Balance Scorecard.ppt III (1)

8/3/2019 Balance Scorecard.ppt III (1)

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Topic 1

Balanced Scorecard


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Originated by Dr.Robert Kaplan andDavid Norton

A PerformanceMeasurementFramework whichadded non-financialmeasures to counterbalance the effects ofFinancial performance

Aligns BusinessActivities to the Visionand Strategy of theOrganization


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Problems

that can

be solved

UnclearVision &Strategy

Non-Alignment ofLong Term &Short Term

Goals

MeasurementIssues

Communication Gaps

ExcessiveFocus onFinancial

Performance

Non-Availabilityof Feedback


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Providing a way to see if the strategy is working

Focus employees' attention on what matters most to success

Allow measurement of accomplishments, not just of the workthat is performed

Provide a common language for communication

Explicitly defined terms of owner, unit of measure, collectionfrequency, data quality, expected value(targets), and thresholds

Ensuring Valid Measurement of the right things

Verifiable Measures to Ensure Data Collection Accuracy


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Who are our profitable customers?

Do we pay the most attention to those customers?

Do we know what these customers expect from us

now and in the (near) future?

Do we develop the products and services that willkeep us in the running?

Do our employees develop the knowledge and skillsthat the markets (will) ask?

Do we recruit the right people?


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Phase 1: The Strategic Foundation

Phase 2: Three Critical Components

Phase 3: Deployment


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Three examples of strategic objectivesOver the next six months, delivery times will decrease by 15% throughmore localized distribution centers.By the year 2003, customer turnover will decline by 30% through newlycreated customer service representatives and pro-active customermaintenance proceduresOperating downtimes will get cut in half by cross training front linepersonnel and combining all four operating departments into one singleService center

Consists of three steps:- Communicate the Strategy across all Levels- Determine Major Strategic Areas for focussed efforts- Build a Strategic Grid for each Major Strategic Area

Step 1: Strategic Alignment and Communication


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After Clearly formulating the Strategy it needs to be effectivelyCommunicated

Stakeholder Group Forms of CommunicationShareholders Press Conference

Division Managers Management Retreat /Presentation

District Managers Site to Site Visits / handouts

Operating Staff Site to Site Visits / handouts

Administrative Staff Site to Site Visits / handouts

Suppliers Personal Contact / Mailing

Distributors Personal Contact / Mailing


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Strategic Success Through Fence-Lined Strategic Areas is required for

Clear Success Demarcations

Shareholder ValueFinancial Revenue Growth

Customer More Customers

Processes Customer marketing & Service ProgrammesLearning Support Systems & Personnel

Linking Strategic Goal to a Strategic AreaStrategic Goal By the Year 2014, the company will have mostinnovative product line of hand heldComputersStrategic Area Product Innovation


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Structuring the Balanced Scorecard on Four Layers i.e. Financial,

Customer, Internal Processes and Learning.

Flowing Strategic Objectives within the Financial PerspectiveShareholder Value

Grow Revenues Operating Revenues

New Sources ofRevenues

IncreaseCustomer

ProfitabilityLower Costs

High Utilizationof Assets

Linking Customer Objectives to Financial ObjectivesFinancial Share ValueGrowing More RevenuesCustomer Acquire More CustomersAggressive Pricing (Value Addition)


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Linking Objectives down to Internal processesFinancial

Share ValueGrowing More Revenues

Customer Acquire More CustomersAggressive Pricing (Value Addition)

InternalprocessesImprove Operational EfficiencyCost ReductionProgramme Knowledgebased System Reduction inNon-Core

Activities


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Strategic objectives defined for all four perspectivesFinancial Share Value

Growing More RevenuesCustomer Acquire More Customers

Aggressive Pricing (Value Addition)Internalprocesses

Improve Operational EfficiencyCost ReductionProgramme Knowledgebased System

Reduction inNon-Core

ActivitiesLearning &Growth

Training BestPractices inCostManagement

DatabaseNetwork onOperationalPerformance

Re-Alignmentwith focus onCore-Competencies


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Every Strategic Objective Should be measurable

Not all can be quantified and measured but it makes evaluation ofsuch objectives difficult

Some Basic Guidelines:

Measurements Communicate what is strategically

important by linking back to strategic Objectivesinked

Measurements are continuous over time, allowing

comparisonsepeatable

Measurements can be used for establishingtargets, leading to future performance

eadingMeasurements are Reliable, verifiable and accurateccountable

Measurements can be derived when neededvailable


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Cause Effect Relationship between Leading and Lagging Indicators Customer perspective

Come

Pspv Lagging Indicators are Desired Results

Customer Satisfaction Customer Retention MarketShare

Leading Indicators Value Attributes to CustomersQuality Time Price Image Reputation


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Internal Process Perspective

Pre-DeliveryResults

DeliveryResults

Post deliveryResults

Leading Indicator:

No. of New ProductsIntroduced

Leading indicator:

Delivery ResponseTime to Customers

Leading Indicator:

Cycle Time forResolving CustomerComplaint


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Learning and Growth Perspective

Results forEmployees SystemResults Results fortheOrganizationLeading Indicator:

Attrition Rate

Leading Indicator:

Centralizeddatabase ofEmployees

Leading Indicator:

Number of EmployeeSuggestions


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Setting Targets Based on Strategic Goals

Current YearSales Revenues Goal: A 40% Sales growth in a Span of 3 yearsYear 2009 Year 2010 Year 2011Rs. 1,00,000 Rs. 1,10,000 Rs. 1,22,000 Rs. 1,40,000


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Adding Measurements & Targets to the Balanced Scorecard

Perspectives Objectives Measurements Targets2009 2010

FinancialMaximum ReturnsUtilization of Assets

Revenue Growth

Return on EquityUtilization Rates

% change in Revenues

12%7%

11%

13%8%

11%

CustomerCustomer RetentionCustomer ServiceCustomer relations

% RetentionSurvey Rating% of self Initiated Calls

75%85%35%

75%88%40%

Internal

Processes

Fast deliveryEffective Service

Optimal CostResource Utilization

Turnaround Time1st Time Resolvement

% Cost of SalesProductivity Indicator

15m68%

66%77%

14m69%

64%80%

Learning &Growth

High Skill LevelsEmployee SatisfactionOutstanding Leaders

Skill Set RatioSurvey index5 Point Ranking

65%75%4.5

68%77%4.8


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Sponsored by Upper level Management

Utilizes Designated Leaders and Cross FunctionalTeams

Consists of Deliverables, Milestones and aTimeline

Requires Resources: Man / Machine / Money /

material / Market etc.

Structured Programmes have greater impact onStrategic goals


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Review and Re-alignment

Integration of Other Business Areas with theStrategically improved Areas

Finally linking compensation with thescorecards

Building the Scorecards for the Entire ValueChain i.e. Customers, Production, sales,Innovation and all such elements


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Easy to Achieve but difficult to maintainbecause of Perfectionist Goals

Successful companies have developed moretolerance levels


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Consumer Electronics Public Ltd. Company

Cu

stomer

Quality Number of Defects

Price Aggressive Pricing

Delivery Number of On-Time Deliveries

Shipments Sales Growth

New products Number of New Products to Support

Support Customer Satisfaction Survey

Interna

l

Efficiency in Manufacturing Cycle Time

New Product Introductions Rate of New Introductions

New Product Success Number of Orders

Sales Penetration Actual Vs. Planned

New Businesses Volume of Investment inDiversification


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Consumer Electronics Public Ltd. Company

Innovation Technology Leadership Product Performance Benchmarking

Cost leadership Quarterly Manufacturing Overheads

Market Leadership Market Share (Across All Markets)

Research & Development Number of new products

Financial Sales Annual Growth Rate

Cost of Sales Annual Trend Line

Profitability Return on capital Employed

Prosperity Cash Flows

Employe

e

Competitive Salaries Local Area Comparisons

Opportunity Satisfaction Rating

Citizenship Contributions to Community

Documents

Balance Scorecard.ppt III (1)