© 2012 Pearson Prentice Hall. All rights reserved.
The Balanced ScorecardThe Balanced Scorecardand Strategy Mapand Strategy Map
Chapter 2
© 2012 Pearson Prentice Hall. All rights reserved.
Performance Measurement Performance Measurement SystemsSystems
Measurement must support the company’s strategy and operation
Must be designed so companies get better at managing and improving the value created from their intangible assets
Need to move from reliance on financial measures to a mix of financial and nonfinancial measures
© 2012 Pearson Prentice Hall. All rights reserved.
Balanced ScorecardBalanced Scorecard The Balanced Scorecard (BSC) provides a system
for measuring and managing all aspects of a company’s performance
The scorecard balances traditional financial measures of success, such as profits and return on capital, with nonfinancial measures of the drivers of future financial performance
The Balanced Scorecard measures organizational performance across different perspectives
© 2012 Pearson Prentice Hall. All rights reserved.
PerspectivesPerspectives Four different but linked perspectives are derived
from the organization’s mission, vision and strategy:
– Financial– Customer– Process– Learning and growth
© 2012 Pearson Prentice Hall. All rights reserved.
Balanced MeasurementsBalanced Measurements The BSC enables companies to:
– Track financial results– Monitor how they are building the capabilities for
future growth and profitability With customers With their internal processes With their employees and systems
© 2012 Pearson Prentice Hall. All rights reserved.
StrategyStrategy A strategy accomplishes two principal functions:
– Creating a competitive advantage by positioning the company in its external environment with resources to support customers better than its competitors
– Having a clear strategy provides clear guidance for how internal resources should be allocated to gain a competitive advantage in the marketplace
© 2012 Pearson Prentice Hall. All rights reserved.
ObjectivesObjectives Concise statements that articulate what the
organization hopes to accomplish
Action phrases
Tell the story of the strategy through the cause-and-effect relationships
© 2012 Pearson Prentice Hall. All rights reserved.
Objectives Objectives Typical objectives found in each of the four BSC
perspectives include:– Increase revenues through expanded sales to
existing customers (Financial perspective)– Offer complete solutions to our targeted customers
(Customer perspective)– Achieve excellence in order fulfillment through
continuous improvements (Process perspective)– Align employee incentives and rewards with the
strategy (Learning and growth perspective)
© 2012 Pearson Prentice Hall. All rights reserved.
MeasuresMeasures Provide specificity and reduce the ambiguity that
is inherent in word statements Specifying exactly how an objective is measured
will give employees a clear focus for their improvement efforts
Once the objectives have been translated into measures, managers select targets for each measure
© 2012 Pearson Prentice Hall. All rights reserved.
TargetsTargets Targets establish the level of performance or rate
of improvement required for a measure– Should be set to represent excellent performance– Should, if achieved, place the company as one of
the best performers in its industry– Should create distinctive value for customers and
shareholders
© 2012 Pearson Prentice Hall. All rights reserved.
Strategy MapStrategy Map Illustrates the causal relationship among the strategic
objectives across the four perspectives
Financial Perspective Return on Investment
Customer Perspective Customer Loyalty
On-Time Delivery
Process Perspective
Learning and Growth Perspective
Process Quality Cycle Time
Employees’ Process Improvement Skills
© 2012 Pearson Prentice Hall. All rights reserved.
Financial Perspective Financial Perspective The ultimate objective for profit-seeking
companies Financial performance measures indicate whether
the company’s strategy, implementation, and execution are contributing to bottom-line improvement
A company’s financial performance can be improved in two ways: productivity improvements and revenue growth
© 2012 Pearson Prentice Hall. All rights reserved.
Financial PerspectiveFinancial Perspective Increased productivity occurs by:
– Lowering direct and indirect expenses– Utilizing their financial and physical assets more
efficiently Companies generate revenue growth by:
– Selling additional products or services to existing customers
– Selling new products, selling to new customers, and expanding into new markets
© 2012 Pearson Prentice Hall. All rights reserved.
Customer Perspective Customer Perspective Identify the targeted customer segments in which
the business unit competes and the measures of the business unit’s performance in these targeted segments
This perspective typically includes several common measures of the successful outcomes from a well-formulated and implemented strategy:– Achieve customer satisfaction and loyalty– Acquire new customers– Increase market share– Enhance customer profitability
© 2012 Pearson Prentice Hall. All rights reserved.
Customer Perspective Customer Perspective A strategy identifies specific segments targeted for
growth and profitability
Companies must also identify the objectives and measures for the value proposition it offers customers
© 2012 Pearson Prentice Hall. All rights reserved.
Customer PerspectiveCustomer Perspective The value proposition is the unique mix of product
performance, price, quality, availability, ease of purchase, service, relationship, and image offered to the targeted customers– Defines the company’s strategy– Communicates what the company expects to do for its
customers better or differently from its competitors Value propositions used successfully by different
companies include:– “Best buy” or lowest total cost– Product leadership– Complete customer solutions
© 2012 Pearson Prentice Hall. All rights reserved.
Process Perspective Process Perspective Means by which the organization will:
– Create and deliver the value proposition for customers
– Achieve the productivity improvements for the financial objectives
The Process perspective identifies the critical processes in which the organization must excel to achieve its customer, revenue growth, and profitability objectives
© 2012 Pearson Prentice Hall. All rights reserved.
Process Perspective Process Perspective Organizations perform many different processes,
which may be classified into four groupings:– Operating processes
Day-to-day processes by which companies produce their existing products and services and deliver them to customers
– Customer management processes Processes by which companies expand and deepen
relationships with targeted customers
© 2012 Pearson Prentice Hall. All rights reserved.
Process Perspective Process Perspective – Innovation processes
Processes by which companies develop new products, processes, and services
– Regulatory and social processes Processes by which companies ensure that they
meet or exceed regulations on business practices
© 2012 Pearson Prentice Hall. All rights reserved.
Learning and Growth Learning and Growth Perspective Perspective
Identifies objectives that drive improvement in the process objectives– Human Resources– Information Technology– Organization Culture and Alignment
© 2012 Pearson Prentice Hall. All rights reserved.
Learning and Growth Learning and Growth Perspective Perspective
Human Resources– Strategic competency availability
Employees have the appropriate mix of skills, talent, and know-how
Information Technology– Strategic information availability
Systems and applications contribute to effective strategy execution
© 2012 Pearson Prentice Hall. All rights reserved.
Learning and Growth Learning and Growth Perspective Perspective
Organization Culture and Alignment– Culture and climate
Employees have an awareness and understanding of the shared vision, strategy, and cultural values
– Goal Alignment Employee goals and incentives are aligned with the
strategy– Knowledge sharing
Employees and teams share best practices and other knowledge relevant to strategy execution
© 2012 Pearson Prentice Hall. All rights reserved.
BSC in Nonprofit and BSC in Nonprofit and Government OrganizationsGovernment Organizations
The BSC is especially well-suited for nonprofit and government organizations (NPGOs)
Their success has to be measured by their effectiveness in providing benefits to constituents
Because nonfinancial measures can assess performance with constituents, the BSC provides the natural performance management system for NPGOs
© 2012 Pearson Prentice Hall. All rights reserved.
NPGOs and StrategyNPGOs and Strategy Many NPGOs encountered difficulties in
developing their initial BSC, finding that they didn’t have a clear strategy
Many NPGOs place their mission objective at the top of their scorecard and strategy map– Cannot use the standard BSC architecture where
financial objectives are the ultimate, high-level outcomes to be achieved
© 2012 Pearson Prentice Hall. All rights reserved.
Managing with the BSCManaging with the BSC The benefits from BSC are realized as the
organization integrates its new measurement system into management processes that:– Communicate the strategy to all employees and
organizational units– Align employees’ individual objectives and
incentives to successful strategy implementation– Integrate the strategy with ongoing management
processes
Barriers to Effective UseBarriers to Effective Use Senior management is not committed
Scorecard responsibilities do not filter down
The solution is overdesigned, or the scorecard is a one-time event
The scorecard is treated as a systems or consulting project
© 2012 Pearson Prentice Hall. All rights reserved.
© 2012 Pearson Prentice Hall. All rights reserved.
Recommended