E14.27: Strategy map; cause and effect linkages LO 14.7, 14.8
The first Real life in The balanced scorecard explains how IAG develops its balanced scorecard. A table is provided that includes the five perspectives, the objectives and some performance measures. REALLIFE
Required:
1. Use each of the objectives to develop a strategy map.
2. Draw a diagram similar to the one in Exhibit 14.4 to explain any cause and effect linkages between performance measures.
REALLIFE MANAGING PERFORMANCE AT IAG The Insurance Australia Group (AG) comprises a portfolio of general insurance businesses. Its home markets are Australia and New Zealand and it has growing operations in Asia and the UK. IAG underwrites around $11.4 billion of insurance premiums per annum and employs more than 15 000 people globally. Key insurance brands include NRMA Insurance, CGU, SGIO, SGIC, Swann Insurance and WFI (Australia); NZI, State, AMI and Lumley Insurance (New Zealand); Safety and NZI (Thailand); AAA Assurance (Vietnam), and Asuransi Parolamas (Indonesia). IAG aspires to be the world's most respected group of general insurance companies. Its current strategic framework focuses on creating value for shareholders by focusing on making the world a safer place, embracing innovation and creating world class customer experiences. The company measures its overall long-term performance in creating shareholder value against two financial performance targets: Total shareholder returns: This is a measure of share price appreciation and dividend returns to shareholders. IAG's target is to be in the top quartile of the top 50 industrials within the S&P/ASX 100 index on this metric. Return on equity (ROE) relative to the weighted average cost of capital (WACC): A ratio of 1.5 times WACC is the group's target. To help achieve desired long-term performance against these financial metrics, IAG has defined five business sustainability levers, which relate to achieving the three elements of its strategic framework mentioned above. These are financial, customer, community, workforce and environment. IAG uses strategy maps and the balanced Scorecard as key components of its strategic planning process. Its strategy map is used to translate the strategic plan into a balanced Scorecard, which measures IAG's performance against targets and objectives. The strategy map is also used by operating divisions to develop divisional strategy maps that support the company's strategy, and divisional balanced Scorecards. Each quarter, divisional performance is monitored by comparing actual performance against targets on divisional scorecards. Each manager has a scorecard that links their goals and remuneration to divisional and company goals. Each scorecard includes performance indicators to support the objectives of the five levers. Thus, the levers play a similar role to the perspectives used in Kaplan and Norton's balanced Scorecard. Continuous improvement is practised, where IAG periodically reviews the adequacy of the performance indicators, and this leads to refinements and improvements. IAG reports elements of its group level BSC to external stakeholders. Some examples of performance measures reported are as follows. Levers Objective Performance measure Target Financial Profitable growth Gross written premiums n/a Operating cost efficiencies Net claims expense n/a Customer Insurer of choice Business volume n/a Net promoter score n/a (index measuring customer willingness to recommend) Community Community investment $ million invested n/a Workforce Realising benefits of diversity and inclusiveness % of women in senior management By 2020 40% in Australia and New Zealand 30% in Asia. No. of Aboriginal and Torres Strait Islander employees Approx. 130 employees by Nov. 2018 Towards zero harm Lost time injury frequency rate (LTIFR) per million hours worked Reduce LTIFR annually Environment Continuous improvement in environmental performance Carbon neutral status Maintain carbon neutral commitment Tonnes CO2 emissions 10% reduction by 2020 (from 2015 baseline) * n/a: target information has not been publicly reported. Source: Adapted from IAG (2016a, b, c) Balanced Scorecard anproaches are iust as relevant in not-for-profit oroanisations so in profit-seeking arcanications but a dominant focus on achieving financial outcomes may be inappropriate Thus in a balanced Scorecard the financial Exhibit 14.4 Causal relationships between measures in a balanced Scorecard Perspective Measures Financial Economic value added Customer Customer satisfaction Number of product variations available Number of customer complaints Internal business processes Number of products under development Number of good units completed Learning and growth Employee satisfaction
