Balanced ScorecardBalanced ScorecardIntroductionIntroduction

What is the Balanced What is the Balanced Scorecard?Scorecard?

The balanced scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action.

IntroductionIntroduction

The balanced scorecard, a concept for measuring a company's activities in terms of its vision and strategies, to give managers a comprehensive view of the performance of a business.

The strategic management system forces managers to focus on the important performance metrics that drive success.

ImplementationImplementation

Translating the vision into operational goals; Communicate the vision and link it to

individual performance; Business planning; Feedback and learning and adjusting the

strategy accordingly.

Implementing the scorecard typically includes four processes:

Business PlanningBusiness Planning

1. Sales Revenue

2. Demand

3. Supply

4. Profit based Supply/Demand Balancing

5. Management Review

Elements of an Integrated Business Planning Process

A Comprehensive View of A Comprehensive View of Business Performance Business Performance

a strategy map where strategic objectives are placed over four perspectives in order to clarify the strategy and the cause and effect relationships that exists among them.

strategic objectives which are smaller parts of the strategy interlinked by cause and effect relationships in the strategy map.

Balanced Scorecard is a method and a tool which includes:

A Comprehensive View of A Comprehensive View of Business PerformanceBusiness Performance Measures directly reflecting strategy.

Their prime purpose is to measure that the desired change or development defined by strategic objectives actually takes place.

Strategic initiatives that constitute the actual change as described by strategic objectives.

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BSC: Four PerspectivesBSC: Four Perspectives Financial perspective Customer perspective

Internal Business perspective Learning & Growth perspective

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BSC strategic focusBSC strategic focus

A Comprehensive View of Business PerformanceA Comprehensive View of Business PerformanceThe scorecard drives implementation of strategy using The scorecard drives implementation of strategy using perspectives which generally include: perspectives which generally include:

A Comprehensive View of A Comprehensive View of Business PerformanceBusiness Performance

Financial Perspective - measures reflecting financial performance, for example number of debtors, cash flow or return on investment.

The financial performance of an organization is fundamental to its success.

Even non-profit organizations must make the books balance.

A Comprehensive View of A Comprehensive View of Business PerformanceBusiness Performance

They are historical. Whilst they tell us what has happened to the organization they may not tell us what is currently happening, or be a good indicator of future performance.

It is common for the current market value of an organization to exceed the market value of its assets.

Financial figures suffer from two major drawbacks:

A Comprehensive View of A Comprehensive View of Business PerformanceBusiness Performance Customer Perspective - measures having a

direct impact on customers and their satisfaction, for example time taken to process a phone call, time to deliver the products, results of customer surveys, number of complaints or competitive rankings.

A Comprehensive View of A Comprehensive View of Business PerformanceBusiness Performance Business Process Perspective - measures

reflecting the performance of key business processes, for example the time spent prospecting, number of units that required rework or process cost.

Learning and Growth Perspective - measures describing the company's learning curve - for example, number of employee suggestions or total hours spent on staff training.

A Comprehensive View of A Comprehensive View of Business PerformanceBusiness Performance

A Comprehensive View of A Comprehensive View of Business PerformanceBusiness PerformanceSpecific measures are chosen based upon the organization's goals.

Typically organizations "get what they measure" so care in creating measures and revisiting the measures regularly is recommended by most practitioners.

A Comprehensive View of A Comprehensive View of Business PerformanceBusiness Performance

The method helps separate creation of strategy from strategy implementation, which can push power downwards while making the leaders' jobs easier.

It can also help detect correlation between activities.

A Comprehensive View of A Comprehensive View of Business PerformanceBusiness PerformanceFor example, the process objective of implementing a new telephone system can help the customer objective of reducing response time to telephone calls, leading to increased sales from repeat business.

Actual Usage of the Balanced Actual Usage of the Balanced Scorecard Scorecard

Clarify and update budgets Identify and align strategic initiatives Conduct periodic performance reviews to

learn about and improve strategy.

companies are using the scorecard to:

.

The Balanced Scorecard The Balanced Scorecard Focuses on Factors that Focuses on Factors that Create Long-Term ValueCreate Long-Term Value Traditional financial reports look backward

Reflect only the past: spending incurred and revenues earned Do not measure creation or destruction of future economic value

The Balanced Scorecard identifies the factors that create long-term economic value in an organization, for example: Customer Focus: satisfy, retain and acquire customers in targeted segments Business Processes: deliver the value proposition to targeted customers

innovative products and services high-quality, flexible, and responsive operating processes excellent post-sales support

Organizational Learning & Growth: develop skilled, motivated employees; provide access to strategic information align individuals and teams to business unit objectives Processes

Customers

People

The Four Perspectives The Four Perspectives Apply to Mission Driven As Apply to Mission Driven As Well As Profit Driven Well As Profit Driven OrganizationsOrganizations • What must we do to satisfy our financial

contributors?• What are our fiscal obligations?

• Who is our customer?• What do our customers expect from

us?

• What internal processes must we excel at to satisfy our fiscal obligations, our customers and the requirements of our mission?

• How must our people learn and develop skills to respond to these and future challenges?

Profit Driven Mission Driven

• What must we do to satisfy our shareholders?

• What do our customers expect from us?

• What internal processes must we excel at to satisfy our shareholder and customer?

• How must our people learn and develop skills to respond to these and future challenges?

Financial Perspective

Customer Perspective

Internal Perspective

Learning & Growth Perspective

Answering these questions is the first step to develop a Balanced Scorecard

The Balanced Scorecard Framework Is Readily Adapted The Balanced Scorecard Framework Is Readily Adapted to Non-Profit and Government Organizationsto Non-Profit and Government Organizations

The Mission, rather than the financial / shareholder objectives, drives the organization’s strategy

"If we succeed, how will we look to our financial donors?”

“To achieve our vision, how must our people learn,

communicate, and work together?”

The Mission

“To satisfy our customers, financial donors and mission,

what business processes must we excel at?"

”To achieve our vision, how must we look to

our customers?”

Why are Companies Adopting Why are Companies Adopting a Balanced Scorecard?a Balanced Scorecard?• ChangeFormulate and communicate a new strategy for a more competitive environment

•GrowthIncrease revenues, not just cut costs and enhance productivity

• ImplementFrom the 10 to the 10,000. Every employee implements the new growth strategy in their day-to-day operations

The Revenue Growth Strategy

“Improve stability by broadening the sources of revenue from current customers”

The Productivity Strategy

“Improve operating efficiency by shifting customers to more cost-effective channels of distribution”

Improve Returns

Improve Operating Efficiency

Broaden Revenue Mix

Increase Customer Confidence in Our Financial Advice

IncreaseCustomer Satisfaction Through Superior Execution

IncreaseEmployee Productivity

Access to Strategic Information

Develop Strategic Skills

Align Personal Goals

FinancialPerspective

CustomerPerspective

InternalPerspective

Learning Perspective

Cross-Sell the Product Line

Shift to Appropriate Channel

Provide Rapid Response

Develop New Products Minimize

Problems

Understand Customer Segments

Why Do We Need a Balanced Why Do We Need a Balanced Scorecard? Scorecard? To Implement Business To Implement Business Strategy!Strategy!

“Less than 10% of strategies effectively formulated are effectively executed”

Fortune

“Business Strategy is now the single most important issue… and will remain so for the next five years”

Business Week

Our Research Has Our Research Has Identified Four Barriers to Identified Four Barriers to Strategic ImplementationStrategic Implementation

Today’s Management Systems Were Designed to Meet The Needs of Stable Industrial Organizations That We’re Changing Incrementally

You Can’t Manage Strategy With a System Designed for Tactics

Only 5% of the work force understands the strategy

60% of organizations don’t link budgets to strategy

Only 25% of managers have incentives linked to strategy

85% of executive teams spend less than one hour per month

discussing strategy

9 of 10 companies fail to execute

strategy

The People Barrier

The Vision Barrier

The Management Barrier

The Resource Barrier

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10 Golden Rules for Implementing a 10 Golden Rules for Implementing a BSCBSC

Roest, Pim, Information Management and Computer Security, V 5 No 5, 1997

1. There are no standard solutions: all business differ

2. Top management support is essential

3. Strategy is the starting point

4. Limited and balanced number of objectives and measures

5. No in-depth analyses up front, but refine and learn by doing

6. Take a bottom-up and top-down approach

7. It is not a systems issue, but systems are an issue

8. Consider delivery systems at the start

9. Consider the effect of performance indicators on behavior

10.Not all measures can be quantified