54268-The Balanced Scorecard (1)

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



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."




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




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




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




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







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.



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?



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.



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.



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



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.



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.



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



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



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.



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.



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.



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.



Learning & Growth



“How much a companymust learn, improve, andinnovate to meetobjectives.”



Use of the scorecard:

To set objectives

To determine measures

To predict outcomes To determine initiatives

To gain the big picture



Key performance indicators include:

Illness rate/days of absence

Employee turnover

Gender/racial ratios Internal promotion %



A learning & growth example:

Objective: increase internal promotions

Measure: bigger % of in house promotions

Target: +10% in 2 years Additional classes and training



“A balanced scorecard systemprovides a basis for executing good

strategy well and managingchange.”

-Howard Rohm



Learning & growth mustfocus on measurable

outcomes to move thecompany forward.



Scorecard allows foractionable terms derivedfrom company strategy.



Balanced Scorecard

Makes it easier for

management to carry outstrategy.



4 step process

Define measurement architecture

Specify strategic objectives

Choose strategic measures Develop implementation plan



Potential Benefits

Translation of strategy into measurable parameters

Communication of strategy

Alignment of individual goals with strategic

objectives Feedback of implementation results



Potential Disadvantages

Lack of a well defined strategy

Use of only lagging measures Use of generic metrics



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.

Documents

54268-The Balanced Scorecard (1)