You are on page 1of 21

Master in Business Information Technology

Balanced ScoreCard
Administrative Engineering
Ing. Oswaldo Cabrera López

April 2011
Oswaldo Cabrera López

Index

1. Introduction: Balanced ScoreCard, BSC 2


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

Master in Business Information Technology | Balanced ScoreCard


Oswaldo Cabrera López

1. Introduction: Balanced ScoreCard, BSC

The BSC is a management tool that translates business strategy into a coherent set of indicators.

The vision and business strategy dictate the way you should aim for the individual and collective efforts of

a company.

The corresponding challenge to identify exactly what needs to be monitored, to communicate at

all levels of the company, whether strategies are being achieved through very specific actions.

Balanced Scorecard is the main methodological tool that translates the strategy into a set of

performance measures, which provide the structure for management and measurement system.

It is balanced because it seeks a balance between financial and nonfinancial indicators, the short-

term and long-term performance indicators and process and a balance between the environment and inside

the firm, that is the key and novel concept on which is based the name "Balanced Scorecard" balanced

system of indicators. The important thing here is that the performance indicators of a company are

balanced, ie there are both financial and nonfinancial indicators, outcome and process and so on.

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). Most have separate indicators, defined

independently for each area of the company, which

always seek to strengthen the power of the same,

getting stronger islands or functional silos.

The BSC allows control of corporate health and how

they are moving the actions to achieve the vision. Figure 1. Vision and Strategy

Master in Business Information Technology | Balanced ScoreCard


Oswaldo Cabrera López

2. History

The first balanced scorecard was created by Art Schneiderman (an independent consultant on the

management of processes) in 1987. Art Schneiderman participated in an unrelated research study in 1990

led by Dr. Robert S. Kaplan in conjunction with US management consultancy Nolan-Norton, and during

this study described his work on Balanced Scorecard. Subsequently, Kaplan and David P. Norton included

anonymous details of this use of balanced scorecard in their 1992 article on Balanced Scorecard. 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, and was quickly followed by a second in 1993. In 1996, they

published the book The Balanced Scorecard. These articles and the first book spread knowledge of the

concept of Balanced Scorecard widely, but perhaps wrongly have led to Kaplan and Norton being seen as

the creators of the Balanced Scorecard concept.

3. Benefits

The Balanced Scorecard creates a series of results that favor the company's management, but do not

need to implement the methodology and application to monitor and analyze the indicators obtained. Some

advantages are:

• Aligning employees to the company's vision.

• Communication of objectives and compliance to all staff.

• Redefinition of the strategy based on results.

• Translating the vision and strategies into concrete actions.

• It helps in this future value creation.

• Integration of information from various business areas.

• Analytical skills.

• Improved financial indicators.


3

Master in Business Information Technology | Balanced ScoreCard


Oswaldo Cabrera López

4. 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.

Figure 2. BSC Perspective

4.1 Financial Perspective

Financial indicators have been the most used because they reflect what is happening with

investment and economic value, in fact, all measures which form part of the cause-effect relationship,

culminating in the best financial performance.

4.2 Customer Perspective

As part of a business model, 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.

Provides important information to generate, acquire, retain and satisfy customers, gain market

share, profitability, etc. "The customer perspective enables business unit managers to articulate the

strategy of market-based client, which will provide future financial yields superior." (Kaplan & Norton).

Master in Business Information Technology | Balanced ScoreCard


Oswaldo Cabrera López

4.3 Internal process perspective.

To achieve the objectives of clients and financial excellence is needed certain processes that give

life to the company. Those processes that should be excellent are those that identify management and pay

special attention to be carried out in a perfect shape, and thus achieve the objectives of shareholders and

customers.

4.4 Formation and growth perspective.

It is the perspective where more needs to be heeded, particularly if they anticipate a long-term

consistent results. Here we identify the infrastructure needed to create long term value. We need to

achieve development and growth in 3 areas: people, systems and organizational climate. Usually they are

intangible, they are identifiers related to training people, software development, machinery and

equipment, technology and everything to be enhanced to achieve the objectives of the previous outlook.

Figure 3. How BSC work

Master in Business Information Technology | Balanced ScoreCard


Oswaldo Cabrera López

5. Definition of Indicators.

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. The indicators should reflect the results very specific

objectives, but also to report on progress towards achieving these objectives. That is, the balanced mix

between performance indicators and indicators of performance is what will communicate how to achieve

results and, as well as the way to achieve it. Kaplan and Norton quote: "Results are the historical

indicators, performance indicators are indicators pension."

Another aspect to highlight is the number of indicators that should be part of the main stage or

teacher. According to Kaplan and Norton, an appropriate number for this work is 7 per prospect indicators

and if less, the better. It starts from the idea that a board with more than 28 indicators is difficult to assess

fully, in addition to the message conveyed by the BSC can be diffuse and disperse the efforts to achieve

several objectives. The ideal of 7 indicators, but may be more, but those mentioned will consult often and

may, indeed, indicate the health of the company or business area.

Most of us have heard some version of the standard performance measurement cliches: “what gets

measured gets done,” “ if you don‟t measure results, you can‟t tell success from failure and thus you can‟t

claim or reward success or avoid unintentionally rewarding failure,” “ if you can‟t recognize success, you

can‟t learn from it; if you can‟t recognize failure, you can‟t correct it,” “if you can‟t measure it, you can

neither manage it nor improve it," 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, project or

operational process measurements.

Performance Measurement is addressed in detail in Step Five of the Nine Steps to Success®

methodology. In this step, Performance Measures are developed for each of the Strategic Objectives.

Leading and lagging measures are identified, expected targets and thresholds are established, and baseline

Master in Business Information Technology | Balanced ScoreCard


Oswaldo Cabrera López

and benchmarking data is developed. The focus on Strategic Objectives, which should articulate exactly

what the organization is trying to accomplish, is the key to identifying truly strategic measurements.

Strategic performance measures monitor the implementation and effectiveness of an organization's

strategies, determine the gap between actual and targeted performance and determine organization

effectiveness and operational efficiency.

6. 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, not just of the work that is performed

 Provide a common language for communication

 Are explicitly defined in terms of owner, unit of measure, collection frequency, data quality,

expected value(targets), and thresholds

 Are valid, to ensure measurement of the right things

 Are verifiable, to ensure data collection accuracy

7.Building & Implementing a Balanced Scorecard

The BSC can be implemented in two ways:

Model control and monitoring. If the vision, strategies and indicators are clearly defined and agreed, the

BSC can be implemented as a traditional exception analysis model. 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,

Master in Business Information Technology | Balanced ScoreCard


Oswaldo Cabrera López

the analysis by excluding those known processes that eventually require more time for analysis, an

analysis that only occurs when the data do not correspond with the target.

Model of organizational learning and communication. In companies where there is no unanimous

agreement, which are growing or are to harness the potential of employees without losing control of the

company, the BSC should not be used as a model of control, but as a learning model, a model proactive

enrich the original

definitions. In this case, the

values of the indicators can

be used to adapt the

originally proposed strategy

and directions of the

company. Unlike the

control model, the strategist

needs to constantly analyze

the indicators and make

decisions to redirect efforts

to obtain maximum benefits. Figure 4. Building and Implementing a Balanced Scorecard

8. Nine steps to a successful implementation

The Institute‟s award-winning framework, Nine Steps to Success, is a disciplined, practical

approach to developing a strategic planning and management system based on the balanced scorecard.

Training is an integral part of the framework, as is coaching, change management, and problem solving.

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, meaning that there will be a 8

Master in Business Information Technology | Balanced ScoreCard


Oswaldo Cabrera López

visible connection between the projects and programs that people are working on, the measurements being

used to track success, the strategic objectives the organization is trying to accomplish and the mission,

vision and strategy of the organization.

The nine points to achieve a successful implementation are:

8.1 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, challenges, enablers, and values. Step One also includes preparing a change management plan for

the organization, and conducting a focused communications workshop to identify key messages, media

outlets, timing, and messengers.

8.2 Step Two: Strategy

 Customer Value

 Strategic Themes

 Strategic Results

Elements of the organization‟s strategy, including Strategic Results, Strategic Themes, and Perspectives,

are developed by workshop participants to focus attention on customer needs and the organization‟s value

proposition.

8.3 Step Three: Objectives

 Strategy Action Components

Master in Business Information Technology | Balanced ScoreCard


Oswaldo Cabrera López

The strategic elements developed in Steps One and Two are decomposed into Strategic Objectives, which

are the basic building blocks of strategy and define the organization's strategic intent. Objectives are first

initiated and categorized on the Strategic Theme level, categorized by Perspective, linked in cause-effect

linkages (Strategy Maps) for each Strategic Theme, and then later merged together to produce one set of

Strategic Objectives for the entire organization.

8.4 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. 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.

8.5 Step Five: Performance Measures

 Performance Measures

 Targets

 Baselines

Performance Measures are developed for each of the enterprise-wide Strategic Objectives. Leading and

lagging measures are identified, expected targets and thresholds are established, and baseline and

benchmarking data is developed.

8.6 Step Six: Initiatives

 Strategic Projects

10

Master in Business Information Technology | Balanced ScoreCard


Oswaldo Cabrera López

Strategic Initiatives are developed that support the Strategic Objectives. To build accountability

throughout the organization, ownership of Performance Measures and Strategic Initiatives is assigned to

the appropriate staff and documented in data definition tables.

8.7 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. Automation adds structure and discipline to

implementing the Balanced Scorecard system, helps transform disparate corporate data into information

and knowledge, and helps communicate performance information. The automation helps people make

better decisions because it offers quick access to actual performance data.

8.8 Step Eight: Cascade

 Alignment

 Unit & Individual Scorecards

The enterprise-level scorecard is „cascaded‟ down into business and support unit scorecards, 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). Cascading translates high-

level strategy into lower-level objectives, measures, and operational details. 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 is the key to organization alignment around strategy.

Performance measures are developed for all objectives at all organization levels. As the scorecard

management system is cascaded down through the organization, objectives become more operational and
11

Master in Business Information Technology | Balanced ScoreCard


Oswaldo Cabrera López

tactical, as do the performance measures. Accountability follows the objectives and measures, as

ownership is defined at each level. An emphasis on results and the strategies needed to produce results is

communicated throughout the organization.

8.9 Step Nine: Evaluation

 Strategy Results

 Revised Strategies

An Evaluation of the completed scorecard is done. During this evaluation, the organization tries to answer

questions such as, „Are our strategies working?‟, „Are we measuring the right things?‟, „Has our

environment changed?‟ and „Are we budgeting our money strategically?‟

Figure 5. Example of BSC

9. Feedback and strategic learning.

In one of the most innovative, BSC does not end the analysis of the indicators. It is an ongoing

process in which feedback can be a loop, which is to correct the deviations to achieve the objectives

defined and fixed double feedback loop, where strategists question and reflect on the validity and
12

Master in Business Information Technology | Balanced ScoreCard


Oswaldo Cabrera López

relevance of the theory put forth at the beginning And its possible relevance. The feedback suggests

strategic learning, which is the training capacity of the organization at the executive level, is to "learn how

to use the Balanced Scorecard as a strategic

management system." Clarifying and


translating vision and
strategy
1. The feedback system used to test
Communicating Balanced Strategic and
hypotheses based on that strategy. and linking ScoreCard training feeedback

2. Troubleshooting equipment. Planning and


goal setting
3. The development of the strategy is a

continuous process. Figure 6. Feedfback in BSC Cicle

10. 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


Oswaldo Cabrera López

11. Balanced Scorecard Software: Business Intelligence, 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, such as the QuickScore Performance Information System, to get the

right performance information to the right people at the right time. Automation adds structure and

discipline to implementing the balanced scorecard system, helps transform disparate corporate data into

information and knowledge, and helps communicate performance information.

There are over a hundred balanced scorecard and/or performance management automation

development companies. Some of the options are specifically dedicated to performance management

and/or the balanced scorecard. Others include tools which are primarily designed for business intelligence,

analytics or data warehousing, but have modules dedicated to performance management.

12. Balanced ScoreCard Vs Six Sigma Management

While the balanced scorecard is almost always described as a strategic management system, Six

Sigma is usually defined in terms of quality improvement related to internal business processes. 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 3.4 failures per million

events).

To achieve these levels of quality, Six Sigma encompasses all aspects of a business, including

management, service delivery, design, production and customer satisfaction." Six Sigma was developed at

Motorola, GE and Allied Signal, and is widely used in many businesses. While the original concept has

expanded over the years to become more strategic, most balanced scorecard organizations will use Six

Sigma as project initiatives to improve the efficiency of internal business processes.

14

Master in Business Information Technology | Balanced ScoreCard


Oswaldo Cabrera López

Both Six Sigma and balanced scorecard practitioners use similar best practices in management to

design and deploy these systems. They both require dedicated top-level management support, a dedicated

team of change agents, strategic alignment, implementation of improvement initiatives as projects, cultural

change management, and a combination of top-down and bottom-up development. Also, Six Sigma

practitioners often adopt the balanced scorecard as a way of deriving appropriate performance metrics.

13. 5 Steps to Find the Right Measures

How to find the right measures is the most asked question in the field of performance

measurement. Because the more meaningful measures track outcomes which tend to be less tangible than

the traditional things we've measured, like how many widgets we produced.

How do you translate results so intangible as employee morale or service quality or corporate

image into solid, robust measures?

13.1 STEP 1: Begin with the end in mind.

Performance measures are objective comparisons that provide evidence of an important performance

outcome. It is of the utmost importance to decide which outcomes are most worth tracking right now. As

the first step in deciding how to measure an outcome, write down what the outcome is, what the difference

is you are trying to create (and thus want to track using a measure). Focus on one outcome at a time.

13.2 STEP 2: Be sensory specific.

When you have the end in mind, you are ready to get a handle on what specifically about your outcome

you will measure. This is where you take care in your choice of words to describe the outcome as

concretely as possible. Use "sensory" language - the language that describes what you and others would

see, hear, feel, do, taste or smell if your outcome was happening now. Avoid those inert words in our goal
15
and objective statements, such as: efficient, effective, reliable, sustainable and quality.

Master in Business Information Technology | Balanced ScoreCard


Oswaldo Cabrera López

13.3 STEP 3: Check the bigger picture.

Check the bigger picture for what could happen if you measure your outcome. 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.

13.4 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. For each of your sensory rich statements from step 2, 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?

13.5 STEP 5: Name the measure.

Naming your performance measures marks the point at which you know exactly what you will be

measuring. Be succinct and informative and deliberate, 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.

16
Figure 7. Steps to Find the Right Measures

Master in Business Information Technology | Balanced ScoreCard


Oswaldo Cabrera López

14. The Strategic Management Maturity Model

The SMMM Can Be Used to Assess Organizational Strategic Management Performance.

Many companies ask a similar question: where do we stand compared with other high performing

organizations? Until now, there was no clear method for answering that question. The way is the Strategic

Management Maturity Model (SMMM).

The SMMM was designed by and for busy managers who need a quick assessment of where their

organization stands in terms of strategic management, to monitor progress in improving maturity of

strategic management, and to allow benchmarking across organizations, or departments within one

organization, in order to identify best practices.

There are two basic questions to ask of management: are we doing things right, and are we doing

the right things? Operational management focuses on doing things right, and many tools have been

developed to improve this (e.g. TQM, Six Sigma, business process reengineering etc.), including many

maturity models. Process improvements alone cannot guarantee that a company will be successful, or that

an agency will achieve its mission. These two aspects of management – strategic and operational –

complement each other, so both must be assessed to determine the organization's total management

capabilities.

15. 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


Oswaldo Cabrera López

The problems addressed by these questions center on the issue of organizational alignment. While

the balanced scorecard has been touted as an effective tool for creating organizational alignment, 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 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.

Cascading a balanced scorecard means to translate the corporate-wide scorecard (referred to as

Tier 1) down to first business units, support units or departments (Tier 2) and then teams or individuals

(Tier 3). The end result should be focus across all levels of the organization that is consistent. The

organization alignment should be clearly visible through strategy, using the strategy map, performance

measures and targets, and initiatives. Scorecards are used to improve accountability through objective and

performance measure ownership, and desired employee behaviors are incentivized with recognition and

rewards.

16. The Balanced Scorecard: Not Just Another Project

The balanced scorecard management system is not just another project. It is fundamentally

different from project management in several respects.

The first thing is the topology: the balanced scorecard management process, derived from

Deming's Total Quality Management, is a continuous cyclical process. It has neither beginning nor end. Its

task is not directly concerned about the mission of the organization, but rather with internal processes

(diagnostic measures) and external outcomes (strategic measures). The system's control is based on

performance metrics or "metadata" that are tracked continously over time to look for trends, best and

worst practices, and areas for improvement. It delivers information to managers for guiding their

decisions, but these are self-assessments, not customer requirements or compliance data.

18

Master in Business Information Technology | Balanced ScoreCard


Oswaldo Cabrera López

People trained only in project management may have difficulty in figuring out how to accomplish

the BSC, simply because it is such a different kind of management paradigm. One of the key practical

difficulties is to figure out how to get the process started in the first place. If this is not a project, 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, where everyone "comes up to

speed." This includes training or

retraining of project managers, and

probably focused deployment of pilot

efforts before attempting to cover an

entire large agency. Figure 8. Integration of DataWherehouse

17. Conclusions/Abstract

The philosophy and methodology of the Balanced Scorecard requires a lot of awareness and

support by senior management of any company, as will be the main consumers of information. Personally

in my experience I can assure you that none of this will be possible without a real commitment at all

levels, from the least to generate the information, the more they will consume.

Information should be integrated, consistent and available for indicators and metrics can be safe

and secure. The tool by itself does not ensure success, as indicated in the document is more a cultural than

a way of working.

19

Master in Business Information Technology | Balanced ScoreCard


Oswaldo Cabrera López

The metrics and indicators should be useful for decision making, in addition to verify that it is

possible to obtain them.

18. Reference List

http://www.gestiopolis.com/canales/gerencial/articulos/20/bsc.htm

http://www.infoviews.com.mx/Bitam/ScoreCard/

http://www.balancedscorecard.org/

http://en.wikipedia.org/wiki/Balanced_scorecard

http://www.hr-scorecard-metrics.com/tag/balanced-scorecard

19. List of figures and tables

• Figure 1. Vision and Strategy 3

• Figure 2. BSC Perspective 5

• Figure 3. How BSC work 6

• Figure 4. Building and Implementing a Balanced Scorecard 9

• Figure 5. Example of BSC 13

• Figure 6. Feedfback in BSC Cicle 14

• Figure 7. Steps to Find the Right Measures 17

• Figure 8. Integration of DataWherehouse 20

20

Master in Business Information Technology | Balanced ScoreCard