develop sustainability 3.Qualityas innovative product right moment reference for authorities Rates Supplier culture management principle New portfolio 3. Change of Parts and representative entities at critical phases Director VP HR & Organization Director VP HR & Product Metrics: Governmental Organization 1. Gallup Index Planning 2. Cooperation Barometer Affairs Metric: Metrics: Metrics: 15.1 Ethos Indicator 3. Training hours/employee. 1. Brazilian Market 4. Fitness Index 1. Radar report Survey 5. Executive Competence 2. Agreements Success 2. Launching Index Index Copyright Strategy © Robert S. Kaplan, 6. Cell Leaders Screening 3.Representative 2013 3. Product Portfolio Level in external entities Renew VWB’s Strategy Map: Acao para Vencer (Act to Win) The Balanced Scorecard and KPIs OKRs FRAMEWORK (Objectives & Key Results) WHAT IS OKR? Objectives and Key Results (OKR) is a framework/approach for setting and tracking goals within organizations. The purpose of OKRs are to connect company, team, and personal goals to measurable results while having all team members and leaders work together in one, unified direction. The framework originated from MBO framework The development of OKRs is generally attributed to Andy Grove who introduced the approach to Intel during his tenure there. WHAT IS OKR? STRATEGY – OBJECTIVES – KEY RESULTS EXAMPLE OF OKR by INTEL INTEL CORPORATE OBJECTIVE Establish the 8086 as the highest performance 16-bit microprocessor family, as measured by: KEY RESULTS (Q2 1980) Develop and publish five benchmarks showing superior 8086 family performance (Applications). Repackage the entire 8086 family of products (Marketing). Get the 8MHz part into production (Engineering, Manufacturing). Sample the arithmetic coprocessor no later than June 15 (Engineering).” EXAMPLE OF OKR EXAMPLE OF OKR Anatomy of Effective Objectives Anatomy of Effective Key Results Process of creating KRs: CRAFT THE MAIN BENEFITS OF OKR Agility: Shorter goal cycles enable faster adjustments and better adaptation to change, increasing innovation and reducing risks and waste. Alignment and cross-functional cooperation: The use of shared OKRs improves collaboration among different teams, solving interdependencies and unifying competing initiatives. Clear communication: Transparency and simplicity enable the team to understand the goals and priorities of the organization as well as how each individual can contribute. Employee engagement: OKR bi-directional approach for goal setting connects the employees with the company’s objectives, increasing engagement. Focus and discipline: The reduced number of goals creates focus in the organization and disciplines efforts and initiatives. Bolder goals: Decoupling OKRs from compensation and using stretch goals, even partially, enable the team to set bolder, challenging goals. MBO VS OKRs MBO OKRS “What” “What” and “How” Annual Quarterly or Monthly Private and Siloed Public and Transparent Top-down Bottom-up or Sideways (~50%) Tied to Compensation Mostly Divorced from Compensation Risk Averse Aggressive and Aspirational” Sources: Doerr, John. “Measure What Matters: How Google, Bono, and the Gates Foundation Rock the World with OKRs”. Apple Books. MANAGING WITH OKRS The Cycle Monday meeting Logistics Priorities Status Engagement The bigpicture Mid-Quarter Check-Ins Quarterly Reviews Diagnose Issues Using the “Five Whys”