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The balanced scorecard is a strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals. It was originated by Drs. Robert Kaplan (Harvard Business School) and David Norton as a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics to give managers and executives a more 'balanced' view of organizational performance. While the phrase balanced scorecard was coined in the early 1990s, the roots of the this type of approach are deep, and include the pioneering work of General Electric on performance measurement reporting in the 1950’s and the work of French process engineers (who created the Tableau de Bord – literally, a "dashboard" of performance measures) in the early part of the 20th century. The balanced scorecard has evolved from its early use as a simple performance measurement framework to a full strategic planning and management system. The “new” balanced scorecard transforms an organization’s strategic plan from an attractive but passive document into the "marching orders" for the organization on a daily basis. It provides a framework that not only provides performance measurements, but helps planners identify what should be done and measured. It enables executives to truly execute their strategies. This new approach to strategic management was first detailed in a series of articles and books by Drs. Kaplan and Norton. Recognizing some of the weaknesses and vagueness of previous management approaches, the balanced scorecard approach provides a clear prescription as to what companies should measure in order to 'balance' the financial perspective. The balanced scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise. Kaplan and Norton describe the innovation of the balanced scorecard as follows: "The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation."
Poor performance from this perspective is thus a leading indicator of future decline. These metrics have to be carefully designed by those who know these processes most intimately. The Customer Perspective Recent management philosophy has shown an increasing realization of the importance of customer focus and customer satisfaction in any business. “Using the Balanced Scorecard as a Strategic Management System. In any case. Metrics based on this perspective allow the managers to know how well their business is running. it also includes things like mentors and tutors within the organization. In a knowledge-worker organization. Norton. learning and growth constitute the essential foundation for success of any knowledge-worker organization. even though the current financial picture may look good. In the current climate of rapid technological change. people -the only repository of knowledge -. . and to develop metrics. These are leading indicators: if customers are not satisfied. collect data and analyze it relative to each of these perspectives: The Learning & Growth Perspective This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. it is becoming necessary for knowledge workers to be in a continuous learning mode.Adapted from Robert S. what the Baldrige criteria call "high performance work systems. with our unique missions these are not something that can be developed by outside consultants.” Harvard Business Review (January-February 1996): 76." The Business Process Perspective This perspective refers to internal business processes. Kaplan and David P. Kaplan and Norton emphasize that 'learning' is more than 'training'.are the main resource. Perspectives The balanced scorecard suggests that we view the organization from four perspectives. Metrics can be put into place to guide managers in focusing training funds where they can help the most. as well as that ease of communication among workers that allows them to readily get help on a problem when it is needed. they will eventually find other suppliers that will meet their needs. It also includes technological tools. and whether its products and services conform to customer requirements (the mission).
customers should be analyzed in terms of kinds of customers and the kinds of processes for which we are providing a product or service to those customer groups. Automation adds structure and discipline to implementing the Balanced Scorecard system.Financial. But the point is that the current emphasis on financials leads to the "unbalanced" situation with regard to other perspectives. . helps transform disparate corporate data into information and knowledge. The Balanced Scorecard Institute formally recommends the QuickScore Performance Information SystemTM developed by Spider Strategies and co-marketed by the Institute.In developing metrics for satisfaction. Once a scorecard has been developed and implemented. step-by-step connection between strategic objectives (shown as ovals on the map) in the form of a cause-and-effect chain. With the implementation of a corporate database. Balance score card objectives for a strategy are set for each perspective. Timely and accurate funding data will always be a priority. and helps communicate performance information. These key aspects are known as Perspectives and usually there are four . and managers will do whatever necessary to provide it. improving performance in the objectives found in the Learning & Growth perspective (the bottom row) enables the organization to improve its Internal Process perspective Objectives (the next row up). ---------------------------------------->*<-----------------------------------------Balanced scorecard objectives Any organisation needs to prepare for the future to ensure long term survival and profitability. which in turn enables the organization to create desirable results in the Customer and Financial perspectives (the top two rows). however. Balanced Scorecard Software The balanced scorecard is not a piece of software. often there is more than enough handling and processing of financial data. Once a strategy has been decided upon it is necessary to determine what will be required from each of the different key aspects of the business to ensure success of the strategy. The balanced scorecard provides an approach to deciding where the organization is heading (it's strategies). in this category. Unfortunately. such as risk assessment and cost-benefit data. many people believe that implementing software amounts to implementing a balanced scorecard. Generally speaking. They show a logical. it is hoped that more of the processing can be centralized and automated. There is perhaps a need to include additional financial-related data. what is needed to get there (objectives) and what has to measured and controlled now to ensure that it stays on course to deliver the desired outcome in the future. performance management software can be used to get the right performance information to the right people at the right time. Balanced scorecard objectives. Process and Innovation. The Financial Perspective Kaplan and Norton do not disregard the traditional need for financial data. In fact. Customer. Strategy Mapping Strategy maps are communication tools used to tell a story of how value is created for the organization.
g. To install new balloon design machinery. 2. What has to be done as far as the processes are concerned to ensure customers receive their deliveries in full and on time so the company can achieve the increased turnover strategy? Appoint a new sales person.. All new customers must be EVA positive Ensure that all capital investment does not reduce the EcROCE "Economic Value Added" (EVA®) is a registered trademark of Stern Stewart & Co.Scorecard objectives example: Assume the company wants to be the largest producer of hot air balloons in the country. This is the Customer objective. What infrastructure changes are needed to ensure that the strategy is accomplished. 4.e what will be done to ensure the strategy is successfully accomplished. 3. filling orders. Internally the company does activities or processes e. From a Financial perspective an increase in turnover of 15% on last year is required. This is the Financial objective. Who provides that turnover? . This is the Innovations objective Other business scorecard objectives In balanced scorecard jargon objectives are the response to the challenge i. Examples of Financial objectives for a Balanced scorecard Ensure the project is EVA positive Identify cost drivers Achieve cost savings of. Examples of Customer objectives for a Balanced scorecard Increase the number of high quality customers over the next 12 months .the customers... Increase stock turnover from 4 to 6 Minimise re-work to reduce costs by. Another process objective could be: To enter all orders into the production planning system promptly. In order for that to happen one of the companies strategies is to increase turnover.. production planning & control. 1. These processes start with receipt of a customer order and finish with the delivery of product or service to the customer. This is the Process objective . purchasing. so what has to be done as far as the customers are concerned for the company to achieve the strategy: customers must receive their deliveries in full and on time.
Add value to existing clients Deliver right the first time Deliver on time at the customers' designated location Be the supplier the client considers first Be the preferred organisation for delivering customer support Identify alliance opportunities. joint ventures Identify existing markets at risk Examples of Process objectives for a Balanced scorecard Improve availability of raw materials Reduce turnaround time Deliveries on time Minimize the number of rework and reject products Product is ready when required Customize products to customers requirements Maintain software at latest revision level Review of departments IT needs Improve system availability Appoint a new sales consultant Implement staff training program to improve the production process Make staff aware of the importance of customers Examples of Innovation objectives (learning and growth) Collect information on acquisition opportunities Identify new product opportunities Identify new technology advantages to our process Find suitable production planning software Obtain benchmarking data for the industry Develop a new technique Find and implement new technology to reduce expenses .
The Balanced Scorecard Traditional financial reporting systems provide an indication of how a firm has performed in the past. For example. and learning measures. mission and strategic plan and communicate with staff and stakeholders Re-engineer processes Training on the effective use of ABC Activity based costing for all managers Analyse customer database to find opportunities Identify and evaluate existing research With the balanced scorecard. Performance metrics address the measuring and controlling of progress to ensure that everything stays on track to deliver the desired outcome in the future.Maintain skill level of IT staff Provide a caring and supportive work environment for employees Develop and assess the implementation of an executive health program Develop a market intelligence system Document the vision. Robert Kaplan and David Norton developed the Balanced Scorecard. business process. The Balanced Scorecard framework is depicted in the following diagram: Diagram of the Balanced Scorecard Financi al Custom er Strate gy Busines s Process . To deal with this problem. but also customer. objectives address the issue of what is needed for strategies to be successful. a firm might reduce its level of customer service in order to boost current earnings. but offer little information about how it might perform in the future. a performance measurement system that considers not only financial measures. but then future earnings might be negatively impacted due to reduced customer satisfaction.
which in turn lead to increased value to the customer.includes measures such as cost. which finally leads to improved financial performance. throughput. Business process perspective .includes measures such as customer satisfaction. The financial accounting system is not so good at valuing such assets. production. return on capital employed. and order fulfillment. and the learning and growth perspective. there is a logical connection between them . plant. Learning & growth perspective . • • • • Financial perspective . . and market share in target segments. etc. The Balanced Scorecard goes beyond standard financial measures to include the following additional perspectives: the customer perspective. customer relationships. and quality. Customer perspective . customer retention.includes measures such as operating income. Rather. In the information age.includes measures such as employee satisfaction. These four realms are not simply a collection of independent perspectives. These are for business processes such as procurement.es Learnin g & Growth The balanced scorecard translates the organization's strategy into four perspectives. and economic value added. and the financial accounting system performed an adequate job of valuing those assets. most of the assets of a firm were in property.learning and growth lead to better business processes. much of the value of the firm is embedded in innovative processes. and equipment. the internal process perspective. skill sets. with a balance between the following: • • • between internal and external measures between objective measures and subjective measures between performance results and the drivers of future results Beyond the Financial Perspective In the industrial age. employee retention. and human resources.
the objective of profitable growth might be measured by growth in net margin. . Strategic feedback and learning .ambitious but achievable targets are set for each perspective and initiatives are developed to align efforts to reach the targets. 3. and Initiatives Each perspective of the Balanced Scorecard includes objectives.the specific target values for the measures. 2. measures of those objectives. Planning. These can be organized for each perspective in a table as shown below. target values of those measures. and aligning strategic initiatives .action programs to be initiated in order to meet the objective. defined as follows: • • • • Objectives .the translation of strategic objectives into quantifiable measures clarifies the management team's understanding of the strategy and helps to develop a coherent consensus. profitable growth.major objectives to be achieved. for example. Measures. and initiatives.the observable parameters that will be used to measure progress toward reaching the objective. +2% growth in net margin. 4. Clarifying strategy . Targets. setting targets. it soon became evident that it could be used as a management system to implement strategy at all levels of the organization by facilitating the following functions: 1. However. Measures .executives receive feedback on whether the strategy implementation is proceeding according to plan and on whether the strategy itself is successful ("double-loop learning"). for example.the Balanced Scorecard can serve to translate high level objectives into operational objectives and communicate the strategy effectively throughout the organization. Communicating strategic objectives . Objecti Measur Targ Initiativ ves es ets es Financi al Custo mer Proces s Learni ng Balanced Scorecard as a Strategic Management System The Balanced Scorecard originally was conceived as an improved performance measurement system. Targets .Objectives. Initiatives . For example.
.These functions have made the Balanced Scorecard an effective management system for the implementation of strategy. non-profit organizations. and government agencies. The Balanced Scorecard has been applied successfully to private sector companies.
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