Creating a Balanced Scorecard for a Financial Services Organization

by Naresh Makhijani, James Creelman

Overview

As a consequence of the credit crunch, the financial services industry, most notably banking, is undergoing tumultuous change--a period of transformation that is unprecedented in the sector's history and will likely not be experienced again for a lifetime, at least. Responding to intense public, government, regulatory and shareholder pressure, the sector is reorganizing itself so that performance is more transparent and accountable, risk management disciplines are more robust and that sustainable long-term financial return is seen as being as important as short-term profit.

This book by Naresh Makhijani and James Creelman describes how financial services organizations throughout Asia as well as other regions are tackling these and other challenges through the implementation of the Balanced Scorecard: the world's most popular strategy management framework that balances financial with non-financial performance and short-term requirements with long-term objectives, among many other benefits.

Based on in-depth case study material, Creating a Balanced Scorecard for a Financial Services Organization provides a detailed step-by-step practical template for Balanced Scorecard design and implementation, explaining how integrate risk management with strategy management through the Balanced Scorecard and how to link operational and strategy management. The book also clearly explains how to build a suite scorecards from corporate through business unit, function and even individual employee levels and how to make strategy "everyone's everyday job."

The financial services sector is on a journey of extraordinary change. Creating a Balanced Scorecard for a Financial Services Organization provides a roadmap for charting a course through what will be extraordinary times.

Product Details

ISBN-13:	9780470830338
Publisher:	Wiley
Publication date:	07/20/2011
Series:	Wiley Finance
Sold by:	JOHN WILEY & SONS
Format:	eBook
Pages:	314
File size:	3 MB

About the Author

Naresh Makhijani is an influential management consultant specializing in strategy management, execution and aligned techologies, based in Jakarta. He is coauthor of the books Balanced Scorecard in Asia and Aligning People to Strategic Goals.

In 1995, Naresh was the first consultant in Asia to implement Balanced Scorecard with Management Cockpit following in 1999. Since then he has implemented over 100 Balanced Scorecards in over 20 industries across 10 countries on three continents.

He has implemented Balanced Scorecard for over 18 organizations in financial services in Asia including government ministries, deposit insurance agencies, development banks, private and state banks, insurance companies, finance companies and stock clearing agencies.
He has been educated in Asia, Europe and USA.

James Creelman is a management author, educator and practitioner specializing in the Balanced Scorecard and related Enterprise Performance Management disciplines. He had written 22 books or reports including More with Less: Maximizing Value in the Public Sector, which he coauthored with Bernard Marr; and Mastering Business in Asia: Succeeding with the Balanced Scorecard, which he coauthored with Naresh Makhijani.

James leads Balanced Scoredcard-related workshops and seminars throughout the world. He is presently working within the office of strategy management at the Ministry of Works, Bahrain.

Table of Contents

Introduction xiii

CHAPTER 1: THE CURSE OF LIVING IN "INTERESTING TIMES," THE CREDIT CRUNCH, AND OTHER CHALLENGES 1

Executive Summary 1

Introduction 2

The Impact of the Credit Crunch 2

Deregulation, Globalization, and Technology 6

The Collapse of Customer Loyalty 6

Scorecard Pioneers 9

Other Scorecard-Using Financial Services Companies 10

Conclusion 11

CHAPTER 2: DESCRIBING THE BALANCED SCORECARD 13

Executive Summary 13

Introduction 14

The Scorecard's Origins 14

A Balanced Measurement System 15

The Emergence of the Strategy Map 15

The Strategy-Focused Organization 19

Enterprisewide Alignment 25

Creating a Board Scorecard System 27

The Office of Strategy Management 31

The Execution Premium Model 38

Conclusion 41

CHAPTER 3: THE BALANCED SCORECARD AND RISK MANAGEMENT 43

Executive Summary 43

Introduction 43

Linking Strategy Management with Risk Management: A History 44

Strategic Risk Management: The New Core Competency 48

Risk-Based Performance 53

A Risk Balanced Scorecard 55

The Five Principles of SRM 60

Conclusion 64

CHAPTER 4: BUILDING A STRATEGY MAP 67

Executive Summary 67

Introduction 67

Start with the Strategy 68

SeniorManagement Must Own the Strategy Map 72

Strategy Clarification 73

The Use of External Facilitation 73

Creating Objectives 78

Strategic Themes 80

Risk-Balanced Scorecard 85

Value Creation Map 88

Risk Map 91

Conclusion 92

CHAPTER 5: SELECTING METRICS AND TARGETS 95

Executive Summary 95

Introduction 95

The Critical Few Measures 96

Key Performance Questions 97

KPIs 101

Common Definitions 108

Key Risk Indicators 111

A Risk Scorecard 117

Selecting Targets 118

Comparative Performance Goals 121

Conclusion 123

CHAPTER 6: SELECTING INITIATIVES 127

Executive Summary 127

Introduction 127

Organizational Awareness of the Importance of Initiatives 128

The Challenges of Selecting Initiatives 128

Linkage to the Strategy Map 129

Stratex 129

Initiative Prioritization 130

Conclusion 135

CHAPTER 7: CASCADING THE BALANCED SCORECARD: THE STRUCTURAL CHALLENGES 137

Executive Summary 137

Introduction 138

Strategic Line-of-Sight 138

Mandated Objectives and Measures 139

An Ideal Scorecard Cascade 139

Scorecard Pilots 140

A Hybrid IT Strategy Map: The Case of the Bank of England 146

To Cascade or Not to Cascade? 150

Conclusion 156

CHAPTER 8: CASCADING THE BALANCED SCORECARD: THE CULTURAL CHALLENGES 159

Executive Summary 159

Introduction 160

Transparency and Accountability 160

Fear ofMeasurement 161

A Major Change Effort 163

Senior Management Behavior 167

Local Champions 170

Communications 170

Conclusion 172

CHAPTER 9: INDIVIDUAL PERFORMANCE APPRAISAL AND INCENTIVE COMPENSATION 175

Executive Summary 175

Introduction 176

Personal Scorecards 176

Arguments Against the Personal Scorecard 177

Truncated Personal Scorecards 178

Competency Development 178

Personal Scorecards for the Senior Team 179

Linking Performance to Pay 179

The Arguments AgainstMaking the Link 184

Making the Choice 185

Conclusion 185

CHAPTER 10: GETTING THE BEST FROM SOFTWARE 189

Executive Summary 189

Introduction 189

The Benefits of Automation 190

What Software Cannot Do 193

Certified Vendors 194

Criteria for Choosing Software 195

Advanced Performance Institute Software Selection Criteria 196

Developing an IT Strategy 199

Strategy and Risk Management 201

Conclusion 202

CHAPTER 11: ALIGNING BUDGETING AND PLANNING WITH STRATEGY THROUGH THE BALANCED SCORECARD 205

Executive Summary 205

Introduction 206

The Shortcomings of the Budget 206

Out of Step with Strategy 207

The Scorecard Driving the Budget 208

Devolved Responsibility 210

Alternatives to Conventional Budgeting 210

Reporting Risk 219

Stratex 220

Conclusion 221

CHAPTER 12: CONCLUSION AND ACTION ROADMAP 225

Executive Summary 225

Part One: The Future of the Balanced Scorecard Within Financial Services Organizations 226

Part Two: Action-Oriented Roadmap 228

Parting Remarks 233

Index 235