BALANCED SCORECARD

Balanced Scorecard
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How would you feel about boarding the plane after

the following conversation with the pilot?
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Q: I am surprised to see you operating the plane with only

a single instrument. What does it measure ?

A: Airspeed .I am really working on airspeed of this flight.

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Q: That is Good. Airspeed certainly seems important. But what

about altitude. Would not an altimeter be helpful?

A: I have worked on altitude for the last few flights and I have
gotten pretty good on it. Now I have to concentrate on proper
air speed.
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Q: But I notice you don’t have a fuel gauge.

Would not that be useful ?

A: You are right; fuel is significant, but I cannot concentrate

on doing too many things at the same time. So on flight
I am focusing on air speed. Once I get to be excellent at
Air speed, as well as altitude, I intend to concentrate on
Fuel consumption on the next set of flights.
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Q: to the participants
Would you like to board this plane after having this discussion ?

A: Perhaps not.

What could be the reasons?

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Navigating an organization is as complex as an Aero plane

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They also require instrumentation to guide their organizations

………. like pilots have to guide an aeroplane

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Would you be satisfied as manager getting one dimensional

Information about your organization ?
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Perhaps not, therefore

You need instrumentations/ information

to navigate

in this competitive world

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BSC provides managers with the instrumentations

they need to Navigate future competitive success.
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BSC translates an organizational mission and strategy

into comprehensive set of performance measures that
provides the frame work for strategic measurement and
Management system

4 Balanced Perspectives
Financial
Customers
Internal Business Processes
Learning & Growth
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Measures are balanced

Between the outcome measures—the results

from Past efforts---and the measures that drive
future performance
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4 Perspectives permit a balance between

Short term and long term objectives
Outcomes and performance drivers
Hard objectives measures and
Soft objective measures
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Competing in the Information Age

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Industrial Age
Financial Control
ROCE
Prod Control
Profitability
Physical Capital
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Made
Many
Such
Measures
Obsolete
Information Age
Financial Control
ROCE
Prod Control
Profitability
Physical Capital
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Required
New
Capabilities

Information Age

Develop Customer Relationship

Introduce innovative products/services
Quality products at low cost
Employee development and motivation
Deploy information technology
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Information Age

New
Cross Functional
Operating
Links to customers and Suppliers
Environment
Customer Segmentation
Global Scale
Innovation
Knowledge Workers
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Information Age

Total Quality Management

Improvement JIT-Production and Distribution
initiatives Time based Competition
Lean Production/Lean Enterprise
Building Customer-focused Org
Activity Based Cost Management
Employee Empowerment
Reengineering
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Capital You don’t see on the Balance Sheet

Human Capital

The collective skill, knowledge

attitudes and behavoiur of the
People in the Organization Information Capital

The resources and processes in

Organizational Capital
place that ensure effective use of
The human capital

The values, working relationship

And cultural norms at work in
The organisation
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balanced scorecard
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History

Measurement Alignment & Enterprise

& Communication Strategic
Reporting-1992 1996 Management-2000
Articles in HB Review
Acceptance and Acclaim
The BSC-Measures that
Drive performance---1992 BSC Translated in 18 languages

Selected by HBR as most

Putting BSC to work-1993
Important management
Practice in 75 years
Using BSC as a Strategic
Management System-1996
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Financial For Guiding

Measures are Information age Must Create future Value
Inadequate Organizations
Through

Investment in
Customers
Suppliers
Employees
Processes
Technology &
Innovation
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A balance scorecard translate a organization’s

mission and strategy into set of performance
measures that provide the framework for
implementing its strategy
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Strategy

Strategy specify how an organization matches its

own capabilities with the opportunities in the
marketplace to accomplish its objectives
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A strategy is a set of goals and specific

action plans that, if achieved, provide
the desired competitive advantage

Strategic Management involves identifying and

implementing these goals and action plans
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strategic thinking

•Anticipating changes
•Product/service and production designed
to accommodate expected changes
•Flexibility
•Ability to make quick changes
•Speed to market
•Agile manufacturing/ service
•Driving firm by using windshield not
the rear view mirror
•Creative and integrative thinking………
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Do we need to be clear about……?

Goal
Objective
Mission
Vision
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A goal or objective consist of a projected state of affairs which

a person or a system plans or intends to achieve or bring about
A personal or organizational desired endpoint in some sort of
assumed development.
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Vision: Defines where the organization wants to be in future.

Vision: Defines where the organization wants to be in future.
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Mission: Defines where the organization is going now, describing

why this organization exists
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Targets: defines goals and objectives

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Goal Objective Mission

2008 2013 2028

5000 Cr 12,000 Cr 50,000 Cr

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Goal Objective Mission

2009 2014 2029

7000 Cr 15,000 Cr 55,000 Cr

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Balance Scorecard as a Management System

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Balance Financial and

Scorecard Emphasizes Non Financial
measures must be
Part of Information
System
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4
Perspectives

Financial

Perspective Customer
Internal
Perspective Business
Process
Perspective

Learning &
Growth
Perspective
 Clarify mission &
Mission Vision
Vision statement

Develop Strategic Goals

Strategic Goals

Derive Balanced Scorecard

Sub-Goals
Sub-Goals
Financial
• Sub-Goals
Map Sub-Goals to Internal Business
Methodology
Customer
each quadrant of the • Sub-Goals • Sub-Goals
Balanced Score Card Learning & Growth
Overview • Sub-Goals

For each BSC Quadrant

- identify measurement areas Indicators

- develop measurement goals
- postulate indicators

Trouble Reports
- identify data elements Module

Data Elements
A Balanced Scorecard Perspective
on Performance
FINANCIAL

Initiatives
Measures
Objective

Targets
How do we
look to
shareholders?

CUSTOMER INTERNAL BUSINESS

Initiatives
Measures
Objective

PROCESS

Initiatives
Measures
Objective
Targets

Targets
How do our
Vision
customers and What must
Strategy we excel at?
see us?

LEARNING and
GROWTH
Initiatives
Measures
Objective

Targets

Can we
continue to
improve and
create value?
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4
Perspectives

Financial
Financial Perspective Evaluate
Perspective the Profitability of the Strategy
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4
Perspectives

Customer

Perspective

Customer Perspective identifies Targeted

Customer and market Segments and Measures
the Organization’s success in these Segments
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4
Internal Perspectives
Business
Process
Perspective

This perspective focuses on internal operations

that create value for customers that ,in turn,
furthers the financial perspective by increasing
the shareholder value
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4
Internal Perspectives
Business
Process
Perspective

3 sub
Processes

Innovation Process Operations Process Postsales-Service

Process
Creating Products Producing & delivering Providing service and
Services &Processes Existing products that Support to the customer
To meet the demand Will meet the needs After the sale of a
Of Customers Of Customers product or service
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4
Perspectives
Learning &
Growth
Perspective

This perspective identifies the capabilities the

organization must excel at to achieve superior
internal processes that create value for
Customers and shareholders
 BALANCED SCORECARD

FINANCIAL PERSPECTIVE

Target Actual
Objective Measures Initiatives Perform Perform

Financial Operating income

Perspective From Productivity Manage Cost
Rs 20 Cr Rs 20.12Cr
Gain And Unused
Capacity

Operating Income Build Strong

Increase From Growth Rs 30 Cr Rs 34.20 Cr
Customer
Shareholder Relationship
value
Revenue Growth 6% 6.48%
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Customer Perspective

Target Actual
Objective Measures Initiatives Perform Perform

Customer Market Share in

Perspective Communication Identify future
6% 7%
Network Segment Needs of
Customers

Number of New Identify new 1% 2%

Customers Target
Increase Customer Seg 90% give 87%Gave
Customer Customer Top two top two
Satisfaction Satisfaction Ratings Rating
Rating Increase Cust
Focus of Sales
 BALANCED SCORECARD
INTERNAL BUSINESS PROCESS PERSPECTIVETarget Actual
Objective Measures Initiatives Perform Perform

Reduce Reduce Setup time Re-engineer order 30 days 30 days

Delivery Time Automation of Orders Delivery process

Meet Specified
Delivery dates on time delivery Re-engineer order 92% 90%
Delivery process

Improve post Service Response Improve Customer Within Within

Sales Services Time Service process 4 hrs 3 hrs

Improve Number of Impv. Organize teams

Processes In Business from Sales & Manuf 5 5
Processes

Improve % of processes Organize R&D/Mfg 75% 75%

Manufacturing With Advanced Teams to implement
Capability Controls Adv. control
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Learning and Growth Perspective Target Actual
Objective Measures Initiatives Perform Perform

Align Employee Employee Satisfac- 80% 88%

Employee
And tion Rating Employees
Participation to
Organizational Give top
Build Team Work
Goals Two
Ratings

Develop % Employees Employees

Process Trained in Process 90% 92%
Training
Skill & Quality Mgt Programme

Empower % Workers Supervisors as

Work Empowered to 80% 80%
Coaches rather
Force Manage Decision
Processes Makers
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BSC as Strategic Management System

 BALANCED SCORECARD

Balanced 1 Clarify and Translate vision & Strategy

Scorecard
2 Communicate and link strategic objectives
as a
and Measures
Strategic
Management 3 Plan, Set Targets and align Strategic Initiatives
System
4 Enhance Strategic Feedback and Learning
 BALANCED SCORECARD

Clarifying and
Translating the
Vision & Strategy

Clarifying the Vision

Gaining Consensus

Communicating Strategic Feedback &

& Linking Learning

Comm and Educating Balance Articulating the shared Vision

Setting Goals Scorecard Supplying Strategic Feedback
Linking Rewards to Facilitating Strategy review
Performance and Learning

Planning & Target Setting

Setting Targets
Aligning Strategic
Initiatives
Allocating Resources
Establishing Milestones
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Clarifying the Vision

Formulation by Sr Executives
Reaching Consensus
Clarifying and
Sorting Out Differences
Translating the
Joint Accountability
Vision & Strategy
 BALANCED SCORECARD
Communicating and Educating
Newsletter
Bulletin board
Brochure
Videos
Intranet
meetings
Setting Goals
Linking Rewards to
Performance
Communicating Every one Understand
& Linking Strategy for achievement
Outcome Measures
Efforts and Initiatives required

On time Delivery Communicating to

Reduce setup time
Directors
Buy new machines
Improve delivery time Executives
Improve packing Employees
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Plan to Change
Set target for 3-5 years
Stretch targets
Benchmarking
Planning & Alignment of Targets
Target Setting Alignment of Strategic Planning
with operational Budgets
 BALANCED SCORECARD

Periodic Review and Change

Targets-achieved or not
Strategic Past and future Review
Feedback & Information from all
Learning Double loop learning
Cause and effect Relationship
Validity and Viability
Strategy replacement according
to outcomes/performance drivers
 BALANCED SCORECARD

Features of Balance Score Card

 Indicate company’s strategy and its link with perspectives

Strategy is communicated to all

Strategy translated into measurable targets

Motivates Managers to achieve targets

BSC limits the measures to only four

Highlights effect of one perspective on another

 BALANCED SCORECARD

Pitfalls in Implementing Balanced Score Card

Difficult to establish Fin-Non financial Linkages

Improvements at all levels may not be possible

Both subjective-objective measures Consideration

Considering Cost & benefits of initiatives

Non-financial Achievements are ignored

 BALANCED SCORECARD

Barriers to effective Implementation of BSC

Vision & Strategies not actionable

Strategies not linked to departmental and

Individual Goals

Strategies not linked to Long term/short term

Resource Allocation

Feedback that is tactical not strategic

 BALANCED SCORECARD
Barriers to effective Implementation of BSC
1 Vision & Strategy not Actionable

Strategy &
2 Strategy not Vision
Linked to Dept Team
& Individual Goals

Personal MBO & Monthly

Budget
Incentives Review

4 feedback that is tactically

Financial Plan not strategic

& Capital
Allocation

3 Strategy not Linked to Resource Allocation

 BALANCED SCORECARD

Barrier No 1: Vision and strategy not Actionable

Cant be translated into action

Cant be acted Upon
Cant be understood
Fragmentation & Sub optimization
of efforts
Lacking consensus & Clarity
Different Agendas
No integration
Not linked coherently to overall strategy
 BALANCED SCORECARD

Barrier No 3: Strategy not Linked to Resource Allocation

Separate Processes for Long term &

Short term Strategic planning
Funding to unrelated priorities
Poor Monthly Reviews
Unfocused New Mgt Techniques
Poor Integration
 BALANCED SCORECARD

Barrier No 4: Feed back not tactically strategic

Bulk of feedback is only financial measures

Little time on strategy implementation & success
No priority to periodic review and meetings
Inadequate information
Poor tactical review process
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Different Management System for Strategic Implementation
•The strategy is the reference point for the entire management process
•The shared vision is the foundation for strategic planning

Clarifying & Translating

•Goal alignments from The Strategy & Vision
top to bottom •Feedback system used to test
•Education and open The hypothesis on which strategy
communication about strategy Is based

Strategic Feedback
Communicating Balance &
And Linking Scorecard Learning

•Compensation is linked •Team problem solving

To Strategy •Strategy development is a
Planning &
Continuous Process
Target Setting

•Stretch targets are established and accepted

•Strategic initiatives are clearly identified
•Investments are determined by strategy
•Annual Budgets are linked to long term planning
BALANCED SCORECARD

Let Us Review
 BALANCED SCORECARD
4
Perspectives

Financial

Perspective Customer
Internal
Perspective Business
Process
Perspective

Learning &
Growth
Perspective
 BALANCED
Translating SCORECARD
the strategy to operational terms

The Strategy

Financial Perspective
If we succeed, how will
We look to our
Shareholders?
Measurement is the
language that gives clarity
To vague concepts Customers Perspective
To achieve our vision,
How must we look to our
Customers ?
Measurement is used to communicate,
Not to control Internal Perspective
To satisfy our customers,
Which processes must
We excel ?
Strategy can be described as a series of Organizational Learning
Cause and Effect relationship
To achieve our vision, how must
our organisation team
Improves?
 BALANCED SCORECARD

Clarifying and
Translating the
Vision & Strategy

Clarifying the Vision

Gaining Consensus

Communicating Strategic Feedback &

& Linking Learning

Comm and Educating Balance Articulating the shared Vision

Setting Goals Scorecard Supplying Strategic Feedback
Linking Rewards to Facilitating Strategy review
Performance and Learning

Planning & Target Setting

Setting Targets
Aligning Strategic
Initiatives
Allocating Resources
Establishing Milestones
BALANCED
Make SCORECARD
Strategy Everyone’s Job

CORP
SBU

Education
Personal Goal
Alignment
Balanced Pay checks

The Strategy Focused Workforce

 BALANCED SCORECARD
Make Strategy a continuous Process

Strategy

60% OF Org
Don’t link
Strategic Learning
Strategy & Loop 85% of Mgt teams
budgets Spends less than
1 hr per month
Balanced On strategy
Scorecard issues
78% orgs lock
Budgets to an Budget 92% of orgs
Annual cycle Do not report
On lead
Management Control indicators
Loop

Performance
Input Output
BALANCED SCORECARD

Questions