Balanced Scorecard Example: Metro Bank

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Balanced Scorecard Example Metro Bank
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Background

• Mike Hancock, CEO, wants to reposition Metro Bank
  in a new strategic direction
• Historically, retail banking had emphasized
  efficiency in processing transactional products
• Checking accounts
• Savings accounts
• Consumer loans

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Banking Today

• Deregulation of interest rates has led to
  increased competition
• Relaxed geographical restrictions had allowed
  banks in neighboring states to open branches in
  Metros banking area
• Many non-banking institutions, such as Merrill
  Lynch, were offering banking products as well
• Electronic banking was on the rise causing Metro
  to make large investments in technology

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Goals for Metro

• Hancock wanted to transform the bank from
  depending exclusively on the income from
  interest-rate spreads of traditional retail
  banking products
• He wanted to earn fees by providing a wider range
  of financial products and services to customers
  with high net worth and high disposable income

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Metros New Mission Statement

• We will provide superior service to our targeted
  (high net worth and high disposable income)
  customers.

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How?

• Hancock wanted the bank to develop and customize
  new financial products that would meet these
  customers financial needs
• Annuities
• Investment products
• Technology-based payment services
• Branch personnel would do more higher-value
  interactions with customers to sell and support
  the new products and services
• The bank would partner with other financial
  service providers to offer a one-stop financial
  supermarket for customers who would provide the
  greatest opportunities for increasing profits
• Insurance companies
• Brokerage firms

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Problems

• Hancock felt the biggest problem was going to be
  communicating the new strategy to the banks more
  than 8,000 employees and motivating them to help
  the bank succeed
• Much more comprehensive and strategic measures
  would be needed
• to understand the new customer-focused strategy
• allocate resources in accordance with the
  strategy
• gain feedback on whether it was being implemented
  successfully

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Financial Perspective Objectives (1 of 3)

• At Metro Bank, senior executives decided on an
  overarching financial objective to improve
  return on spending and 4 supporting financial
  objectives
• Improve Return on Spending (ROS)
• ROS reflects our ability to create wealth with
  the companys funds
• ROS will align our expense outlays with the
  revenue generated
• By aligning spending with high value and high
  return activities, we will increase the return we
  achieve on dollars spent

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Financial Perspective Objectives (2 of 3)

• Revenue Mix
• We will move away from a dependence on net
  interest income by broadening and selling our
  portfolio of fee-based products to cover a
  greater portion of our expense base
• Changing our mix toward more fee-based business
  will cushion Metro from the risks of the interest
  rate cycle.
• Revenue Growth
• We will grow our revenue streams by redefining
  our core businesses and increasing the number of
  valuable customers
• We will retain and acquire valuable customers and
  broaden high-margin relationships with them
  through cross-selling of existing products and
  the sale of new products and services

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Financial Perspective Objectives (3 of 3)

• Reduce Costs
• By becoming more streamlined and efficient, we
  will focus resources and help to achieve higher
  profitability
• We will eliminate expenses that do not
• lead to revenue generation
• improve productivity
• streamline and redesign key business processes

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Financial Strategy Map
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Financial Perspective Measures
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Customer Perspective Objectives (1 of 3)

• Metro management realized that they were
  following a customer solutions strategy that
  emphasized building long-term relationships with
  targeted customers so that the bank could sell
  them multiple financial products and services
• The banks high-level customer objective was to
  increase market share with customers in three
  targeted segments, defined by
• Income
• Wealth
• Tendency to use banking products and services

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Customer Perspective Objectives (2 of 3)

• Metro Bank would acquire new customers by
  offering an attractive value proposition
• Differentiate ourselves through employees
  capable of recognizing customer needs and
  possessing the knowledge to proactively satisfy
  them. A greater knowledge of Metros product and
  service offerings will help our customers better
  fulfill their banking needs. This knowledge,
  along with cross-selling, consultative skills,
  and a supporting operating structure will satisfy
  a greater proportion of our customers financial
  needs.

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Customer Perspective Objectives (3 of 3)

• Metro plans on retaining existing customers in
  targeted segments by offering consistently
  excellent service
• Give customers access to banking services or
  information 24 hours a day perform consistently
  and seamlessly in the eyes of the customer.

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Customer Perspective Strategy Map
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Customer Perspective Measures
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Internal Perspective Objectives (1 of 3)

• Innovation
• Create Offering
• Create profitable, innovative financial service
  products that are among the first to market, easy
  to use, and convenient to our targeted customers
• Customer Management
• Make the Market
• Identify the needs of customer segments who
  represent high current profitability and future
  economic potential
• Understand the risk of each and how Metro Bank
  can sustain differentiation with these target
  customers

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Internal Perspective Objectives (2 of 3)

• Market and Sell
• Cross-sell our products and services through
  organized, knowledgeable, consultative, and
  proactive employees
• We must listen to our customers, educate them
  about our products, and communicate to them how
  our products can meet their financial needs
• To perform these activities, our salespeople must
  have a high level of systematic and regular
  contact with our customers and employ
  professional sales management practices

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Internal Perspective Objectives (3 of 3)

• Operations
• Distribute and Service
• Achieve service excellence with our people and
  systems, providing customers with the best
  reliability, availability, responsiveness, and no
  defects or errors
• Service excellence is the key to maintaining
  existing relationships and a prerequisite to
  attracting valuable new customers

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Internal Perspective Strategy Map
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Internal Perspective Measures
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Learning and Growth Perspective Objectives (1 of
4)

• Reskilling
• Build our marketing, sales, and customer service
  competencies to accomplish our aggressive revenue
  generation targets
• First, our people need the competency to
  cross-sell our products and services
• ability to recognize customer needs
• initiative to proactively solicit business
• superior consultative selling skills
• Second, our people need a broader knowledge of
  our product portfolio and financial markets to
  support their cross-selling activities

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Learning and Growth Perspective Objectives (2 of
4)

• Strategic Information
• The ability to extract, process, and use
  information holds the key to competitive
  advantage for our new strategy
• We must harvest and disseminate information on
  our processes, products, and customers
• We must improve the utility, access, ease of use
  and timeliness of information

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Learning and Growth Perspective Objectives (3 of
4)

• Accountability
• Performance management systems are key to
  communication, motivating, and rewarding
  employees for behavior that supports the Balanced
  Scorecard business objectives
• We will align incentive plans to Balanced
  Scorecard objectives to encourage behavior toward
  our business vision

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Learning and Growth Perspective Objectives (4 of
4)

• Focus
• We will focus our resources to align our capital,
  expense, and personnel decisions with strategic
  priorities
• Allocating resources where the return is highest
  and has the greatest alignment with strategic
  priorities will enable us to operate more
  predictably and profitably

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Learning Growth Perspective Strategy Map
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Strategy Map
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Moving from Words to Action Market Sell (1 of
6)

• Lets consider one of the banks new strategy
  objectives Market Sell
• Includes cross-selling the banks multiple
  products and services
• The HR executive responsible for the human
  capital required to support the objective
  identified three employee capabilities as
  fundamental to this process
• Solution selling and relationship management
  skills
• Product line knowledge
• Professional certification as a financial planner

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Moving from Words to Action Market Sell (2 of
6)

• The measure for this objective was the gap
  between the desired state and the current state
• Desired State 100 of employees who perform the
  market and sell process have the requisite skills
• Current State percentage of employees who
  currently have the skills to perform this process
  at the desired performance level

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Moving from Words to Action Market Sell (3 of
6)

• Assume 100 financial planners are required to
  execute this aspect of the strategy
• Through extensive testing we found that 40
  individuals had the desired proficiency to
  execute the cross-selling objective
• Therefore the measure of strategic competency
  availability for this piece of the strategy is
  only 40

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Moving from Words to Action Market Sell (4 of
6)

• The IT department was responsible for selecting
  specific objectives for the availability of
  strategic technologies, networks, data, and
  knowledge to support the strategy
• IT Managers identified three technology
  priorities for the market sell process
• A financial planning model
• An integrated customer file
• Web-enabled access by customers

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Moving from Words to Action Market Sell (5 of
6)

• IT managers could measure the gap between the
  desired state of technology deployment and the
  current state (strategic technology availability)
  and develop action plans to close the gap

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Moving from Words to Action Market Sell (6 of
6)

• Metros executive team also established three
  objectives for organizational alignment for
  employees performing the market and sell internal
  process
• A culture based on partnerships with customers
• Alignment of employees personal objectives to
  cross-selling objectives
• Improved teamwork to promote best practice
  sharing on cross-selling approaches
• Performance measures were developed to asses the
  scores on these three objectives

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Epilogue (1 of 2)

• Mike Hancock reflected on how to use the strategy
  map, strategic objectives and Balanced Scorecard
  objective
• The biggest transformation would have to occur in
  the learning and growth perspective -- to reskill
  thousands of employees
• They would need to be more skilled and credible
  in marketing and selling an array of financial
  products and services
• A multiyear program would be necessary to obtain
  these capabilities

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Epilogue (2 of 2)

• Human resource skills needed to be upgraded
• Investments in new information technology would
  be needed
• The culture needed to change to reflect the new
  strategy
• The Balanced Scorecard had clearly set the path
  for future investments in the banks intangible
  assets

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Questions for Real Life Examples

• Document in detail the elements of the Balanced
  Scorecard
• Identify the purpose of each Balanced Scorecard
  element
• Describe, if the facts are available, or infer,
  if the facts are not available, how the Balanced
  Scorecard elements relate to the organizations
  strategy
• Evaluate the Balanced Scorecard by indicating
  whether you agree that the choice of Balanced
  Scorecard measures is complete and consistent
  with the organizations plan and stakeholder set.