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8/13/2019 54268-The Balanced Scorecard (1)
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P R E P A R E D B Y G R O U P 4 :
A N D R E W M O L L O Y
A M Y M I L L E R
M I K E E L I C K E R
The Balanced Scorecard: CustomerPerspective, Internal Processes,
Learning and Growth
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What is the balanced scorecard?
Developed in the early 1990’s by Dr. Robert Kaplanand David Norton
"The balanced scorecard retains traditional financial measures.But financial measures tell the story of past events, an
adequate story for industrial age companies for whichinvestments in long-term capabilities and customerrelationships were not critical for success. These financialmeasures are inadequate, however, for guiding and evaluatingthe journey that information age companies must make tocreate future value through investment in customers,suppliers, employees, processes, technology, and innovation."
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What is the balanced scorecard?
The Balanced scorecard is a management systemthat enables organizations to clarify their vision and strategy and translate them into
action. Provides an organization with feedback of both the
internal business processes and external outcomes, which allows for continuous improvement of
strategic performance and results. Nerve center of an enterprise
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What is the balanced scorecard?
The balanced scorecard is centered on four performancemetrics or perspectives: Customers
Internal processes
Financial Learning and growth
When implemented properly, each one of theseperspectives contains four subparts consisting of Objectives
Measures Targets
Initiatives
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What is the balanced scorecard?
Objectives - what the strategy is to achieve in that perspective
Measures - how progress for that particular objective will be
measured
Targets - refer to the target value that the company seeks toobtain for each measure
Initiatives - what will be done to facilitate the reaching of thetarget
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What is the balanced scorecard?
The term “scorecard” signifies quantifiedperformance measures and “balanced” signifies thesystem is balanced between:
Short-term and long term objectives
Financial and non-financial measures
Lagging and leading indicators
Internal and external performance perspectives
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What is the balanced scorecard?
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What is the balanced scorecard?
Kaplan and Norton defined a four-step process that has been used across a wide range of organizations Defining the measurement architecture
For example will the system be used at the strategic business unit levelrather than the corporate level.
Specify strategy objectives. These should be carefully decided upon and selected as those deemed
critical in achieving breakthrough competitive performance andlimited in number to 15 to 20, or 3 to 4 in each perspective to avoidinformation overload.
Choose strategic measures
These measures should be closely related to the actual performancedrivers and will later be used for evaluating the progress made towardachieving the objectives
Develop an implementation plan to integrate the scorecard intomanagement.
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Customer Needs
Who is your customer?
What age, gender, group does our product appeal to?
What services or products do they expect from you?
Do we provide personal services, do your products serve as advertised?
How do you listen to and learn from your customers? Do we provide feedback calls or emails?
How do you retain and acquire new customers?
Do we use new advertisement and how do we advertise?
How do you meet customers’ needs?
Do we provide help lines and how can we provide help to customers?
How do you measure customer satisfaction and dis-satisfaction?
Do we use surveys to find out how customers feel about us?
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Customer Concerns
There are four major categories that managers need to address whenconcerning their customers.
Quality Are there often recalls or problems with defects with our products.
Time Do we save time by limiting defects and do we provide fast on time delivery.
Performance and service Do we perform up to customers standards and do we provide fast and adequate
services.
Cost Do we try to minimize cost when dealing with ordering, scheduling delivery, and
paying for materials in order to lower cost of our products to our consumers.
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Customer Perspective
With customer perspective managers and companies have to be carefuland make sure they are setting up their balance scorecard to helpcustomers.
Examples of things that don’t concern customers are profit percustomer, revenue per customer, and improve profit per customer.
These objectives don’t necessarily protean to the customer perspective but rather the companies perspective of the customer.
Managers need to take a step back and look at how customers perceive your company and what they want to get out of your company.
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Examples of Customers Perspective
Two main questions that a company should ask itself toprotean to their customers are:
How should we appear to our customers
Do we show a promising future
Do we show a strong sense of concern
What is our differentiating value proposition to our targetedcustomers
How are we different from our competitors
What makes us better than our competitors
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Perspectives of Kaplan and Norton
There are four broad categories that Kaplan and Norton base thecustomer perspective around.
Best buy Companies that supply services and products at low prices and fast service.
Product leadership and innovation Companies that focus on customer that buy the newest and most advanced
cutting edge technology.
Customer complete solutions Companies that try to sell things like computers where customers customize
them to their liking.
Lock in Companies that will make a product then to buy accessories for that product you
have to buy the same brand name because other brands out work with thatproduct.
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Successful balanced Scorecards
When using critical thinking of strategy, objectives, andmeasures companies can get a feel for who their customersare and what they can offer them.
Strategy gurus, like Michael Porter stress the fact that it ismore important to accomplish more with less.
Don’t try to please everyone when setting up your balancedscorecard because you can’t.
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Internal Processes
Internal business process objectives address thequestion of which processes are the mostcritical for satisfying customers andshareholders
A firm must concentrate its efforts to excel in these areas
Metrics based on this prospective allow the
managers to know how well their business is runningand whether its products and services conform tocustomer requirements
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Internal Process Examples
Cost
Throughput
Quality
Objective Specific Measure
Manufacturing excellence Cycle time, yield
Increase design productivity Engineering efficiency
Reduce product launch delays Actual launch date vs. plan
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Internal Processes
In addition to the strategic management process twokinds of business processes may be identified, theseinclude:
Mission-oriented processes - special functions of governmentoffices which often involve many unique problems in theirprocesses
Support processes - more repetitive in nature.
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Financial Performance
The financial performance perspective of the balanced scorecard addresses the question of how
shareholders view the firm and whichfinancial goals are desired from theshareholder’s perspective.
These financial goals are dependent on thecompany’s stage in the business life cycle.
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Financial Performance: Business Life Cycle
There are three main stages to this cycle whichinclude: Growth stage -goal of the company is growth
An example of a growth goal would be revenue growth.
Sustain stage - the goal of the firm is profitability
Measures in this stage may include ROE, ROCE, and EVA.
Harvest stage - the goal of the firm is cash flow and reductionin capital requirements.
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Financial Performance
Objective Specific Measure
Growth Revenue Growth
Profitability Return on equity
Cost Leadership Unit Cost
The table below outlines possible financial performance objectives andtheir metrics.
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Learning & Growth
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“How much a companymust learn, improve, andinnovate to meetobjectives.”
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Use of the scorecard:
To set objectives
To determine measures
To predict outcomes To determine initiatives
To gain the big picture
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Key performance indicators include:
Illness rate/days of absence
Employee turnover
Gender/racial ratios Internal promotion %
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A learning & growth example:
Objective: increase internal promotions
Measure: bigger % of in house promotions
Target: +10% in 2 years Additional classes and training
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“A balanced scorecard systemprovides a basis for executing good
strategy well and managingchange.”
-Howard Rohm
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Learning & growth mustfocus on measurable
outcomes to move thecompany forward.
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Scorecard allows foractionable terms derivedfrom company strategy.
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Balanced Scorecard
Makes it easier for
management to carry outstrategy.
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4 step process
Define measurement architecture
Specify strategic objectives
Choose strategic measures Develop implementation plan
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Potential Benefits
Translation of strategy into measurable parameters
Communication of strategy
Alignment of individual goals with strategic
objectives Feedback of implementation results
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Potential Disadvantages
Lack of a well defined strategy
Use of only lagging measures Use of generic metrics
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Conclusion
Balanced scorecard is a performance managementsystem that can be used in any size organization.
Allows management to measure financial and
customer results, operations, and organizationpotential.
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