Building a Balanced Scorecard to implement an innovative banking strategy. Alessandra Turi Head of Planning and Control

Agenda! Banca 121 and its integrated multi-channel strategy! Limits of traditional performance measurement systems! The Balanced Scorecard approach! The experience of Banca 121

Banca 121 - Main financial highlights (mn Euro) 1997 1998 1999 Customer deposits 2,336 2,176 3,156 Asset under management & Custody 3,008 4,160 5,556 Non Interest Income / Total Income 50.7% 72.4% 72.8% Net Income 17 19 39 Return on Equity 9.1% 10.1% 19.7% Traditional Branches 83 94 100 Financial Shops 28 75 154 Staff 1,310 1,409 1,556 Sales agents 389 1,029 1,859

Banca 121 strategy in the retail banking business! Focus on personal financial services and asset management! Integrated multi-channel retail distribution! Low fixed-cost expansion Independent sales agents Financial Shops Virtual Banking (Phone( Phone and Internet Banking)

Banca 121 integrated multi-channel network Traditional Branches, Financial Shops, Independent Sales Agents and Virtual Banking leveraging on each other, thus strengthening Banca 121 competitive position

Agenda! Banca 121 and its integrated multi-channel strategy! Limits of traditional performance measurement systems! The Balanced Scorecard approach! The experience of Banca 121

Limits of traditional performance measurement systems! Short term approach (lack of strategic vision)! Focus on past performance (looking backward)! Emphasis on quantitative and physical assets (no valuation of intangible assets as real performance drivers)! Internal orientation (versus market orientation)

Agenda! Banca 121 and its integrated multi-channel strategy! Limits of traditional performance measurement systems! The Balanced Scorecard approach! The experience of Banca 121

The Balanced Scorecard Approach: the management process STRATEGY Strategy formulation requires 5% of management time, the implementation the remaining 95% BSC STRATEGIC GAP ACTIONS KPIs Monitoring Identification of the existing gap between the actual and the expected market position Projects Initiatives Budgeting process Reward system

The Balanced Scorecard Approach: what s new! BSC links strategic goals to targets and annual budgets, filling the gap between strategic planning and operational plans! BSC focuses on factors creating long-term value and overtakes the financial accounting perspective to measure intangible and qualitative assets! BSC translates the strategy into terms easily understandable and put in practise by the whole organisation

Agenda! Banca 121 and its integrated multi-channel strategy! Limits of traditional performance measurement systems! The Balanced Scorecard approach! The experience of Banca 121

The experience of Banca 121 The project focuses on the retail business and has been divided in 3 macro phases: 1 DEFINITION OF THE LOGICAL MODEL 2 IMPLEMENTATION OF THE ELECTRONIC BSC SUPPORTED BY SAS INSTITUTE 3 START UP AND MANAGEMENT

The experience of Banca 121 Macro phase 1: DEFINITION OF THE LOGICAL MODEL Strategic guidelines acquisition Development of BSC Compilation of the Indicators Book Business breakdown according to the Value Chain: - PRODUCT DEVELOPMENT - DISTRIBUTION (3 CHANNELS) - OPERATIONS - RESOURCES Definition of strategic goals Distribution of the goals throughout the Value Chain segments Identification of the KPIs Gathering of available elementary data and related sources Definition of calculation functions On what axis should I invest to maximise the value of the business? What segments create value for the clients?

One or more indicators have been connected to every goal in order to measure their achievement Distribution of strategic goals over the segments of the Value Chain Identification of performance indicators Product development Distribution Production OPERATIONS Administration Product Development Distribution Production OPERATIONS Administration Financial Increasing mortgage lending Financial Number of new mortgages PERSPECTIVE PERSPECTIVE Customer Internal Internal Process Widening the product range Improving the quality of advisory services Becoming leader in loan efficiency PERSPECTIVE PERSPECTIVE Customer Internal Internal Process Number of new products Customer Satisfaction Index Average time for pre-approval Average time for disbursement Learning & G. G. Developing a commercial attitude Learning & G. G. Number of commercial training days

The experience of Banca 121 Macro phase 2: IMPLEMENTATION OF THE ELECTRONIC BSC SUPPORTED BY SAS INSTITUTE The electronic BSC has been developed according to a gradual approach: 1) DEVELOPMENT OF A PROTOTYPE ON A SMALL NUMBER OF INDICATORS (20 indicators, focused on three distribution channels) 2) EXPANSION OF THE PROTOTYPE TO THE OTHER INDICATORS

THE PROTOTYPE: development phases CHECKLIST OF INDICATORS CREATION OF A DEDICATED DATA WAREHOUSE DEFINITION OF VISUALISATION CRITERIA

THE PROTOTYPE: checklist of indicators aimed at describing and formalising the technical and functional characteristics of each indicator based on the INDICATOR CARD defined with SAS Institute all the information collected during the checklist phase is used to create the application generating the BSC the completion of the indicator card involved the P&C as well as the IT Dept., as it required a wide knowledge of the internal operational databases

CREATION OF THE DEDICATED DATAWAREHOUSE EXCEL ACCESS OTHER db2 OPERATIONAL DATA STORE ACCESS SAS SYSTEM DATA WAREHOUSE DELIVERY ON INTRANET Existing company databases Normalized ODS DATA WAREHOUSE BALANCED SCORECARD

DEFINITION OF VISUALISATION CRITERIA Strong creativity, high personalisation, critical factor of success, vehicle to drop the strategy down into day-by-day THE PRINCIPAL CHOICES: RULES OF KPIs NORMALISATION how to homogenise the different measurement units through which the KPIs are expressed? DEFINITION OF THE RESULT THRESHOLD RANGES when does the red, yellow or green light appear? DEFINITION OF THE SYNTETHIC VALUATION CRITERIA what happens when a goal shows contradicting indicators?

DEFINITION OF THE VISUALISATION CRITERIA DEFINITION OF THE RESULT THRESHOLD RANGES THRESHOLDS CRITICAL Less than 80 Normalised KPIs vs target 86 Threshold result UNDER OBSERVATION 80 90 75 GOOD 91 110 96 EXCELLENT more than 110

DEFINITION OF VISUALISATION CRITERIA DEFINITION OF THE SYNTHETIC VALUATION CRITERIA PERSPECTIVE GOALS INDICATORS WORST CASE TAKES OVER

The experience of Banca 121 Macro phase 3: START UP AND MANAGEMENT! Assignment of BSCs to Divisional Heads (reward system)! Target definition (budgeting process)! Operational plans definition (projects, initiatives, activities) START UP! MANAGEMENT - monitoring (KPIs calculation, gap analysis, reporting) - identifying corrective actions to close the possible gaps - BSC tuning (with reference to goals, indicators or links) and target review

Contact details! Head Office Strada Provinciale Lecce-Surbo Surbo, Zona Industriale,, 73100 Lecce,, Italy! Contact name Alessandra Turi tel: : (+39) 0832 669026 fax: (+39) 0832 669018 mobile phone: (+39) 335 7419363 e-mail: alessandra.turi turi@bancadelsalento.it