Balanced Score Card

What is a Balanced Score Card?

Introduced in 1992, by Robert Kaplan and David Norton, the Balanced Scorecard is the most commonly used framework for ensuring that agencies execute their strategies. The balance scorecard approach emphasizes the need to provide management with a set of information which covers all relevant areas of performance in an objective and unbiased fashion. The information provided may be both financial and non-financial and cover areas such as profitability, customer satisfaction, internal efficiency and innovation.

1) A measurement system 2) A strategic management system 3) A communication tool

 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."

BSC as a Measurement System

Translates mission, vision and strategy through objectives and measures Provides a framework to describe the key elements in the achievement of the strategy Measures four perspectives - Customer Relations - Financial - Internal Service Process - Learning, Innovation and Growth

BSC as a Measurement System

Financial

Customer Relations

Vision and Strategy

Internal Service Process

Learning, Innovation and Growth

Steps
Step 1 Define : 1. Mission ( why we exist ?) 2. Vision ( what we want to be ?) 3. Values ( what is important to us ?) Step 2 : Define your strategy ( plan your action) Step 3 : Put strategy in practice ( strategy map; define specific goals and objectives ) Step 4: Use a BSC to measure the outcome.

Before we can map your strategy . . .

Get down to a set of quantifiable strategic objectives: Too vague
Improve Customer Service Reduce average customer wait times by 30% by year end

More precise Make sure your objectives have a direct relationship to your goals and your goals have a direct relationship to your mission and values.

Outcome ? 1. Satisfied shareholders 2. Delighted customers 3. Excellent processes 4. Motivated workforce

 Long time shareholders value is based on 1. Financial: Cost efficiency and Revenue growth 2. Customer satisfaction: Price, Quality, Service, Availability and Brand 3. Internal processes: Customer management, Daily operations, Innovation 4. Learning and growth: Human capital, Information capital

Learning, Innovation and Growth Perspective

How can we continue to improve? What capabilities and tools do our employees need to execute our strategy/goals? Dimension of Quality:
Competence Participation

The Learning & Growth Perspective

This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In a knowledge-worker organization, people - the only repository of knowledge - are the main resource. In the current climate of rapid technological change, it is becoming necessary for knowledge workers to be in a continuous learning mode. Metrics can be put into place to guide managers in focusing training funds where they can help the most. In any case, learning and growth constitute the essential foundation for success of any knowledge-worker organization. Kaplan and Norton emphasize that 'learning' is more than 'training'; it also includes things like mentors and tutors within the organization, as well as that ease of communication among workers that allows them to readily get help on a problem when it is needed.

Internal Service Process Perspective

What critical processes must we excel at to satisfy our customers/stakeholders? What must be done internally to meet patient/customer expectations? Dimension of Quality:
Effectiveness Appropriateness Safety

The Business Process Perspective

This perspective refers to internal business processes. Metrics based on this perspective allow the managers to know how well their business is running, and whether its products and services conform to customer requirements (the mission). These metrics have to be carefully designed by those who know these processes most intimately; with our unique missions these are not something that can be developed by outside consultants.

Customer Relations Perspective

Who are our target customers? How do our patients/customers see us? How do patients/customers rate our performance? Dimension of Quality:
Accessibility Acceptability Continuity

The Customer Perspective

Recent management philosophy has shown an increasing realization of the importance of customer focus and customer satisfaction in any business. These are leading indicators: if customers are not satisfied, they will eventually find other suppliers that will meet their needs. Poor performance from this perspective is thus a leading indicator of future decline, even though the current financial picture may look good. In developing metrics for satisfaction, 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.

Financial Perspective
What financial steps are necessary to ensure the execution of our strategy/goals? Are the programs/ departments goals, implementation, and execution contributing to the bottom line? Are we meeting operational and financial targets? Dimensions of Quality:
Efficiency

The Financial Perspective

Kaplan and Norton do not disregard the traditional need for financial data. Timely and accurate funding data will always be a priority, and managers will do whatever necessary to provide it. In fact, often there is more than enough handling and processing of financial data. With the implementation of a corporate database, it is hoped that more of the processing can be centralized and automated. But the point is that the current emphasis on financials leads to the "unbalanced" situation with regard to other perspectives. There is perhaps a need to include additional financial-related data, such as risk assessment and cost-benefit data, in this category.

BSC as a Strategic Management System

Translates strategy into: Objectives Measures Targets Initiatives

Strategy Mapping
Strategy maps are communication tools used to tell a story of how value is created for the organization. They show a logical, step-by-step connection between strategic objectives (shown as ovals on the map) in the form of a cause-and-effect chain. Generally speaking, 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), which in turn enables the organization to create desirable results in the Customer and Financial perspectives (the top two rows).

Features of a good balanced scorecard

It tells the story of a companys strategy by articulating a sequence of cause-and-effect relationship. It helps to communicate the strategy to all members of the organization by translating the strategy into a coherent and linked set of understandable and measurable operational targets. Guided by the scorecard, managers and employees take actions and make decisions that aim to achieve the companys strategy. In for-profit companies, the BS places strong emphasis on financial objectives and measures. A BS emphasises non-financial measures as a part of a programme to achieve future financial performance. The BS limits the number of measures used by identifying only the most criteria ones. The scorecard highlights suboptimal trade-offs that managers may make when they fail to consider operational and financial measures together.