THE OTI THOUGHT LEADERSHIP SERIES

VOLUME 1: ISSUE 4

CREATING A BALANCED SCORECARD FOR FINANCIAL SERVICES

Naresh Makhijani, Founder and Advisor & James Creelman, Global Best Practices Leader, PT OTI Organisasi Transformasi Internasional

THE OTI THOUGHT LEADERSHIP SERIES

The OTI Thought Leadership Series provides expert insight and best practice implementation advice on issues that are front-of mind of senior executives. Particular emphasis is placed on strategy implementation and the alignment of organizational processes, people and functions with strategic goals. The OTI Thought Leadership Series is an invaluable compendium of proven best practices that are drawn from the observations of OTI senior consultants of organizational excellence throughout the world.

LEADERSHIP SERIES

Naresh Makhijani & James Creelman, 2008

Table of Contents

EXECUTIVE SUMMARY........................................................................................................................ I. INTRODUCTION......................................................................................................................... Why financial services is perhaps the most turbulent, competitive and unpredictable of all markets. How Scotiabank gained competitive advantage by using the Balanced Scorecard to become more customer focused. Financial Services Balanced Scorecard success stories. II. THE BALANCED SCORECARD EXPLAINED .......................................................................... The key components of a Balanced Scorecard management system. III. FOUNDATION STONES FOR SUCCESS ................................................................................. Why senior management sponsorship and excellent project management skills are foundation stones for succeeding with the Balanced Scorecard. IV. BUILDING THE BALANCED SCORECARD .............................................................................. How to design a Balanced Scorecard Strategy Map. How to choose strategic measures. Banking 365 case example. How to select targets. How to select strategic initiatives. Wells Fargo Case Example. V. CASE STUDY: BANK NIAGA .................................................................................................... The successes achieved since launching the Balanced Scorecard in 2002. Updating the scorecard following a merger. Automating the scorecard. Aligning performance with incentive-compensation. VI. CONCLUSION ............................................................................................................................ Why the challenges facing financial services organizations will intensify in the coming years.

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THE OTI THOUGHT LEADERSHIP SERIES

Naresh Makhijani is OTIs Founder. For more than 23 years he has led consulting assignments in Asia, Middle East and Europe. In 1995 he became the first consultant to complete a scorecard implementation in Asia. Since then he has led and managed over 100 Balanced Scorecard projects in a number of countries, including Switzerland, Singapore, Indonesia, Thailand, Vietnam, Qatar and India.

EXECUTIVE SUMMARY

Naresh Makhijani

ew can argue that financial services is a turbulent, unpredictable and volatile industry. Online channels, risk management and an increasingly spoilt for choice customerbase combine to make life challenging for the leaders of financial services entities. Yet there are still financial services organizations that deliver continued yearonyear success. A glimpse into the internal workings of these organizations shows that many have adopted the Balanced Scorecard framework as their preferred tool for successfully executing strategy in todays challenging environments. Indeed, some of the successes have been quite stunning. With examples from leading financial services organizations from various parts of the globe, this issue of The OTI Thought Leadership Series explains how to build a Balanced Scorecard framework, comprising a Strategy Map of key strategic objectives and a scorecard of accompanying metrics, targets and initiatives. A case study on the Jakarta, Indonesia headquartered Bank Niaga highlights key learnings from this paper.

His primary focus is in assisting companies in translating their strategic vision and goals into tangible results. In addition to the Balanced Scorecard, he has led and managed consulting projects in areas such as Vision and Goal Building, Business Planning, Activity Based Costing/Management, Business Process Re-engineering, Change Management, Management Cockpit and SAP R/3. Naresh is the co-author of the best-selling book Managing Business in Asia: Succeeding with the Balanced Scorecard, and has published 17 articles and a white paper on Management Cockpit. He has an MBA and has received academic qualifications from Asia, North America and Europe. James Creelman is the Global Best Practices Leader for OTI and a member of its senior management team. An internationally acclaimed author and advisor, James has authored, or co-authored 18 reports or books on the Balanced Scorecard, Enterprise Performance Management and functional best practices. These include:

James Creelman

Mastering Business in Asia: Succeeding with the Balanced Scorecard Reinventing Planning and Budgeting for the Adaptive Enterprise Creating a World-Class Finance Function: Five Core Capabilities That Generate Added Business Value Transforming Public Sector Performance Creating the HR Scorecard Building and Developing the Finance Scorecard Driving Corporate Culture for Business Success

He has served as the Editor of numerous print and online business management magazines and regularly presents at conferences, workshops and seminars throughout the world. James has been designated a Fellow of the Advanced Performance Institute.

About The Authors

The OTI Thought Leadership Series

I.

INTRODUCTION
Our objective is to achieve the highest levels of customer satisfaction and loyalty. We want to deepen our relationships with our existing customers. And we want to continue to acquire new customers. He continued that their research had found that their vision resonated with customers. ...In fact, its a proposition that translates into a tremendous level of customer loyalty, said Waugh, [And] compared to the other Canadian banks, Scotiabank customers report very high levels of customer loyalty. This higher level of commitment means that our customers are more likely to recommend our services to others. And it means theyll trust us with more of their business. As for success, for 2007 the 60,000 employeestrong Scotiabank reported net income available to common shareholders of (CAN) $3,994 million and return on equity of 22.0%. Dividends increased by16%. The total return to shareholders (share price appreciation plus dividends reinvested) was 12% resulting in 13 consecutive years of positive returns to shareholders of the Bank. The compound annual return of the Banks shares over the past five years has averaged 22%. Delivering to a customercentric vision required a structural and systems overhaul of Scotiabanks operations. But at the core of the transformation was the implementation of a new strategy implementation framework the Balanced Scorecard. Scotiabanks Waugh says: when we look at our performance as an organization, we look at more than just our financials. We use a Balanced Scorecard [which] means financial performance [but] also means meeting our customer goals. It means operational success and, of course, it means our people.

he financial services industry is arguable the most turbulent, competitive and unpredictable of all market sectors. The breathtaking advancements in information technology in recent years has totally transformed both how financial services organizations go to market and how they are perceived by their customer base. For instance, online market channels are a staple of all in financial services. While better enabling the reach to customers, it also means that potential customers can, at a click of a button, instantly compare prices and product characteristics from many hundreds of suppliers. This has led many analysts and researchers to argue that the notion of customer loyalty is all but dead within financial services. Yet heres the conundrum. There are those that argue that product commoditization and the speed by which products can be replicated by competitors, means that a focus on the customer is the only way to achieve differentiation in a crowded marketplace.

when we look at our performance as an organization, we look at more than just our financials. We use a Balanced Scorecard [which] means financial performance [but] also means meeting our customer goals. It means operational success and, of course, it means our people.
Richard E. Waugh, President and Chief Executive Officer, Scotiabank

Scotiabank Case Example

This was the view taken by the giant Canadian bank Scotiabank at the turn of this decade, following indepth research amongst its customer base. As a steer toward customercentricity, the organization crafted a vision, to be the best at helping its customers become financially better off, by providing relevant solutions to their unique needs. By delivering that experience Scotiabank believed it would retain (and win) customers in fiercely competitive markets. Fast forward to March 2007 and the address to the Annual General Meeting made by Richard E. Waugh, the corporations President and Chief Executive Officer.

Financial Services Scorecard Success Stories

Scotiabank is one of a host of financial services organizations from across the globe that have adopted the Balanced Scorecard. Indeed, financial services has probably been the heaviest of all sector scorecard users. Other companies include Bank Niaga (see case study in this issue of The OTI Thought Leadership Series), BMW Financial Services, Bank of Ireland, Bank of TokyoMitsubishi, Bank

Creating A Balanced Scorecard For Financial Services

Naresh Makhijani & James Creelman, 2008

The OTI Thought Leadership Series

Universal (now merged into PermataBank), Barclays, Astra Insurance, Adira Finance, the Royal Bank of Scotland, and KeyCorp. Moreover, the USheadquartered Cigna Property & Casualty (P&C) was an early poster boy of the scorecard movement, when during the mid 1990s the scorecard was used as the core tool that turned around an organization that had lost $1 billion over four years.

III. FOUNDATION STONES FOR SUCCESS

wo key foundation stones must be in place before building and cascading a Balanced Scorecard.

When lain Robertson was appointed CEO of the Royal Bank of Scotland (RBS)he implemented the scorecard because he believed it could provide him with an overview of the banks performance against its strategic objectives in a user friendly, and simple, format

Senior Management Sponsorship

Most importantly is sponsorship from a Clevel executive (preferably the CEO). Implementing a Balanced Scorecard is an enterprisewide initiative that crosses baronies and power bases. Without the recourse to Clevel interventions, resistance, or lack of effort, within the organization will eventually derail the scorecard programme, especially in the face of pressing operational issues. That Scotiabanks Waugh highlights the importance of the scorecard in his annual address to the AGM is testament to his support. Moreover, at Banking 365 the scorecard was introduced by and daily championed by CEO Cathal Muckian. Stretching back to the phenomenal success of Cigna P&C, this was in no small part due to the complete support for the scorecard effort by CEO Gerry Isom. And lets not forget that the scorecard delivers great value to the CEO. When lain Robertson was appointed CEO of the Royal Bank of Scotland (RBS) in 1998 he implemented the scorecard because he believed it could provide him with an overview of the banks performance against its strategic objectives in a userfriendly, and simple, format. And, just as importantly, it could be used to set stretching targets bankwide that could be easily tracked. RBS has been one of the best performing UK banks for much of the last decade. Clevel executives should serve on a steering committee that oversees the scorecard implementation programme.

II.

THE BALANCED SCORECARD EXPLAINED

irst described in 1992, a Balanced Scorecard is a strategy implementation framework that comprises four components:

F
1. 2. 3. 4.

A Strategy Map which describes the key objectives that, if delivered to, will mean the successful implementation of the strategy. The metrics used to monitor progress toward the objectives. The targets for the metrics. The strategic initiatives (or action programmes) that are launched to drive performance toward the targets, and so ultimately the delivery of the strategic objectives.

Each component comprises a financial perspective and the three nonfinancial perspectives of customer, internal process and learning & growth. Although some organizations might opt for 3, 5 or 6 perspectives, depending on their own strategic needs and relabel the perspectives accordingly, or to reflect their own culture. A Strategy Map for Banking 365, a remote banking arm of the Bank of Ireland is shown in figure 1.

Project Management
Managing the scorecard implementation on a dayto day basis should be the responsibility of a project manager (probably one or two levels below the Csuite) who is greatly respected in the enterprise. At Bank Niaga the programme was headed by Wahyu Eko Wardono, head of

Naresh Makhijani & James Creelman, 2008

Creating A Balanced Scorecard For Financial Services

The OTI Thought Leadership Series

Financial Perspective

Increase return on equity Grow product sales/revenue

Lower cost per transaction

Enhance efficiency and productivity

Customer Perspective

Increase customer confidence in buying products Direct through superior delivery in terms of convenience, speed and value

Increase customer satisfaction through superior delivery of day-today banking services

Sales Internal Perspective

Drive up sales using B365 and premier brands

Deliver quality service

Expand CRM in terms of depth and breadth of products Push payment protection

Operational Efficiency
Shift to selfservice facilities Effectively manage key processes Deliver quality service

Service

Expand worksite sales Crosssell

Control expenditure Effectively manage resources Outsource noncore activities Migrate customers to Banking 365

Manage complaints

Sales People Perspective

Develop sales culture Listen and respond to staff concerns Retain Staff Align goals Manage staff performance Invest in skills development

Technology and Information

Develop MCA infrastructure Manage system performance Maintain service culture Listen and respond to staff concerns

Service
Invest in skills development Retain Staff Align goals Manage staff performance

Establish KPIs and associated MIS for each function

Figure 1: Strategy Map

corporate planning, while at Cigna P&C it was by Tom Valerio, who was designated chief of staff with a direct reporting line to the CEO. These project leaders should be supported by a dedicated programme team consisting of representatives from several functions.

design of the Balanced Scorecard. Ideally, this will run as a series of workshops starting with the Strategy Map, followed by sessions that consider measures and targets and finally initiatives.

IV. BUILDING THE BALANCED SCORECARD

Strategy Mapping
Strategy mapping is the most important task in building a Balanced Scorecard, and so must be the first of the sequential workshop events. Get the map right and it becomes much simpler to select meaningful measures, targets and initiatives. Indeed, spending 80% of the effort at the stage will likely pay dividends later.

T


ypically with the guidance of a proven scorecard consultancy (whose key roles should be providing the methodology, best practice sharing and the transferring of knowledge), the project team facilitates the

Creating A Balanced Scorecard For Financial Services

Naresh Makhijani & James Creelman, 2008

The OTI Thought Leadership Series

To better understand the dynamics of a Strategy Map, it is important to view the map as comprising two halves. The top half (the financial and customer perspectives) are essentially outcomes or rather what the organization aims to achieve financially and for the customer. The bottom half of the map represents the inputs or rather those processes/activities that must be delivered exceptionally well if the outcomes are to be realized and, consequently, the strategy implemented.

value is experienced through the eyes of the customer. So avoid objectives such as increase share of wallet, which is not about value to the customer, but to the enterprise itself. Customer objectives might include this bank delivers superior financial products, and this bank provides an exceptional quality of service.

Internal Process From a financial perspective, the top objective should typically always focus on the delivery of value to shareholders/ owners. All commercial organizations are in business for this reason
Dropping down to the internal process perspective, we move into the half of the map where work gets done. Note that it can be helpful to think about strategic theming at this point. A bar could be inserted between the internal process and customer perspectives that capture the key themes of the strategy and will be used to collocate the objectives within the internal process and learning and growth perspectives to those themes. As an illustration, themes might be build customer engagement, risk management, operational excellence. Objectives for operational excellence might include enhance online delivery capabilities, profitably deliver consistent service. Typically we would expect to find about 40% of all objectives within this perspective.

Financial
From a financial perspective, the top objective should typically always focus on the delivery of value to shareholders/owners. All commercial organizations are in business for this reason. Normally, the financial perspective will include an effectiveness objective (such as maximize revenue growth) and an efficiency objective (such as manage expenses). Financial institutions will also typically choose an objective around managing risk (crucial, giving todays global risk profiles and the catastrophic failings of household name banks caused by the credit crunch) and asset management.

Learning & Growth

The final perspective is learning and growth. Although the last perspective in the sequence, it is certainly not the least important. Indeed scorecard cocreator Professor Robert Kaplan has said that the learning and growth perspective is the foundation of the map that is it holds up the other three perspectives. In this perspective, attention is paid to the key competencies, attitudes and values that must be found within the employeebase if the internal processes are to be delivered effectively and therefore the realization of the customer and financial outcomes. So for example, the customer perspective has an objective of this bank understands my needs, there might be an internal process objective of implement a customerfocused learning process, and that will be supported by a learning & growth objective of build knowledge management capabilities. With the map created, the next step is to choose and identify the metrics.

Customer
The next step in the Strategy Mapping process is to populate the customer perspective. Remember that a Strategy Map should tell a performance story. Therefore, when considering which objectives to place in the customer perspective it is crucial that each customer objective is hardwired to one or more of the objectives within the financial perspective. From a customer perspective, it is also important to note that the purpose of this perspective is to describe how

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Creating A Balanced Scorecard For Financial Services

The OTI Thought Leadership Series

Choosing Strategic Measures

It is not uncommon that organizations are first attracted to the Balanced Scorecard because of its role as a measurement system. But although metrics are a critically important component, the Balanced Scorecard is not a measurement system, it is a strategic management framework. This is a crucial understanding. In choosing metrics, there are several key considerations to keep in mind. Firstly, it is not unusual for up to half of the metrics that are identified as best supporting the strategic objective to be unavailable. The choices here are to build the metric or choose a proxy (a close assimilation). A manager from the Royal Bank of Scotland came across this challenge when building its scorecard. An excellent performance measure may be identified but it may cost millions of [dollars] and take years to create and implement. Therefore, the challenge here was to take that perfect measure and from it create a measure that was both useful to the business and costeffective to implement. Moreover, to be useful for aggregation, comparison and bestpractice sharing, measures should be commonly defined organizationwide. Typically this is an early and difficult challenge as it is not unusual to find that performance is measured in many different ways across the enterprise.

measure indicates we are failing to meet that goal and so we do something about it. As an example, figure 2 shows metrics from Banking 365 alongside selected objectives.

Bank Universal Case Example

Here are examples of the metrics used at Indonesias Bank Universal. Financial metrics were grouped around revenue and expenses. Customer satisfaction metrics included how long customers wait for tellers or service delivery and an annual customer satisfaction survey measured the branch network performance collectively, and branches individually. From a process perspective, measures included how long it takes to process a cheque, to submit a deposit, or to open an account. Finally on the people side, measures included succession planning at branch level and the product knowledge of branch employees.

Ownership
As with strategic objectives, ownership and accountability should be assigned to metrics. Objective and measure ownership is crucial for the operationalising of the strategy.

Selecting Targets
Once measures are agreed, the next step is to identify metric targets. Of course all organizations set targets. However, these are still predominantly financial, with most fixed for an annual, budgeted timeframe. Within the Balanced Scorecard, equal attention must be paid to both financial and nonfinancial targets, and goals must be synchronised to a longer term, or strategic horizon.

Actionable
Importantly metrics should be actionable. Measures that are nice to know but do not trigger stepchange performance improvement typically have no place on a Balanced Scorecard. For instance if an organization has an objective to retain talent and has clearly defined what constitutes talent and has an agreed common enterprisewide metric, and the measures shows that strategically critical employees are walking out the door, then this should trigger an intervention. Simply put, we have a strategic objective, the

Measures that are nice to know but do not trigger stepchange performance improvement typically have no place on a Balanced Scorecard

Creating A Balanced Scorecard For Financial Services

Naresh Makhijani & James Creelman, 2008

The OTI Thought Leadership Series

Selected objectives
Financial F1 Increase return on equity F2 Grow product volumes/income F3 Enhance productivity/efficiency Customer C1 Increase customer confidence in buying Direct C2 Increase customer satisfaction through superior delivery of daytoday banking services Internal Process I1 Drive up sales using both brands I2 Cross sell products I3 Expand CRM I4 Expand worksite sales I5 Push payment protection I6 Provide quality sales service I7 Shift traffic to selfserve device I8 Effectively manage key processes I9 Effectively manage resources I10 Effectively manage expenditures I11 Outsource noncore activity I12 Deliver quality service I13 Effectively manage customer complaints I14 Migrate customers to Banking 365

Selected metrics
PBT v target Cost income ratio Product sales/income v target Cost per transaction Percent products sold Direct Mystery shopper rating Customer satisfaction rating Volume of 365/Premier Sales v Target Number of cross sales applications generated Number of outbound calls made/converted Number of active schemes Payment protection takeup Percent sales calls answered within 20 seconds Percent sales calls abandoned Number of transactions by selfservice device Total call processing time (Serv) Application Approval Ratio Take up rate on approval (Sales) Manpower v Req v Budget for services and sales Expenditure v Budget Status update Percent service calls abandoned Percent service calls answered within 20 seconds Number/type of customer complaints Volume of Service calls v Target Staff feedback survey Percentage of time invested in training Staff feedback survey Staff feedback survey Staff fora update Staff turnover rate Staff rotation rate System availability/response times Project, program updates

People P1 Develop appropriate culture in services and sales P2 Invest in skills training P3 Align goals P4 Manage staff performance P5 Listen/respond to staff concerns P6 Retain staff Technology System Performance T2 Develop MCA infrastructure M1 Introduce KPIs for each function

Figure : Selected Objectives/metrics From Banking 

Too often, targets (financial or not) tend to be an outcome of negotiations between, for example, the corporate centre and business unit managers. As a result, targets become more about reaching a compromise than beating the competition. More, targets are normally based on an insideout view of the marketplace (the performance we want to achieve in our chosen markets), rather than outsidein perspective (what can really be achieved in those markets). All measures on a Balanced Scorecard should have a corresponding target, just as all objectives require supporting

metrics. The target represents a tangible, and quantifiable, vision of desired performance. But targets must not be simply plucked out of the air, but be based on a thorough analysis of both required performance and internal capabilities.

Comparative Performance Goals

In the setting of targets organizations should, wherever

Naresh Makhijani & James Creelman, 2008

Creating A Balanced Scorecard For Financial Services

The OTI Thought Leadership Series

Tasks
Define measures to track strategic objectives in the scorecard Be prepared to be innovative in defining strategic measures Set targets for measures Ensure that each measure passes the tests of being valid, meaningful, actionable and deliverable Measure leading aspects of performance

Issues
As with strategic objectives, the number of measures should be kept to an essential minimum Most of the nonfinancial measures that are needed for a strategic scorecard are unlikely to be readily available Targets convert measures into tools for improving performance Measures will need to conform to a number of criteria if they are to be implemented and accepted, particularly in the case of nonfinancial measures Some measures, such as customer and employee satisfaction are unreliable indicators of future behaviour, and need further refinement Since managers and individuals will be assessed against measures of performance, new measurement frameworks have repercussions for accountability Be prepared to trade off cost against value since in some cases, the cost of sourcing and collecting the data to populate a measure may exceed its value Where relevant, measures that compare the organization relative to the competition can help to target strategic performance improvement opportunities

Address the political implication of measures Take data accessibility into account in selecting measures Identify measures that can be subject to benchmarking and relative performance assessment

Figure : Workshop : Selecting Strategic Measures and Targets

possible, identify comparative performance goals. Organizations typically set targets based on what they think they can do. Yet, increasingly leading companies are less concerned with what they themselves believe they can achieve, but what is actually being accomplished by competitors. For instance, for Company A the moving from 75% to 85% customer satisfaction in a nine month timeframe might be perceived as a stretch and its achievement a success, but if there are competitors that are already at 85% and are aiming for 90%+, then performance for Company A can legitimately still be described as below required standards despite the stretch. Consequently, the management team of Company A must raise the performance bar so that they can beat the competition, rather than meet an internally derived target. This, of course, is easier said that done and organizations often set targets while ignoring what they are actually capable of achieving in light of the present capacity of the organization and the capability of its processes. So if senior management sets a target to be better that the competition by Y%, but doesnt analyze whether the organization is configured to achieve Y%, then its a shortsighted approach that will de-motivate the lower level managers that are being asked to hit targets that they know to be unrealistic.

Selecting Strategic Initiatives

The final workshop considers initiatives. When choosing strategic initiatives the overriding criteria is that they must directly link through to objectives on the Strategy Map. Simply, no initiative should be launched or funded unless this link is unequivocally proven. This is because the purpose of an initiative is to close an identified gap between actual and required levels of performance to achieve a strategic objective. Crucially, the process of initiative selection typically leads to the jettisoning of wellestablished, and often expensive, projects. It is not unusual that anywhere between 40% and 80% of existing projects will be cancelled as a consequence of a properly architected Balanced Scorecard framework. Cancelling highprofile projects may lead to resistance from the senior executive that sponsors the project. Describing through the scorecard why the initiative is no longer strategically relevant may help overcome this resistance. If not, then it is the responsibility of the CEO to order project cancellation the political complexities in giving such an order clearly demonstrated why the CEO must not just pay

Creating A Balanced Scorecard For Financial Services

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The OTI Thought Leadership Series

lip service to the scorecard, but demonstrate support with clear action. More, theres a further bunch of initiatives where several departments are tackling the same issue, and are unaware of each others efforts. The transparency of performance and activities resulting from the scorecard creation enables managers to bring these teams together and so reduce the number of initiatives and cost burden.

Tier 2: Important those that are very important, but must be considered against others if funds are limited. Tier 3: Beneficial initiatives that are only pursued if they do not infringe upon higher level priorities. Within this organization, initiative identification begins with brainstorming in each of its divisions, after which the executive coordinating team, comprising divisional heads, selects initiative candidates. Team members individually sort these candidates into the threetier order with the final priorities being agreed to be by consensus within the group. As a result, the organization has created a common understanding of resource prioritises amongst the senior team. If budgets need to be scaled back during the year for any reason, it is clear which initiatives will be affected first.

Case Example: Wells Fargo

As one example, when the USheadquartered Wells Fargo Online Banking launched its scorecard in the late 1990s, its initiative identification process began with an itinerary of the projects already under way. It discovered 600 initiatives organization wide. Through the scorecarding effort this was reduced to 100, which enabled greater strategic focus and significantly reduced costs. At Wells Fargo a comprehensive initiative scoring process was put in place that included percentage weightings (and scores) of the initiative according to strategic importance, business case (including cost and net present value) and implementation (complexity and time).

Figure : A Checklist for Selecting Strategic Initiatives

Strategic Initiative Task

Create a list of all organizational initiatives

Issues
A simple exercise in identifying existing initiative is a crucial first step in prioritization. Most organizations have far too many initiatives. Use a weighting, or other explicit scoring system, for comparing the value of initiatives and establishing the business case. A robust system is required to ensure that the most valuable initiatives are launched and funded first. Deal with the political fallout from senior management commitment to abandon initiatives. Create unitary teams where staff are working in parallel on the same projects.

The transparency of performance and activities resulting from the scorecard creation enables managers toreduce the number of initiatives and cost burden

Establish criteria for aligning initiatives with scorecard objectives. Prioritise strategic initiatives in line with scorecard objectives Abandon nonstrategic initiatives Rationalise, where appropriate, overlapping initiatives within the organization. Assign responsibility for initiative execution.

US Case Example
As a further example consider this US organization. When building its scorecard it put in place a threetiered hierarchical system for initiative prioritization, and therefore for resource allocation to initiatives. The three tiers are: Tier 1: Essential initiatives with the organizations highest level of commitment, which are certain of funding.

Managers must be made accountable for delivering strategic initiatives. Progress must be monitored and close attention be paid to ensuring the initiatives are impacting scorecard targets/objectives.

Monitor progress and impact.

Naresh Makhijani & James Creelman, 2008

Creating A Balanced Scorecard For Financial Services

The OTI Thought Leadership Series

V.

CASE STUDY: BANK NIAGA

ing model. Following the merger and triggered by the creation of a new set of strategic goals, Bank Niaga revisited the Strategy Map and Balanced Scorecard, which has served it well for five years. We had to translate the new merger into the strategy map and KPIs says Wahyu Eko Wardono, head of corporate planning. As part of this we also had to realign the action plans and accountabilities for individual managers.

eadquartered in Jakarta, Indonesia and with Rp 59.2 trillion in assets and with over 6,200 employees, Bank Niaga can boast stunning successes since it first introduced the Balanced Scorecard in 2003. As just a sample: Bank Niaga improved its position from 11th largest bank in 2003 to 6th in 2007 in terms of assets; loans grew by 26%; deposits grew by 15% Niaga Mortgage Market share is 2nd largest in the industry It was voted the best commercial bank for real estate in 2006 Best Syariah Banking Unit for Asset category above RP 500 billion, with loans growing by 92% in 2007 Ranked 2nd in the Indonesian Service Quality Awards for Category Priority Banking Service for all Multinational and Domestic Bank by CCSL in 2007 Credit card holders grew by 53% in 2007 Ranked 1st in the HR excellence award 2007 by SQA & LM FEUI Ranked 3rd in top 10 Employer choice by SWA & Hay Group

Scorecard Facilitation
Creating the updated Strategy Map was facilitated by the strategic planning department with support from the consultancy OTI. Over a series of meetings with senior executives the strategy was reviewed and clarified and a Strategy Map and scorecard were created for the corporate level. Top management has to create the culture the strategy and the supporting KPIs have becomes the culture. If not, you cannot manage to a scorecard, you cannot manage the strategy implementation and you cannot create a performance culture.
Wahyu Eko Wardono, head of corporate planning, Bank Niaga

A Change Of Direction
In early 2008 Bank Niaga which offers a comprehensive suite of conventional and Islamic banking products and services from 255 branches in 47 cities in Indonesia created a new vision to the year 2010: To be Indonesias Premier Universal Bank (Universal means integrally providing all banking products and services). This new vision was the result of its merger with the Malaysian headquartered financial service company CIMB GROUP. From the vision came these targets:

Case Study
10
Creating A Balanced Scorecard For Financial Services

Premier Universal Bank in Indonesia National Bank status Overall market share of 5%, return on equity of 20% Integrated regional operating model

To achieve these targets Bank Niaga chose to focus attention within several key areas. For instance, it intends to be in the top three in certain markets (such as affluent and mass affluent) and be top five in others (such as credit cards and corporate banking). It wll also deemphasize others such as mass consumer and lower middle segments. Moreover, it will also create an integrated regional operat-

With the corporate scorecard as the strategic anchor, a series of cascading scorecards have been built within Bank Niaga at directorate and group/area levels. Although strategically aligned, the scorecards at different levels serve different purposes. The scorecard at the corporate level has a mainly strategic focus while that at directorate level pulls together strategic and operational goals within the context of corporate strategy. The scorecards at group/area level are mainly operational targets set within a wider strategic context. Lower level units receive targets from the corporate centre, but we work with managers to identify and improve capabilities that will enable them to deliver to their targets, says Wahyu Eko Wardono.

Scorecard Automation
The scorecard system is now fully operational and is central to monthly meeting. Moreover the scorecard is fully

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The OTI Thought Leadership Series

automated through Actuate PBViews, which means that performance of all of the units enterprisewide is fully transparent. Wahyu Eko Wardono admits that such visibility into performance led to some initial resistance to the new, improved scorecard being rolled out. Transparency led to some concerns from managers as they knew that their performance could now be monitored at the highest level of the organization, he says. When some managers realized that their performance was red, so below expectations, there were some questions re the accuracy of the data. He adds that now that people know the data is right they are motivated to change, as they dont like to be seen as poor performers.

implementation as hard as we should. It really is critical to fully align action plans and accountabilities with strategic goals. He adds that the transparency that has been enabled through software had really helped people understand where they need to improve and so has been instrumental in inculcating the required accountabilities and a performanceoriented culture.

Critical Success Factors

In conclusion Wahyu Eko Wardono offers these critical success factors for succeeding with the Balanced Scorecard. Translating vision and mission into the correct Strategy Map is a must. Top management has to create the culture the strategy and the supporting KPIs have becomes the culture. If not, you cannot manage to a scorecard, you cannot manage the strategy implementation and you cannot create a performance culture. Make the KPI motivate performance improvement. During the monitoring system ensure that you have updated and accurate data to support people in decision making.

Annual Bonuses
Motivation to improve is heightened by the fact that performance to the scorecard is tied to the annual bonus, at the divisional level at least. In addition to cash, outstanding performance gets a trophy from the president director. The scorecard is a powerful mechanism for identifying top performers, says Wahyu Eko Wardono, And people gain great pride in being recognized bankwide as an exceptional employee.

Daytoday Ownership
On a daytoday basis corporate planning maintains responsibility for managing the scorecard. But Wahyu Eko Wardono stresses that HR has a key role to play with regards performance management: HR has to link bonuses and benefits to the Balanced Scorecard, he says, which is critically important for making the framework succeed.

Wahyu Eko Wardono

Wahyu Eko Wardono is Vice President of the Corporate Planning Group at PT. Bank Niaga TbK. He is the Strategic Planning Division Head responsible for developing the longterm strategy of the bank and served as the Project Manager for the design and implementation of the Banks Balanced Scorecard. His previous positions with the bank include Corporate Affairs Head, Investor Relations Division Head and a managerial position within Asset/Liability Management. He holds and MBA from Monarsh University, Australia, an MM from IPMI Indonesia and a Bachelors degree from the University of Indonesia Faculty of Economics, majoring in money and banking.

Key Learnings
Although early in the new scorecard rollout, Wahyu Eko Wardono says that there have already been some key learnings. Most notably that in the first scorecard journey not enough attention was paid to inculcating the tools for strategy execution. Although we had a good vision and mission we perhaps didnt drive

Case Study
Creating A Balanced Scorecard For Financial Services

Naresh Makhijani & James Creelman, 2008

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VI. CONCLUSION

here is little doubt that the challenges facing financial services organizations will intensify in the coming years. Competition will proliferate, and from increasingly surprising sources, and due the interconnectivity of economies these days we can expect further risk shocks to quickly travel the globe. Financial services organizations need an armoury of tools to beat the competition and survive in this turbulent world the Balanced Scorecard will be an essential part of that toolkit.

About OTI
OTI is an Indonesia headquartered Management Consulting Firm specializing in helping organizations to transform themselves and their performance. It works in four broad areas with its clients: Strategic Alignment, Financial management, Process Transformation and Human Resource Management. OTI was the pioneer in providing Balanced Scorecard consultancy to Asian companies and continues to innovate in product design and execution.

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Creating A Balanced Scorecard For Financial Services

Naresh Makhijani & James Creelman, 2008

Also available in The OTI Thought Leadership Series

Volume 1, Issue 1: How Leading Organizations Successfully Implement Corporate Strategy with the Balanced Scorecard. Naresh Makhijani & James Creelman, May 2008. Volume 1, Issue 2: Creating a World-Class Finance and Accounting Organization. Naresh Makhijani & James Creelman, May 2008. Volume 1, Issue 3: Using The Balanced Scorecard To Align Support Functions With Corporate Strategy . Naresh Makhijani & James Creelman, July 2008.

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