Balanced Score Card

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Balanced Score Card
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z Acknowledgement: We created this material from several sources

on the Internet.

z If you would like to get more information, please visit

1. Indonesian Production and Operations Management Society

(IPOMS). http://www.ipoms.or.id/mambo and then click
“Knowledge Resources.”

2. Ahmad Syamil’s website http://www.clt.astate.edu/asyamil/

Balanced Scorecard
z The scorecard…
z Describes the organization’s vision of the future to
the entire organization
z Creates shared understanding
z Creates a holistic model of the strategy that
allows all employees to see how they contribute to
organizational success
z Focuses change efforts on the right objectives
BSC Key Concepts
z “Balanced” because…
z More than financial measures… it looks across the organization
z Relies on performance drivers and outcomes (leading and lagging indicators)
z Cause and effect relationships – that link to financials
z Every measure should be an element in a chain of cause-and-effect
relationships
z It’s a hypothesis of what needs to happen to be able to fulfill the strategy…
Think of If/Then statements
z Ultimately, causal paths from all the measures on a scorecard should be
linked to financial objectives
z Strategic versus diagnostic:
z A BSC should contain between 16-25 measures that focus the organization
on a single strategy
z There should be separate diagnostic measures:
z blood pressure and body temp measure health, but not ability for career
success
 The basics of the Balanced Score Card
Financial Perspective

Goals closely related to the

financial expectations of the
investors

Customer Perspective Internal Perspective

Goals that refer to how our Goals with regard to the

customers see us. exceleration at certain
businss processes

Learning Perspective

Goals that will sustain the

ablitity to change and to
improve in the future.
Quadrant 1:
Finance Perspective
z Financial measures are valuable in summarizing the
readily measurable economic consequences of
actions already taken.
z Financial performance measures indicate whether a
company's strategy, implementation, and execution
are contributing to bottom-line improvement.
z Financial objectives typically relate to profitability -
for example:
z Operating income,
z Return-on-capital-employed,
z Economic value-added
Quadrant 2:
Customer Perspective
z Start by identifying:
z The customer and market segments in which the business unit
will compete and…
z The measures of the business unit's performance in these
targeted segments.
z Core outcome measures include:
z Customer satisfaction, customer retention, new customer
acquisition, customer profitability, and market and account share
in targeted segments.
z Include measures of the value propositions that we will deliver to
customers in targeted market segments.
z What’s critical for customers to switch to or remain loyal to Intel?
z For example, customers could value short lead times and on-time
delivery, or a constant stream of innovative products and services.
Quadrant 3:
Business Process Perspective
z Identifies the critical internal processes in which the organization
must excel, and will enable:
z delivery of the value propositions that will attract and retain
customers in targeted market segments, and
z satisfying shareholder expectations of excellent financial returns.
z Usually identifies entirely new processes at which an
organization must excel.
z For many companies:
z Future financial performance is not driven by short-term
operations (make/market/service)
z Successful multi-year product development processes
(design/develop) may be more critical for future economic
performance than managing existing operations efficiently,
consistently, and responsively.
Quadrant 4:
Learning and Growth Persp.
z Identifies the infrastructure that the organization must build to
create long-term growth and improvement.
z Come from three principal sources: people, systems, and
organizational procedures:
z Employee based measures:
z Employee satisfaction, retention, training, and skills - along with
specific drivers of these generic measures, such as detailed, business
specific indexes of the particular skills required for the new competitive
environment.
z Information systems capabilities
z Measured by real-time availability of accurate, critical customer and
internal process information to employees on the front lines of
decision making and actions.
z Organizational procedures:
z Examine alignment of employee incentives with overall organizational
success factors, and measured rates of improvement in critical
customer-based and internal processes.
 Financial Perspective

Goals closely related to the

financial expectations of the
investors
Customer Perspective

Goals that refer to how our

customers see us.
Internal Perspective

Goals regarding the

exceleration at businss
processes
Learning Perspective

Goals that will sustain the

ablitity to change and to
improve in the future.
 Achieve Profit
FINANCIAL

Keep costs low Generate Cash Flows

High market share

CUSTOMERS

Strong customer relationship Customer acquisition

High customer satisfaction

INTERNAL

Network of strat. partnerships Low down-time-rate

Efficient use of budget

LEARNING

Continuous improvement Up-to-date technology

Motivated employees Use of media

Cause and Effect Hierarchies
Simplified BSC
BSC Quadrants Metric Hierarchy
Financial Pre-Tax
4. Profitability!
Performance Profit

Customer
3. Resulting in their
Customer satisfaction…
Satisfaction

Internal Biz Post Sales

2. We can provide the
Processes Support support our
customers desire…

Learning and
1. If we have the
Key Skills appropriately
Growth
skilled people…
Barriers to Strategy Fulfillment
z Vision and strategy not actionable
z A leader with a clear vision lacks the mechanisms
to share this vision with the people that make it
actionable (Senge)
z This causes different groups to pursue different
agendas (quality, continuous improvement,
reengineering) based on their own interpretation
of the strategy
z Their efforts are neither integrated nor cumulative
since they are not linked coherently to an overall
strategy
Barriers to Strategy Fulfillment
z Strategy not linked to departmental, team and
individual goals
z Incentive systems are linked to short term
financial measures (annual or less)
z Departments focus on achieving tactical goals
rather than building capabilities that will enable
longer term strategic goals
Barriers to Strategy Fulfillment
z Strategy not linked to resource allocation
z Separate processes for long-term strategic
planning and for short-term budgeting
z Discretionary funding and capital allocations are
often unrelated to strategic priorities
z Monthly and quarterly reviews focus on explaining
deviations between actual and budget, not on
whether progress is being made on strategic
objectives
z Strategic planning and finance efforts not
integrated
Barriers to Strategy Fulfillment
z Feedback that is tactical, not strategic
z Management systems provide feedback about
short-term, operational performance, with the bulk
of this feedback on financial measures
z Little time is spent examining indicators of
strategy implementation and success
BSC Implementation Challenges
and Opportunities
BSC Implementation Challenges
z Sponsorship
z Link to existing programs
z Strategic versus tactical measures
z Data access and quality
z Tools for preparing and presenting the BSC
Sponsorship
z Project manager
z Knows BSC, drives project
z Concept champion
z “Gets it”, has political clout to sell it
z Actively and aggressively promotes it
z GM or CEO buy-in
z Only person with authority to embed a BSC into
the fabric of the organization
Link to Existing Programs

“The Balanced term

Scorecard is a mgmt Vision,
ong
Strategy, Values L
system that can t erm
g
channel the energies, -lon
d
abilities, and specific Me
Financial Learning and
knowledge held by Performance Growth
people throughout “To succeed financially, how “To achieve our vision, how
should we appear to our will we sustain our ability to
the organization shareholders?” change and improve?”
toward achieving
long-term strategic Customer
Internal Biz Processes
goals.” Knowledge “To satisfy our shareholders
“To achieve our vision, how and customers, what biz
should we appear to our processes must we excel at?”
customers?”

t erm
med
ort-
Source: Balanced Scorecard,
Employee Bonus Sh
Kaplan & Norton, 1996
Data
z Don’t assume that the required data is:
z Available
z Consistent (i.e., time-spans, org coverage, cost
allocations, etc.)
z High quality (error-free)
z Electronic… MS-Excel is the glue that holds
many org’s together
Tools .my limited experience
z We used Excel and PowerPoint
z Cheap and “easy” to get going… proof of concept
phase
z Highly manual and time consuming
z Significant potential to create errors
z Investigated specialized BSC packages
z Typically cost ~$100,000 for software
z Add implementation costs, annual maint.
z Didn’t pursue due to funding constraints