BALANCED SCORE CARD

Management Truism
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You cannot control what you cannot measure Thus checking is in the heart of the control loop

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Pilot Overheard
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Yesterday I had used altitude to control the flight. Today I will use speed

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Which alignment do we prefer?

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Twin objectives
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Control using metrics Alignment of efforts

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Traditional Measures
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Traditional organizations used financial measures to control their operations Companies like Du-Pont led these efforts These models could not incorporate nonfinancial measures for capturing intangible assets

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Limitations of financial measures

We cannot measure (so control) strategically important non financial aspects such as Brand Value (Rolex) Processes (HUL) Human Capital (3M)

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Balanced Scorecard- Going Beyond Financials

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Balanced scorecard retains the financial perspective but also gives equal emphasis to non financial perspectives The scorecard balances use of financial and non-financial measures The scorecard balances the external measures and internal measures The scorecard balances outcome measures and their drivers (lag and lead indicators)
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Balance scorecard-strategy map

Strategy of an SBU is articulated on one A4 sheet In all four organizational perspectives and their linkages (alignment) are explicitly considered in making the strategy map

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Four perspectives
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Learning

Process

Customer

Financial

Missio n/Visio n

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Financial Perspective
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How do the shareholders see the company performance? Core Metrics (common to all) include Return On Equity EVA

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Financial Perspective
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1.
2. 3. 4.

Company specific metrics Revenue from new products and markets Additional revenue from existing customers Cost Reduction/productivity Asset utilization

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Customer perspective core

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Customer acquisition, retention, satisfaction, profitability and market share

Note these are all lag indicators which will be common for all organizations

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Customer perspective Value proposition

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1.
2. 3. 4.

Product service attributes Cost Quality Time Others Customer relationship Brand

These are lead indicators which will differ from company to company. They will depend on the market segment that the company targets.
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What will their customers value

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What is lead and lag indicator

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Lead indicator Lag Indicator Animal behavior and earthquake Product that wows is a lead indicator that I will retain my customer (lag indicator)

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Linkage between customer and financial perspective

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Customer Satisfaction

Financial Success

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Internal Process
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1.
2. 3.

Types of processes Innovation-Identify Market, Create product Operations-Build products, deliver product Post sale- Service customer Parameters of any process: time, cost, quality and flexibility

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Linkage between process and customer perspective

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Robust processes

Customer Satisfaction

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BSC view of strategically important process

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Processes required to deliver customer value proposition and financial objectives Some processes (that add efficiency) contribute directly to the financial perspective without impacting customer perspective

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Identifying the missing process

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Processes which would be required to deliver customer value may be missing as of now. Such processes have to be introduced E.g. construction company having problems with recovery

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Learning and growth perspective

1.
2. 3. 1. 2. 3.

Core Employee satisfaction Employee retention Employee productivity Enablers Staff competencies Climate Technology infrastructure
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Four perspectives- Total picture

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Learning

Process

Customer

Financial

Missio n/Visio n

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Importance of metrics
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You cannot control what you cannot measure

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Choice of metrics
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Include lead and lag indicators Beware of starting a tom and jerry game

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Set Targets
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Set stretch targets Check actually achieved performance with targets

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Cascading the scorecard

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Cascading the scorecard

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All targets add upActions to achieve targets (initiatives) become more operational as we go down the ladder

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An example
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Thank You
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