BALANCED SCORECARD

Balanced Scorecard

BALANCED SCORECARD

How would you feel about boarding the plane after the following conversation with the pilot?

BALANCED SCORECARD

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.

But what about altitude. . Airspeed certainly seems important. Now I have to concentrate on proper air speed. 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.BALANCED SCORECARD Q: That is Good.

Would not that be useful ? A: You are right. but I cannot concentrate on doing too many things at the same time.BALANCED SCORECARD Q: But I notice you don’t have a fuel gauge. fuel is significant. . I intend to concentrate on Fuel consumption on the next set of flights. Once I get to be excellent at Air speed. So on flight I am focusing on air speed. as well as altitude.

What could be the reasons? .BALANCED SCORECARD Q: to the participants Would you like to board this plane after having this discussion ? A: Perhaps not.

BALANCED SCORECARD Navigating an organization is as complex as an Aero plane .

like pilots have to guide an aeroplane .BALANCED SCORECARD They also require instrumentation to guide their organizations ……….

BALANCED SCORECARD Would you be satisfied as manager getting one dimensional Information about your organization ? .

therefore You need instrumentations/ information to navigate in this competitive world .BALANCED SCORECARD Perhaps not.

.BALANCED SCORECARD BSC provides managers with the instrumentations they need to Navigate future competitive success.

BALANCED SCORECARD 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 .

BALANCED SCORECARD Measures are balanced Between the outcome measures—the results from Past efforts---and the measures that drive future performance .

BALANCED SCORECARD 4 Perspectives permit a balance between Short term and long term objectives Outcomes and performance drivers Hard objectives measures and Soft objective measures .

BALANCED SCORECARD Competing in the Information Age .

BALANCED SCORECARD Industrial Age Financial Control ROCE Prod Control Profitability Physical Capital .

BALANCED SCORECARD Made Many Such Measures Obsolete Information Age Financial Control ROCE Prod Control Profitability Physical Capital .

BALANCED SCORECARD Required New Capabilities Information Age Develop Customer Relationship Introduce innovative products/services Quality products at low cost Employee development and motivation Deploy information technology .

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

BALANCED SCORECARD Information Age Total Quality Management JIT-Production and Distribution Time based Competition Lean Production/Lean Enterprise Building Customer-focused Org Activity Based Cost Management Employee Empowerment Reengineering Improvement initiatives .

BALANCED SCORECARD Capital You don’t see on the Balance Sheet Human Capital The collective skill. working relationship And cultural norms at work in The organisation . knowledge attitudes and behavoiur of the People in the Organization Information Capital Organizational Capital The resources and processes in place that ensure effective use of The human capital The values.

BALANCED SCORECARD balanced scorecard .

BALANCED SCORECARD History Measurement & Reporting-1992 Articles in HB Review Acceptance and Acclaim The BSC-Measures that Drive performance---1992 Putting BSC to work-1993 Using BSC as a Strategic Management System-1996 BSC Translated in 18 languages Selected by HBR as most Important management Practice in 75 years Alignment & Communication 1996 Enterprise Strategic Management-2000 .

BALANCED SCORECARD Financial Measures are Inadequate For Guiding Information age Organizations Must Create future Value Through Investment in Customers Suppliers Employees Processes Technology & Innovation .

BALANCED SCORECARD A balance scorecard translate a organization’s mission and strategy into set of performance measures that provide the framework for implementing its strategy .

BALANCED SCORECARD Strategy Strategy specify how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its objectives .

BALANCED SCORECARD 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 .

BALANCED SCORECARD 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……… .

BALANCED SCORECARD Do we need to be clear about……? Goal Objective Mission Vision .

BALANCED SCORECARD 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. .

Vision: Defines where the organization wants to be in future.BALANCED SCORECARD Vision: Defines where the organization wants to be in future. .

BALANCED SCORECARD Mission: Defines where the organization is going now. describing why this organization exists .

BALANCED SCORECARD Targets: defines goals and objectives .

BALANCED SCORECARD Goal 2008 5000 Cr Objective 2013 12.000 Cr Mission 2028 50.000 Cr .

BALANCED SCORECARD Goal 2009 7000 Cr Objective 2014 15.000 Cr Mission 2029 55.000 Cr .

BALANCED SCORECARD Balance Scorecard as a Management System .

BALANCED SCORECARD Balance Scorecard Emphasizes Financial and Non Financial measures must be Part of Information System .

BALANCED SCORECARD 4 Perspectives Financial Perspective Customer Perspective Internal Business Process Perspective Learning & Growth Perspective .

postulate indicators .Mission Clarify mission & Vision statement Develop Strategic Goals Derive Sub-Goals Vision Strategic Goals Sub-Goals Balanced Scorecard Financial • Sub-Goals Customer • Sub-Goals Internal Business • Sub-Goals Methodology Overview Map Sub-Goals to each quadrant of the Balanced Score Card Learning & Growth • Sub-Goals For each BSC Quadrant .develop measurement goals .identify data elements Indicators Trouble Reports Module Data Elements .identify measurement areas .

A Balanced Scorecard Perspective on Performance How do we look to shareholders? Objective Measures Targets Initiatives FINANCIAL Objective Measures Targets Initiatives How do our customers see us? Vision and Strategy What must we excel at? Can we continue to improve and create value? Objective Measures Targets Initiatives LEARNING and GROWTH Objective Measures Targets Initiatives CUSTOMER INTERNAL BUSINESS PROCESS .

BALANCED SCORECARD 4 Perspectives Financial Perspective Financial Perspective Evaluate the Profitability of the Strategy .

BALANCED SCORECARD 4 Perspectives Customer Perspective Customer Perspective identifies Targeted Customer and market Segments and Measures the Organization’s success in these Segments .

BALANCED SCORECARD Internal Business Process Perspective 4 Perspectives This perspective focuses on internal operations that create value for customers that .in turn. furthers the financial perspective by increasing the shareholder value .

BALANCED SCORECARD Internal Business Process Perspective 4 Perspectives 3 sub Processes Innovation Process Creating Products Services &Processes To meet the demand Of Customers Operations Process Producing & delivering Existing products that Will meet the needs Of Customers Postsales-Service Process Providing service and Support to the customer After the sale of a product or service .

BALANCED SCORECARD 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 .

12Cr Increase Shareholder value Operating Income From Growth Build Strong Customer Relationship Rs 30 Cr Rs 34.48% .20 Cr Revenue Growth 6% 6.BALANCED SCORECARD FINANCIAL PERSPECTIVE Target Perform Actual Perform Objective Financial Perspective Measures Operating income From Productivity Gain Initiatives Manage Cost And Unused Capacity Rs 20 Cr Rs 20.

BALANCED SCORECARD Customer Perspective Target Perform Actual Perform Objective Customer Perspective Measures Market Share in Communication Network Segment Initiatives Identify future Needs of Customers Identify new Target Customer Seg Increase Cust Focus of Sales 6% 7% Number of New Customers Increase Customer Satisfaction Customer Satisfaction Rating 1% 90% give Top two Ratings 2% 87%Gave top two Rating .

control .BALANCED SCORECARD Objective Reduce Delivery Time Target INTERNAL BUSINESS PROCESS PERSPECTIVE Measures Initiatives Perform Reduce Setup time Re-engineer order Automation of Orders Delivery process 30 days Actual Perform 30 days Meet Specified Delivery dates on time delivery Re-engineer order Delivery process 92% 90% Improve post Sales Services Service Response Time Improve Customer Service process Within 4 hrs Within 3 hrs Improve Processes Number of Impv. In Business Processes % of processes With Advanced Controls Organize teams from Sales & Manuf 5 75% 5 75% Improve Manufacturing Capability Organize R&D/Mfg Teams to implement Adv.

BALANCED SCORECARD
Objective

Learning and Growth Perspective Measures Initiatives

Target Perform

Actual Perform 88%

Align Employee Employee SatisfacAnd tion Rating Organizational Goals

Employee Participation to Build Team Work

80% Employees Give top Two Ratings

Develop Process Skill

% Employees Trained in Process & Quality Mgt

Employees Training Programme

90%

92%

Empower Work Force

% Workers Empowered to Manage Processes

Supervisors as Coaches rather Decision Makers

80%

80%

BALANCED SCORECARD

BSC as Strategic Management System

BALANCED SCORECARD

Balanced Scorecard as a Strategic Management System

1 Clarify and Translate vision & Strategy 2 Communicate and link strategic objectives and Measures 3 Plan, Set Targets and align Strategic Initiatives 4 Enhance Strategic Feedback and Learning

BALANCED SCORECARD Clarifying and Translating the Vision & Strategy Clarifying the Vision Gaining Consensus Communicating & Linking Comm and Educating Setting Goals Linking Rewards to Performance Strategic Feedback & Learning Balance Scorecard Articulating the shared Vision Supplying Strategic Feedback Facilitating Strategy review and Learning Planning & Target Setting Setting Targets Aligning Strategic Initiatives Allocating Resources Establishing Milestones .

BALANCED SCORECARD Clarifying and Translating the Vision & Strategy Clarifying the Vision Formulation by Sr Executives Reaching Consensus Sorting Out Differences Joint Accountability .

BALANCED SCORECARD Communicating and Educating Newsletter Bulletin board Brochure Videos Intranet meetings Setting Goals Linking Rewards to Performance Every one Understand Strategy for achievement Outcome Measures Efforts and Initiatives required Communicating & Linking On time Delivery Reduce setup time Buy new machines Improve delivery time Improve packing Communicating to Directors Executives Employees .

BALANCED SCORECARD Planning & Target Setting Plan to Change Set target for 3-5 years Stretch targets Benchmarking Alignment of Targets Alignment of Strategic Planning with operational Budgets .

BALANCED SCORECARD Strategic Feedback & Learning Periodic Review and Change Targets-achieved or not Past and future Review Information from all 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 2 Strategy not Linked to Dept Team & Individual Goals Strategy & Vision Personal MBO & Incentives Budget Monthly Review 4 feedback that is tactically Financial Plan & Capital Allocation not strategic 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 .

BALANCED SCORECARD 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 •Goal alignments from top to bottom •Education and open communication about strategy Clarifying & Translating The Strategy & Vision •Feedback system used to test The hypothesis on which strategy Is based Communicating And Linking •Compensation is linked To Strategy Balance Scorecard Strategic Feedback & Learning •Team problem solving Planning & 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 •Strategy development is a Continuous Process .

BALANCED SCORECARD Let Us Review .

BALANCED SCORECARD 4 Perspectives Financial Perspective Customer Perspective Internal Business Process Perspective Learning & Growth Perspective .

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 Cause and Effect relationship Organizational Learning To achieve our vision. how must our organisation team Improves? .Translating the strategy to operational terms BALANCED SCORECARD The Strategy Financial Perspective If we succeed.

BALANCED SCORECARD Clarifying and Translating the Vision & Strategy Clarifying the Vision Gaining Consensus Communicating & Linking Comm and Educating Setting Goals Linking Rewards to Performance Strategic Feedback & Learning Balance Scorecard Articulating the shared Vision Supplying Strategic Feedback Facilitating Strategy review and Learning Planning & Target Setting Setting Targets Aligning Strategic Initiatives Allocating Resources Establishing Milestones .

BALANCED SCORECARD Make Strategy Everyone’s Job CORP SBU Education Personal Goal Alignment Balanced Pay checks The Strategy Focused Workforce .

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

BALANCED SCORECARD Questions .

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