2. Balanced Scorecard Development

7/29/2019 2. Balanced Scorecard Development

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Developing a Balanced Scorecard


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What is a Balanced Scorecard A strategic and operational tool

Owned by the Executive

Shared by everyone

Balances:- Long and short term

Hard and soft measures

Leading and trailing indicators Internal/external perspectives

Like writing a novel, not writing a list

Measures support change, not monitoring


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It is NOTA new idea

An end in itself

A playing field for internal politics

An initiative of Finance, HR,Marketing etc.

Boardroom art

A make-work exercise


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Its origins Nolan-Norton Consultants 1990

12 client Organisation of the Future study group

Based on premise that financial measures wereinsufficient for a modern business

Principles espoused previously by:-

Rensis Likert (The Human Organisation, 1960)

TQM gurus (Deming, Crosby, Juran etc.)*

European Foundation for Quality Management (1985)

Maisel and McNair parallel models

* Original K&N source was part of a TQ programme


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The EFQM Excellence Model

10%

9%

8%

9%

14%

9%

20%

6%

15%

(percentages show how each elements is scored for importance)


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Customer

Balanced

ScorecardFinancials

Learning

& growth

Business

Processes

Kaplan and Norton model (1996)


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Customer perspective

Corrective activity

Developmental activity

Balancing compliance

with added value

Balanced

Scorecard

Financial Measures

Key performance ratios

Financial health

Balancing leading with

trailing indicators

Learning and growth

People measures

Knowledge measures

Balancing soft andhard indicators

Business Processes

Drumbeat

Time, cost, quality

Balancing inputs

and outputs

A question of balance?


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Building the Balanced Scorecard

The keyquestion

How do you

create value?


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Where does it fit?

Culture and values (leadership/style/relationships etc.)

R

ewards

Targets

M

easures

P

rojects

A

lliances

S

ystems

Structure

VisionMission and CSFs

Strategic Objectives

Balanced

Scorecard

BuildingUsing


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A strategic tool Starts with strategy

Continuous process

Needs to becomeculturally embedded


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To be successful for our shareholders, we must be (position in market),

which means that we must return super ior f inancial resul ts in .......

Our customers are the people who wil l secure these results for us so wemust offer our customers super ior value by .........

To deliver this super ior value we must excel in the way we manage the

processes for .......

These processes are operated by our people. We must provide our people

with ....... to achieve excellent performance.

The story of a scorecard


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Cause and effect chainStrategic Objective

Financial Measure

Customer Value Measure

Process Measure

Employee Measure

What

How

How

How

May be

reversed


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Example Retail Strategic themesThemes

Broadening the

offer Focus on Health

and Beauty

Friendly and Fun

Destination ofChoice

Projects

Pharmacy store

expansion New store

opening process

Living the Mission

Categorymanagement

Measures

Pharmacy store

sales growth Brand Penetration

(Market Research)

Mystery Shopper

Footfall and basketsize


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Customer perspective

Basket Size

Mystery Shopper index

Footfall

Complaints

Balanced

Scorecard

Financial Measures

Sales Revenue growth

Return on Turnover

Cost of sales

Shrinkage

Learning and growth

Absence level

Stability index

Mission involvement indexStarfish.net ideas

Business Processes

Stock Outs

New store plan vs. actual

Strategic Projects delivery

Supply chain process time

Sample retail scorecard


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Recruitment

Morale (absence)

Development

Staff Loyalty Complaints*

Satisfaction

Loyalty*

Market share*

Sales Growth*

Cost Controls (Sales var)

Profitability*

Driving extra sales to bottom

line*Stock Mgt

Waste Mgt*

Stock availability

Productivity

One in Front*

PEOPLE

OPERATIONS FINANCE

CUSTOMER

only in smaller store

formats - Metro and

Express

Blue arrows indicate positive correlation. Red arrows negative. Broken line is a weaker connection

Number at arrow head indicates size of Pearson co-efficient of correlation.

Superstores used for consistency of statistic except where indicated.

-0.28

0.13

-0.20

0.1

0.27

only in Metro and

Extra Stores

-0.1

-0.1

0.11

0.17

-0.16

0.16

0.16

* No data available

for this element

0.22

Joined up thinking?


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Using the Balanced Scorecard

Drill-down into HR Systems


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The Complete Balanced Scorecard Strategy Map

Improve Shareholder Value

Productivity Strategy Revenue Growth Strategy

Improve CostStructure

Increase AssetUtilization

Enhance CustomerValue

Create Value fromNew Products &

Services

Human, Information, and Organizational Capital

Shareholder Value

ROCE

Cost per Unit Asset Turnover CustomerProfitability

New RevenueSources

Price

Financial

Perspective:the drivers of

shareholder

value

Product/Service Attributes

StrategicCompetencies

StrategicTechnologies

Climate forAction

(Processes that Produce

and Deliver Products

& Serv ices)

(Processes that

Enhance Customer

Value)

Operations Theme CustomerManagement

Theme

Innovation Theme Regulatory andSociety Theme

Customer Value Proposition

Quality

Low Total Cost

Customer Solutions

Product Leader

Customer Satisfaction Customer Acquisition Customer Retention

Time Function Service Relations Brand

Relationship Image

Market and Account ShareCustomer

Perspective:

thedifferentiating

value

proposition

Internal

Perspective:

how value iscreated and

sustained

Learning & Growth

Perspective: role for

intangible assets

people, systems,

climate and culture

(Processes thatCreate New

Products and

Serv ices)

(Processes thatImprove the

Env i ronment

an d

Communi t ies )


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Performance managementAge What is

valued?Key process Key Output Culture

Pre-industrialAge

CommunityLoyalty

Belonging Contribution Social

Industrial Age Obedience

Output

Compliance Output Work-ethic

InformationAge

KnowledgeInnovation

Empowerment New value Mobility


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Learning and growth Employee satisfaction

Employee capability

Information availability Knowledge growth

Performance and reward

management systems Cultural measures from surveys e.g.

leadership, communication,recognition (enablers)


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Success factors Drill-down into Systems

Planning and objective setting

Operational targets

Budgeting

Internal audit

Continuous improvement

Project management

Performancemanagement/appraisal

Reporting and meeting regimes

Reward and recognition.......


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Unfortunately, this years

low score on morale in theemployee survey means our

balanced scorecard index is

below the threshold for the

bonus award


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BSC ImplementationProcess


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Implementation Plan

Creating the preconditions for systemintroduction (the level of enterprise)Establishing the basic architecture (the level ofenterprise)Achievement of consent of strategic goalsstatement among groups members (pilot level)Defining the key performance indicators and themeasure units for each of them (pilot level)Defining the plan of actions in time (pilot level)Assigning responsibilities to monitor the

activities (pilot level)


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Common Mistakes in BSCImplementation

1. Non involvement or Non Commitment by TopManagement

2. Absence of Specialist Teams or Core Teams

3. Delay in Planning and Implementation in search ofPerfection

4. Delay in Implementation in developing Measures ofPerformance

5. Concept of Continuous Improvement is missing6. Emphasis on M&E instead of Improving

Communication7. Non Availability of Resources


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Check List for Evaluating Organization's Readinessfor BSC Implementation : Comprehensiveness of

BSC

a. How strategic goals are represented in Balanced

Scorecard?

b. What KPI (Key Performance Indicators) are? What aretheir key properties?c. What are two key rules about KPI?d. What winning indicator is? How to test your indicator?e. How strategic goals and indicators are connected to the

action?f. What level of implementation of BSC in your business

structure is necessary to achieve success with Balanced

Scorecard ?


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Check List for Evaluating Organization's Readinessfor BSC Implementation : How Good the Plan is

a. Do you have Balanced Scorecard implementation plan in written

from?b. How many top-level employees or investors are involved in the

implementation?c. How many line-level managers and employees are involved in theimplementation?d. Does the plan include design of Balanced Scorecard for each

business unit in your company?e. Does the plan include the design of strategy map?

f. What is estimated timeline for Balanced Scorecard design,implementation and usage?g. If you plan to review your Balanced Scorecard? What is timeline

for the review?h. If you plan to develop improvement plan for each of indicators and

their values?


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Does Implemented Balanced Scorecardwork for your Organization

a. If each indicator in your Balanced Scorecard is

associated with employee responsible for the value of

the indicator?

b. If there are indicators that improved their values in amonth?c. If there are some indicators that changed their value

significantly in a month?

d. If there are indicators that have not changed theirvalues in a month?e. If there are some tasks that your employees do that

are not linked to indicators and strategic goals?


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When Balanced Score Card Produces Best Results

1. Balanced Scorecard is an internal systems tool. Noneed to cheat or trick when you are dealing withyourself. Monitoring function, the BSC provides is aimed

only to improve the performance, not to showsomething to someone. Monitoring is needed tomanage, not to show

2. One of the features of the BSC is focusing. The

aspiration of management for extracting a synergy fromcumulative influence of set of factors often leads tosystem contradictions. Concentrate on High Prioritiesfunction/indicators.

3. Indicators of the KEY activities linked with each otherby well organized logical structure.


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CASE STUDIES

Students Orientation to Practical

Examples of BSC

Documents

2. Balanced Scorecard Development