Balanced Scorecard

Balanced Scorecard
YOU GET WHAT YOU MEASURE!

Not always what you want to get.

Measurement (with rewards) affects
behavior.

What to measure?

What to Measure?
Traditional measures:

Net income, EPS

ROA, ROE
Sales

Backward looking.

Each of these measures what you did in the

past.

May cause wrong behavior.

Sacrifice long term for short term

Financial Measures
Make them more relevant

Earnings versus ROA versus EVA

Abandon them for new metrics.

Time to meal service

Employee turnover

Financial measures will follow.

Why Not Both?

No single metric can provide all the
necessary information to run a
business.
Go with a balanced portfolio of
metrics.
The Balanced Scorecard.

Analogy to an Airplane
More than one instrument in the
cockpit
Today I will focus on airspeed!
What about other things?

Fuel, altitude, bearing, destination.

Not Just a Bunch of

Random Metrics!
Just Looking at an assortment of
measures, some financial and
some non-financial, is not
necessarily a balanced scorecard
approach.
You need to have an integrated set
of measures.

The Scorecard is a
Strategic Map
All roads should lead to your overall goal.
You need to ask what do we need to do
to get there.
The question should be asked from
various perspectives.
Each question, from each perspective,
ultimately leads to what you wish to
achieve.

What Comprises a
Balanced Scorecard?
1.
2.
3.
4.

Four Components:
Mission
Perspectives
Objectives
Measures

Mission
Highest level within a scorecard
concept.
Answers the following questions:

What is our overall reason for being?

Why do we exist as an organization?

Perspectives
Perspectives represent the various
areas that impact performance and
determine whether the mission is
obtained.
Perspectives answer the question:

In what are the key areas must we

focus to obtain our mission?

Perspectives
The following perspectives are key
for most enterprises:

Financial
Customer
Internal processes
Learning and growth

Objectives
Objectives identify what is
important within each perspective

Objectives - Financial
How does the investment
community view us?

Objectives - Customer
What segment do we serve?
What does the customer demand
from us?
What value do we provide to this
segment?

Objectives - Internal
Processes
What must we excel at?
What must we do to meet the
customers needs and provide
value?

Objectives Learning and

Growth
What must the organization do in
order to support and improve the
processes identified in the internal
process perspective?
Can we continue to improve and
create value?
What skills are needed?

Measures
Measures provide a way to keep
score.
In other words, how can we
determine if we are doing what
needs to be done?.
The measures are the actionable
component of the scorecard.

How many metrics?

Just enough to get the job done.
Too many leads to sensory
overload.
Try to keep it manageable.
Typical is about four per
perspective.

Four perspectives
Financial
:

Customer

Vision
Internal Processes
and Strategy

Innovation and Learning

Rice Bowls-R-US
Rice Bowls-R-Us (RBRS) mission is
to sell more rice bowls than any
other restaurant chain, including
the leader. Panda Express.
I. M. Rice, the president of RBRS
has traditionally tracked total
sales.

Rice Bowls-R-US
Such an approach is one-dimensional

No insight is gained on why things have

improved (or faltered).
No insight is gained as to what needs to
improve?
No insight as to where problems lie.

Mr. Rice is only able to assess the

business from one perspective!

Rice Bowls-R-US
Mr. Rice asks himself:

What is it that sells more rice bowls?

Rice Bowls-R-US
Great service sells more rice bowls.
It is what the customer demands.

Customer perspective

Measure

Excellent results on customer surveys

Rice Bowls-R-US
How do we deliver great service?

Rice Bowls-R-US
Servers must deliver food
efficiently and with a smile.

Internal process perspective

Measure

Amount of time from order to delivery.

Rice Bowls-R-US
So how do we learn the process for
quickly getting the bowls into the
customers hands and interacting
in a pleasant way?

Rice Bowls-R-US
The servers need to be trained in
the latest techniques.

Internal learning and growth

perspective.

Measure

Number of employees attending and

passing training classes

Rice Bowls-R-US
All the components work together
to support the ultimate goal of
serving more rice bowls.

President Rice can see where the

business is running well or where help
is needed.
Employees understand what they
need to do to achieve the goal.

Benefits of the BSC

Brings together in one report many
seemingly separate elements of
the firm.
Guards against sub-optimization.

Reduce time to market

Reduce setup costs

Problem with Balanced

Scorecard
What is the score?

Football analogy

Many metrics to measure, so what

are the trade-offs?

Competing for scare resources such

as money, time

Solution
Treat Balanced Scorecard as an
instrument panel, not as a
scorecard.
Choose one measure as the score
(firm value) and consider trade-offs
among other measures to realize
ultimate goal.