Strategy Maps and Balanced Scorecard
Fatima Gundran
Ma. Theresa Santiago
Rudolph Velasco
Balanced Scorecard
The BSC's Emergence
• Robert Kaplan and David Norton first publicized the balanced scorecard in a series of journal articles and published this concept in their book, The Balanced Scorecard.
What is the Balanced Scorecard (BSC)?
• - is a model of lead and lag indicators of performance that includes both financial and non-financial performance measures
• - is a strategy performance management tool - a semi-standard structured report, supported by design methods and automation tools, that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the consequences arising from these actions
What is the Balanced Scorecard (BSC)?
• Financial measures by themselves are insufficient for providing incentives for success. Financial measures tell a story about the past, but not about the future.
• In the end, financial measures are important but are not sufficient to guide performance in creating value. Nor are the non-financial measures, by themselves, sufficient for providing the bottomline score.
• The balanced scorecard, as the name implies, looks for a balance of multiple performance measures—both financial and non-financial—to guide organizational performance toward success.
What is the Balanced Scorecard (BSC)?
• Organizations often have a gap between strategies and actions
What is the Balanced Scorecard (BSC)?
• The BSC is a bridge to close that gap...
BSC's Perspectives
• CUSTOMER PERSPECTIVE
– How do customers see us?
• Financial Perspective
– How do we look to shareholders?
• Learning Growth Perspective
– Can we continue to improve and create value?
• Internal Business Perspective
– What must we excel at?
Customer Perspective
• focuses on how the organization should look to its customers for success
• Companies use the following performance measures, among others, when considering the customer perspective: – Customer satisfaction
– Customer retention
– Market share
– Customer profitability
Customer Perspective
– Customer satisfaction • Customer satisfaction measures indicate whether the company is
meeting customers’ expectations or even delighting them. You have probably completed customer satisfaction forms for restaurants, hotels, or automobile repair shops.
– Customer retention • Customer retention or loyalty measures indicate how well a
company is doing in keeping its customers.
– Market share • Market share measures a company’s proportion of the total
business in a particular market. Companies typically measure market share in terms of dollar sales, unit volume, or number of customers.
– Customer profitability • Customer profitability refers to how much profit your customers
make for you.
Financial Perspective
• measures indicate whether a company’s strategy, including its implementation and execution, is contributing to bottom-line improvement
• Basically, financial strategies are simple: Companies increase shareholder value by
(1) selling more and
(2) spending less.
Learning & Growth Perspective
• The fourth perspective, learning and growth, describes the organization’s intangible assets and their role in strategy.
• Managers would be responsible for developing employee capabilities
• Key measures for evaluating managers’ performance would be:
- employee satisfaction
- employee retention, and
- employee productivity.
Learning & Growth Perspective
- employee satisfaction - recognizes that employee morale is important for
improving productivity, quality, customer satisfaction, and responsiveness to situations
- employee retention - Firms committed to retaining employees recognize that
employees develop organization-specific intellectual capital and are a valuable non-financial asset to the company
- employee productivity. - recognizes the importance of output per employee
Internal Business Perspective
• Internal Perspective: Value Is Created Through Internal Business Processes
• Internal processes accomplish two vital components of strategy:
• They produce and deliver the value proposition for customers, and they improve processes and reduce costs for the productivity component in the financial perspective
Strategy Maps
• - necessary in communicating a strategy • The strategy maps give employees a clear line of sight into
how their jobs are linked to the overall objectives of the organization, enabling them to work in a coordinated, collaborative fashion toward the company’s desired goals.
• - provide a visual representation of a company’s critical objectives and the crucial relationships among them that drive organizational performance.
• show how an organization will convert its initiatives and resources – including intangible assets such as corporate culture and employee knowledge – into tangible outcomes
4 DISTINCT REGIONS OF STRATEGY MAPS
• Financial
• Customer
• Internal Processes
• Learning and Growth
Sample Balanced Scorecard BOF
SAMPLE STRATEGY MAP BOF
Sample BSC FEDEX Specific Work Goals Measure of Performance Targets Initiatives
Customer
Deliver superior customer experiences
Process Flow Chart Map, Pareto Charts, Fishbone Diagram
You want to map and translate what customers say into characteristics that you can measure
To make every customer experience outstanding, we need to work to exceed both customers’ requirements — such as delivery time — and their expectations — “softer” benefits such as confidence.
Purple Promise Create improvements that can be sustained over time — through careful research and systematic planning.
You want to identify those who receive the output or provide input for a particular process
Understand how an individual’s or department’s responsibilities connect to the needs of external FedEx customers
Financial
Goal to lower cost but improve quality
You want to establish an ongoing effort to reduce waste, improve efficiency and work together collaboratively — or you want to make problems easier to spot
Go out and observe a process step by step to identify waste — activities and resource usage that do not add or enable value
Drive efficiency by eliminating steps that don’t add value for customers.
Learnings & Growth
Review if there are gaps in the features or services being offered
You want to understand whether or not an item or activity truly adds value for customers
Build and maintain a high-performance way of working through five key actions — Sort, Simplify, Shine, Standardize and Sustain — plus one that always comes first, Safety
Translate what customers tell us they want or expect into defined, measurable requirements
Employee training prior to implementation of changes
You want to help everyone understand how teamwork should occur in a process
You want to gain insight into where Quality stands at the enterprise, business unit or local level
Monitor key variables that measure our business performance through our customers’ eyes
Internal Business
Maintain on-time delivery
Use brainstorming to identify key stakeholders in an activity or process
You want to understand whether the performance of a process is stable, or whether action is required
You would like to clarify the degree of engagement that various roles have in a project
Review operational activities that add or do not add value to customers
Create a chart that divides key roles into four types: Responsible, Accountable, Consented and Informed
Monitor and control the degree of variation in a business process
Create a common understanding of how work flows and how it connects with those upstream and downstream of your process
Gap Analysis: Compare the current state versus the desired state, and list the requirements necessary to improve performance
Example Customer/Financial
Example Learning & Growth
Sample STRAT MAP FEDEX
Have we communicated our enhancements to customers?
Are our customers prepared for the change?
Do they understand the type of change, key dates and impacts?
Have we trained our people to properly implement the change and support customers?