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The

BALANCED SCORECARD
Robert S. Kaplan
Harvard Business School

© 1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved.

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What Is a Balanced Scorecard?

A Measurement System?

A Management System?

A Management Philosophy?

© 1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved.

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how should we appear to our shareholders?” Objectives Measures Targets Initiatives CUSTOMER “To achieve our Objectives vision. Kaplan. All rights reserved. how will we sustain our ability to change and improve?” Measures Targets Initiatives © 1999 The Balanced Scorecard Collaborative and Robert S. 3 . what business processes must we excel at?” Objectives Measures Targets Initiatives LEARNING AND GROWTH “To achieve our Objectives vision. how should we appear to our customers?” Measures Targets Initiatives INTERNAL BUSINESS PROCESS Vision and Strategy “To satisfy our shareholders and customers.Translating Vision and Strategy: Four Perspectives FINANCIAL “To succeed financially.

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. 4 . © 1999 The Balanced Scorecard Collaborative and Robert S. motivated employees. and responsive operating processes • excellent post-sales support • – Organizational Learning & Growth: • develop skilled. retain and acquire customers in targeted segments – Business Processes: deliver the value proposition to targeted customers • innovative products and services • high-quality. • provide access to strategic information • align individuals and teams to business unit objectives Processes Customers People . All rights reserved. Kaplan. flexible. for example: – Customer Focus: satisfy.

our customers and the requirements of our mission? How must our people learn and develop skills to respond to these and future challenges? • What internal processes must we excel at to satisfy our shareholder and customer? Internal Perspective • How must our people learn and develop skills to respond to these and future challenges? Learning & Growth Perspective • Answering these questions is the first step to develop a Balanced Scorecard © 1999 The Balanced Scorecard Collaborative and Robert S.The Four Perspectives Apply to Mission Driven As Well As Profit Driven Organizations Profit Driven • What must we do to satisfy our shareholders? Financial Perspective • • • What do our customers expect from us? Customer Perspective • • • Mission Driven What must we do to satisfy our financial contributors? What are our fiscal obligations? Who is our customer? What do our customers expect from us? What internal processes must we excel at to satisfy our fiscal obligations. Kaplan. All rights reserved. 5 .

how must we look to our customers?” “To satisfy our customers. 6 . drives the organization’s strategy © 1999 The Balanced Scorecard Collaborative and Robert S. communicate. All rights reserved. and work together?” The Mission. what business processes must we excel at?" “To achieve our vision. how will we look to our financial donors?” ”To achieve our vision. financial donors and mission. Kaplan. how must our people learn. rather than the financial / shareholder objectives.The Balanced Scorecard Framework Is Readily Adapted to Non-Profit and Government Organizations The Mission "If we succeed.

.The City of Charlotte Corporate-level Linkage Model Customer Perspective Reduce Crime Increase Perception of Safety Strengthen Neighborhoods Improve Service Quality Availability of Safe. Convenient Transportation Maintain Competitive Tax Rates Promote Economic Opportunity Financial Accountability Perspective Expand Non-City Funding Maximize Benefit/Cost Grow Tax Base Maintain AAA Rating Internal Process Perspective Increase Positive Contacts Promote Community Based Problem Solving Secure Funding/ Service Partners Improve Productivity Streamline Customer Interactions Increase Infrastructure Capacity Promote Business Mix Learning and Growth Perspective Enhance Knowledge Management Capabilities Close Skills Gap Achieve Positive Employee Climate 7 © 1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved.

Why are Companies Adopting a Balanced Scorecard? • Change Formulate and communicate a new strategy for a more competitive environment The Revenue Growth Strategy “Improve stability by broadeni ng the sources of rev enue fro m current custom ers” The Productivity Strategy “Improve operating efficiency by s hifting c ustomers to more costeffective channels of distribution” Improve Returns Broaden Revenue Mix Improve Operating Efficiency Financial Perspective Increase Customer Confidenc e in Our Financi al Advice Increase Customer Satisfaction Through Superi or Execution Customer Perspective Internal Perspective Understand Customer Segments Develop New Products Cross-Sel l the Product Line Shift to Appropriate Channel Provide Rapid Response Mini mize Problems Increase Employee Productivity Learning Perspective Develop Strategic Skills Access to Strategic Information Align Personal Goals •Growth Increase revenues. Every employee implements the new growth strategy in their day-to-day operations © 1999 The Balanced Scorecard Collaborative and Robert S. All rights reserved.000. 8 . Kaplan. not just cut costs and enhance productivity • Implement From the 10 to the 10.

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 © 1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved. 9 .

10 . Kaplan. All rights reserved.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 don’t link budgets to strategy The Resource Barrier Today’s Management Systems Were Designed to Meet The Needs of Stable Industrial Organizations That We’re Changing Incrementally You Can’t Manage Strategy With a System Designed for Tactics © 1999 The Balanced Scorecard Collaborative and Robert S.

Kaplan.Balanced Scorecard “Early Adaptors” Have Executed Their Strategies Reliably and Rapidly Mobil (USM&R) 1993 #6 in profitability 1995 1996 1997 #1 in profitability #1 in profitability #1 in profitability Profit Stock $275M loss 1993 Property & Casualty Stock Price = $59 1994 1995 1996 1997 $15M $60M $80M $98M #1 in growth and profitability $74 $114 $146 $205 1993 Brown & Root Engineering (Rockwater) Losing money 1996 Retail Bank 1993 Profits = $x 1994 1995 1996 Profits = $8x Profits = $13x Profits = $19x © 1999 The Balanced Scorecard Collaborative and Robert S. All rights reserved. 11 .

All rights reserved. Kaplan. 12 .The BSC “Early Adaptors” Have Executed Their Strategies Reliably and Rapidly Beat the Odds 9 of 10 companies fail to execute their strategies Fast 2 to 3 years to achieve breakthrough results The Solution Was Already There • The BSC helped create focus and alignment to unlock the organization’s “hidden assets” © 1999 The Balanced Scorecard Collaborative and Robert S.

All rights reserved. Kaplan.How can complex organizations achieve results like this in such short periods of time? Question: Answer: Alignment! The Balanced Scorecard process allows an organization to align and focus all its resources on its strategy BUSINESS UNITS STRATEGY EXECUTIVE TEAM HUMAN RESOURCES INFORMATION TECHNOLOGY BUDGETS AND CAPITAL INVESTMENTS © 1999 The Balanced Scorecard Collaborative and Robert S. 13 .

14 . All rights reserved. 6. Scorecards That Describe the Strategy Linking Scorecard to Create an Organization Alignment Continuous Communication to Empower the Workforce Aligning Personal Goals. A Process to Mobilize the Organization and Lead Ongoing Change 2. Budgets and Initiatives With the Strategy A Feedback Process That Encourages Learning and Experience Sharing © 1999 The Balanced Scorecard Collaborative and Robert S. Incentives. 5. Kaplan. 4.How Do They Do It? The Seven Ingredients of Highly Successful Balanced Scorecard Programs 1. 7. 3. and Competencies With the Strategy Aligning Resources.

Make Strategy a Continuous Process – Formulate – – Strategic Feedback That Encourages Learning Executive Teams Manage Strategic Themes Testing Hypotheses. Leadership From the Top – – – Create the Climate for Change Create a Common Focus for Change Activities Rationalize and Align the Organization 4. All rights reserved. and Learning Communicate STRATEGY Navigate 2. Unlock and Focus Hidden Assets – – Reengineer Work Processes Create Knowledge Sharing Networks © 1999 The Balanced Scorecard Collaborative and Robert S. 15 . Make Strategy Everyone’s Job – – – – Comprehensive Communication to Create Awareness Align Goals and Incentives Integrate Budgeting with Strategic Planning Align Resources and Initiatives Execute 3. Kaplan. Adapting.The Ingredients of Highly Successful Balanced Scorecard Programs 1.

Kaplan. 16 .A Good Balanced Scorecard Tells the Story of Your Strategy • • Every measure is part of a chain of cause and effect linkages A balance exists between outcome measures and the performance drivers or desired outcomes © 1999 The Balanced Scorecard Collaborative and Robert S. All rights reserved.

The Problem: Most of Today’s Feedback Systems Are “Controls” Oriented Variance Detected Correction Applied Management Feedback & Control Loop © 1999 The Balanced Scorecard Collaborative and Robert S. 17 . All rights reserved. Kaplan.

Best Competitive Ratable Supply  Environmental Index  Quality Index  Strategic Competency Availability INTERNAL CUST corrections  Competitive Supplier  Good Neighbor  Quality  Motivated & Prepared result L&G Performance Initiatives & Programs input output It creates strategic focus but not strategic learning © 1999 The Balanced Scorecard Collaborative and Robert S. All rights reserved. 18 . Kaplan.Strategic Learning – Some Basic Concepts… Replacing the budget with the Balanced Scorecard is a step in the right direction… Pioneer’s Balanced Scorecard FINANCIAL Strategic Objectives     Financially Strong Delight the Consumer Win-Win Relationship Safe & Reliable Strategic Measures       Return on Capital Employed Mystery Shopper Rating Dealer / Pioneer Gross Profit Split Manufacturing Reliability Index Days Away from Work Rate Laid Down Cost vs.

Best Competitive Ratable Supply  Environmental Index  Quality Index  Strategic Competency Availability INTERNAL CUST  Competitive Supplier  Good Neighbor  Quality  Motivated & Prepared results INSIGHT HARVESTING “Testing hypotheses and capturing learning” reallocate priorities L&G operational control loop Performance Initiatives & Programs dialog © 1999 The Balanced Scorecard Collaborative and Robert S. 19 . All rights reserved.Strategic Feedback Creates Strategic Learning The Strategy Improve Returns Improve Operating Efficiency Financial Perspective Broaden Revenue Mix Increase Customer Confidence in Our Financial Advice Increase Customer Satisfaction Through Superior Execution Customer Perspective FOLLOW-UP ACTION “Closing the loop” Internal Perspective Understand Customer Segments Develop New Products Cross-Sell the Product Line Shift to Appropriate Channel Minimize Problems Provide Rapid Response update the strategy Increase Employee Productivity Learning Perspective Develop Strategic Skills Access to Strategic Information Align Personal Goals strategic learning loop THE MANAGEMENT MEETING “Team Problem Solving” Pioneer’s Balanced Scorecard FINANCIAL Strategic Objectives     Financially Strong Delight the Consumer Win-Win Relationship Safe & Reliable Strategic Measures       Return on Capital Employed Mystery Shopper Rating Dealer / Pioneer Gross Profit Split Manufacturing Reliability Index Days Away from Work Rate Laid Down Cost vs. Kaplan.

20 .A New Structure for Corporate Governance– Executive Team Takes Responsibility for Managing the Strategic Cross-Functional Themes Case Study: Telecomm Board of Directors CEO Strategic Themes New Business & Growth Business Process Council Professional Development Roundtable Strategic Management System Traditional Organization Units Commercial Services Retail Services COO CFO Strategic Planning Human Resources © 1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved.

Leadership From the Top – – – Create the Climate for Change Create a Common Focus for Change Activities Rationalize and Align the Organization 4. Adapting. Make Strategy Everyone’s Job – – – – Comprehensive Communication to Create Awareness Align Goals and Incentives Integrate Budgeting with Strategic Planning Align Resources and Initiatives Execute 3.The Ingredients of Highly Successful Balanced Scorecard Programs 1. All rights reserved. Make Strategy a Continuous Process – Formulate – – Strategic Feedback That Encourages Learning Executive Teams Manage Strategic Themes Testing Hypotheses. and Learning Communicate STRATEGY Navigate 2. Unlock and Focus Hidden Assets – – Reengineer Work Processes Create Knowledge Sharing Networks © 1999 The Balanced Scorecard Collaborative and Robert S. 21 . Kaplan.

All rights reserved. 22 . Kaplan.Not all Environments are Appropriate for a Balanced Scorecard • Balanced Scorecard must be driven from the top: – CEO/COO as sponsor – Executive leadership team commitment • A clear sense of purpose is required to: – Drive change – Clarify and gain consensus about strategy – – – – Build a senior executive team Focus the organization: align programs and investments Integrate cross-functionally Educate and empower the organization • The dynamics of the senior executive team will determine whether the Balanced Scorecard becomes a strategic management system © 1999 The Balanced Scorecard Collaborative and Robert S.

23 . not shared with all employees © 1999 The Balanced Scorecard Collaborative and Robert S. All rights reserved. Kaplan. employee improvisation to achieve desired outcomes For management only. not to communicate Management dictating actions vs.Key Pitfalls to Avoid Process Philosophy • • • • • • • Middle management task force Not driven by senior executive team Only one or a few individuals involved Too long a development process (allowing the “best” to be the enemy of the “good”) Delay introduction because of missing measurements Static not dynamic process Treating the BSC as an EIS • • • Measurement to control.

. STRATEGY Implement a framework to align and focus the organization from top to bottom on its strategy ALIGNMENT KNOWLEDGE BASE INSIGHTS PERFORMANCE PERFORMANCE Identify the related key change initiatives required to realize the strategy and mobilize the organization LEVERAGE LEARNING Create feedback processes at all levels to evaluate progress against strategy. and measure performance and contribution to the business. monitor and manage issues and priorities.THE BALANCED SCORECARD MANAGEMENT SYSTEM Significant results can be achieved in relatively short periods of time. 24 © 1999 The Balanced Scorecard Collaborative and Robert S. . Kaplan. All rights reserved..

Jan-Feb „96) Cases: (Mobil. Wells Fargo) Videos: Measuring Corporate Performance CD-ROM Simulation: “Balancing Your Corporate Scorecard” • • • Phone: Fax: Internet: (800) 668-6780 or (617) 496-1449 (617) 495-6985 www. Sept-Oct „93. Charlotte. Citibank.harvard. . „92. All rights reserved. Chemical Bank.hbsp.edu 25 © 1999 The Balanced Scorecard Collaborative and Robert S.Balanced Scorecard References Book: The Balanced Scorecard: Measures that Drive Performance HBR Articles (Jan-Feb. Kaplan.

Research Networking Training Implementation 26 . Kaplan.3737 Publications Conferences © 1999 The Balanced Scorecard Collaborative and Robert S. use.com Tel: (USA) 781.For Further Information Visit Our Website Our Mission: “To facilitate the worldwide awareness.259. All rights reserved. enhancement and integrity of the Balanced Scorecard as a value-added management process” www.bscol.

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