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Balanced ScoreCard

Balanced ScoreCard

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Master in Business Information Technology

Balanced ScoreCard
Administrative Engineering
Ing. Oswaldo Cabrera López

April 2011

Oswaldo Cabrera López Index 1. 2. 3. 4. Introduction: Balanced ScoreCard, BSC History Benefits Balanced Scorecard Perspectives 4.1. Financial Perspective 4.2. Customer Perspective 4.3. Internal process perspective 4.4. Formation and growth perspective Definition of Indicators Good Performance Measures Building & Implementing a Balanced Scorecard Nine steps to a successful implementation 8.1. Step One: Apply Assessment 8.2. Step Two: Strategy 8.3. Step Three: Objectives 8.4. Step Four: Strategy Map 8.5. Step Five: Performance Measures 8.6. Step Six: Initiatives 8.7. Step Seven: Automation 8.8. Step Eight: Cascade 8.9. Step Nine: Evaluation Feedback and strategic learning Typical goals of a BSC Balanced Scorecard Software: Business Intelligence, Dashboards and Performance Management Systems Balanced ScoreCard Vs Six Sigma Management 5 Steps to Find the Right Measures 13.1. Step 1: Begin with the end in mind. 13.2. Step 2: Be sensory specific. 13.3. Step 3: Check the bigger picture. 13.4. Step 4: What's the evidence? 13.5. Step 5: Name the measure. The Strategic Management Maturity Model Cascading a Balanced Scorecard: Creating Alignment The Balanced Scorecard: Not Just Another Project Conclusions/Abstract Reference List List of figures and tables 2 4 4 5 5 5 6 6 7 8 8 9 10 10 11 11 11 12 12 12 13 13 14 15 15 16 17 17 17 18 18 19 19 20 21 21 21

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1 Master in Business Information Technology | Balanced ScoreCard

defined independently for each area of the company. Figure 1. The vision and business strategy dictate the way you should aim for the individual and collective efforts of a company. It is balanced because it seeks a balance between financial and nonfinancial indicators. Balanced Scorecard is the main methodological tool that translates the strategy into a set of performance measures. to communicate at all levels of the company. The corresponding challenge to identify exactly what needs to be monitored. the shortterm and long-term performance indicators and process and a balance between the environment and inside the firm. Vision and Strategy 2 Master in Business Information Technology | Balanced ScoreCard . Is a strategic tool because it is to have indicators that are related to each other and have the strategy of the company through a map of links cause and effect (outcome indicators and indicators drivers). The important thing here is that the performance indicators of a company are balanced.Oswaldo Cabrera López 1. ie there are both financial and nonfinancial indicators. Most have separate indicators. BSC The BSC is a management tool that translates business strategy into a coherent set of indicators. Introduction: Balanced ScoreCard. outcome and process and so on. which provide the structure for management and measurement system. whether strategies are being achieved through very specific actions. that is the key and novel concept on which is based the name "Balanced Scorecard" balanced system of indicators. The BSC allows control of corporate health and how they are moving the actions to achieve the vision. which always seek to strengthen the power of the same. getting stronger islands or functional silos.

Redefinition of the strategy based on results. Master in Business Information Technology | Balanced ScoreCard 3 . 3. Kaplan in conjunction with US management consultancy Nolan-Norton. Analytical skills. It helps in this future value creation. History The first balanced scorecard was created by Art Schneiderman (an independent consultant on the management of processes) in 1987. but perhaps wrongly have led to Kaplan and Norton being seen as the creators of the Balanced Scorecard concept. and was quickly followed by a second in 1993. Integration of information from various business areas. Art Schneiderman participated in an unrelated research study in 1990 led by Dr. Translating the vision and strategies into concrete actions. and during this study described his work on Balanced Scorecard. Robert S. Communication of objectives and compliance to all staff.Oswaldo Cabrera López 2. Subsequently. Some advantages are: • • • • • • • • Aligning employees to the company's vision. but do not need to implement the methodology and application to monitor and analyze the indicators obtained. Kaplan and Norton's article wasn't the only paper on the topic published in early 1992 but the 1992 Kaplan and Norton paper was a popular success. they published the book The Balanced Scorecard. Improved financial indicators. Norton included anonymous details of this use of balanced scorecard in their 1992 article on Balanced Scorecard. Benefits The Balanced Scorecard creates a series of results that favor the company's management. Kaplan and David P. These articles and the first book spread knowledge of the concept of Balanced Scorecard widely. In 1996.

BSC Perspective 4. Figure 2.2 Customer Perspective As part of a business model. 4 Master in Business Information Technology | Balanced ScoreCard . in fact. gain market share. you identify the market and the customer which is directed towards the service or product. The customer perspective is a reflection of the market in which it is competing. Balanced Scorecard Perspectives The 4 perspectives that traditionally identify a BSC may exist in a business model is not restrictive but are most common and should be pursued. Provides important information to generate. etc. acquire. retain and satisfy customers. "The customer perspective enables business unit managers to articulate the strategy of market-based client.1 Financial Perspective Financial indicators have been the most used because they reflect what is happening with investment and economic value." (Kaplan & Norton). 4.Oswaldo Cabrera López 4. which will provide future financial yields superior. culminating in the best financial performance. profitability. all measures which form part of the cause-effect relationship.

Those processes that should be excellent are those that identify management and pay special attention to be carried out in a perfect shape. We need to achieve development and growth in 3 areas: people. It is the perspective where more needs to be heeded. software development.3 Internal process perspective. they are identifiers related to training people. How BSC work 5 Master in Business Information Technology | Balanced ScoreCard . Figure 3.4 Formation and growth perspective.Oswaldo Cabrera López 4. 4. Here we identify the infrastructure needed to create long term value. machinery and equipment. Usually they are intangible. technology and everything to be enhanced to achieve the objectives of the previous outlook. To achieve the objectives of clients and financial excellence is needed certain processes that give life to the company. particularly if they anticipate a long-term consistent results. systems and organizational climate. and thus achieve the objectives of shareholders and customers.

you can‟t learn from it. you can‟t tell success from failure and thus you can‟t claim or reward success or avoid unintentionally rewarding failure. The ideal of 7 indicators. if you can‟t recognize failure. you can neither manage it nor improve it. but may be more.” “ if you can‟t recognize success. and baseline 6 Master in Business Information Technology | Balanced ScoreCard . project or operational process measurements. Definition of Indicators. indicate the health of the company or business area." but what eludes many of us is the easy path to identifying truly strategic measurements without falling back on things that are easier to measure such as input. expected targets and thresholds are established. Performance Measures are developed for each of the Strategic Objectives.” “ if you don‟t measure results. According to Kaplan and Norton." Another aspect to highlight is the number of indicators that should be part of the main stage or teacher. Leading and lagging measures are identified. an appropriate number for this work is 7 per prospect indicators and if less. you can‟t correct it. the balanced mix between performance indicators and indicators of performance is what will communicate how to achieve results and. Performance Measurement is addressed in detail in Step Five of the Nine Steps to Success® methodology. performance indicators are indicators pension. It starts from the idea that a board with more than 28 indicators is difficult to assess fully. but those mentioned will consult often and may. Understood the vision and strategies of the company is possible to determine the objectives to be met to achieve the strategy and landed on indicators. but also to report on progress towards achieving these objectives. Kaplan and Norton quote: "Results are the historical indicators. the better. as well as the way to achieve it. In this step.Oswaldo Cabrera López 5. The indicators should reflect the results very specific objectives. in addition to the message conveyed by the BSC can be diffuse and disperse the efforts to achieve several objectives. That is. indeed.” “if you can‟t measure it. Most of us have heard some version of the standard performance measurement cliches: “what gets measured gets done.

7 Master in Business Information Technology | Balanced ScoreCard . strategies and indicators are clearly defined and agreed. to ensure measurement of the right things Are verifiable. and thresholds   Are valid. Good Performance Measures:      Provide a way to see if our strategy is working Focus employees' attention on what matters most to success Allow measurement of accomplishments. data quality. Strategic performance measures monitor the implementation and effectiveness of an organization's strategies.Building & Implementing a Balanced Scorecard The BSC can be implemented in two ways: Model control and monitoring. not just of the work that is performed Provide a common language for communication Are explicitly defined in terms of owner. The focus on Strategic Objectives. It gives a timely follow-up on progress in achieving the strategies with respect to the points and the BSC releases a quantity of work. the manager.Oswaldo Cabrera López and benchmarking data is developed. which should articulate exactly what the organization is trying to accomplish. to ensure data collection accuracy 7. unit of measure. determine the gap between actual and targeted performance and determine organization effectiveness and operational efficiency. the BSC can be implemented as a traditional exception analysis model. collection frequency. 6. If the vision. is the key to identifying truly strategic measurements. expected value(targets).

In this case. A key benefit of using a disciplined framework is that it gives organizations a way to „connect the dots‟ between the various components of strategic planning and management. Training is an integral part of the framework. meaning that there will be a Master in Business Information Technology | Balanced ScoreCard 8 . Unlike control model. an analysis that only occurs when the data do not correspond with the target. Figure 4. is a disciplined. Nine steps to a successful implementation The Institute‟s award-winning framework. which are growing or are to harness the potential of employees without losing control of the company. practical approach to developing a strategic planning and management system based on the balanced scorecard. Model of organizational learning and communication. In companies where there is no unanimous agreement. and problem solving. the values of the indicators can be used to adapt the originally proposed strategy and directions of the the company. but as a learning model.Oswaldo Cabrera López the analysis by excluding those known processes that eventually require more time for analysis. a model proactive enrich the original definitions. the BSC should not be used as a model of control. change management. the strategist needs to constantly analyze the indicators and make decisions to redirect efforts to obtain maximum benefits. Building and Implementing a Balanced Scorecard 8. as is coaching. Nine Steps to Success.

8.Oswaldo Cabrera López visible connection between the projects and programs that people are working on. the strategic objectives the organization is trying to accomplish and the mission. media outlets. and values.2 Step Two: Strategy    Customer Value Strategic Themes Strategic Results Elements of the organization‟s strategy. Strategic Themes.3 Step Three: Objectives  Strategy Action Components 9 Master in Business Information Technology | Balanced ScoreCard . 8. enablers. including Strategic Results. challenges.1 Step One: Apply Assessment    BSC Development Plan Strategic Elements Change Management Step One of the scorecard building process starts with an assessment of the organization‟s Mission and Vision. are developed by workshop participants to focus attention on customer needs and the organization‟s value proposition. timing. and Perspectives. The nine points to achieve a successful implementation are: 8. Step One also includes preparing a change management plan for the organization. the measurements being used to track success. and conducting a focused communications workshop to identify key messages. and messengers. vision and strategy of the organization.

categorized by Perspective. Objectives are first initiated and categorized on the Strategic Theme level.6 Step Six: Initiatives  Strategic Projects 10 Master in Business Information Technology | Balanced ScoreCard . expected targets and thresholds are established. 8. 8.Oswaldo Cabrera López The strategic elements developed in Steps One and Two are decomposed into Strategic Objectives. and then later merged together to produce one set of Strategic Objectives for the entire organization.4 Step Four: Strategy Map  Cause-and-Effect Links The cause and effect linkages between the enterprise-wide Strategic Objectives are formalized in an enterprise-wide Strategy Map. linked in cause-effect linkages (Strategy Maps) for each Strategic Theme. The previously constructed theme Strategy Maps are merged into an overall enterprise-wide Strategy Map that shows how the organization creates value for its customers and stakeholders. Leading and lagging measures are identified. which are the basic building blocks of strategy and define the organization's strategic intent. and baseline and benchmarking data is developed. 8.5 Step Five: Performance Measures    Performance Measures Targets Baselines Performance Measures are developed for each of the enterprise-wide Strategic Objectives.

helps transform disparate corporate data into information and knowledge. Cascading is the key to organization alignment around strategy. Team and individual scorecards link day-to-day work with department goals and corporate vision. Cascading translates highlevel strategy into lower-level objectives.7 Step Seven: Automation    Software Performance Reporting Knowledge Sharing The implementation process begins by applying performance measurement software to get the right performance information to the right people at the right time. meaning the organizational level scorecard (the first Tier) is translated into business unit or support unit scorecards (the second Tier) and then later to team and individual scorecards (the third Tier).8 Step Eight: Cascade   Alignment Unit & Individual Scorecards The enterprise-level scorecard is „cascaded‟ down into business and support unit scorecards. ownership of Performance Measures and Strategic Initiatives is assigned to the appropriate staff and documented in data definition tables. Performance measures are developed for all objectives at all organization levels. objectives become more operational and Master in Business Information Technology | Balanced ScoreCard 11 . 8. To build accountability throughout the organization. measures. The automation helps people make better decisions because it offers quick access to actual performance data. and operational details. and helps communicate performance information. 8. As the scorecard management system is cascaded down through the organization. Automation adds structure and discipline to implementing the Balanced Scorecard system.Oswaldo Cabrera López Strategic Initiatives are developed that support the Strategic Objectives. Cascading is the key to organization alignment around strategy.

In one of the most innovative. „Are we measuring the right things?‟.Oswaldo Cabrera López tactical. BSC does not end the analysis of the indicators. „Are our strategies working?‟. Accountability follows the objectives and measures. as do the performance measures. which is to correct the deviations to achieve the objectives defined and fixed double feedback loop. During this evaluation. the organization tries to answer questions such as.9 Step Nine: Evaluation   Strategy Results Revised Strategies An Evaluation of the completed scorecard is done. Feedback and strategic learning. It is an ongoing process in which feedback can be a loop. where strategists question and reflect on the validity and Master in Business Information Technology | Balanced ScoreCard 12 . as ownership is defined at each level. An emphasis on results and the strategies needed to produce results is communicated throughout the organization. „Has our environment changed?‟ and „Are we budgeting our money strategically?‟ Figure 5. Example of BSC 9. 8.

is to "learn how to use the Balanced Scorecard as a strategic management system. Troubleshooting equipment." 1.Oswaldo Cabrera López relevance of the theory put forth at the beginning And its possible relevance. The development of the strategy is a continuous process. 3. Feedfback in BSC Cicle 10. 2. The feedback suggests strategic learning. Typical goals of a BSC • • • • • • • • • • Get clarity and consensus around the strategy. Achieving Approach Develop leadership Strategic intervention Educate your organization Set strategic goals Align and investment programs To bind the PSI Improve the current indicator system Stay focused strategically and evaluate strategic management 13 Master in Business Information Technology | Balanced ScoreCard . Strategic and training feeedback Planning and goal setting Figure 6. which is the training capacity of the organization at the executive level. The feedback system used to test Communicating and linking Balanced ScoreCard Clarifying and translating vision and strategy hypotheses based on that strategy.

service delivery. to get the right performance information to the right people at the right time. Dashboards and Performance Management Systems The automation of a balanced scorecard is addressed in detail in Step Seven of the Nine Steps to SuccessTM methodology. In this step. the scorecard implementation process begins by applying performance measurement software. Automation adds structure and discipline to implementing the balanced scorecard system. most balanced scorecard organizations will use Six Sigma as project initiatives to improve the efficiency of internal business processes. including management. design. analytics or data warehousing. Balanced Scorecard Software: Business Intelligence. and helps communicate performance information. Six Sigma is defined in Quality America as: "… a Quality Improvement methodology structured to reduce product or service failure rates to a negligible level (six sigma is equivalent to approximately 3. such as the QuickScore Performance Information System. Six Sigma is usually defined in terms of quality improvement related to internal business processes. 14 Master in Business Information Technology | Balanced ScoreCard . helps transform disparate corporate data into information and knowledge. 12. Some of the options are specifically dedicated to performance management and/or the balanced scorecard. Six Sigma encompasses all aspects of a business.4 failures per million events). Others include tools which are primarily designed for business intelligence. There are over a hundred balanced scorecard and/or performance management automation development companies. Balanced ScoreCard Vs Six Sigma Management While the balanced scorecard is almost always described as a strategic management system. GE and Allied Signal. and is widely used in many businesses.Oswaldo Cabrera López 11. To achieve these levels of quality. but have modules dedicated to performance management." Six Sigma was developed at Motorola. production and customer satisfaction. While the original concept has expanded over the years to become more strategic.

do. you are ready to get a handle on what specifically about your outcome you will measure.Oswaldo Cabrera López Both Six Sigma and balanced scorecard practitioners use similar best practices in management to design and deploy these systems. like how many widgets we produced. feel.2 STEP 2: Be sensory specific. cultural change management. It is of the utmost importance to decide which outcomes are most worth tracking right now. Use "sensory" language . strategic alignment. hear.1 STEP 1: Begin with the end in mind. This is where you take care in your choice of words to describe the outcome as concretely as possible. Focus on one outcome at a time. and a combination of top-down and bottom-up development. 13. what the difference is you are trying to create (and thus want to track using a measure). Also. 5 Steps to Find the Right Measures How to find the right measures is the most asked question in the field of performance measurement. How do you translate results so intangible as employee morale or service quality or corporate image into solid. sustainable and quality. reliable. implementation of improvement initiatives as projects.the language that describes what you and others would see. Performance measures are objective comparisons that provide evidence of an important performance outcome. 13. such as: efficient. Because the more meaningful measures track outcomes which tend to be less tangible than the traditional things we've measured. As the first step in deciding how to measure an outcome. Six Sigma practitioners often adopt the balanced scorecard as a way of deriving appropriate performance metrics. Avoid those inert words in our goal and objective statements. Master in Business Information Technology | Balanced ScoreCard 15 . robust measures? 13. When you have the end in mind. effective. taste or smell if your outcome was happening now. They both require dedicated top-level management support. a dedicated team of change agents. write down what the outcome is.

Steps to Find the Right Measures Master in Business Information Technology | Balanced ScoreCard 16 . Naming your performance measures marks the point at which you know exactly what you will be measuring. what could you count to tell you the extent to which it is occurring? Which of these potential measures would be the optimal balance between objectivity and feasibility? 13.Oswaldo Cabrera López 13. 13. Be succinct and informative and deliberate. What level of control do you have over achieving it? What might the unintended consequences of measuring the outcome be (both the positive and the negative)? What behaviour would the measures drive? Which other areas of performance might be sabotaged or limited? This is the first chance to change your mind about what's most worth measuring. For each of your sensory rich statements from step 2.4 STEP 4: What's the evidence? Get ultra specific and figure out what the potential measures are that could let you (and everyone else) know that the outcome is being achieved. as you need to be able to continually and easily identify each measure as it moves through the steps of being brought to life and being used in decision making.3 STEP 3: Check the bigger picture. Figure 7.5 STEP 5: Name the measure. Check the bigger picture for what could happen if you measure your outcome.

in order to identify best practices. The way is the Strategic Management Maturity Model (SMMM). there was no clear method for answering that question. Process improvements alone cannot guarantee that a company will be successful. or that an agency will achieve its mission. to monitor progress in improving maturity of strategic management. and to allow benchmarking across organizations. including many maturity models. 15. Many companies ask a similar question: where do we stand compared with other high performing organizations? Until now. There are two basic questions to ask of management: are we doing things right. The SMMM was designed by and for busy managers who need a quick assessment of where their organization stands in terms of strategic management. These two aspects of management – strategic and operational – complement each other. TQM.Oswaldo Cabrera López 14. or departments within one organization.g. business process reengineering etc. and many tools have been developed to improve this (e.). Six Sigma. and are we doing the right things? Operational management focuses on doing things right. Cascading a Balanced Scorecard: Creating Alignment Ours companies can improve its performance if you could somehow better communicate to your employees what your strategy is? Exist employees whose hard work is actually running counter to the organization‟s goals because they have a different understanding of what you are trying to accomplish? 17 Master in Business Information Technology | Balanced ScoreCard . The Strategic Management Maturity Model The SMMM Can Be Used to Assess Organizational Strategic Management Performance. so both must be assessed to determine the organization's total management capabilities.

using the strategy map. The end result should be focus across all levels of the organization that is consistent. the success of its implementation and whether or not the organization successfully cascades the scorecard down to business or support unit level and/or individual levels. The first thing is the topology: the balanced scorecard management process. and initiatives. The system's control is based on performance metrics or "metadata" that are tracked continously over time to look for trends. performance measures and targets. support units or departments (Tier 2) and then teams or individuals (Tier 3). 18 Master in Business Information Technology | Balanced ScoreCard . derived from Deming's Total Quality Management. While the balanced scorecard has been touted as an effective tool for creating organizational alignment. Scorecards are used to improve accountability through objective and performance measure ownership. Cascading a balanced scorecard means to translate the corporate-wide scorecard (referred to as Tier 1) down to first business units.Oswaldo Cabrera López The problems addressed by these questions center on the issue of organizational alignment. but rather with internal processes (diagnostic measures) and external outcomes (strategic measures). 16. Its task is not directly concerned about the mission of the organization. It is fundamentally different from project management in several respects. best and worst practices. It has neither beginning nor end. not customer requirements or compliance data. and desired employee behaviors are incentivized with recognition and rewards. The organization alignment should be clearly visible through strategy. the actual success of the system as an alignment tool can vary depending on the strategic focus of scorecard (simple performance measurement dashboard tend to not be very helpful). The Balanced Scorecard: Not Just Another Project The balanced scorecard management system is not just another project. and areas for improvement. but these are self-assessments. It delivers information to managers for guiding their decisions. is a continuous cyclical process.

Information should be integrated. where everyone "comes up to speed. as will be the main consumers of information." This includes training or retraining of project managers. where does one begin? What kind of plan is appropriate for deployment of the balanced scorecard system? There needs to be a ramp-up phase. consistent and available for indicators and metrics can be safe and secure. Personally in my experience I can assure you that none of this will be possible without a real commitment at all levels. and probably focused deployment of pilot efforts before attempting to cover an entire large agency. the more they will consume.Oswaldo Cabrera López People trained only in project management may have difficulty in figuring out how to accomplish the BSC. Figure 8. One of the key practical difficulties is to figure out how to get the process started in the first place. The tool by itself does not ensure success. simply because it is such a different kind of management paradigm. Integration of DataWherehouse 17. If this is not a project. from the least to generate the information. Conclusions/Abstract The philosophy and methodology of the Balanced Scorecard requires a lot of awareness and support by senior management of any company. 19 Master in Business Information Technology | Balanced ScoreCard . as indicated in the document is more a cultural than a way of working.

infoviews.gestiopolis.mx/Bitam/ScoreCard/ http://www. List of figures and tables • • • • • • • • Figure 1. Vision and Strategy Figure 2.com.htm http://www.org/ http://en. in addition to verify that it is possible to obtain them. Example of BSC Figure 6.hr-scorecard-metrics. Feedfback in BSC Cicle Figure 7.com/tag/balanced-scorecard 19. Reference List http://www. How BSC work Figure 4. Steps to Find the Right Measures Figure 8.balancedscorecard.com/canales/gerencial/articulos/20/bsc. 18.Oswaldo Cabrera López The metrics and indicators should be useful for decision making. Building and Implementing a Balanced Scorecard Figure 5.wikipedia. BSC Perspective Figure 3.org/wiki/Balanced_scorecard http://www. Integration of DataWherehouse 3 5 6 9 13 14 17 20 20 Master in Business Information Technology | Balanced ScoreCard .

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