Create a report to the Board of Directors that explains how the BSC may be used to help TCCB achieve its strategic goals.
True Coop Community Bank - A Balanced Scorecard Case True Coop Community Bank (T (ICB) is located in the Midwest US and has a total of 10 branches grouped into two divisions, the southern division (SD) and the northern division (ND). Each division consists of five branches; each branch employs a branch president, branch vice-president/chief loan officer, customer service representatives, loan representatives, mortgage loan originators, head located within a 60-mile radius. e loan originators, head tellers, tellers, and administrative assistants. All branches are TCCB has enjoyed strong financial success over the past few years but continues to look for ways to improve ts performance. The strategic direction of the bank is reviewed annually at a meeting of top bank officials and outside consultants. The purpose of the meeting is to outline the vision and mission nd to ensure all top managers understand and agree on the direction of the organization. In 2004, TCCB management adopted the master strategy of balancing profits with growth to ensure the bank remains an independent entity existing to provide quality service and products to an increasingly diverse customer base. Chris Billings recently was promoted from marketing director to SD president. The promotion came just as Chris finished her evening Masters of Business Administration degree in December 2006. As part of her grad studies, she was introduced to the balanced scorecard (BSC), a performance measurement system that directs decision-makers toward long-term value creating activities. Chris thought the BSC could be used to improve the al performance of TCCB. In late December 2006, she approached the chief executive officer (CEO) and requested permission to implement the new program. TCCB's CEO was apprehensive about the new program. His reluctance stemmed from his own unfamiliarity with the BSC and Chris's short tem Chris's short tenure as SD president. The CEO also was concerned about whether Chris's ideas would be accepted by the ND president and ND branch employees. Fi mally he was uncertain about the BSC's benefits. At the same time, the CEO did not want to respond negatively to Chris's first efforts as SD president. To appease Chris without totally committing the bank to implem ng the bank to implement the BSC, the CEO agreed to allow Chris to begin the process of developing the BSC in the five branches of her division. In turn, Chris agreed to make a presentation to the CEO and the bank's Board of Directors in three months. In this meeting, Chris would present BSC concepts and how she planned to use the program to improve the financial performance of her branches. Given the period of time to design a pilot study, Chris wondered how she could convince the Board of Directors to give her permission to implement the BSC. She knew she must convince the SD branch presidents of its value. On January 7th, 2007, Chris met with her branch presidents to discuss the BSC program and enlist their help in es. She began the meeting by distributing a handout CE veloping balanced scorecards for their branches. She began the meeting by distr ut (Exhibit Al) highlighting the key objectives of the BSC. She used the hand used the handout to inform the branch pr the branch presidents of the four erspectives" (categories of measures to be included on the BSC). The example measures she included handout are from a hospital that had implemented the BSC. Since she did not have example measures from using the BSC, she wanted to show the branch presidents measures from another service industry for them to consider. As the handout shows, the hospital uses operating margin and cost per case as their primary financial measures, recommendation ratings fro tion ratings from outgoing patients and discharge timeliness information as customer measures, length of stay and readmission rate (patients being admitted again for the same injury or illness) for the internal business measures, ess measures, and employee training and retention measures in the learning and growth perspective She then instructed the branch presidents to work together to develop meaningful measures to ingful measures to be included on branch BSCs. While each branch would eventually develop a develop a branch-specific scorecard, she believed the branches were similar enough to allow branch presidents to work together initially. The group was to meet again in six weeks to discuss their progress in developing branch BSCs. The group meeting on February 25th did not go as well as Chris had hoped. While the branch presidents had done a good job of identifying areas that needed attention within each branch, the information presented could, at best, only be considered as raw materials necessary to build a BSC program. implementing the program. work was needed prior to With time running out, Chris grew concerned about the scheduled meeting with the Board of Directors on e had nothing concrete to present at the meeting and worried she might not receive permission to pursue the program if she did not make a solid presentation to the board. Chris's goal is to present a group of quantifiable measures that are linked through causal relationships and lead to improvement of key financial measures. One of the primary benefits of the BSC comes through mapping the causal relationships from nonfinancial performance measures to the three primary financial measures the bank monitors. Nonfinancial measures are SC will occur in categorized into three perspectives: Learning and Growth, Internal Business Processes, and Customer Focus. The cause and effect linkages in the lowing manner: if learning improves, then internal processes will improve. If internal processes improve, they mal processes improve, then customer value will increase. If customer value increases, financial performance will improve. Financial he ultimate evaluation of a firm's ance improves significantly, the firm's strategy is successful. Thus, if the strategy is good, the measures of the nonfinancial perspectives will be lead indicators of increasing value that will ultimately be proven by improved financial measures. Exhibit A2 provides a list of performance measures developed by the branch presidents and notes Chris took gunning meetings with them. Exhibit A3 illustrates It As Illustrates a sample cause-and-effect cham. Fo Exhibit A3, if employees receive trainin Pre, as shown in er service, product profitability, and local Toride aness; customer service, produ bank knowledge, they will be better equipped to provide customers with higher quality service. TCCB measures the effectiveness of its training programs by having employees take in-house tests on various training topics. By increasing employee knowledge and skills, higher quality referrals and cross-sell proposals will take place, leading to higher customer satisfaction and greater customer retention. Main current customer base provides basis for growth in deposit and loan balances, while a greater number of successful referrals and cross-sells increase non-interest income. Chris wants to prepare a series of cause-and-effect chains to illustrate to the Board of Directors how the BSC o improve performance on three key financial measures: loan balances, deposit balances, and non- interest income. She knows that any program emphasizing improvement in these three measures has a strong chance of receiving approval. xhibit A1 Key Business Perspectives and Lead/Lag Indicators" KEY BUSINESS PERSPECTIVES: financial Perspective - How do we look to our shareholders? the financial objectives of the organization serve as the focus of all activity hould be part of a causal chain that results in improved performance on financial objectives Some examples of financial perspective objectives in the hospital industry include op Customer Perspective - How do customers view us? In the customer perspective, organizations ations must identify key customers and market segments. Organiz anizations must also determ ow they add for customers and seek to deliver better products and services that are tailored to specific customer needs. Some examples of customer perspective objectives in the hospital industry include improved recommendation ratings and disc nternal Business Perspective - At what must we excel? amess perspective, organiza h the objectives of Some examples of internal business mustmeet ustry include reducing the rea sion rate for the he medical condition and increasing the doctor-to-patient contact time. Learning and Growth Perspective - How do we continue to improve and create value? To achieve the lofty standards set in the previous three objectives, organizations must invest in their people and infrastructure. For this perspective. nizations identify where resources are needed and craft a plan to enable its employees to achieve the objectives of the other perspectives. Some examples of learning and growth perspective objectives in the hospital industry include increased employee training and retention, improved information technology systems, and adequate staffing for all shifts. LEAD AND LAG INDICATORS: Nonfinancial measures (NFMs) selected in the customer, internal business process, and learning and growth perspectives serve as le rovement in financial objectives because improvement in these NFMs often "lead" or precede the improvement observed in fina indicators of hancial measures selected in the financial perspective are often called lag indicators because improvement in these financial measures in financial measures. often "lags" or comes after the improvement in the NFMs. .Adapted from Kaplan and Norton's 19%% Transienting Strategy into Action: The Reviewed Scoreard (196) and The Strategy-Forward Organization (2001). Exhibit A2 Performance Measures for TCCB Balanced Scorecards . Employes Training Hours . Deposit Balances Customer Satisfaction . Number of Products per Customer . Customer Retention mber of New Customers . Employee Satisfaction con-Interest Income-income earned from fees on services and Sales Calls to Potential Customers products provided by the bank. NII includes fees associa with CDs, ATM cards, insurance policies, lock boxes, annuities . Thank-You Calls/Cards to New & Existing Customers okerage accounts, checking accounts, and travelers' checks. . Employee Turnover lew Loans Created . Referrals-referrals occur when an employee suggests a customer . New Accounts see another branch employee for more information about a produc New Products Introduced Cross-Sells-selling multiple products to a custom comes in for only one product Notes from Branch Presidents' Meetings The most important financial measures are loan balan proving these three financial measures. stomer satisfaction must be improved. Because we are a small community bank, we rely on deliv metown" feel We rely on word-of-mouth advertising as much as we do radio and newspaper ads. Our employees must have training in several different areas, including sales techniques, customer service, and product knowledge/profitability. This type of training would improve the interactions between our employees and customers, allowing tellers and customer sales representatives to ecognize customer needs and make more effective referrals and new product offerings. Exhibit A3 Cause-and-Effect Chain Illustration for TCCB arning and Growt Perspective Number of Training Customer Retention Rate: Hours Employees Receiv percent of last year's Improved Loan, Deposits. customers still with TCCB and Non-Interest Income Employee Scores on Number of Successful Customer Satisfaction product knowledge Referrals andfor Cross-sell: Ratings on Quarterly Surveys Causal Chain Explanation: provide better customer service and higher sus tu interactions able to ascertain the needs of customers, there by making higher qua and provides the basis for growth in deposit and loan balances. Exhibit B1 Branch performance on key financial indicators As of June 30, 2008 Loan Balance Deposit Balance
