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Balanced Scorecard

Introduction

What is the Balanced


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.

Introduction
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.

Implementation
Implementing the scorecard typically
includes four processes:
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.

Business Planning
Elements of an
Integrated Business
Planning Process
1. Sales Revenue
2. Demand
3. Supply
4. Profit based
Supply/Demand
Balancing
5. Management Review

A Comprehensive View of
Business Performance

Balanced Scorecard is a method and a tool


which includes:

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.

A Comprehensive View of
Business 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.

BSC: Four Perspectives

Financial perspective

Customer perspective

Internal Business perspective

Learning & Growth perspective

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BSC strategic focus

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A Comprehensive View of Business Performance


The scorecard drives implementation of strategy using
perspectives which generally include:

A Comprehensive View of
Business 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
Business Performance

Financial figures suffer from two major


drawbacks:

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.

A Comprehensive View of
Business 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
Business 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.

A Comprehensive View of
Business Performance
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
Business Performance
Specific 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
Business 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
Business Performance
For 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


Scorecard
companies are using the scorecard to:
Clarify and update budgets
Identify and align strategic initiatives
Conduct periodic performance reviews to
learn about and improve strategy.

The Balanced Scorecard


Focuses on Factors that
Create 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
Customers

Organizational Learning & Growth:

develop skilled, motivated employees;


provide access to strategic information
align individuals and teams to business unit objectives

Processes

People

The Four Perspectives


Apply to Mission Driven As
Well As Profit Driven
Organizations
Profit
Profit Driven
Driven

What must we do to satisfy our


shareholders?

Mission
Mission Driven
Driven

Financial Perspective

What do our customers expect from


us?

What must we do to satisfy our


financial contributors?
What are our fiscal obligations?

Customer Perspective

Who is our customer?


What do our customers expect from
us?

What internal processes must we


excel at to satisfy our shareholder and
customer?

Internal Perspective

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?

Learning & Growth


Perspective

How must our people learn and


develop skills to respond to these and
future challenges?

Answering these questions is the first step to develop a Balanced


Scorecard

The Balanced Scorecard Framework Is Readily Adapted


to Non-Profit and Government Organizations
The Mission
"If we succeed, how
will we look to our
financial donors?

To achieve our vision,


how must we look to
our customers?

To satisfy our customers,


financial donors and mission,
what business processes
must we excel at?"
To achieve our vision, how
must our people learn,
communicate, and work
together?
The Mission, rather than the financial / shareholder objectives,
drives the organizations strategy

Why are Companies Adopting


a Balanced Scorecard?
Change

The Revenue Growth Strategy

The Productivity Strategy

Improve stability by broadening the sources of revenue from current


customers

Improve operating efficiency by shifting customers to more costeffective channels of distribution

Improve
Returns

Financial
Perspective

Improve
Operating
Efficiency

Broaden
Revenue Mix

Increase
Customer
Confidence in Our
Financial Advice

Increase
Customer
Satisfaction
Through Superior
Execution

Customer
Perspective

Internal
Perspective

Formulate and communicate a new strategy


for a more competitive environment

Growth
Increase revenues, not just cut costs and
enhance productivity

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

Understand
Customer
Segments

Develop New
Products

Cross-Sell the
Product Line

Shift
to
Appropriate
Channel

Increase
Employee
Productivity

Develop
Strategic
Skills

Access
to
Strategic
Information

Minimize
Problems

Provide
Rapid
Response

Learning
Perspective

Align
Personal
Goals

Why Do We Need a Balanced


Scorecard?
To Implement Business
Strategy!
Business Strategy is now the
single most important issue
and will remain so for the next
five years
Business Week

Less than 10% of strategies


effectively formulated are
effectively executed
Fortune

Our Research Has


Identified Four Barriers to
Strategic Implementation
The Vision Barrier

Only 5% of the work force


understands the strategy

The People Barrier


Only 25% of managers have
incentives linked to strategy

The Management Barrier

9 of 10 companies
fail to execute
strategy

85% of executive teams spend


less than one hour per month
discussing strategy

60% of organizations dont link


budgets to strategy
The Resource Barrier

Todays Management Systems Were Designed to Meet The Needs of Stable


Industrial Organizations That Were Changing Incrementally
You Cant Manage Strategy With a System Designed for Tactics

10 Golden Rules for Implementing a


BSC
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

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