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Creating a Balanced Scorecard for a Financial Services Organization

ISBN: 978-0-470-83030-7
224 pages
August 2011
Creating a Balanced Scorecard for a Financial Services Organization (0470830301) cover image
How to tap the power of the balanced scorecard, for financial services organizations

Designed to help financial services organizations build and implement the strategic management framework known as the balanced scorecard, Creating a Balanced Scorecard for a Financial Services Organization is the book you need to ensure accountability, transparency, and risk management in your enterprise. The financial crisis revealed the many shortcomings of the industry, but with this book in hand you can make the most of the mistakes of the past to build a better, stronger business that balances both short- and long-term goals.

Rich in the latest theoretical thinking and incorporating case studies that show the balanced scorecard system in action, the book covers both financial and non-financial performance perspectives in one comprehensive volume. Written by two leading practitioners with years of real-life experience, the book is the definitive step-by-step guide to implementing the balanced scorecard throughout your organization, aligning your whole business with your strategic goals.

  • Includes everything you need to improve performance transparency, accountability, governance procedures, risk management, and more for financial services organizations of any kind
  • Packed with expert advice and case studies that show the ideas presented in action
  • Written by leading experts who have successfully implemented the balanced scorecard system in their own companies

Accessible and in-depth, Creating a Balanced Scorecard for a Financial Services Organization is the book you need to improve your business.

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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

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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.

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September 16, 2011
Solutions to challenges of corporate strategy and risk management in the financial industry

After the devastation of the credit crunch of 2008, what emerged clearly from the wreckage was that the financial sector, specifically banking, needed a new roadmap to make its way into the post-credit crunch economy. 

This book by Naresh Makhijani and James Creelman presents that roadmap. In an easy-to-use, practical format, it describes how financial organizations throughout the globe are using a single tool to successfully deal with the challenges of reorganizing themselves for more transparency and accountability, more watertight risk management and sustainable long-term financial return – the Balanced Scorecard.

The Balanced Scorecard is the world’s most popular strategy management framework, lauded for its efficacy in balancing financial performance with non-financial results and short-term requirements with long-term goals. Creating a Balanced Scorecard for Financial Services Organization is based on rigorous research of case studies to offer a practical, step-by-step guide for designing and implementing a Balanced Scorecard. Through the many case study examples, ranging from Pentagon Federal Credit Union to Canadian giant Scotiabank, supported by up-to-the-minute theoretical thinking, this detailed manual explains how to integrate risk management with strategy management through the Balanced Scorecard framework and how to link operational management with strategy management.

For those wanting to implement the Balanced Scorecard on all levels of an organisation, the book also details clearly how to develop a range of synergistic scorecards from corporate through business unit, function and even individual employee levels so that strategy becomes seamlessly integrated into “everyone’s everyday job”. 

Creating a Balanced Scorecard outlines also how to foster the appropriate culture for managing using the framework and how to make suitable technology choices to support such strategy management. As well, the authors explain how to refine the incentive compensation system to reflect the drivers of future value creation as well as historical financial performance.

For executives in the financial and banking industries, Creating a Balanced Scorecard is an indispensable guide to aligning the entire organization behind the strategic goals of the enterprise through a single, comprehensive framework.

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