10 BSC Concept

BALANCED SCORECARD
Part - 1
THE BALANCED SCORECARD CONCEPTS
FOUR STRATEGIC PERSPECTIVES
The Balanced Scorecard concept involves creating a set of measurements for four strategic
perspectives. These perspectives include: 1) financial, 2) customer, 3) internal business
process and 4) learning and growth. The idea is to develop between four and seven
measurements for each perspective. Two graphic illustrations appear below to help convey
the idea.
A.Rizal Putra/ FEUA / 2012 1

The measurements should be focused on a single strategy and be linked, consistent
and mutually reinforcing. Some generic measurements are presented in the table
below.
Perspective Generic Measurements

Financial Return of Capital Employed (ROCE), Economic value added,
Sales growth, Cash flow
Customer Customer satisfaction, retention, acquisition, profitability,

market share
Internal business Includes measurements along the internal value chain for:
process
Innovation - measures of how well the company identifies the
customers’ future needs.
Operations - measures of quality, cycle time, and costs.

Post sales service - measures for warranty, repair and
treatment of defects and returns.
Learning and growth Includes measurements for:
People - employee retention, training, skills, morale.
Systems - measure of availability of critical real time

information needed for front line employees.
WHAT IS A STRATEGY
A strategy, according to Kaplan and his coauthors, is a set of hypotheses about cause and effect
relationships. Defining an organization's strategy involves:
1. Defining the market the organization plans to serve - local, national, global.
2. Defining the customer. Broad or narrow, age group, income level etc.
3. Identifying the critical internal processes needed to capture and satisfy those
customers.
4. Determining the individual and organizational capabilities required in the
other perspectives.
AN EXAMPLE RELATED CAUSE AND EFFECT
The chain of cause and effect relationships may start with improvements in the area of learning
and growth. These improvements tend to cause improvements in business processes, which in
turn cause improvements in customer satisfaction and subsequently cause improvements in sales
and the financial measurements of profitability. The direction of the cause and effect
relationships is emphasized below.
Learning and growth º Internal business process º Customer º Financial
For a more specific example showing cause an effect, see the Sears Employee-Customer-Profit
Chain illustration below.


WHAT DO YOU TRY TO BALANCE ?
An important part of the balanced scorecard concept is the emphasis on establishing a balance
between four types of measurements. These types of measurements include:
1) Short term and Long term,
2) External (for shareholders and customers) and Internal (for critical business
processes, innovation, and learning and growth),
3) Leading indicators (outcomes desired and performance drivers) and

Lagging indicators (outcomes),
4) Objective measures (e.g., financial) and Subjective measures (e.g., many
non-financial). See the Exhibit below (item 7) for the idea.
HOW SHOULD THE BSC BE USED ?
Kaplan and Norton also emphasize that "the balanced scorecard should be used as a
communication, informing, and learning system, not as a controlling system."

DIAGNOSTIC VERSUS STRATEGIC MEASUREMENT
Kaplan and Norton make a distinction between diagnostic measurements and strategic
measurements.
Diagnostic measurements monitor whether something is in control. A statistical process

control chart with upper and lower limits is a good example of a diagnostic type system that can
be used for controlling a process.
Strategic measurements define a strategy for competitive excellence and future success. The
balanced scorecard is a strategic measurement system.

BALANCED SCORECARD PERSPECTIVES & SAMPLE
MEASUREMENTS*
Short Term
Generic Financial vs. vs. Long Leading vs. Internal vs.
Perspective Measurement Non-financial Term Lagging External
Financial ROCE, Financial Short term Lagging External

EVA, Financial Short term Lagging External
Sales growth Financial Long term Lead & Lagging External
Customer Profitability, Financial Short term Lead & Lagging External**

Market Share, Non-financial Long term Lead & Lagging External
Retention, Non-financial Short term Lead & Lagging External
Loyalty, Non-financial Short term Lead & Lagging External
Satisfaction Non-financial Short term Lead & Lagging External
Business Process Cost, Financial Short term Lead & Lagging Internal
Productivity, Non-financial Short term Lead & Lagging Internal
Cycle time, Non-financial Short term Lead & Lagging Internal
Quality Non-financial Short term Lead & Lagging Internal
Organizational Employee
Learning retention, Non-financial Long term Lead & Lagging Internal
Technology, Non-financial Long term Leading Internal
Climate for action
or Culture. Non-financial Long term Leading Internal
*The objective is to balance the measurements associated with each perspective, all focused
on a single strategy. These measurements should reinforce each other. Most of the
measurements are both leading (drivers) and lagging (outcomes). The direction of the cause
and effect relationships is from the bottom of the exhibit to the top.
** Many customers are internal (e.g., the next operation downstream), but the focus here is
on the external customer.

8. Sample Generic Scorecard
Perspectives Goals Objectives Measurements
Customer Continuously improve Decrease lead time.* Average lead time.*
customer satisfaction. Increase on time Percentage of deliveries
delivery. on time.
Reduce customer Number of customer
complaints. complaints.
Internal Business Continuously improve Decrease cycle time** Average cycle time.**
business processes. Increase quality. Number of defects and
number of items
reworked.
Increase productivity. Average output per
employee.
Innovation & Continuously develop Increase sales of new Percentage of sales
Learning and deliver new products and services obtained from new
innovative products & products & services.
services. Reduce development Average time from
time. initial design to
production.
Financial Continuously improve Decrease costs. Average unit costs.
financial performance. Increase sales growth Growth rate in sales.
Increase market share Company's market
share.
Increase return on Return on investment.
investment.
*Lead time is the time from order receipt to delivery.

** Cycle time is the time from the start of a process to completion.

Another example based on a causal model developed at Sears.

This graphic illustration was adapted from an illustration in Rucci, Kirn and Quinn
(1998).
FEDERAL PROCUREMENT SCORECARD

An example adapted from an illustration on page 182 of Kaplan & Norton's 1996
book (The Balanced Scorecard) is provided below.
ECT’s BALANCED SCORECARD

An example based on an electronics company appears below based on an illustration
in Kaplan & Norton 1992.
ECI 's Balanced Scorecard

Perspectives Questions Goals Measurements
Percent of sales from new
New products.
products.
How do On-time delivery as defined by
Responsive supply.
Customer customers see the customer.
us? Preferred supplier. Share of key account's purchases.
Number of cooperative
Customer partnership.
engineering efforts.
Manufacturing geometry versus
Technology capability.
the competition.
Manufacturing excellence. Cycle time, Unit cost and Yield.
Internal What must we
business excel at? Silicon efficiency and
Design productivity.
Engineering efficiency.
Actual introduction schedule
New product introduction.
versus planned introduction.
Time to develop the next
Technology leadership.
generation.
Can we continue Manufacturing learning. Process time to maturity.
Innovation &
to improve & Percent of products that equal
learning Product focus.
create value? 80% of sales.
New product introduction versus
Time to market.
the competition.
Survive. Cash flow.
Quarterly sales growth and
How do we look Succeed.
Financial operating income by division.
to shareholders?
Increased market share and
Prosper.
Return on Equity.
UNITED METHODIST PUBLISHING HOUSE BALANCED SCORECARD
An example of a scorecard developed for a non-profit organization is illustrated below based on

a description provided in an article by Forsythe, Bunch & Burton 1999.
United Methodist Publishing House Balanced Scorecard

Perspective Goals Measurements

Increase in sales growth in relation to
target.
Produce revenues sufficient to cover Achieve corporate earnings
Financial expenses and provide reserves for percentage in relation to target.
the future. Achieve ROI by each market business
unit (profit center) in relation to
target.
Maintain ability to attract and retain Customer satisfaction based on survey
customers. questionnaire.
Customer
On time product development and
Measures not specifically defined.
delivery.
Maintain an effective and efficient
Measure of error rates on shipments.
distribution system.
Produce high quality, cost effective
Internal Process Measures not specifically defined.
products.
Maintain internal process
Measures not specifically defined.
effectiveness.
Measures related to success in
Maintain infrastructure needed for
producing new products, projects and
Organization long-term growth and improvement. services.
Innovation
Maintain staff competence. Measures not specifically defined.
and Learning
Goals related to learning - not Measures of learning not specifically
specifically stated. defined.
FRAMEWORK FOR AN IS SCORECARD
The following graphic provides a framework for developing a scorecard for the
information systems function. For an explanation see the summary of Martinsons,
Davison & Tse.

CRITICISMS OF THE BSC FRAMEWORK AND HOW IT IS USED
Ittner and Larcker argue that most companies have apparently adopted boilerplate versions of
nonfinancial measurement frameworks such as Kaplan and Norton's Balanced Scorecard, but
seldom establish the cause and effect linkages between the measurements and desired outcomes.
This allows self-serving managers to chose and manipulate measurements solely to enhance their
own earnings and bonuses. They discuss four mistakes that companies make when trying to
measure nonfinancial performance and provide six steps to follow to do it right (Ittner & Larcker
2003 summary).
However, the BSC is more controversial than indicated by Ittner & Larcker. Some researchers
have been very critical of the balanced scorecard. For example, Norreklit builds a case against
the balanced scorecard by showing that it is not based on sound or logical arguments. Instead,
according to Norreklit, the BSC text (i.e., the 1996 book) appeals mainly to emotion and the
authority of Kaplan & Harvard and is a conceptually unclear model that relies on attractive
adjectives and extensive use of analogies and unrestrained metaphors. It is impressionistic and
closely resembles propaganda with heavily loaded words, metaphors, irony, exaggerations,
incoherence and a climax. (Norreklit summary).

Another criticism relates to a concept developed by Reilly and Reilly referred to as "a measure
network". From their viewpoint the balanced scorecard is incomplete, and the linkages among
measurements and between perspectives is not explicit. The use of a measure network is
suggested as a better approach. (Reilly & Reilly summary).
Strategy Maps
Kaplan and Norton extend the concepts related to the Balanced Scorecard in The Strategy-
Focused Organization: How Balanced Scorecard Companies Thrive in the New Business
Environment. Strategy Maps are combined with Balanced Scorecards to provide a new
framework for describing and implementing strategy. According to Kaplan and Norton, a
strategy map is "a logical comprehensive architecture for describing strategy. It provides the
foundation for designing a Balanced Scorecard that is the cornerstone of a strategic management
system" (p. 10). Strategy Maps reveal the cause-and-effect linkages needed to transform
intangible assets into tangible financial outcomes. Strategy Maps, if designed correctly, may
provide the solution to the problems discussed by Ittner & Larcker mentioned in the section
above. An adaptation of the Balanced Scorecard Generic Strategy Map appears is illustrated
below.

Strategy Canvases and Value Curves
The strategy canvases illustrated in several articles by Kim & Mauborgne (1997, 1999 & 2002)
might provide a better way to begin analyzing a company's strategy. A strategy canvas shows
graphically how an organization's strategy (represented by the company's value curve) is
different from it's competitors. The Southwest Airlines strategy canvas below conveys the
idea. According Kim & Mauborgne, a value innovator also needs a strong tag line, e.g., for
Southwest, "The speed of the plane at the price of the car - whenever you need it".
Perhaps, starting the strategy analysis and development process with strategy canvases
and value curves would provide the basis for more effective strategy maps and
balanced scorecards.
Relationship Between Strategy, PLC and BSC

Hayes and Wheelwright discuss the connection between a companies process life
cycle and product life cycle and how that relationship relates to strategy. The insights
provided by these authors has some important implications for strategy development
and the design of a balanced scorecard. See the two Hayes & Wheelwright summaries
in the reference section below for more information.
The Business Ecosystem
The business ecosystem described by Iansiti and Levien provides another interesting
concept related to developing strategy. Briefly the main idea is that a company needs
to define the business environment or ecosystem in which it operates, and recognize
the company's position within the system, to help determine which strategy to follow.
Part - 2
THE STRATEGY – FOCUSED ORGANIZATION:
HOW BSC COMPANIES THRIVE IN THE NEW BUSINESS ENVIRONMENT
( Kaplan, R.S. and D.P. Norton, 2010)
Chapter 1: Creating the Strategy-Focused Organization
Organizations today use decentralized business units that focus on intangible knowledge,
capabilities, and relationships created by employees. Some organizations understand that strategy
must become a continual and participative process. The change from centralized command, and
financial measures that come from past actions can no longer measure the objectives that need to
be addressed. We must measure the strategy and the best tool to implement such a practice is the
balanced scorecard.
The Balanced Scorecard allows organizations to build a management system that

manages strategy; a strategy-focused organization. Strategy means communicating in a way that
everyone can understand a plan for success. Focused means navigation in the organization to
align strategy, and organization means to mobilize all employees to act in different ways that
will link together across the business. The Balanced Scorecard provides a framework to look at
strategy from four different perspectives; Financial, Customer, Internal Business Processes, and
Learning and Growth. It gives managers the accurate information to make important decisions
that effect everyone in the company.
There are a handful of examples of organizations that have been successful in using the
Balanced Scorecard, such as Mobil North America Marketing and Refining, CIGNA Property &
Casualty Insurance, Brown & Root Energy Services’ Rockwater Division, and Chemical (Chase)
Retail Bank. All of the prior companies mentioned used the five principles of a strategy-focused
organization:
1. Translate the strategy to operational terms,
2. Align the organizational strategy,
3. Make strategy everyone’s everyday job,
4. Make strategy a continual process, and
5. Mobilize through executive leadership.

These five principles help companies achieve such focus and alignment. The illustration below
provides a graphic view of the ideas in this chapter.
Strategy Maps
A strategy map is a tool for translating strategy into operational terms as indicated in the
graphic illustration above. Strategy maps, combined with balanced scorecards, provide a new
framework for describing and implementing strategy. Kaplan and Norton define a strategy map

as "a logical comprehensive architecture for describing strategy. It provides the foundation for
designing a Balanced Scorecard that is the cornerstone of a strategic management system." (p.
10). Several strategy maps are illustrated below.

Chapter 2: How Mobil Became a Strategy-Focused Organization
It all started with a desire for a 5% increase in ROCE (return on capital employed) and a
way to plan productivity and growth. Mobil launched the Balanced Scorecard project in 1994.
Bob McCool became CEO of NAM&R (Mobil North America Marketing and Refining) in 1992
and spotted a need for a new strategy that would improve the organization. They exercised the 5
principles of a Strategy-Focused organizations, and even beat the odds in an unfavorable market.
They scrutinized the productivity and growth aspects. The productivity theme focused on cost
reduction and asset intensity. The growth component focused on volume growth rate versus
industry growth rate, and percentage of volume in premium grades.
They examined the customer perspective, dividing the consumers into 5 categories;
Road warriors (higher-income, middle-aged men), which made up 16% of sales,
True Blues (men and women who were loyal to a brand name),
Generation F3 (men and women constantly on the go) at 27%,
Homebodies at 21% (Housewives) and
Price Shoppers (are not loyal; looking for the lowest price) at 20%.
Mobil had to choose whom to cater to. They chose to cater to Road Warriors, True Blues, and
Generation F3 to sustain premium prices and commodity products. Mobil identified attributes
that should appear at all Mobil stations such as clean bathrooms, safe well-lit stations, and
speedy purchases. They decided to have mystery shoppers evaluate the performance being
followed by the employees. Mobil also started to focus on independent owners of the gasoline
station. Mobil had not considered them as a component of strategy in the past. Mobil now
decided to adopt objectives that would be profitable for both Mobil and the franchise operators.
Mobile started to develop win-win relationships with every aspect of the business they
were involved in. They developed scorecard-building processes. Even the truck drivers who
carried the gas were instructed to drive safer, be reliable, and be a “good neighbor” (make sure
everything in the station is safe). They were warned that mystery shoppers would inspect them as
well. Unexpected feedback came from the truck drivers when they started calling with similar
experiences, such as this one.
“You had better get someone from region up to this station fast. If a mystery shopper showed up
there, the station would flunk and our “delight the consumer” score would be destroyed. The Mobil sign
is broken, half the lights are out, the restrooms are filthy, the convenience store is serving stale
doughnuts, and running out of stock, and the employees are yelling at the customers. This is not the new
Mobil strategy of “fast, friendly service.”

This type of feedback helped the company clean up the areas of Mobil that were struggling with
the new and improved concepts.
Another attribute, speedy purchase, caught the attention of a manager by the name of Joe
Giordano. He conceptualized a simple device that allowed the customer the pleasure of not
having to dig through their wallet or purse trying to find a credit card or cash to pay for gas. This
device would attach to the key chain, and is now know as the Speedpass.
With overwhelming success, each employee got to share a $35 million dollar incentive award
based on a corporate component, division component, and a business component. Mobil created
a win-win situation by incorporating the 5 principles of a strategy-focused organization, and
continual implementation of the strategy process. An adaptation of Mobil NAM&R's strategy
map appears below.


Chapter 3: Building Strategy Maps
“The key for implementing strategy is to have everyone in the organization clearly
understand the underlying hypotheses, to align resources with the hypotheses, to test the
hypotheses continually, and to adapt as required to real time.”
A strategy map makes the outcome more apparent to the users and helps the company
build a cause-and-effect perspective. When looking at the financial portion of growth and
productivity, it clarifies non-financial measures such as quality, improving the product, and
availability. The BSC also improves indirect linkages to intangible assets. Kaplan and Norton
continue to discuss the metaphoric “recipe” of intangible ingredients, such as skill, technology,
and the environment internal processes that take place.
A mission is important not only to managers, but to everyone in the organization. Vision and
strategy complement each other, but there needs to be a strategy in order for anything to be
achieved. The BSC helps keep the organization focused on its strategy in making the vision a
reality. These ideas are conveyed in the graphic illustration below.
There are four themes to provide a way to segment strategy:
Build the franchise,

Increase customer value,
Achieve operational excellence, and
Be a good corporate citizen.
It helps build long-term (build the franchise), mid-term (increase customer value), and short-term
(operational excellence) cause-and-effect relationships. Revenue growth focuses on building
strategy and increasing customer value while productivity is composed of improving cost
structure and improving asset utilization. Product leadership, customer intimacy, and operational
excellence are activities that lead to competitive advantages.

An example of a strategy map that had a vision is Store 24. It caters to teenagers and the
store wanted to differentiate themselves from other stores by providing “entertaining and
unexpected fun” during the shopping experience. They ensured this goal by investing in training
for staff, and producing innovative new layouts to “ban boredom” while shopping. They reached
their goal by creating a vision and compiling a strategy to achieve uniqueness in their industry.
Store 24's strategy map is represented in the graphic illustration below.

The BSC is a good indicator of success in a company because it identifies, and
aligns the components in an organization together. Some strategies such as KPI (key
performance indicators) and constituent/stakeholder scorecards may not lead to
successful outcomes because they do not reflect the strategy of the organization. You
can’t look at the scorecard and understand the strategy. BSC helps to adapt vision,
strategy, and outcomes so that it is more conceivable to those who have to implement
it. This idea is illustrated in the Generic Balanced Scorecard Strategy Map provided
below.

Chapter 4: Building Strategy Maps in Private Sector Companies

This chapter illustrates how the strategy maps discussed in chapter 3 encourage
operational excellence. The book gives a few examples of companies that were successful. The
National Bank Online Financial Services (OFS) was one of the companies that knew they needed
to communicate the strategy of setting goals to customers, managers, and employees, and they
needed to focus on their internet service sector. In 1994, they had only 20,000 customers using
OFS, and that jumped to 350,000 in just four years. They established a new goal: To reach their
millionth customer using OFS by 2000. OFS set three them.
1. To retain high-valued customers.
2. Increase revenue per customer.
3. Reduce cost per customer.
They focused on differentiating factors including speed, response, security, fair price, and
reliability. As they communicated this through the OFS chain, they got feedback from

everyone throughout the company, which helped build the Balanced ScoreCard objectives. OFS
also cross-sold new products through 3rd party alliances via the internet, from flower for
Mother’s Day, to carpet cleaner.
OFS was curious to see if their themes and goals were being reached. Astonishingly, they
reduced their cost by customer. If one were to go into the bank to do a transaction, it would
cost National Bank $1.25/transaction, roughly. Online, it only cost .01! Customers liked
managing and monitoring their own bank accounts online. Disputed payments dropped by 50%
that year. OFS’s revenues grew because customers were buying 3rd party items through the
website, and, in 1999, OFS celebrated their 1,000,000 th customer, along with a series of “Best
Online Bank” awards and recognition.
Other organizations discussed in this chapter include Fannie Mae, Nova Scotia Power,
Inc., and AgriChem Manufacturing Industries. The chapter includes some rather involved
strategy maps for Nations Bank's online service, Fannie Mae and AgriChem. An adaptation of
Fannie Mae's strategy map appears below.

Chapter 5: Strategy Scorecards in Nonprofit, Government, and Health Care
Organizations
Nonprofit and government agencies have trouble defining strategy. Using the BSC, they
must change their focus from product leadership and customer intimacy to local processes and
improvement. Unfortunately, many of these organizations use KPI (key performance indicators)
scorecards as a guiding map instead of concentrating on the specific objectives.
These agencies had trouble with what goals to place at the top of their hierarchy. They
chose both donor and recipients. The government agencies had 3 objectives; Cost incurred, value
created and legitimizing support.
The city of Charlotte focused on a mission. “Community of choice for living, working
and leisure activities.” They were unsure how to implement the strategy, but they came up with a
plan that had 5 themes; Community safety, Transportation, City with in a city, Restructuring
government, and Economic development, placing citizens at the top of their BSC (balanced
scorecard).
Another example of a government agency is VBA (Veterans Benefit Admin). They also
had 5 measures; Customer satisfaction (Veterans), Cost (taxpayer), Speed, Accuracy, and
Employee development. Now these government agencies had a way to measure their
performance.
DDT (Division in US Department of Transportation) was the first government agency to
develop a BSC. They use to compare results with only speed processing but changed their
objectives through the BSC and processing times have dropped, and customer satisfaction has
increased.
Overall, the BSC helped all these organizations to highlight the importance of human
resources mixed with their primary functions. It goes to show that the BSC is not just for
companies but can also enhance performance for government agencies as well.
Chapter 6: Creating Business Unit Synergy

Organizations need to determine how to add value to their business so that the whole is
greater than the sum of its parts, hence the term, synergy. For example, retailers and
wholesalers should prefer to work with only 1 supplier because they receive benefits such as:
Discounts in bulk purchases, and special prices and supplier attention.
There were many different case studies of synergy in organizations, and I will explain the case
study of Charlotte , NC . The city manager, after developing a BSC (balanced scorecard), asked
all the functional operating units to develop individual BSCs. For example, transportation,
police stations, community development, etc. had to come up with their own measures of
success. The transportation operating division added measures such as, “availability of safe,

convenient transportation” and “improve service quality.” Such measures were incorporated
into the departmental BSC of Charlotte, NC as well.
The police station worked hard on implementing their plans by revoking liquor licenses of
alcoholic beverage outlets because of numerous nuisance complains, thus allowing other
businesses to operate in the community. This was also a way to mitigate crime.
The city also developed cabinets, which consisted of department heads that could influence the
strategic themes. The BSC brought these people together once a month to plan new initiatives
to strengthen neighborhoods. For example, an important retailing giant packed up and left a
local shopping mall, which raised important questions as to why they left.
BSC’s strategy for the customer-based units provide guidance to operating functional units.
Chapter 7: Creating Synergies through Shared Services
Creating a BSC for shared services should align strategy so they add value. They link shared
service units with business units. The two models for developing shared serviced are:
The Strategic Partner Model which is a partner to the process of reflecting the strategy, and
The Business-in-a-Business Model, in which they view other business units as their customers.
Shared Service units (SSU’s) create external value and create a linkage to the Strategic Business
Units (SBU’s). This requires four components:
1. Service agreement which defines expectations about services and costs.
2. The shared service units scorecard.
3. The linkage scorecard and
4. Customer feedback.
And example that has been used consistently throughout this summary is Mobil North, which
undertook this strategy. This two-tiered scorecard helped Mobil establish a clear understanding
between the internal customer and service provider. Shell Services International also had a
service level agreement that included performance measures such as
1. Customer Satisfaction

2. Quality of support (speed of delivery)
3. Technical end-to-end measurements and
4. Business alignment (ease of doing business.)
This BSC and customer feedback helped to identify processes that needed improvement by
lowering costs using new Web-based technology and cross-functional efforts. The BSC allowed
joint ventures to create value to a company as well. The BSC for SSU’s identified and clarified
opportunities for synergy.
Chapter 8: Creating Strategic Awareness
When launching new strategies, the entire company must be involved. Executive and BSC
advocates came up with creative ways to achieve this extensive, continuous goal. Companies
wanted workers to find new ways to conduct their day-to-day business. In order to translate
the idea to reality, they stressed top-down communication and evaluated by results, not
activities. “Just because a message has been sent doesn’t mean it’s been received.” They
decided to reach the masses of employees through awareness by quarterly meetings,
brochures, monthly newsletters, education programs, and company intranet. Mobil posted
their BSC everywhere on bulletins at every site, had a newsletter, and the president appeared in
a 1 hour briefing to the results of the BSC performance, and to respond to questions of the
employees. In 1995, only 30 people were aware and showed up. In 1999, over 500 people
showed up.
Companies utilize the internet as well. Motorola created a website to spread awareness of their
BSC. Sears created a map of the retail company and plotted the successive decades to show
how they got to where they are now. Sears became a compelling place to work, shop, and
invest.
Strategy trees communicated the messages further by linking the elements of the company.
This helped to clarify objectives that contributed to the overall organization and relate the
cross-functional relationships. Mobil held meetings and had employees go up to the strategy
tree to point out where they were on the tree and how they contributed to the impact of the
overall financial assessment, ROCE. Employees and everyone in the organization must
understand the measures of the strategy to impact the organization in a positive way.
Chapter 9: Defining Personal and Team Objectives
MBO (Management By Objectives) has become more bureaucratic and burdensome
today because it is more of a traditional way to ask people to do their jobs. It reinforces
narrow, functional thinking. Another problem is that the Human Resources function does not
typically align to strategy. Only 51% of senior managers have personal goals linked to strategy,
21% of middle managers and 7% of employees, respectively. In order to bridge this gap
between company and personal objectives, Strategy-Focused Organizations have planned five
ways to link them;

1. The Super Bowl approach
2.Alignment with strategic initiatives
3. Integration with existing planning and quality processes
4. Integration with human resource processes
5. Personal Balanced Scorecards.
The “Super Bowl” approach was used by Mobil. They used the analogy of offense, defense,
coaches, and support groups working together to represent how a football team could be
synergized to perform a common goal. Mobil implemented a few measures to accomplish their
goals. Their measures included Gasoline volume, Return on capital employed, Customer
complaints, Mystery shopper rating, and commitment to dealers. The personal incentive was a
bonus and a vacation trip if the goals were met. Mobil would win the Super Bowl if they hit
their measured targets and everyone would get a bonus and a vacation. The only weakness in
the Super Bowl strategy is that the objectives are still top-down. But the Super Bowl approach
seems to be a simple, clear, focused measure for the employees to achieve.
Another example of an entity that needed to link the organization to personal goals is
the city of Charlotte . They linked the department’s BSC measures to the departments high-
priority programs. They developed a WIIFM (What’s in it for me?) approach and the program
was structured so that the worker’s could clearly define and formulate a plan of execution for
their measures. The employees had a clear understanding of how they would be evaluated;
however, it is structured in a way that individuals had no role for innovation or cross-training
initiatives that will limit the success of the BSC in the long-run.
Chapter 10: The Balanced Paycheck
Companies that use the BSC say that 88% of their reward systems are effective. Payouts
start when 75% of their targets are attained. Each company has different ways of establishing
different measures and how to reward each. Mobil North created degrees of difficulty: 1.25 is
the most difficult level to attain, 1.0 is average, and .8 is below average. If the business unit
works for the higher level of difficulty and succeeds, it will be rewarded by a larger portion than
if they succeed at a lower level of difficulty.
Another way to devise a successful reward system is what companies call “metric
owners”. They collect and report data for their assigned metrics. They give specific
responsibilities to individuals for establishing reliable processes and by having metric owners in
staff rather than line departments. There is greater independence and objectivity for the data.
Novia Scotia Power uses a threshold system for performance; midpoint, moderate, and
maximum bonus. CIGNA Property and Casualty uses a PSP (performance share plan). Employees
receive a fixed number of position shares for their own achievements, and for their business
unit’s performance. For example, 1 employee had 50 shares, par value of $10. During the year,
she was awarded 100 shares, but her business unit group fell to $5 par value because it didn’t
meet the BSC measures. However, she got a $750 (150 shares x $5) bonus for strong individual
performance, but weak business unit performance.
Some companies don’t have the cash to present to their employees, so they use a point
system, such as the one used by Texaco Refinery. The point system rewards the employees with
redeemable prizes.
Companies must be careful in tying compensation to the BSC because they may be
sending the wrong message. “We can’t measure what we want, so we have decided to want
what we can measure.” If a company gets tied into non-financial metrics based on a now
obsolete set of processes, companies can find it difficult to change the BSC measures if they are
focused on the wrong objectives.
Chapter 11: Planning and Budgeting
Traditional budgets are tools of repression rather than innovation because everyone is
minimizing to get the lowest numbers financially. Managers use budgets to accomplish vital
organizational functions;
1. Establish performance targets.
2. Allocate resources to enable performance targets to be achieved.
3. Assess performance relative to targets, and
4. Update the targets based on new information and learning.
So, how can you link the budget to the BSC? What will take the traditional budget’s place?
Companies can use a step-down approach to make the transition, as illustrated below.

Mobil North tried to tie incentive compensation to achieving targets on the BSC. For example,
a score of 1.25 would represent top competitor performance, and a 0.75 would represent well
below the industry average performance. If the company achieved a score of 1.25, management
would receive a 20% bonus while a 0.75 score would give them a 1% maximum bonus. As a
result of tying in compensation, the meetings were a highlight to the members of the company,
and their bonuses have remained between 17-19% since they began the system.
Budgets are primarily operational and strategic. The operational side forecasts the revenues
expected from goods sold. It takes into consideration the current customers and products and
new customers and new products. Kaplan and Norton suggest using activity-based costing
because of the simplicity of understanding an ABC system. They do, however, stress that it
would be extremely difficult to change costing systems because of the detail one would have to
specify, such as details about production and sales. Most of the organization’s spending on
resources will be determined in its operational budget.
Strategic budgeting is when you identify what new operations are required and new capabilities
must be created. The process allows initiatives to help the company achieve their objectives, and
serve as an ends themselves. In other words, the company should not confuse completion as the
target rather than improvement of effectiveness. Continuous improvement is the goal.

Chemical Retail Band had many initiatives, 70, and complained they could not possibly have
room to improve at this point. They simultaneously had too many and too few initiatives. They
tried to link the initiatives to the BSC, and more than 1/3 of the initiatives were irrelevant.
Chemical Retail Bank retired some of the old irrelevant initiatives freeing up money and time so
they could concentrate on the true initiatives while constantly improving them.
One way National Bank Online Financial Services solved this problem was by establishing a set
of criteria for budgeting objectives. Their criteria provide the following advantages.
1. Helps OFS achieve a strategic objective (defined by the three strategic themes
outlined in the BSC).
2. Builds a competitive advantage.
3. Builds a sustainable point of differentiation.
Budgets can be tedious work, but by using strategy focused budgets they can improve the focus
on new decisions and motivate workers to comply with the new budget.
Chapter 12: Feedback and Learning
The strategy articulated on the BSC must be correct in order for the organization to
succeed. Meetings also must emphasize strategy, not tactics. Meetings become more interesting
because it introduces a new culture on teamwork when they incorporate BSC measures in
management meetings. AT&T Canada’s CEO, Bill Catucci, set up an organized theme to
achieve productive meetings as illustrated in the graphic below.

Studies also showed that employee attitudes were linked to customers. Employees had the
ability to recommend products to friends, family, and other customers. The company intranets
started to allow access by their employees to the BSC. Because new strategies come from within,
such as Mobil’s speedpass, this would be an efficient way to communicate through the
organization. This also means that lots of factors in the organization must change.
Chapter 12 addresses “Store 24”, and their idea of “Ban Boredom”. The organization
quickly found out that customers would rather receive their products quicker, so they changed
their theme to “Cause You Just Can’t Wait”. The BSC allowed the company to see what the
problem was, and adapt and modify. The way the company handles the changes within the
organization tells a lot about how the new culture will emerge. The primary focus of the BSC is
to focus on processes. When the evolution of computers being able to hold large amounts of
information came to be, lots of companies were reluctant, but eventually had to change their old
habits. They have to focus on the way leaders integrated activities to mobilize their organizations
to maintain momentum for change.

Chapter 13: Leadership and Mobilization
When there is an urgency for change in a company, a good place to start planning the
change is to develop a BSC. National Bank Online Financial Services developed there SC by
setting targets; for example, they wanted to triple their customer base in less than 3 years. They
also wanted to become the first internet bank with 1million customers and reduce cost per
customer by 35%. They strived to reach these targets by strategically aligning them in the BSC.
Although it is popular for companies to ask their employees to double sales or marketing
threefold, they fail to provide a means to achieve the goals. The BSC provides a road map for
such a dramatic internal change.
Mobil North had a problem with seeing the benefits from their vertical integration
strategy or corporate-level strategy. They weren’t sure if the corporate BSC was making an
impact to add value on non-financial and financial measures. Since they have three segments,
exploration and production, marketing and refining, and chemicals, they decided to explicate the
synergies, rational, and value of their individual strategies through the BSC.
GTE used shared service units in the HR department, and developed a BSC at human
resources. They constructed a strategy to promote successful measures, such as communications
in the business unit, skills, and knowledge of the product. The shared service unit in Europe was
asked to encompass their strategies with 8 other business units and 11 functional units. The IT
team also taught about cause-and-effect linkages to ensure the BSC related to strategy objectives,
not just operational improvements.
The same words mean different things to different people, but when the statements are
translated into measures that everyone understands, the vision and strategy become clear.
Leadership style should focus on communication, team building, and empowerment. However,
you want to focus on successful measures, not quarterly earnings, for example. That promotes
short-term thinking, instead of investing in the long-run.
Chapter 14: Avoiding Pitfalls
Companies that have a program of measurement installed in their organizations typically also
have better teamwork and communication. The following illustration shows that, on average, a
“balanced measurement company” seems to have more alignment than a “non-balanced
measurement company”.
Elements of Alignment and Awareness Balanced Non-Balanced

Measurement Measurement
Companies Companies
Agreement among senior management strategy 90% 47%
Good cooperation and teamwork among
85% 38%
management
Open sharing and communication 71% 30%
Effective communication of strategy 60% 8%
High levels of self-monitoring by employees 42% 16%
Some companies have difficulty implementing the BSC because of transitional, design,
and process issues. Transitional issues occur when the company wants to down-size or cut costs.
They look at the BSC as part of the problem. They throw out the ideas the BSC offers, and try to
ingrain their own ideas into the organization. Design failure is when the BSC has too many or
too few measures or objectives. The measures can’t be linked to the BSC, or the BSC doesn’t
have enough linkages. Process failure occurs when any of the following are present:
1. Lack of senior management commitment.

2. Too few individuals involved.
3. Keeping the BSC at the top.
4. Too long a development process; the BSC as a one-time measurement project.
5. Treating the BSC as a systems project.
6. Hiring inexperienced consultants.
7. Introducing the BSC only for compensation.
The BSC should be used as a tool of communication and linking strategy. It would be wise to try
and avoid the pitfalls discussed in the above summary in order to reap the rewards of the BSC.

10 BSC Concept

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BALANCED SCORECARD

FOUR STRATEGIC PERSPECTIVES

A.Rizal Putra/ FEUA / 2012 1

Perspective Generic Measurements

Customer Customer satisfaction, retention, acquisition, profitability,

Operations - measures of quality, cycle time, and costs.

A.Rizal Putra/ FEUA / 2012 2

Learning and growth Includes measurements for:

People - employee retention, training, skills, morale.

Systems - measure of availability of critical real time

AN EXAMPLE RELATED CAUSE AND EFFECT

Learning and growth º Internal business process º Customer º Financial

A.Rizal Putra/ FEUA / 2012 3

1) Short term and Long term,

3) Leading indicators (outcomes desired and performance drivers) and

HOW SHOULD THE BSC BE USED ?

DIAGNOSTIC VERSUS STRATEGIC MEASUREMENT

Diagnostic measurements monitor whether something is in control. A statistical process

A.Rizal Putra/ FEUA / 2012 4

Financial ROCE, Financial Short term Lagging External

Customer Profitability, Financial Short term Lead & Lagging External**

A.Rizal Putra/ FEUA / 2012 5

*Lead time is the time from order receipt to delivery.

Another example based on a causal model developed at Sears.

FEDERAL PROCUREMENT SCORECARD

A.Rizal Putra/ FEUA / 2012 7

ECT’s BALANCED SCORECARD

A.Rizal Putra/ FEUA / 2012 8

ECI 's Balanced Scorecard

UNITED METHODIST PUBLISHING HOUSE BALANCED SCORECARD

An example of a scorecard developed for a non-profit organization is illustrated below based on

United Methodist Publishing House Balanced Scorecard

A.Rizal Putra/ FEUA / 2012 9

FRAMEWORK FOR AN IS SCORECARD

A.Rizal Putra/ FEUA / 2012 10

A.Rizal Putra/ FEUA / 2012 11

A.Rizal Putra/ FEUA / 2012 12

Relationship Between Strategy, PLC and BSC

A.Rizal Putra/ FEUA / 2012 13

The Business Ecosystem

Chapter 1: Creating the Strategy-Focused Organization

The Balanced Scorecard allows organizations to build a management system that

A.Rizal Putra/ FEUA / 2012 15

Chapter 2: How Mobil Became a Strategy-Focused Organization

A.Rizal Putra/ FEUA / 2012 16

A.Rizal Putra/ FEUA / 2012 17

Chapter 3: Building Strategy Maps

Build the franchise,

A.Rizal Putra/ FEUA / 2012 20

A.Rizal Putra/ FEUA / 2012 21

A.Rizal Putra/ FEUA / 2012 22

Chapter 4: Building Strategy Maps in Private Sector Companies

A.Rizal Putra/ FEUA / 2012 23

A.Rizal Putra/ FEUA / 2012 24

Chapter 6: Creating Business Unit Synergy

A.Rizal Putra/ FEUA / 2012 25

Chapter 7: Creating Synergies through Shared Services

1. Customer Satisfaction

Chapter 8: Creating Strategic Awareness

Chapter 9: Defining Personal and Team Objectives

A.Rizal Putra/ FEUA / 2012 27

Chapter 10: The Balanced Paycheck

Chapter 11: Planning and Budgeting

A.Rizal Putra/ FEUA / 2012 29