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Balance Scorecard 1

Balance Scorecard 1

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Published by: tlq1mpo on Nov 19, 2009
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Course 11: The BalancedCourse 11: The BalancedCourse 11: The BalancedCourse 11: The BalancedScorecardScorecardScorecardScorecard
Prepared by: Matt H. Evans, CPA, CMA, CFMThis course provides a step-by-step guide on howto build a Balanced Scorecard. An understanding ofstrategic planning is recommended prior to takingthis course. Refer to Course 10 on strategicplanning. This course is recommended for 2 hoursof Continuing Professional Education. In order toreceive credit, you will need to pass a multiple-choice exam which is administered by installing theexe file version of this short course. The exe file canbe downloaded from www.exinfm.com/training
 NOTE: This short course includes the following supplemental materials:
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 Excel Templates: Set of basic templates for building the Balanced Scorecard 
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PowerPoint presentation: Outlines overall development steps
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Case Study: Short case study on the Balanced Scorecard at UNUM CorporationSupplemental materials are posted on the internet at 
Revised: February 4, 2002
Excellence in Financial Management
 
 
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Basic Concepts
Accountants communicate with financial statements. Engineers communicate with as-built drawings. Architects communicate with physical models. It seems that almost everyprofession has some means of communicating clearly to the end user. However, forpeople engaged in strategic planning there has been an on-going dilemma. The finishedproduct, the strategic plan, has not communicated and reached the end user. Surestrategic plans are nice to look at, full of bar charts, nice covers, well written, andprofessionally prepared; but they simply have not impacted the people who mustexecute the strategic plan. The end result has been poor execution of the strategic planthroughout the entire organization. And the sad fact of the matter is that execution of thestrategic plan is everybody’s business, not just upper level management. Upper levelmanagement creates the strategy, but execution takes place from the bottom up.So why do strategic plans fail? According to the Balanced Scorecard Collaborative, thereare four barriers to strategic implementation:1. Vision Barrier – No one in the organization understands the strategies of theorganization.2. People Barrier – Most people have objectives that are not linked to the strategy ofthe organization.3. Resource Barrier – Time, energy, and money are not allocated to those things thatare critical to the organization. For example, budgets are not linked to strategy,resulting in wasted resources.4. Management Barrier – Management spends too little time on strategy and too muchtime on short-term tactical decision-making.Therefore, we need a new way of communicating strategy to the end-user. Enter theBalanced Scorecard. At long last, strategic planners now have a crisp and clear way ofcommunicating strategy. With balanced scorecards, strategy reaches everyone in alanguage that makes sense. When strategy is expressed in terms of measurements andtargets, the employee can relate to what must happen. This leads to much betterexecution of strategy.
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Only 5% of the workforce understands their company strategy.Only 25% of managers have incentives linked to strategy.60% of organizations don’t link budgets to strategy.86% of executive teams spend less than one hour per month discussing strategy.
 
 Balanced Scorecard Collaborative
 
 
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Not only does the Balanced Scorecard transform how the strategic plan is expressed,but it also pulls everything together. This is the so-called “cause and effect” relationshipor linking of all elements together. For example, if you want strong financial results, youmust have great customer service. If you want great customer service, you must haveexcellent processes in place (such as Customer Relations Management). If you wantgreat processes, you must have the right people, knowledge, and systems (intellectualcapital).In the past, many components for implementing a strategic plan have been managedseparately, not collectively within one overall management system. As a result,everything has moved in different directions, leading to poor execution of the strategicplan. Like a marching band, everyone needs to move in lockstep behind one overallstrategy.Therefore, you should think of the Balanced Scorecard as a management system, not just another performance measurement program. And since strategy is at the center ofvalue-creation for the organization, the Balanced Scorecard has become a criticalmanagement system for any organization. In 1997, Harvard Business Review called theBalanced Scorecard one of the most significant business developments of the previous75 years.Balanced Scorecards provide the framework around which an organization changesthrough the execution of its strategy. This is accomplished by linking everything together.This is what makes the Balanced Scorecard so different; it captures the cause and effectrelationship throughout every part of the organization. In the case of Mobil Oil, the truckdriver pulls a balanced scorecard off the visor in his cab, outlining the five things he mustdo as a truck driver. Like a laser beam, strategy now has a clear path to everyone in theorganization.Throughout the entire process of building and implementing a balanced scorecard, weall need to speak the same language. Therefore, the first thing to get out of the way is tounderstand a few terms:
Balanced Scorecards tell you the knowledge, skills and systems that youremployees will need (learning and growth) to innovate and build the rightstrategic capabilities and efficiencies (internal processes) that deliver specificvalue to the market (customer) which will eventually lead to highershareholder value (financial).
“Having Trouble with Your Strategy? Then Map It” by Robert S. Kaplan and David P. Norton - Harvard Business Review
Terminology

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