Estonian Business School BBA programme
Overview of Construction and Im plementation of Balanced Scorecard
Written by: Marko Rillo
Promotor: Ruth Alas
Kaitsmisele lubatud “……” ……………………… 2000. a.
Õppetooli juhataja või juhendaja ………………………………
Olen koostanud bakalaureusetöö iseseisvalt. Kõik töö koostamisel kasutatud teiste autorite tööd, põhimõttelised seisukohad, kirjandusallikatest ja mujalt pärinevad andmed on viidatud.
Executive summary........................................................................................................4 1. Theory behind the Balanced Scorecard.....................................................................5 1.1. Background of the Concept of Balanced Scorecard...............................................5 1.2. Balanced Scorecard as Complementary Tool for Management Accounting..........8 1.3. Balanced Scorecard as a Measurement Tool........................................................13 1.4. Balanced Scorecard as a Strategic Management System ....................................14 2. Constructing a Balanced Scorecard.........................................................................18 2.1. Establishing Strategy by Building up a Balanced Scorecard ...............................21 2.1.1. Clarifying and Translating the Vision and Strategy......................................21 2.1.2. Communicating and Linking Strategic Objectives and Measures................22 2.1.3. Planning, Setting Targets and Aligning Strategic Initiatives........................24 2.1.4. Enhancing Strategic Feedback and Learning...............................................25 2.2. Defining Critical Success Factors and Measures..................................................29 2.2.1. Financial Perspective....................................................................................29 2.2.2. Customer Perspective....................................................................................30 2.2.3. Internal Business Process Perspective..........................................................34 2.2.4. Learning and Growth Perspective................................................................35 2.2.5. Conclusions and Recommendations – How Many Measures to Choose?.....36 2.3. Testing the Balanced Scorecard ...........................................................................38 2.3.1. Analysing Outcomes and Performance Drivers ...........................................38 2.3.2. Analysing Cause and Effect...........................................................................38 2.4. Establishing Action Plan.......................................................................................40 2.4.1. Setting up Catalytic Mechanisms..................................................................40 3. Implementing a Balanced Scorecard as a Management System...........................42 3.1. Case Studies on Implementing a Balanced Scorecard..........................................43 3.1.1. Practical Aspects of Setting up Balanced Scorecard in a Service Company 43 3.1.2. Using the Balanced Scorecard at Metro Bank..............................................46 3.1.3. Using the Results of a Balanced Scorecard at Sears Company....................48 3.2. Conclusions and Recommendations on Implementing a Balanced Scorecard.....51 4. Summary....................................................................................................................53 Bibliography..................................................................................................................55 Resümee – Tasakaalustatud hindemaatriksi koostamine ja kasutamine................57
Executive summary The overall objective of the thesis is to analyse the use of Balanced Scorecard 1 as a performance measurement tool in the areas of general management and strategic management. The Balanced Scorecard may be described as a strategy-driven measurement system that retains traditional financial measures, but adds also the perspectives of present and potential (future) value of a company, namely its customers, suppliers, employees, processes, technology, and innovation. The purpose is to show that the Balanced Scorecard may be considered as one of the best remedies in tackling with the questions concerning: • helping to align key performance measures with overall organisation strategy at all levels of an organisation; • • linking strategic vision and long-term objectives to short term tactics; directing sophisticated and different critical paths of success in the light of strategic management; • review of strategic vision in the light of day-to-day operations management.
The concept of the Balanced Scorecard is not yet very familiar in Estonia. Therefore, the author pays very much effort in describing the theory side of the Balanced Scorecard and the details of starting up a Balanced Scorecard – based management. Those aspects constitute two first chapters of the thesis. In the third chapter, attention is given to day-to-day implementation of Balanced Scorecard using the examples of three case studies. Finally, some conclusions and recommendations are drawn based on practical use of the Balanced Scorecard.
The concept of the Balanced Scorecard was introduced in series of articles by Messrs. Robert S. Kaplan
and David P. Norton. Robert S. Kaplan is the Arthur Lowes Dickinson Professor of Accounting at the Harvard Business School in Boston, Massachusetts. David P. Norton is the founder and president of Renaissance Solutions, a consulting firm in Lincoln, Massachusetts.
1. Theory behind the Balanced Scorecard 1.1. Background of the Concept of Balanced Scorecard Throughout the history of contemporary management theories starting from the ones that were introduced by the intrusion of the mass production in the beginning of the 20 th century and until today, all the gurus of management have been trying to find uniform solutions on more efficient allocation and use of very limited resources available to businesses. Those paths in seeking the Holy Grail of operational efficiency have brought up several new management theories. In the dawn of the century, Frederick W. Taylor established the very concepts of resource allocation in his Principles of Scientific Management2. In 1920-ies it went around assembly line and motion studies3 as the first experience from systematic mass production had given theorists quite a lot of materials to be analysed from the point of view of using traditional blue-collar employees more efficiently. In the 1930-ies, the main topic was motivation of employees4, as it turned out that human nature does not enable to work long hours on a repetitive tasks without frustration level getting so high enough to diminish productivity. In the 1940-ies and 1950-ies, the first statistical and linear methods were introduced in trying to measure logistics of the operations management and its implications to overall company success in financial-analysis side.5 In the beginning of 1980-ies, partly because of introduction of electronic data processing equipment and quick development of computers, the whole array of management techniques were initiated. The particular reasons for the vast development of the new theories were catalysed mainly by ever growing competition generated through more systematic use of computers, and of course also by rapid growth of the importance of human capital.
Published in 1911. The works that describe the best those applications are written by father of contemporary scientific
management Frederick W. Taylor, psychologists Frank and Lillian Gilbrecht and practising manager Henry Ford.
Hereby referring to the works by Elton Mayo. Works by George B Dantzig and others.
Translating Strategy into Action – The Balanced Scorecard. During the industrial age. Scale and Scope: The Dynamics of Industrial Capitalism (Cambridge. Today automation and productivity have increased the number of people performing analytic
Chandler. 3. success accrued to companies that could embed the new technology into physical assets that offered efficient.
Itami. David P. Massachusetts: Harvard University Press. which performed its tasks under supervision of the first group.7 A summary financial measure such as return-on-capital-employed (ROCE) could both direct a company’s internal capital to its most productive use and monitor the efficiency by which operating divisions used financial and physical capital to create value for shareholders. A. 1977) and Johnson. The information age environment for both manufacturing and service organisations requires new capabilities for competitive success.. This direct labour work force was a principal factor of production. Robert S. p. The ability of a company to mobilise and exploit its intangible assets has become far more decisive than investing and managing tangible.
Massachusetts: Harvard University Press. D. D. mass production of standard products. roughly from 1850 to about 1975.6 Technology mattered. H. and supervise day-to-day operations. has made obsolete many of the fundamental assumptions of industrial age competition. Industrial age competition is shifting to information age competition.. The emergence of the information era. Harvard Business School Press. Mobilizing Invisible Assets (Cambridge. physical assets. The second group was composed of the people who actually produced the products and delivered the services. Jr. Boston. the financial control systems were developed in major companies to facilitate and monitor efficient allocations of financial and physical capital. ultimately. and Kaplan R. H. Relevance Lost: The Rise and Fall of Management Accounting (Boston: Harvard Business School Press. The intellectual elite – managers and engineers – used their analytical skills to design products and processes. A. select and manage customers. The Visible Hand: The Managerial Revolution in American Business (Cambridge. however. 1987). S.8 Industrial age companies created a sharp distinction between two groups of employees.Today’s companies are in the midst of a revolutionary transformation. During the industrial age.
Massachusetts: Harvard University Press.
referred through Kaplan. 1990). Jr. T. and Norton. but. in the last decades of the 20 th century. 1996. companies succeeded by how well they could capture the benefits from economies of scale and scope.
Employee empowerment.functions: engineering. The shift to successful knowledge management has introduced a variety of improvement initiatives: • • • • • • • • • Just-in-time. the people are more viewed as problem solvers. pp 6-40 and p. others have proven to be in the best case just a short-time disturbance. David P. Business process re-engineering. Customer-focused organisation. Therefore. 193. Translating Strategy into Action – The
Balanced Scorecard. information age has brought about the concept of knowledge management. marketing. 2) if some non-financial performance measurement even is made. 1996.
and so on9. As adapted from Kaplan. Robert S. not as variable costs. Boston.
. The main reason for that lies in five main implementation problems10: 1) current performance measurement systems are based on the traditional financial accounting model. it is solely based on employees’ tactical performance. management and administration. Living company. Arie de Geus and many more authors. and Norton. In other words. Total quality management. but in the worst cases total failures resulting in disarray or even bankruptcy of a particular company. Lean enterprise. Deming. Some of those programmes have meant in practice real breakthrough and improvement. W.
Theories by Tai-ichi Ohno. Harvard Business School Press. Time-based competition. E. not on strategic performance. Activity-based cost management. which does not enable to objectively analyse information-age companies.
David P. accounting has been the one and only language of business. 1. a consulting firm in Lincoln. but more and more attention needs to be paid to intangible sides of business. Kaplan and David P. For at least 15 years. Massachusetts. As for today. Balanced Scorecard as Complementary Tool for Management Accounting Historically. One of the most versatile tools for that purpose is Balanced Scorecard. Massachusetts. Robert S. 4) overall company strategy is not closely linked to organisational and personal improvement programmes. the prime mechanism for communicating the results of business operations. Norton. Although financial
Which was introduced in series of articles by Messrs. growth and learning (knowledge management). Robert S. customers (satisfaction and image of company to outside partners). Norton.2. Kaplan and David P. the Balanced Scorecard uses a balanced measurement system that comprises of “the old” financial side and three “new” perspectives of: • • • business processes (operational efficiency). and 5) strategy is not generally linked to resource allocation. superior financial performance and efficiency in production are just not enough to gain sufficient competitive advantage.
Kaplan is the Arthur Lowes Dickinson Professor of Accounting at the Harvard Business School in Boston. the leading management journals have published articles about how to build up a mechanism that would enable to control all the aspects of a company’s performance.3) majority of management and employee salary-based motivation schemes are only short-run profit oriented. Norton is the founder and president of Renaissance Solutions. which results in underfinancing some of the crucial parts of organisation’s development.11 Introduced in the beginning of 1990-ies by Robert S.
The next sub-chapters will describe the main features of the Balanced Scorecard compared to traditional management systems. that does not enable to align towards long-run goals.
However. They are lagging indicators that capture the value created or destroyed by managers’ actions in the most recent accounting period. They permitted direct purchase of their machines. Joseph M. Sales and profits from leasing and supporting services like paper and toner were large and growing.: A Renaissance in Quality.13 Only financial measures are inadequate for guiding and evaluating organisation’s success.. Xerox’s dissatisfied and disloyal customers embraced them. were disgruntled about the high breakdown rates and malfunctions of these expensive machines. apart from concern about high copying costs.
. Thus all the financial indicators – sales and profit growth. But customers were still unhappy and surly. Made in U. Some of the outcomes of the analyses
Juran. one of the most successful U. To illustrate this topic.measurement matters. When competitors were able to offer comparable machines that did not break down.12 Rather than redesign the machines so that they would break down less frequently. Jul-Aug 1993. Xerox was through the mid-1970s virtually a monopoly on plain paper copiers business. customers. Only under a new CEO did the company make a remarkable turnaround in the 1980s by supporting significant investments into quality improvement initiatives.S. it today alone does not give sufficient guiding and evaluating grounds for organisation’s success.S.
Ibid. This lead Xerox. 45. They did not want their supplier to excel at having a superb field service force. They wanted cost-efficient machines that did not break down. companies throughout 1955 to 1975 to nearly a failure.A. Harvard Business Review.
p. the following example may be analysed. for which no alternative was available. return on investment – were signalling a highly successful strategy. Several analyses have expressed their concern with an overemphasis on financial measures of today’s corporate performance. and then established an extensive field service force as a separate demand for its services. Xerox executives saw an opportunity to enhance their financial results even further. Xerox did not sell its machines – it leased them and earned revenues on every copy made on these machines. this division soon was a substantial contributor to Xerox’s profit growth.
might be recited here. and procedures necessary to improve the future performance.14 Current system is less supportive to long-term investments. These four perspectives provide the framework for the Balanced Scorecard (see Figure 1 . and innovation. technology. employees. The objectives and measures view organisational performance from four perspectives: financial. processes. Capital Disadvantage: America’s Failing Capital Investment System. a process level and an individual level. managers can measure how business units create value for current and future customers and how they must enhance internal capabilities and the investment in people. customer satisfaction.
. quality and time. He defines those measures at an organisational level. p.The Main Framework of Balanced Scorecard17). The second most important school of theory is the Balanced Scorecard. The system also allows companies with very strong asset bases (such as in natural resources. Harvard
Business Review . Hronec16 has noted. and learning and growth. as long as short-term earnings are satisfactory. internal business process. 73.
Porter. whose short-term returns are more difficult to measure. Michael E. From Balanced Scorecard. because it favours forms of investment for which returns are most readily measurable. The objectives and measures of Balanced Scorecard have to be derived from an organisation’s vision and strategy. that those non-financial measures should include cost. consumer goods companies with strong brand names etc) to operate inefficiently without fully exploiting their undervalued assets. In his book “Vital Signs”. which adds to the financial set the following components as information age companies must create future value through investment in customers. suppliers. customer.
Ibid. employee skill. Steven M. Sept-Oct 1992. this leads to under-investment in intangible assets such as product and process innovation.15 In today’s business world financial results still remain important. but there is a growing recognition that non-financial measures are better indicators of the ultimate health of an organisation. systems.
Some recent theories have tried to merge the main features of both the Balanced Scorecard and various applications of financial accounting that are grounded on activity-based-costing. For more information about those developments.bettermanagement.com/bscauthority
. it is recommended to visit a valuable resource on this issue – the Internet site “The Scorecard Authority – Websites for Management Insights” at address http://www.
David P. what business processes must we excel at?Internal Business ProcessObjectivesMeasuresTargetsInitiatives
To achieve our vision. 76.
To achieve our vision. how will we sustain our ability to change and improve?Learning and GrowthObjectivesMeasuresTargetsInitiatives
From: Kaplan. how should we appear to our customers? CustomerObjectivesMeasuresTargetsInitiatives
Vision and Strategy
To satisfy our shareholders and customers. Harvard Business Review.The Main Framework of Balanced Scorecard17
.. Using the Balanced Scorecard as a Strategic Management System.Figure 1 . and Norton. Robert S. Jan-Feb 1996. p.
as well as altitude. fuel is significant. I am really working on airspeed this flight. but I cannot concentrate on doing too many things well at the same time. you would be worried about colliding with tall mountains or running low on fuel. Even if the pilot did an exceptional job on airspeed. Skilled pilots are able to process information from a large number of indicators to navigate their aircraft. We suspect that you would not board the plane after this discussion. Yet navigating today's organisations through complex competitive environments is at least as complicated as flying a jet. Clearly. Once I get to be excellent at airspeed. So on this flight I’m focusing on airspeed. Why should we believe that executives need anything less than a full battery of instrumentation for guiding their companies? Managers. Wouldn’t that be useful? A: You are right. Airspeed certainly seems important. Kaplan and Norton bring the following example: Imagine entering the cockpit of a modern jet aeroplane and seeing only a single instrument there. Now I have to concentrate on proper airspeed. Q: But I notice you do not even have a fuel gauge.3. How would you feel about boarding the plane after the following conversation with the pilot? Q: I am surprised to see you operating the plane with only a single instrument. Q: That’ good. I intend to concentrate on fuel consumption in the next set of flights. But what about altitude? Would an altimeter be helpful? A: I worked on altitude for the last few flights and I’ve gotten pretty good on it. Balanced Scorecard as a Measurement Tool To illustrate the use of today’s main measurement tools. such a conversation is a fantasy since no pilot would dream of guiding a complex vehicle like a jet aeroplane through crowded air spaces with only a single instrument. need instrumentation about many
. like pilots. What does it measure? A: Airspeed.1.
Kaplan. Robert S. at their front-line and customer-facing operations. it requires so many improvement efforts throughout the organisation that it might be called a whole new management system. 1996). Translating Strategy into Action – The Balanced Scorecard. David P. 1. it has to be mentioned that the Balanced Scorecard is not just a measurement system. David P.
Harvard Business School Press.. 1.aspects of their environment and performance to monitor the journey toward excellent future outcomes. The Balanced Scorecard translates an organisation’s mission and strategy into a comprehensive set of performance measures that provides the framework for a strategic measurement and management system. organisations are competing in complex environments so that an accurate understanding of their goals and the methods for attaining those goals is vital. Boston. During the implementation of a Balanced Scorecard. These organisations are using their financial and nonfinancial performance measures only for tactical comments and control of short-term operations.
Kaplan. Today. Translating Strategy into Action – The Balanced Scorecard
(Boston: Harvard Business School Press.19 Finally. and Norton. p.18
The Balanced Scorecard provides managers with the thorough instrumentation they need to navigate to future competitive success.
. 1996. The Balanced Scorecard enables companies to track financial results while simultaneously monitoring progress in building the capabilities and acquiring the intangible assets they need for future growth. Robert S.4. p. many use their non-financial measures for local improvements. is there anything new about a call for a "balanced" set of measures? While virtually all organisations do indeed have financial and non-financial measures. Balanced Scorecard as a Strategic Management System However. but comprises a whole new way of looking at business. 52. Senior managers use aggregate financial measures as if these measures could summarise adequately the results of operations performed by their lower and midlevel employees. and Norton.
planning. senior executives must understand the drivers of long-term financial success. and Norton. Innovative companies use the scorecard as the central. 9. occurs when it is transformed from a measurement system to a management system. and internal measures of critical business processes. David P. and aligning strategic initiatives 4. somewhat judgmental. The four main steps in building up a strategy using the Balanced Scorecard are: 1. Companies can develop an initial Balanced Scorecard with narrow objectives: to gain clarification. the scorecard is balanced between objective.Balanced Scorecard as a Strategic Framework for Action22). innovation.
. The Balanced Scorecard should translate a business unit's mission and strategy into tangible objectives and measures. organising framework for their management processes (see Figure 2 . The measures represent a balance between external measures for shareholders and customers. however. The measures are balanced between outcome measures-the results from past efforts-and the measures that drive future performance. setting targets. enhancing strategic feedback and learning. easily quantified outcome measures and subjective. Translating Strategy into Action – The Balanced Scorecard
(Boston: Harvard Business School Press. clarifying and translating vision and strategy 2.20 The Balanced Scorecard is more than a new measurement system. 1996). and then to communicate that strategy throughout the organisation. Front-line employees must understand the financial consequences of their decisions and actions. The real power of the Balanced Scorecard. Robert S. communicating and linking strategic objectives and measures 3. The objectives and measures for the Balanced Scorecard are more than a somewhat ad hoc collection of financial and non-financial performance measures. Moreover. consensus.21
Kaplan. and focus on their strategy. and learning and growth. p. they are derived from a top-down process driven by the mission and strategy of the business unit. performance drivers of the outcome measures..The Balanced Scorecard emphasises that financial and non-financial measures must be part of the information system for employees at all levels of the organisation.
1996).During the next chapter. David P. Translating Strategy into Action – The Balanced Scorecard
(Boston: Harvard Business School Press.
. p. the author is going to go through step-by-step in construction of a manageable Balanced Scorecard.. Robert S. 10. and Norton.
Robert S.. Harvard Business Review.
. Using the Balanced Scorecard as a Strategic Management System.Figure 2 . 77.Balanced Scorecard as a Strategic Framework for Action22
Clarifying and Translating the Vision and Strategy Clarifying the vision Gaining concensus Communication and Linking Communicating and educating Setting goals Linking rewards to performance measures Strategic feedback and learning Articulating the shared vision Supplying strategic feedback Facilitating strategy review and learning
Planning and Target Setting Setting targets Aligning strategic initiatives Allocating resources Establishing milestones
From: Kaplan. Jan-Feb 1996. David P. p. and Norton.
Slightly modified version of the model taken from QPR internet portal at address
http://www. Then organisation’s management has to recognise the strategies that will tell how to reach the vision.Creating a Balanced Scorecard. they have to be measured somehow. 2. therefore all the measurement systems have to be figured out. financially we have to be cost-efficient. on the development side we have to produce X amount of new ideas every week etc. • • • • Financial perspective (how do we look to our shareholders?) Customers perspective (how do we look to our customers?) Internal business process perspective (what processes do we have to be good at?) Learning and growth perspective (how will we sustain our ability to improve and change?) 4. 3. First. It might be advisable to establish a test field to simulate how the Balanced Scorecard would start to respond to the actions taken. Everybody in the organisation has to agree upon one single goal where the organisation has to be heading. In some businesses. In some areas.23 1. The next step is to go through appraisal of the established draft Balanced Scorecard to identify whether it would start measuring the right things and assist the management to steer the organisation to the right direction. Example: for customers we have to deliver on time. not necessarily all four are relevant.2.qprservices. members of the organisation would have to identify a vision. Then critical success factors for all the perspectives have to be found out.com/
. After the critical success factors are in place. Then the perspectives have to be identified. 5. 6. Constructing a Balanced Scorecard One of the possible ways to go through all the steps of construction of successfully operating Balanced Scorecard might be shortly described as seen on Figure 3 . additional perspectives need to be measured.
it would be necessary to replace financial part of the section of Balanced Scorecard with employee empowerment perspective. improved and changed whenever there is a need for the organisation to change something in its vision or strategic goals. The following chapter describes how to manage the construction of the Balanced Scorecard step-by-step. vision and strategy. Some other organisations may need to add additional features to their Balanced Scorecard. 8.
. It has to be amended.7. it has to be remembered that the Balanced Scorecard is not a “finished product”. for instance. Based on the preparatory work the detailed action plans should be created and proper reporting systems have to be established to start operation of the Balanced Scorecard. that the actual set-up of a particular Balanced Scorecard may vary from organisation to organisation because of very close linkages to particular establishment’s main functions. Finally. It has to be borne in mind. For public non-profit organisations.
Which strategies shall we follow? Which areas shall we focus on?
3. Follow up and Manage
How do we follow up. Create Action Plans
Which actions should we undertake to reach our targets?
8. Identify Measures
What should we measure at each of those perspectives?
6.qprservices. update and maintain our scorecard?
http://www. Identify Critical Success Factors of the Perspectives
What do we have to do well to manage in the framework of those perspectives?
How do we evaluate our scorecard?
7. Identify Perspectives
In which perspectives do we have to be good at?
4.Figure 3 .Creating a Balanced Scorecard24
Define vision for the organisation/ entity
. Identify Vision
The ABC of the strategic management suggests that there should be a structure to strategy development that managers should follow.26 According to the Balanced Scorecard methodology. Harvard Business
Review. 7.1. p. Robert S.1. in other words – tactics.
Nov-Dec 1997. the first item that the senior executives of a particular company should consider is the financial goal. Then they should define short. Sept-Oct 1993. Külim. Campbell. 42-46. Marcus. 138. and Norton.
Alas. p. to implement the strategy. One systemised possibility of strategic management tools is the acronym MOST (Mission. Putting the Balanced Scorecard to Work. Strateegiline juhtimine (Tallinn.25 The overall purpose of the strategic management is to find a single priority long-term goal which would serve as a basis in resource allocation and organisational development. The first task in building up the Balanced Scorecard is clarifying and translating company’s vision and strategic goals.
Kaplan.1. What’s Wrong with Strategy Harvard Business Review. strategists should choose a mission – a long-term purpose for the organisation. The executive team may decide whether to head for revenues or market growth. Objectives.2. Strategy and Tactics). Establishing Strategy by Building up a Balanced Scorecard 2.
. A strategy can then be developed to achieve the objectives using short-term operating decisions. Andrew and Alexander. 1997).27 First.. David P. profitability or cash flow generation.Clarifying and Translating the Vision and Strategy As each organisation is unique and so follows its own path for building a Balanced Scorecard. Ruth. From the management point of view it is also not particularly foreseen – it might be set up using the standard project management techniques (preparationinterviews-workshops-implementation-reviews) or be managed by a special unit that is co-ordinating the overall implementation. p.and mid-term objectives that will move the organisation on a path towards the mission.
however. and knowledge management. experimental.1. not just
Kaplan. The executives may thereafter decide. it encourages dialogue back from business unit to executive teams. After the organisation has established its financial and customer objectives. and Norton. Robert S. For example.. Second. to build up a Balanced Scorecard’s customer-perspective. a company’s top executives may agree upon providing superior service to its customers. in information technology and systems that deal with research and development. the employees need to analyse what changes need to be made in current management of the customer relations. David P. a strategic initiative to reduce product delivery might be translated into a Balanced Scorecard objective to reduce set-up times at a specific machine.But the process of developing a winning strategy is much more messy. that each executive has a totally different understanding on A) what a superior service is. The final link to be envisaged is learning and growth perspective. which reveals the rationale for investments in training employees. it might become clear. the vision is quite straightforward and easy to understand for everybody. It forwards information to all employees about the critical objectives that must be accomplished if an organisation’s strategy is to succeed.28 2. and iterative than those simple models foresee. Translating Strategy into Action – The Balanced Scorecard
(Boston: Harvard Business School Press. 1996) p. In this way. and B) who are the specific clients that it is going to be targeted at. As such.Communicating and Linking Strategic Objectives and Measures The next task is to inform all levels of the organisation about the initiative of establishing the Balanced Scorecard.
. This must be done in close co-operation with middle-level or operations managers to ensure that the processes are in line with current possibilities of resource allocation. The communication serves three-fold goal.2. it then identifies the strategic objectives and measures for its internal business processes area. or fully entering into just-in-time concept. Thirdly. or to a goal for rapid transfer of orders from one process to next. who is the most desirable customer segment to the company and which area of services it might be offered. local improvement efforts become aligned with overall organisational success factors. 11-12. internal business processes. In formulating the customer objective to the Balanced Scorecard. For example.
as the ideal corporate strategy should be set up bearing in mind the principle that every decision has to support the achievement of strategic objectives.29 All the organisational efforts and initiatives should be aligned to the needed change processes. For example. and Norton. Peter F. everybody in the organisation should understand the business unit’s long-term goals.
1985). Throughout communicating and linking phase.
Drucker. Individuals at business unit level should have formulated local actions that contribute to achieving overall company’s objectives. For example: to increase the market share. we have to train our sales people and increase productivity by establishing a Research and Development department.30
Kaplan. It might be recommended that the Balanced Scorecard could be used as a single basis for bonus system. return on investment) and the rest of the bonuses might be based on customer satisfaction. All other decisions are either wrong or irrelevant. it is worth paying attention also to the question on how to link salary bonus system or other motivation systems to the achievement of goals. The second aim is to let middle management establish its learning and growth objectives. Robert S. The main aim of the communication and linking initiative is to let the middle management define their internal business processes.about the sole implementation of the strategy but about the continuous future strategy development. pp. partner satisfaction or productivity or turnover of its subordinates. Responsibilities and Practices (New York: Harper & Row. Management: Tasks. For example: to satisfy the goal of increasing the market share by 20 per cent we need to bring x new products to the market with a targeted marketing campaign. At the final stage of the communication and linkage process. sixty per cent of bonuses of middle management might be based on financial measures (such as profit. David P. as well as the strategy for achieving these goals. 1996).
. 640-641. p. Translating Strategy into Action – The Balanced Scorecard
(Boston: Harvard Business School Press... 13.
3. It is a way of continuous series of cause-and-effect work embodied with the Balanced Scorecard. and learning and growth objectives. Setting Targets and Aligning Strategic Initiatives The third management task to do is to drive organisational change. It is possible to use benchmarking.
On the use of those methods and technologies. those capabilities eventually have to become translated into the overall strategy. the Balanced Scorecard provides the front-end justification. In other words. Wisconsin: ASQ Quality Press. pp. Once targets are established. 32 Many organisations may encounter usual problems that they have established vision and strategic objectives but to fulfil them they are unable to find particular methods. Jim. 71. the goals to be set have to be so-called BHAG-s (big. Breaking the Constraints to
World-Class Performance (Milwaukee. The executive team should establish targets for the Balanced Scorecard measures that will transform the company. brainstorming etc. 14-102. These targets can come from several sources.
. hairy. internal-business-process. another aspires to create the most lucrative Web site in cyberspace. re-engineering. managers can align their strategic quality. Thus. audacious goal). p. To distinct from simple slogans of business re-engineering and other management fads.31 To achieve such ambitions financial or customer or trademark objectives. 1998). Company may have to tackle with a series of serious constraints in doing so. One might dream of making his brand more popular than Coke. By using Balanced Scorecard in close connection with budgetary process.
Collins. it can be assured that all the tasks that are necessary to achieve objectives will also receive the necessary funding. William H. it has to be kept in mind that all those initiatives have to be analysed and identified whether they are critical to company’s strategic success. refer to Dettmer. as well as focus and integration for continuous improvement.2.1. and transformation programmes. managers must identify stretch targets for their customer.Planning. Turning Goals into Results: The Power of Catalytic Mechanisms Harvard Business
Review. Jul-Aug 1999. The targets should represent a discontinuity in the performance of business units. response time and re-engineering initiatives for achieving the breakthrough objectives.
Collins. This process might be considered the most innovative and most important aspect of the entire Balanced Scorecard management process. Robert S. At the time when a business establishes 3-5 year stretch targets for the strategic measures.Enhancing Strategic Feedback and Learning The last management process embeds the Balanced Scorecard in a strategic learning framework. 71-. if necessary. the initiative should achieve that: • • long-term outcomes are quantified.1. Jul-Aug 1999. 15. mechanisms for fulfilment those outcomes are identified and possess the necessary financing and • short-term milestones have been set for the financial and non-financial measures of the Balanced Scorecard.The Balanced Scorecard also enables a fundamental change in letting the organisation to integrate its strategic planning with its annual budgeting process. Managers in organisations today do not have a procedure to receive feedback about their strategy and to test the hypotheses on which the strategy is based. to make fundamental changes in the strategy itself. Turning Goals into Results: The Power of Catalytic Mechanisms Harvard Business
Review.4. p. and Norton. Jim. 1996). managers may also forecast milestones for each measure during the next fiscal year. See also Chapter “Setting up Catalytic Mechanisms” on page 40 of the thesis for more information. The Balanced Scorecard enables them to monitor and adjust the implementation of their strategy. This provides the capability for organisational learning at all levels.33 2. and.
. Overall. David P.
Kaplan. pp. Translating Strategy into Action – The Balanced Scorecard
(Boston: Harvard Business School Press.. The second possibility is to monthly analyse all the operations and their accordance to fulfilment of strategies and responding funding. It might be advisable to analyse the possibilities of using various catalytic mechanisms to drive performance of the company.
Balanced Scorecard as a Strategic Framework for Action22. the goal of the process is to establish an ongoing and continuous improvement cycle. every day to safeguard the flexibility to changes in the market. where the opinions of all the levels of the organisation could be taken account in defining strategic goals and methods on achieving those. as the latter may be either too optimistic or too pessimistic. and strategic initiative process – the third process in the Figure 2 – defines specific. It enables individuals in various parts of an organisation to understand how the pieces fit together. Third. Finding all kinds of correlations definitely helps to clarify and improve the content of strategic goals and tactical steps. The emphasis on cause and effect in constructing a scorecard introduces dynamic systems thinking. the entire organisation. The planning. target setting. First. it gives continuous strategic response to the managing team. The communication and alignment process. it makes possible to rephrase so-called shared vision. which starts with the first process in the Figure 2 . The use of measurement as a language helps translate complex and frequently nebulous concepts into a more precise form that can gain consensus among senior executives. the second process in the Figure 2. eventually. it is necessary to take strategic decisions in fact. To be more specific. This in turn may lead to discovery of new cause-and-effect relationships. Some ten years ago. For example: working morale may have a very strong impact on client satisfaction. mobilises all individuals into actions directed at attaining organisational objectives. it might be necessary to amend long-term strategy’s timeline and contents. The first step is the clarification of a shared vision that the entire organisation wants to achieve. For example: between client satisfaction rate and the speediness of submitting invoices. quantitative performance goals for the organisation across a balanced set of
. it speeds up the process of finding the cause-and-effect relationships between different Balanced Scorecard component. it was customary to do strategic decisions about once in three months. how their role influences others and. By foreseeing short-term milestones. which could be unknown for the senior management. Second.One of the main distinctive qualities of the Balanced Scorecard is to give constant response about achievement of strategic and short-term objectives. As today’s business environment is so rapidly changing.
The first three critical management processes are vital for implementing a strategy. That kind of continuous improvement may remind also Deming’s so-called Plan-Do-Check-Act cycle. p.
. Using the Balanced Scorecard as a Strategic Management
W. but also even fosters change. Thus the learning and growth initiative has to be carried out in order to ensure continuous improvement. Kaplan. David P. Harvard Business Review. 79. A comparison of the desired performance goals with current levels establishes the performance gap that strategic initiatives can be designed to close. Robert S. Jan-Feb 1996. but they alone would not be adequate in the real world.outcomes and performance drivers. and Norton..35 Please look at Figure 4 – Possible Steps to Go Around the Balanced Scorecard37 for more detailed description. Thus the Balanced Scorecard not only measures. Edwards Deming.
. and Norton. Robert S. p. Harvard Business Review. Using the Balanced Scorecard as a Strategic Management System. 79.Figure 4 – Possible Steps to Go Around the Balanced Scorecard37
1 5 9
Communication and Linking Communicating and educating Setting goals Linking rewards to performance measures
Clarifying and Translating the Vision and Strategy Clarifying the vision Gaining concensus
Strategic feedback and learning Articulating the shared vision Supplying strategic feedback Facilitating strategy review and learning
Planning and Target Setting Setting targets Aligning strategic initiatives Allocating resources Establishing milestones
Kaplan.. David P.
While most of the organisations would emphasise profitability objectives. Businesses with many products in the early stage of their life cycle can stress rapid growth objectives. infra-structure.2. not to expand or build new capabilities. 54-55. Linking the Balanced Scorecard to Strategy. to construct and expand production facilities. “rapid growth” organisations .. pp. 3. the financial perspective needs to be introduced the least as the main financial measurement systems have been analysed during the past years very thoroughly. where the company wants to harvest the investments made in the earlier to stages. The particular financial performance measures for any Balanced Scorecard should define long-run financial objectives for the organisation. Norton and Kaplan recommend to simplify the financial perspective measurement selection pool to identify first the organisation’s stage. These businesses are expected to maintain their existing market share and perhaps grow it somewhat. California
Management Review. “sustain” organisations – organisations that still attract investment and reinvestment. other possibilities may also be considered. which would mainly be one of the three: 1. Any investment
Kaplan. but are required to earn excellent returns on their invested capital. They may have to make considerable investments to develop and enhance new products and services. 2. and to nurture and develop customer relationships. to build operating capabilities. to invest in systems. expanding capacity. and Norton. Investment projects will be more directed to relieving bottlenecks. and mature businesses may emphasise maximising cash flow. These businesses no longer warrant significant investment – only enough to maintain equipment and capabilities.have reached a mature phase of their life cycle.are at the early stages of their life cycle. Robert S.2.1.2. and distribution networks that will support relationships. “harvest” organisations38 . and enhancing continuous improvement. Fall 1996.
.Financial Perspective From all the measurement perspectives of a Balanced Scorecard. Defining Critical Success Factors and Measures 2. David P.
Financial objectives in the sustain stage will emphasise traditional financial measurements.2. While these measures may appear to be generic across all types of organisations.Customer Perspective In the customer perspective of the Balanced Scorecard. sales in new markets and to new customers. new customer acquisition. sales from new products and services. The financial objectives for businesses in each of these three stages are quite different. The generic outcome measures include customer satisfaction. maintaining adequate spending levels for product and process development. managers identify the customer and market segments in which the business unit will compete and the measures of the business unit's performance in these targeted segments. The goal is not to maximise return on investment. The customer perspective typically includes several generic measures of the successful outcomes from a well-formulated and implemented strategy.project will have to have very short and definite payback periods. Some companies will employ newer financial metrics. Any investments must have immediate and certain cash paybacks.39 2. such as return on capital employed. and market and account share in targeted segments. and establishment of new marketing. because of the short time remaining in the economic life of business units in their "harvest" phase. they should be
Ibid. which may encourage managers to seek additional investment funds based on future return projections. and distribution channels. discounted cash flow. such as economic value added and shareholder value. Virtually no spending will be done for research or development or on expanding capabilities. employee capabilities. capital budgeting analyses. Investment projects for businesses in the sustain category will be evaluated by standard. and gross margin. sales. systems. The financial objectives for the harvest businesses will stress cash flow. customer retention. p. operating income. 56
. Financial objectives in the growth stage will emphasise sales growth. These metrics all represent the classic financial objective---earn excellent returns on the capital provided to the business. The main goal is to maximise cash flow back to the organisation.2. customer profitability.
a desirable way for maintaining or increasing market share in targeted customer segments is to retain existing customers in those segments. That is. Such a measure provides a strong focus to the company when trying to dominate its targeted customers' purchases of products or services in categories that it offers. but not increasing its share in targeted segments. When companies have targeted particular customers or market segments. banks.6 Companies that can readily identify all of their customers-for example. newspaper and magazine publishers.
Market and Account Share Market share.customised to the targeted customer groups from whom the business unit expects its greatest growth and profitability to be derived. a company may temporarily be meeting sales growth objectives by retaining customers in non-targeted segments. reveals how well a company is penetrating a desired market. Research on the service profit chain has demonstrated the importance of customer retention.
Customer Retention Clearly. and long-distance telephone supplierscan readily measure customer retention from period to period. For example. Companies can measure-customer by customer or segment by segment-how much of the customers' and market segments' business they are receiving. The measure of market share with targeted customers would balance a pure financial signal (sales) to indicate whether an intended strategy is yielding expected results. they can also use a second market-share type measure: the account share of those customers' business (some refer to this as the share of the "customers' wallet"). computer on-line service companies. The overall market share measure based on business with these companies could be affected by the total amount of business these companies are offering in a given period. industrial companies. Beyond just retaining
. the share of business with these targeted customers could be decreasing because these customers are offering less business to all their suppliers. distributors and wholesalers. especially for targeted customer segments. credit card companies.
Companies such as those in the credit and charge card business. and the ratio of new customer revenues per sales call or per dollar of solicitation expense. These companies could examine the number of customer responses to solicitations and the conversion ratenumber of actual new customers divided by number of prospective inquiries. marketing efforts.
Customer Profitability Succeeding in the core customer measures of share.
Customer Acquisition Companies seeking to grow their business will generally have an objective to increase their customer base in targeted segments. Recent research has indicated that just scoring adequately on customer satisfaction is not sufficient for achieving high degrees of loyalty. retention. retention. The customer acquisition measure tracks. however.
Customer Satisfaction Both customer retention and customer acquisition are driven from meeting customers' needs. the rate at which a business unit attracts or wins new customers or business. cable television. magazine subscriptions. often expensive. many companies will wish to measure customer loyalty by the percentage growth of business with existing customers. in absolute or relative terms. They could measure solicitation cost per new customer acquired. acquisition. cellular telephone service. Customer satisfaction measures provide feedback on how well the company is doing. Customer acquisition could be measured by either the number of new customers or the total sales to new customers in these segments. Only when customers rate their buying experience as completely or extremely satisfying can the company count on their repeat purchasing behaviour. The importance of customer satisfaction probably can not be over-emphasised. and profitability. one way to have extremely satisfied customers (and angry competitors) is to
. and banking and other financial services solicit new customers through broad. Obviously.customers. and satisfaction. does not guarantee that the company has profitable customers.
This is particularly likely to occur for newly acquired customers.sell products and services at very low prices. can help keep customer-focused organisations from becoming customer-obsessed. They could value a constant stream of innovative products and services. even if currently unprofitable. Activity-based cost (ABC) systems permit companies to measure individual and aggregate customer profitability. Newly acquired customers can still be valued. Since customer satisfaction and high market share are themselves only a means to achieving higher financial returns. where the considerable sales effort to acquire a new customer has yet to be offset from the margins earned by selling products and services to the customer. particularly in targeted customer segments. For example. acquisition. Kaplan and Norton have observed a common set of attributes that
. retention. companies will probably wish to measure not just the extent of business they do with customers. through their products and services. lifetime profitability becomes the basis for deciding whether to retain or discourage currently unprofitable customers. While value propositions vary across industries. because of their growth potential.
Beyond the Core: Measuring Customer Value Propositions Customers' value propositions represent the attributes that supplying companies provide. The customer profitability measure may reveal that certain targeted customers are unprofitable. and across different market segments within industries. But unprofitable customers who have been with the company for many years will likely require explicit action to cope with their incurred losses. Or they could value a supplier able to anticipate their needs and capable of developing new products and approaches to satisfy those emerging needs. In these cases. Companies should want more than satisfied and happy customers. The value proposition is the key concept for understanding the drivers of the core measurements of satisfaction. they should want profitable customers. A financial measure. such as customer profitability. to create loyalty and satisfaction in targeted customer segments. customers could value short lead times and on-time delivery. and market and account share. but the profitability of this business.
including the response and delivery time dimension.
Ibid.. The internal business process perspective reveals two fundamental differences between traditional and the Balanced Scorecard approaches to performance measurement. But they still focus on improving existing processes. The measures should be focused on the internal processes that will have the greatest impact on customer satisfaction and achieving the organisation’s financial objectives.3. the customer perspective enables business unit managers to articulate their unique customer and market-based strategy that will deliver superior future financial returns. They may go beyond just financial measures of performance by incorporating quality and time-based metrics. The image and reputation dimension enables a company to proactively define itself for its customers. executives identify the critical internal processes in which the organisation must excel. Robert S. Fall 1996. The
Kaplan. and satisfy shareholder expectations of excellent financial returns. In summary. Traditional approaches attempt to monitor and improve existing business processes. and its quality.41 2. Linking the Balanced Scorecard to Strategy. and Norton. The customer relationship dimension includes the delivery of the product/service to the customer. David P.40 • • • Product/Service Attributes Customer Relationship Image and Reputation
Product and service attributes encompass the functionality of the product/service. These attributes are organised into three categories. The critical internal business processes enable the business unit to deliver on the value propositions of customers in targeted market segments.2.Internal Business Process Perspective In the internal business process perspective. p. 62.
Management Review.organises the value propositions in all of the industries where we have constructed scorecards. its price. and how the customer feels about the experience of purchasing from the company.
They attempt to control and improve existing operations . Learning and growth. businesses will have to invest in re-skilling employees. But managers do not have to choose between these two vital internal processes. The second departure of the Balanced Scorecard approach is to incorporate innovation processes into the internal business process perspective.4. enhancing information technology and systems. 2. a more powerful driver of future financial performance than the short-term operating cycle. and internal business process objectives on the Balanced Scorecard will typically reveal large gaps between existing capabilities of people. and
. systems. however. The financial.Learning and Growth Perspective The fourth Balanced Scorecard perspective. The innovation process-the long-wave of value creations. But the drivers of long-term financial success may require the organisation to create entirely new products and services that will meet the emerging needs of current and future customers. To close these gaps. The customer and internal business process perspectives identify the factors most critical for current and future success. and procedures and what will be required to achieve targets for breakthrough performance. The internal business process objectives highlight the processes most critical for the organisation’s strategy to succeed. Traditional performance measurement systems focus on the processes of delivering today's products and services to today's customers. Businesses are unlikely to be able to meet their long-term targets for customers and internal processes using today's technologies and capabilities. for many companies. intense global competition requires that companies continually improve their capabilities for delivering value to customers and shareholders.Balanced Scorecard approach. identifies the infrastructure that the organisation must build to create long-term growth and improvement. systems. and organisational procedures.2. Also. will usually identify entirely new processes at which the organisation must excel to meet customer and financial objectives.the short wave of value creation. Organisational learning and growth come from three principal sources: people. customer. The internal business process perspective of the Balanced Scorecard incorporates objectives and measures for both the long-wave innovation cycle as well as the short-wave operations cycle.
and measured rates of improvement in critical customer-based and internal processes. all our energies (and those of skilled medical professionals) are mobilised to restore these parameters back to their normal levels. a senior partner in an international consulting firm. Other factors are much more decisive in determining whether we achieve our unique personal and professional objectives. employee retention. To illustrate this problem. As in the customer perspective. Are body temperature and blood pressure important? Absolutely. But we don't devote enormous energy to optimising our body temperature and blood pressure.aligning organisational procedures and routines. employee training.. 67.
. Information systems capabilities can be measured by real-time availability of accurate customer and internal process information to front-line employees. But while these
Kaplan. the organisation may face the problem of having either too little or too many items to measure.Conclusions and Recommendations – How Many Measures to Choose? After the measures have been set for all the perspectives. Organisational procedures can examine alignment of employee incentives with overall organisational success factors. If our body temperature departs from a normal 1-2deg window (away from 37degrees Celsius) or if our blood pressure drops too low or escalates too high. David P. employee-based measures include a mixture of generic outcome measuresemployee satisfaction.5. p. we have a serious problem for our survival. Should these measurements fall outside certain control limits. These objectives are articulated in the learning and growth perspective of the Balanced Scorecard. 2. Being able to control our body temperature to within 0. such as detailed indexes of specific skills required for the new competitive environment.42 Many aspects of our bodily functions must perform within narrow operating parameters if we are to survive. Robert S.01deg of the optimum will not be one of the strategic success factors that will determine whether we become a chief executive of a company. and Norton. In such circumstances. or a tenured full professor at a major university. Linking the Balanced Scorecard to Strategy. we have a major problem that we must attend to and solve immediately. and employee skillsalong with specific drivers of these generic measures. Fall 1996. California
Management Review.2. the author would like to cite Norton and Kaplan.
Sept-Oct 1993. But it is impossible to give an optimum.
Kaplan."43 Choosing the right measures and right number of measures is definitely one of the most crucial parts in building up a Balanced Scorecard. after he had implemented his first Balanced Scorecard: "Our division had always measured hundreds of operating variables. customers. and Norton. These measures should be monitored diagnostically with deviations from expectations noted rapidly. we chose 12 measures as the key to implementing our strategy. Unlike the strategic measures selected for inclusion on the Balanced Scorecard. Similarly. But these are not the drivers of businesses' competitive success. corporations should have hundreds. they are not sufficient for the achievement of our long-run goals. and suppliers.. The outcome and performance driver measures on the Balanced Scorecard should be the subjects of intensive and extensive interactions among senior and middle-level managers as they evaluate strategies based on new information about competitors. Robert S. technologies. diagnostic measures are not the basis for competitive breakthroughs. Harvard Business Review. for this is also up to the specifics of a particular establishment. In the case that the organisation uses an IT system to follow the developments according to the Balanced Scorecard. the number may also rise accordingly. As one executive remarked. perhaps thousands. of measures that they can monitor to ensure that they are functioning as expected and that will signal when corrective action must be taken. Such measures capture the necessary "hygiene factors" that enable the company to operate. markets. David P. Usually the set of 15-25 measures is identified as optimal. in effect. Of these 12 measures.
. pp. seven were entirely new measurements for the division.measurements are necessary. 143-145. Implementing the Balanced Scorecard at FMC Corporation:
An Interview with Larry Brady. management by exception. In building a Balanced Scorecard. as for a single person in an organisation 6-8 measures to follow is the maximum ceiling.
3. Testing the Balanced Scorecard 2. and employee skills. The generic measures include profitability.3. measures reflect the common goals of many strategies. customer retention. They also do not provide an early indication about whether the strategy is being implemented successfully. then they will become more knowledgeable about the full range of products they can sell. 2. but will fail to reveal whether the operational improvements have been translated into expanded business with existing and new customers-and.Analysing Cause and Effect A strategy is a set of hypotheses about cause and effect. eventually. A good Balanced Scorecard should have an appropriate mix of core outcome measures and the performance drivers of these outcomes. as well as similar structures across industries and companies. performance drivers (such as cycle times and part-per million defect rates) without outcome measures may enable the business unit to achieve short-term operational improvements. Cause and effect relationships can be expressed by a sequence of if-then statements. Outcome measures without performance drivers do not communicate how the outcomes are to be achieved. the market segments in which the unit chooses to compete. A good Balanced Scorecard should have a mix of core outcome measures and performance drivers. Conversely.Analysing Outcomes and Performance Drivers All Balanced Scorecards use certain generic measures. These generic.1. customer satisfaction. If employees are more knowledgeable about products. and the particular internal processes and learning and growth capabilities that enable the financial and customer objectives to be achieved. into enhanced financial performance.3. If organisation increases employee training about products. For example. the organisation can establish a link between improved sales training of employees to higher profits through the following sequence of hypotheses.2. then their sales
.2. the value propositions delivered to customers in the targeted market segments. or core outcome. The drivers of performance are the ones that tend to be unique for a particular business unit. The performance drivers reflect the uniqueness of the business unit's strategy: the drivers of profitability. market share.
The measurement system should make the relationships (hypotheses) among objectives (and measures) in the various perspectives explicit so that they can be managed and validated. and. The driver of this financial measure could be repeat and expanded sales from existing customers. If their sales effectiveness improves. market share. the business may need to achieve short cycle times in operating processes and high-quality internal processes. recent work in the service profit chain has emphasised the causal relationships among employee satisfaction. the result of a high degree of loyalty among existing customers. an objective that would be a candidate for the learning and growth perspective. and Norton. p. both factors that could be Scorecard measures in the internal perspective. In a very similar vein. The chain of cause and effect should pervade all four perspectives of a Balanced Scorecard. financial performance. then the average margins of the products they sell will increase. California
Management Review. Thus. So both customer loyalty and OTD are incorporated into the customer perspective of the Scorecard. The process continues by asking what internal processes must the company excel at to achieve exceptional on-time-delivery. customer satisfaction.44
Kaplan. To achieve improved OTD. A properly constructed Scorecard should tell the story of the business unit's strategy. customer loyalty gets put on the Scorecard (in the Customer perspective) because it is expected to have a strong influence on ROCE. eventually.effectiveness will improve. For example. return on capital employed (ROCE) may be an outcome measure in the financial perspective. Linking the Balanced Scorecard to Strategy. improved OTD is expected to lead to higher customer loyalty which.
. So. How will the organisation achieve customer loyalty? Analysis of customer preferences may reveal that on-time delivery (OTD) of orders is highly valued by customers. David P. 63. Robert S. in turn. And how do organisations improve the quality and reduce the cycle times of their internal processes? By training and improving the skills of their operating employees. customer loyalty. Fall 1996.. is expected to lead to higher financial performance.
“If you are not satisfied for any reason. pp. the upscale department store that is world famous for delighting its customers.
. It serves as a warning system. and return a copy of this invoice along with your check for the balance. short pay has had a profound and positive impact on Granite Rock. 71-82. that sells crushed gravel. its financial
The following examples about catalytic mechanisms are taken from Collins. Turning Goals into
Results: The Power of Catalytic Mechanisms Harvard Business Review.” To put the radical nature of short pay in perspective. when brothers Bruce and Steve Woolpert become co-presidents. providing hard-to-ignore feedback about the quality of service and products. as has been widely reported.2. concrete.1.Setting up Catalytic Mechanisms After the process of initial setting up the Balanced Scorecard. In the years since it was instituted. It has won the prestigious Malcolm Baldrige National Quality Award in 1992. write a brief note about the problem. The company has consistently gained market share in a commodity business. it has had success.” The bottom of every Granite Rock invoice reads. Twelve years ago. They instituted a radical new policy called “short pay. Jim. Simply scratch out the line item. Jul-Aug 1999.45 One of the possible examples to be analysed is 99-year-old Californian based company Granite Rock.4. Moreover. it is advisable to establish various catalytic mechanisms to drive organisation’s performance towards achieving the strategic goals.4. they gave their company a goal to provide total customer satisfaction and achieve a reputation for service that met or exceeded that of Nordstrom. It impels managers to relentlessly track down the root causes of problems in order to prevent repeated short payments. imagine paying for airline tickets after the flight and having the power to short pay depending on your travel experience. sand. Establishing Action Plan 2. and asphalt. In addition. It also signals to employees and customers alike that Granite Rock is serious about customer satisfaction in a way that goes far beyond slogans. do not pay us for it.
The above however was just a single good example on how it is worthwhile to sometimes consider unorthodox ideas to better satisfy the needs of the customers.
Ibid. as it might lead such a company to a bankruptcy fairly quickly.46 It is obvious that Estonian business culture is not yet up to standards to try to implement Short Pay principle in some of our companies.
.performance has significantly improved from razor-thin margins to ratios above 10 per cent.
272-273. however. Or if I had left my monthly operating review somewhere and a competitor obtained a copy. it wouldn't have been that big a loss. but the measurement framework in the Balanced Scorecard should be deployed to develop a new management system. Translating Strategy into Action – The Balanced Scorecard
(Boston: Harvard Business School Press. California
Management Review. but to create a manageable Balanced Scorecard is a completely different thing. 1996). Measurement as such is indeed a powerful motivational and evaluation tool.
. This Balanced Scorecard. pp. David P.. A test of whether a Balanced Scorecard truly communicates both the outcomes and the performance drivers of a business unit's strategy is its sensitivity and transparency.3. that a competitor seeing this would be able to block the strategy and cause it to become ineffective. Robert S. 47 Using the Balanced Scorecard as a management system enables it to overcome the deficiency of most of the measurement systems – it enables to implement and receive feedback about organisation’s strategy. and Norton.. it wouldn't have been that big a deal. 64. Robert S. Implementing a Balanced Scorecard as a Management System It has to be mentioned that it is fairly simple to create just a scorecard. again. if you had lost my strategic planning document on an airplane and a competitor found it. Linking the Balanced Scorecard to Strategy. I would have been angry but I would have gotten over it. Fall 1996. but. One division president reported to his parent company's president when he turned in his first Balanced Scorecard: "In the past."48
Kaplan. Some examples of the failure to introduce the Balanced Scorecard have been linked to the fact that the executives have viewed the Balanced Scorecard as simply a measurement system. In reality. and Norton.
Kaplan. I would have been upset. David P. not as a new way to manage the business. p. communicates my strategy so well.
" says Laura Downing.1. The financial perspective This perspective tends to be the cornerstone of an organisation’s strategy. companies must comprehend the importance of its four basic perspectives. and return on equity. "The natural inclination is to focus on the financial perspective because people are more comfortable and familiar with it.49 The other leg of the financial perspective is a productivity strategy that usually includes two components: basic expense management and effective asset utilisation. a company also has to use it.
. "The first leg is the revenue-growth strategy.Practical Aspects of Setting up Balanced Scorecard in a Service Company After the initial phase of building the Balanced Scorecard. To make the Balanced Scorecard work. where companies try to determine how hey’re going to grow the top line of the business.1. quarterly sales growth and operating income by division. "Companies will tend to incorporate
The following is based on an interview referred through internet address in the Business Finance
Magazine http://www. One of the mistakes companies make is during the implementation phase by coming up with a list of measures of what they could measure instead of what they should be measuring. that will yield operational activities that the organisation needs to do well to achieve those strategies. vice president of the Massachusetts-based consulting firm Balanced Score Card Collaborative Inc. Case Studies on Implementing a Balanced Scorecard 3. If a company thinks about what it needs to achieve to be successful in the eyes of its shareholders. It includes such measures of profitability as cash flow.3. increased market share. clients and internal stakeholders." Typical methods for accomplishing a revenue-growth strategy are adding new products to broaden the franchise and branching out into new businesses. “There’s a fairly standard.businessfinancemag. two-legged structure that may be observed over the years." says Downing.com/.1.
thinking outside the box about the added value the company brings to customers. inventory and manufacturing lead time to determine what key processes meet the needs of the customer and financial perspectives. they give organisations an opportunity to react to internal and external influences before detrimental activities affect financial measures. However.
The customer perspective tends to get little attention because measuring such intangibles. a company typically needs to build a value chain by defining its value-creating activities and separating those activities from any type of organisational structure . But ultimately. an evaluation of how the company works with customers and whether it takes a high-touch or high-tech approach. as customer satisfaction and customer loyalty is difficult. a measure of how the product works its functionality and its price. • Image an examination of the product’s reputation. The internal business perspective This aspect of the Balanced Scorecard focuses on quality." The non-financial perspectives are predictive of a company’s future financial success. this perspective is important. "We’ve observed four major themes in the internal perspective. on-time delivery. at the end of the day." Downing says. time and efficiency measures such as head count. Companies must determine whether they need to seek partnerships with other organisations.more financial measures than are really necessary. how much they need to spend on research and
. The customer perspective This component of the Balanced Scorecard includes such measures as customer response time. and market share and product reliability. all measures play out into cash flow. To start building the internal perspective. • Customer service.in other words. The customer perspective can be divided into three major measures: • Product attributes. The first theme is innovation. However.
Often when companies try to implement a new strategy.development. "You need to find a way to manage inbound and outbound logistics." Downing says. "This
. this aspect of the Balanced Scorecard should be of paramount importance to companies with a strategy of finding new revenue sources and expanding into new markets. a look at an organisation’s supply chain." Downing says." The fourth theme involves regulatory factors that can come into play for certain types of business. the scorecard approach has helped companies translate business strategy into appropriate actions. This theme is particularly important in heavily regulated businesses such as financial services or public utilities. and how they can find other creative ways to increase revenue. "It’s just been in the last couple of years that people have even started to ask how they can apply technological advancements to help them in their business. It measures such factors as the number of new products a company launches and the length of time generating leading-edge products takes. but also help define it and. and there’s been this customer-focus fad — perhaps to the extreme — which has lasted for several years. "The third theme is operational excellence. in some cases. it should ask whether it needs to address any cultural issues. The Balanced Scorecard can not only translate strategy. they need a cultural change to reflect the new strategy. event-driven phenomenon." Until now. The second theme targets customer management. Just optimising that angle alone can be a major differentiator. create it. Companies need to look at how they can better work with their customers and how they can improve customer service. Why does learning and growth often get short shrift? "Companies already have the financials down pat. As an organisation considers the four perspectives. If a company can say. The learning-and-growth perspective The most frequently overlooked of the four perspectives. Rather than a cyclical. the scorecard evaluation can become a process that continuously determines areas in which the company can improve.
. Unfortunately. pp.2.Using the Balanced Scorecard at Metro Bank50 Metro Bank was the retail banking division of two major banks. 1996). increased competition. 294-310. David P. A strategic review revealed excessive reliance on these accounts and a cost structure that could no longer profitably serve 80% of the bank's retail customers. and Norton. • Productivity Strategy . its managers had launched a major transformation programme in order to be more innovative and to create a bank tailored for the twenty-first century.Improve operating efficiency by shifting non-profitable customers to more cost-effective channels of distribution (e. leaving the bank with more than 70 different action programmes. 3. these two strategies were translated into objectives and measures in the four perspectives. Translating Strategy into Action – The
Balanced Scorecard (Boston: Harvard Business School Press. The agendas of the two parents had never been fully rationalised into a single vision. the transformation programme had gone wild.cultural issue must change so that this process can be enacted so that customers will be happy so that we’ll make more money. electronic banking instead of personal banking). At the same time..g. The financial objectives were clear: broaden the revenue mix.
. without having achieved a synthesis or consensus on an operating style and strategy for the Metro Bank. Particular emphasis was placed on understanding and describing the cause and effect relationships on which the strategy was based. Metro Bank had 30% market share of the core deposit accounts of the region but with deregulation." the need for cultural change becomes tangible. In the process of developing a Balanced Scorecard at Metro. each competing for management time and resources.1. Robert S. income from these retail accounts could no longer be sustained. and a lower interest rate environment.
As adapted from Kaplan. Metro embarked upon a two-pronged Balanced Scorecard-based strategy to deal with these problems: • Revenue Growth Strategy .Reduce the volatility of earnings by broadening the sources of revenue with additional products for current customers. 110-112.
Hours Spent With Customers. and financial advice. this meant that Metro would focus on its current customer base. helping customers to open accounts and to provide ongoing service. The second measure. the scorecard design process then focused on the internal activities that had to be mastered for the strategy to succeed. The Cross-Sell Ratio-the average number of products sold to a household-measured selling effectiveness. The bank did not have a selling culture. The executives concluded that if the bank's new strategy were to be successful. and then sell an expanded set of financial products and services to these targeted customers. Having identified the financial objective. and the new customer value proposition dictated by the financial objective. or their banker. Develop New Products and Services. Two measures of this process were included on the Balanced Scorecard. however. identify the customers who would be likely candidates for a broader range of services. A major reengineering program was initiated to redefine the sales process. The selling process. Each of these business processes would have to be redesigned to reflect the demands of the new strategy. Three crossbusiness processes were identified: Understand Customers. they must shift customers' perception of the bank from that of a transactions processor of checks and deposits to a financial adviser. A relationship-based sales approach could not work unless face-to-face time with customers increased. had historically been dominated by institutional advertising of the bank's services. Hours Spent With Customers therefore was a "lead indicator" for the success of this piece of the strategy. The branch personnel were reactive. This "lag indicator" would tell whether the new process was working. Increase Targeted Customers Confidence in our Financial Advice. was included to send a signal to salespersons throughout the organisation of the new culture required by the strategy. and Cross-Sell Multiple Products and Services.
. The goal of the process was to create a relationship-selling approach where the salesperson became more of a financial advisor. Broaden Revenue Mix. for example. Good advertising plus good location brought the customers to the banks. In fact. When customer objectives were analysed. Metro's executives determined that its targeted customers did not view the bank.Strategically. one study indicated that only 10% of a salesperson's time was spent with customers. as the logical source for a broader array of products such as mutual funds. credit cards.
The result of the Balanced Scorecard in the Metro Bank is the following. as well as the attitudes of the work force as measured by an Employee Satisfaction Survey.g. 3.
The following is based on an interview referred through Internet address in the Business Finance
Magazine http://www. all focused on achieving specific objectives. to consolidate and to integrate the many change programmes currently under way.
.3. However. For Sears. integrated customer files). it was able to create consensus and teamwork among all the senior executives. regardless of which functional organisation they represented. The result was a much more manageable set of strategic initiatives.com/. The learning and growth component of the scorecard identified the need for salespersons to undergo a major role change.g. improved access to information (e. the access to information technology tools and data-Strategic Information Availability Ratio.The internal objectives led naturally to a final set of factors to implement the Revenue Growth strategy. and • the realignment of individual goals and incentives to reflect the new prioritiesPersonal Goal Alignment. Quinn discovered that maintaining the company’s increased shareholder value would require more change. The lead indicators focused on the major changes that had to be orchestrated in the work force: • • the upgrading of the skill base and qualified people-Strategic Job Coverage Ratio. the Balanced Scorecard created a vehicle to set priorities. Further..Using the Results of a Balanced Scorecard at Sears Company51 Sears radically improved profitability using the Balanced Scorecard’s four perspectives. and realignment of the incentive systems to encourage the new behaviour. By clarifying the strategic objectives. shortly after Sears’ implementation of the standard Scorecard. sustaining the Balanced Scorecard’s initial improvements required senior management to alter the company’s overall vision and incorporate a new perspective into the company’s Scorecard. The "lag indicators" included a productivity measure. Average Sales per Salesperson. This role change would require a broader set of skills (e.1.businessfinancemag.. a financial counsellor with broad knowledge of the product line).
but the group was sceptical about whether senior management and frontline employees were doing everything they
. who retired from Sears in 1996 after a 26-year career with the company. It soon became clear to him that a small group of people had caused the company’s turnaround and that different long-term measures would have to be taken in order to sustain Sears’ renaissance." Quinn was vice president of quality when he introduced Sears to the Balanced Scorecard concept in late 1992. "We spent all of 1994 developing our Balanced Scorecard with our top people. In off-site three-day sessions. Quinn began holding visioning sessions in early 1994 with the organisation’s top 100 executives." says Quinn. the group discussed methods for aligning itself more with what was happening outside the company. identify Sears’ obstacles to achieving world-class status in that area." Quinn says. digesting all the data and reading all the literature to the point that we almost had a palace revolt. Sears had a net loss of almost $4 billion that year. Quinn lost most of the audience for his idea. and design metrics for measuring the company’s progress in the area. Sears’ corporate managers developed a list of the company’s five-year objectives. but the company posted the largest profit in its history in 1993. In addition to examining needed internal changes. After the company’s financial rebound. As a result of this realisation."You can’t look at the Scorecard as just helping you pull a bunch of strategic levers. Each group was asked to define "world-class status" in the area of its perspective. "Satisfaction or your money back" had been a Sears mantra since the company’s inception in the 1890s. We had the top 100 people sitting through customer focus groups. You have to be willing to go through cultural change. "Most organisations aren’t willing to pay that price. you have to ask yourself whether you’re ready to fire some of your senior team if they’re not willing to behave differently. The task forces moved forward with the following initiatives: The customer task force was determined to get a firsthand assessment of how well the company was listening to its clientele. Really changing senior management causes some discomfort. "If you’re messing around with cultural change." Initially. Quinn formed task forces around the four basic perspectives of the Balanced Scorecard.
The task force determined that Sears’ corporate culture was too paternal in nature and didn’t value people as much as it should. The financial task force focused on shareholder return and tried to determine what path Sears should take to be in the top 25 percent of Fortune 500 companies. To learn more about Sears’ customer-service challenges. Customers frequently complained about being unable to find sales associates and rated Sears’ quality of overall service as poor. too. Each Sears employee was asked to complete a 70-question opinion survey every other year.
. Ultimately. The values task force used employee surveys to identify six core values that Sears employees felt strongly about: honesty. the customer task force set four goals: offering the right merchandise at competitive prices. and it. respect for the individual. As a result of its findings. The internal business task force held 26 employee focus groups and studied extensive data on employee attitudes and behaviour. This perspective was designed to measure overall company values. the task force held 80 focusgroup sessions with customers around the country. The internal business task force found that repeatedly employees responded with the clear message that they were interested in the company’s success and were proud to work for Sears. was assigned to a task force. The learning-and-growth task force conducted outside benchmarking launched a research project into the nature of change and suggested an effort to generate 1 million ideas from employees. building customer loyalty. and making Sears a fun place to shop. teamwork. The task force also learned that two dimensions of employee satisfaction — attitude toward the job and toward the company — had a greater effect on employee loyalty and behaviour toward customers than all the other dimensions put together. Sears managers added a fifth perspective to the company’s Balanced Scorecard. trust and customer focus. Some stores had trouble keeping merchandise in stock. The task force decided that performance should count more in employee appraisals than effort. providing superb customer service by hiring. integrity.could to increase customer satisfaction. training and retaining the best employees.
Kaplan. as every member’s task in formulating the core business information is certainly much higher than in the case of centralised strategic management systems. David P. Second. p.Quinn says these task-force findings showed the company why change was needed. To mention just a fraction of them: Chase Manhattan. Mobil. Sears. "In 1992. it’s logical that those four perspectives go together for most people.52 During the interview with Mr. and Norton. The personal experience of the author is shortly the following. an independent study of 203 companies found that in 1996 Sears made the second-highest improvement in customer satisfaction.2. "First." By 1996. Nov-Dec 1996. Tiit Elenurm." he notes. Second. the Balanced Scorecard has proven its usefulness also as a two-way communications tool that enables to pass information more easily to all the members of an organisation. IBM. Multilevel analysis of organisational strategy helps to identify possible shortcomings and flaws of existing objectives. it was identified that so far the applications of Balanced Scorecard and related instruments are not yet familiar to Estonian companies. Financial Executive. The Balanced Scorecard is definitely a useful tool to renew an organisation’s mission and strategic objectives. it was possible to identify that throughout the world has the Balanced Scorecard received very warm welcome among numerous very prestigious companies. 33.
. there’s a blending of Scorecard and performance management — the whole idea is that the better the measurement system I put in place. Conclusions and Recommendations on Implementing a Balanced Scorecard From the possible research resources from Internet and major international business journals." 3. Hewlett-Packard. Shell." Quinn adds. Sears’ customer service was above the industry average. In addition. managing director of Estonian-based consulting company EM-International. The number is constantly growing every day. Texaco. Robert S.. "There’s an appeal to the Balanced Scorecard on two fronts. "our customer satisfaction was below the industry average and 16 percentage points behind our leading competitor. Knowing the Score. the more accountable I can hold someone. FMC Corporation.
During the completion of the thesis. because discussions on so many levels of management undoubtedly takes some time. The preparatory process for all of those initiatives is largely the same. The second problem is increasing time constraints. it turns the activities of an organisation much more efficient as its every member is more aware and committed to the strategy.the same time. As one of negative impacts of the Balanced Scorecard it may be noted slowing down of some strategic planning processes. it avoids performing many tasks that are not in line with objectives and members start to diminish less important assignments that do not contribute to goals. which may diminish significantly the project implementation time and end in better results.
. However. to diminish those backlogs it is definitely recommended to use an information-technology based solution in implementing Balanced Scorecard. market and sell their software solutions for better management of the Balanced Scorecard. because some increase in bureaucracy and increase in reporting. the author managed to find at least four different software providers.or EFQM-based quality management systems. who have started to actively develop. It might also be recommended to start building up the Balanced Scorecard together with the implementation of some ISO. In the end. the Balanced Scorecard simplifies the analysis of monthly performance review and compares the results of the review with strategic objectives. Third.
Sears. processes. and innovation. The main objective of the Balanced Scorecard is to bring those different perspectives together into an uniform system that would enable to measure them in a balanced way that is derived from the strategic objectives of an organisation. has nothing especially new. The Balanced Scorecard may be described as a strategy-driven measurement system that retains traditional financial measures. IBM. Mobil. In author’s opinion. but adds also the perspectives of present and potential (future) value of a company. the companies who are willing to remain competitive during today’s shift from industrial age business to information age business will have to start consider implementing the Balanced Scorecard. c) learning and growth. Summary The overall objective of the thesis was to analyse the use of Balanced Scorecard as a performance measurement tool in the areas of general management and strategic management. Therefore. Shell.
. From the possible research resources from Internet and major international business journals. namely its customers. Hewlett-Packard. Internal business processes have been targeted by several quality management systems. Texaco. Author goes through detailed steps in implementing the Balanced Scorecard in an organisation and during that tour he advises on practical questions which may arise in implementing the Balanced Scorecard for the first time. Learning and growth has been analysed by a few trends under knowledge management. the Balanced Scorecard methodology may be regarded as the most practical management tool since the SWOT analysis. b) internal business processes. By its nature the four-fold division of the Balanced Scorecard into the perspectives of a) financial. it was possible to identify that throughout the world has the Balanced Scorecard received very warm welcome among numerous very prestigious companies. The number is constantly growing every day. Clients also have been subject to several kinds of statistical and non-statistical researches. FMC Corporation. To mention just a fraction of them: Chase Manhattan. and d) clients. suppliers. technology.4. employees.
the author managed to find at least four different software providers. It might also be recommended to start building up the Balanced Scorecard together with the implementation of some ISO. Multilevel analysis of organisational strategy helps to identify possible shortcomings and flaws of existing objectives. The author found in the thesis show that the Balanced Scorecard may be considered as one of the best remedies in tackling with the questions concerning: • • linking strategic vision and long-term objectives to short term tactics. The author finds that the Balanced Scorecard is definitely a useful tool to renew an organisation’s mission and strategic objectives.Especially Estonian companies would have to try to acquire more information about the Balanced Scorecard and its possible implementation schemes in order to get competitive advantages in the European Union and world markets. • • efficient performance measurement. During the completion of the thesis. which may diminish significantly the project implementation time and end in better results. The preparatory process for all of those initiatives is largely the same. To diminish some backlogs that might be encountered during implementation of the Balanced Scorecard it is definitely recommended to use an information-technology based solution in implementing Balanced Scorecard.or EFQM-based quality management systems. review of strategic vision in the light of day-to-day operations management.
. market and sell their software solutions for better management of the Balanced Scorecard. directing sophisticated and different critical paths of success in the light of strategic management. who have started to actively develop.
D.com/bscauthority (last accessed by the author in 14th of April 2000). 1977). Relevance Lost: The Rise and Fall of Management Accounting (Boston: Harvard Business School Press. manager of EM-International. Andrew and Marcus Alexander. Turning Goals into Results: The Power of Catalytic Mechanisms Harvard Business Review. Peter F. Made in U. Johnson.. 5. H. What’s Wrong with Strategy? Harvard Business Review. vice president of the Massachusetts-based consulting firm Balanced Score Card Collaborative Inc. Downing. D. 1987). Scale and Scope: The Dynamics of Industrial Capitalism (Cambridge. Jim. Campbell.businessfinancemag. Jul-Aug 1999. Management Challenges for the 21st Century (New York: Harper Business. Drucker.S. Jr. Chandler. 4. Drucker. Tiit.. Ruth. Breaking the Constraints to World-Class Performance (Milwaukee. Alas.A. A. Harvard Business Review. 1990). Chandler. 7. 13. A. 10. 2. 12. Laura. Jr. Juran. 8. William H. Interview over internet address in the Business Finance Magazine http://www. Management: Tasks. Joseph M. 1985).. The Scorecard Authority – Websites for Management Insights at address http://www.Bibliography 1.
. Kaplan. 3.. Dettmer. Responsibilities and Practices (New York: Harper & Row.. and Robert S. Strateegiline juhtimine (Tallinn. T. Peter F. Jul-Aug 1993. 1999). Massachusetts: Harvard University Press. Nov-Dec 1997. Massachusetts: Harvard University Press. The Visible Hand: The Managerial Revolution in American Business (Cambridge. Interview conducted in 31st of March 2000. 11. Wisconsin: ASQ Quality Press. 1998).: A Renaissance in Quality. 6.bettermanagement.com/ 9. 1997). Külim. Collins. Elenurm.
Robert S. Robert S. Kaplan. Robert S. Robert S. Interview over internet address in the Business Finance Magazine http://www. Norton. former vice president of quality. 22. and David P. Harvard Business Review. Quinn. Norton. Kurtzman. and David P. Linking the Balanced Scorecard to Strategy. Financial Executive. Kaplan. 18. Is Your Company off Course? Now You can Find Out Why. Using the Balanced Scorecard as a Strategic Management System. 21. and David P. Sept-Oct 1994. Devising a Balanced Scorecard Matched to Business Strategy. Translating Strategy into Action – The Balanced Scorecard (Boston: Harvard Business School Press. 16. Harvard Business Review. 1997. and David P.com/
. Robert S. 19. Norton. Kaplan. 15. 23. California Management Review. Joel. Sept-Oct 1993. The Balanced Scorecard – Measures that Drive Performance. and David P. and David P. Sept-Oct 1996. Sears.. Roebuck & Co. Putting the Balanced Scorecard to Work. 17. SeptOct 1993. Kaplan. Norton. Jan-Feb 1996. Robert S. Planning Review. Fall 1996. 24. 17th of February. Knowing the Score. and David P. Norton. 20. Strategy and Leadership. Harvard Business Review. Nov-Dec 1996. Norton. Kaplan. 1996).14. Robert S. Robert S. Norton. Kaplan. Robert S. Rick . Kaplan. Strategic Learning and the Balanced Scorecard.businessfinancemag. Harvard Business Review. Norton. Jan-Feb 1992. Fortune. Kaplan. Kaplan. Implementing the Balanced Scorecard at FMC Corporation: An Interview with Larry Brady. and David P.
mis analüüsib lisaks mineviku tegevuse edukusele viitavatele traditsioonilistele rahalistele näitajatele (nt kasum ja varade tootlus) ka organisatsiooni käesoleva hetke ning tuleviku näitajaid. Shell. iseenesest midagi uut. õppimise ja arengu osasid on analüüsitud teadmusjuhtimise erinevates suundades ning kliente on samuti uuritud erinevate küsitluste ja statistiliste analüüside käigus. Tasakaalustatud hindemaatriksi ülesandeks ongi tuua kõik need erinevad organisatsiooni tegevust analüüsivad näitajad kokku ühtsesse süsteemi ning mõõta neid tasakaalustatult. et kuni 1980-date aastateni kasutusel olnud finantsnäitajatel baseeruvad mõõtmissüsteemid ei andnud adekvaatset pilti organisatsiooni edukuse tegelikust seisust. Kaplani ja David P. allhankijate. Maailma juhtivates majandusajakirjades on viimaste aastate jooksul mainitud. Hewlett-Packard. mis koosneb a) rahalisest-.Resümee – Tasakaalustatud hindemaatriksi koostamine ja kasutamine Bakalaureusetöö eesmärk oli analüüsida tasakaalustatud hindemaatriksi kasutamist strateegilise juhtimise ja üldjuhtimise lähenemine valdkonnas. organisatsiooni strateegilistest eesmärkidest lähtuvalt. seisnes selles. c) õppimise ja arengu. Harvardi Peamine Ülikooli põhjus. Sears. Nortoni poolt loodi. Oma olemuselt ei ole tasakaalustatud hindemaatriksi tinglikus nelikjaotuses.ning teabeühiskonna keskses ärikeskkonnas konkurentsieelise säilitamiseks firmadel hakata kasutama tasakaalustatud hindekaardi metodoloogiaid. b) sisemiste äriprotsesside-. mis täieneb
. Töös analüüsitakse tasakaalustatud hindemaatriksi rakendamisega seonduvaid detaile ning antakse nõu rakendamisel tekkivate küsimuste lahendamiseks praktiliste näidete varal. töötajate. Tasakaalustatud hindemaatriks ongi definitsiooni kohaselt strateegiale orienteeritud tegevuse mõõtmissüsteem. tehnoloogiate ja uuendustega. mis annavad varasemast adekvaatsema pildi organisatsiooni tegevuse eesmärgipärasusest. Viimased seonduvad enamasti klientide.ning d) klientideperspektiivist. FMC Corporation. Sisemiste äriprotsessidega tegelevad varasemate teooriate raames põhjalikumalt kõikvõimalikud kvaliteedisüsteemid. Mobil. Texaco on ainult lühike osa nimekirjast. Autor soovitab tänapäevases informatsiooni. äriprotsesside. miks ja tasakaalustatud hindemaatriksi professorite
konsultantide Robert S. et see on juba kasutusele võetud paljudes globaalsetes organisatsioonides: Chase Manhattan. IBM.
mille abil täpsustada organisatsiooni missiooni ja strateegilisi eesmärke.. mis ei aita otseselt kaasa organisatsiooni eesmärkide saavutamisele ja on seega ebaefektiivsed. Käesoleva väitekirja kirjutamise ajal õnnestus autoril leida vähemalt nelja erineva tarkvarafirma poolt pakutavaid kohtvõrgul või internetil rajanevaid tarkvaralahendusi. mille abil on tasakaalustatud hindemaatriksi haldamist organisatsioonis võimalik tunduvalt lihtsustada. et kõik organisatsiooni liikmed oleksid organisatsiooni strateegiast paremini teadlikud ning sellele orienteeritud. sest niivõrd mitmetel tasanditel toimuvad diskussioonid strateegiate sõnastamise osas kahtlemata võtavad rohkem aega.iga päevaga. Lisaks aitab selle rakendamisel läbi viidav mitmetasandiline organisatsiooni protsesside analüüs identifitseerida võimalikke puudujääke olemasolevates eesmärkides. Rakenduse negatiivsete aspektidena võiks välja tuua loomulikult strateegilise planeerimise teatud protsesside tunduva aeglustumise. Teine ajaga seonduv negatiivne mõju on mõnevõrra suurenev bürokraatia. 33. Lõppkokkuvõttes aitab see vähendada nende tegevuste osakaalu. kuna erinevalt tsentraliseeritud strateegilise planeerimise süsteemidest on peaaegu iga organisatsiooni liige on kohustatud sõnastama mingi osa organisatsiooni tegevuse strateegilistest ja taktikalistest eesmärkidest ning nende seostest organisatsiooni missiooniga. Kahtlemata aitab see kanda ellu ka teist eesmärki – nimelt garanteerida seda. Teiseks on tasakaalustatud hindemaatriks tõestanud ka enese kasulikkust strateegiate kommunikatsioonivahendina. sest saabuv liitumine Euroopa Liiduga raskendab praegust konkurentsi veelgi. Samas on võimalik neid negatiivseid mõjusid vähendada juhul. kui maatriks ehitatakse üles infotehnoloogilise lahendusena ning selle abil on võimalik peaaegu reaalajas vaadelda muutusi organisatsiooni tegevuses. and Norton. Knowing the Score. Robert S. Kolmandaks lihtsustab tasakaalustatud hindemaatriks tunduvalt ülevaadet
operatiivjuhtimise erinevatest osadest.
. Autori enese kogemus tööst tasakaalustatud hindemaatriksi rakendamisel võiks lühidalt kokku võtta järgmiselt. mis on kuidagiviisi ühendatud suureneva aruandlusega. p. David P. Kahtlemata võib seda lugeda kasulikuks vahendiks. Financial Executive. Nov-Dec 1996. mis paraku kaasneb kõikide süsteemide puhul.53 Kahtlemata peaksid selle temaatikaga tegelema aktiivselt ka Eesti firmad.
et seda on soovitatav hakata rakendama koos ISOvõi EFQM-il põhineva kvaliteedisüsteemiga. Põhjus on selles. et tasakaalustatud hindemaatriksit võib lugeda üheks parimaks vahenditest. • • • juhtida erinevaid kriitilisi edutegureid strateegilise juhtimise metodoloogia valguses.Teine otsene soovitus seoses tasakaalustatud hindemaatriksi kasutuselevõtuga on see. et olemuselt kasutab tasakaalustatud hindemaatriks oma erinevates perspektiivides üpriski palju ülalnimetatud mõistete meetodeid. anda igapäevaste juhtimisotsuste kaudu hinnangut strateegilistele eesmärkidele. mistõttu nende rakenduste paralleelne kasutuselevõtt vähendab suuresti ajakulu ning lõppkokkuvõttes annab ka paremaid tulemusi. Autor leidis oma bakalaureusetöös. pikaajalisi eesmärke lühiajaliste operatiivjuhtimise sammudega. millega lahendada alljärgnevaid küsimusi: • siduda omavahel strateegilisi. hinnata töö tulemuste efektiivsust.
. kliendihaldusprojektiga ning living company kontseptsiooniga.