Balanced Score Card

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Balanced Score Card
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Acknowledgement: We created this material from several sources
on the Internet.
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 Syamils website http://www.clt.astate.edu/asyamil/
Balanced Scorecard
The scorecard
Describes the organizations vision of the future to
the entire organization
Creates shared understanding
Creates a holistic model of the strategy that
allows all employees to see how they contribute to
organizational success
Focuses change efforts on the right objectives
BSC Key Concepts
Balancedbecause
More than financial measuresit looks across the organization
Relies on performance drivers and outcomes (leading and lagging indicators)
Cause and effect relationships that link to financials
Every measure should be an element in a chain of cause-and-effect
relationships
Its a hypothesis of what needs to happen to be able to fulfill the strategy
Think of If/Then statements
Ultimately, causal paths from all the measures on a scorecard should be
linked to financial objectives
Strategic versus diagnostic:
A BSC should contain between 16-25 measures that focus the organization
on a single strategy
There should be separate diagnostic measures:
blood pressure and body temp measure health, but not ability for career
success
Goals closely related to the
financial expectations of the
investors
Financial Perspective
Goals with regard to the
exceleration at certain
businss processes
Internal Perspective
Goals that will sustain the
ablitity to change and to
improve in the future.
Goals that refer to how our
customers see us.
Customer Perspective
Learning Perspective
The basics of the Balanced Score Card
Quadrant 1:
Finance Perspective
Financial measures are valuable in summarizing the
readily measurable economic consequences of
actions already taken.
Financial performance measures indicate whether a
company's strategy, implementation, and execution
are contributing to bottom-line improvement.
Financial objectives typically relate to profitability -
for example:
Operating income,
Return-on-capital-employed,
Economic value-added
Quadrant 2:
Customer Perspective
Start by identifying:
The customer and market segments in which the business unit
will compete and
The measures of the business unit's performance in these
targeted segments.
Core outcome measures include:
Customer satisfaction, customer retention, new customer
acquisition, customer profitability, and market and account share
in targeted segments.
Include measures of the value propositions that we will deliver to
customers in targeted market segments.
Whats critical for customers to switch to or remain loyal to Intel?
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
Identifies the critical internal processes in which the organization
must excel, and will enable:
delivery of the value propositions that will attract and retain
customers in targeted market segments, and
satisfying shareholder expectations of excellent financial returns.
Usually identifies entirely new processes at which an
organization must excel.
For many companies:
Future financial performance is not driven by short-term
operations (make/market/service)
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.
Identifies the infrastructure that the organization must build to
create long-term growth and improvement.
Come from three principal sources: people, systems, and
organizational procedures:
Employee based measures:
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.
Information systems capabilities
Measured by real-time availability of accurate, critical customer and
internal process information to employees on the front lines of
decision making and actions.
Organizational procedures:
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 that refer to how our
customers see us.
Goals that will sustain the
ablitity to change and to
improve in the future.
Goals regarding the
exceleration at businss
processes
Goals closely related to the
financial expectations of the
investors
Customer Perspective
Learning Perspective
Internal Perspective
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Up-to-date technology
Moti vated employees
Low down-time-rate Network of strat. partnershi ps
Efficient use of budget
Strong customer relationship
High market share
Achieve Profit
Generate Cash Fl ows Keep costs l ow
High customer sati sfaction
Customer acquisiti on
Conti nuous improvement
Use of media
Cause and Effect Hierarchies
Financial
Performance
Customer
Learning and
Growth
I nternal Biz
Processes
Pre-Tax
Profit
Customer
Satisfaction
Key Skills
Post Sales
Support
BSC Quadrants
Simplified BSC
Metric Hierarchy
1. I f we have the
appropriately
skilled people
2. We can provide the
support our
customers desire
3. Resulting in their
satisfaction
4. Profitability!
Barriers to Strategy Fulfillment
Vision and strategy not actionable
A leader with a clear vision lacks the mechanisms
to share this vision with the people that make it
actionable (Senge)
This causes different groups to pursue different
agendas (quality, continuous improvement,
reengineering) based on their own interpretation
of the strategy
Their efforts are neither integrated nor cumulative
since they are not linked coherently to an overall
strategy
Barriers to Strategy Fulfillment
Strategy not linked to departmental, team and
individual goals
Incentive systems are linked to short term
financial measures (annual or less)
Departments focus on achieving tactical goals
rather than building capabilities that will enable
longer term strategic goals
Barriers to Strategy Fulfillment
Strategy not linked to resource allocation
Separate processes for long-term strategic
planning and for short-term budgeting
Discretionary funding and capital allocations are
often unrelated to strategic priorities
Monthly and quarterly reviews focus on explaining
deviations between actual and budget, not on
whether progress is being made on strategic
objectives
Strategic planning and finance efforts not
integrated
Barriers to Strategy Fulfillment
Feedback that is tactical, not strategic
Management systems provide feedback about
short-term, operational performance, with the bulk
of this feedback on financial measures
Little time is spent examining indicators of
strategy implementation and success
BSC Implementation Challenges
and Opportunities
BSC Implementation Challenges
Sponsorship
Link to existing programs
Strategic versus tactical measures
Data access and quality
Tools for preparing and presenting the BSC
Sponsorship
Project manager
Knows BSC, drives project
Concept champion
Gets it, has political clout to sell it
Actively and aggressively promotes it
GM or CEO buy-in
Only person with authority to embed a BSC into
the fabric of the organization
Link to Existing Programs
The Balanced
Scorecard is a mgmt
system that can
channel the energies,
abilities, and specific
knowledge held by
people throughout
the organization
toward achieving
long-term strategic
goals.
Source: Balanced Scorecard,
Kaplan & Norton, 1996
Vision,
Strategy, Values
Employee Bonus
Financial
Performance
To succeed financially, how
should we appear to our
shareholders?
Customer
Knowledge
To achieve our vision, how
should we appear to our
customers?
Learning and
Growth
To achieve our vision, how
will we sustain our ability to
change and improve?
I nternal Biz Processes
To satisfy our shareholders
and customers, what biz
processes must we excel at?
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Data
Dont assume that the required data is:
Available
Consistent (i.e., time-spans, org coverage, cost
allocations, etc.)
High quality (error-free)
Electronic MS-Excel is the glue that holds
many orgs together
Tools .my limited experience
We used Excel and PowerPoint
Cheap and easyto get goingproof of concept
phase
Highly manual and time consuming
Significant potential to create errors
Investigated specialized BSC packages
Typically cost ~$100,000 for software
Add implementation costs, annual maint.
Didnt pursue due to funding constraints