Balanced Scorecards

What is a Balanced Scorecard? Measurement system Communication Tool Strategic management system .

Organizations Often Have A Gap Between Strategy and Action Strategy Is a Step In a Continuum MISSION Why we exist VALUES What’s important to us VISION What we want to be STRATEGY Our game plan STRATEGIC OUTCOMES Satisfied SHAREHOLDERS Delighted CUSTOMERS Efficient and Effective PROCESSES Motivated & Prepared WORKFORCE .

The Balanced Scorecard Is A Bridge To Close That Gap Strategy Is a Step In a Continuum MISSION Why we exist VALUES What’s important to us VISION What we want to be STRATEGY Our game plan BALANCED SCORECARD Implementation & Focus STRATEGIC INITIATIVES What we need to do PERSONAL OBJECTIVES What I need to do STRATEGIC OUTCOMES Satisfied SHAREHOLDERS Delighted CUSTOMERS Efficient and Effective PROCESSES Motivated & Prepared WORKFORCE .

Definition At the highest level. the Balanced Scorecard is a framework that helps organizations put strategy at the center of the organization by translating strategy into operational objectives that drive both behavior and performance.Balanced Scorecard . .

what customer needs must we serve?” • Price • Service • Quality Internal Perspective “To satisfy our • Cycle Time customers and shareholders. not simply to control Customer Perspective “To achieve our vision.The Balanced Scorecard Provides a Four Perspective Framework to Translate Strategy Into Operational Terms The Vision Financial Perspective “If we succeed. how will we look to our shareholders?” • Profitability • Growth • Shareholder Value  Measurement is the language that gives clarity to vague concepts  Measurement is used to communicate. at which • Productivity • Cost business processes must we excel?” Learning and Growth “To excel in our processes. what must our organization learn?” • New Skills • Continuous Improvement • Intellectual Assets .

A Good Balanced Scorecard Strategy Map Tells the Story of Your Strategy The Revenue Growth Strategy “Improve stability by broadening the sources of revenue from current customers” The Productivity Strategy “Improve operating efficiency by shifting customers to more cost-effective channels of distribution” Improve Returns Broaden Revenue Mix Improve Operating Efficiency Financial Perspective Increase Customer Confidence in Our Financial Advice Increase Customer Satisfaction Through Superior Execution Customer Perspective Internal Perspective Understand Customer Segments Develop New Products Cross-Sell the Product Line Shift to Appropriate Channel Provide Rapid Response Minimize Problems Increase Employee Productivity Learning Perspective Develop Strategic Skills Access to Strategic Information Align Personal Goals .

Responsive Service  Cross-Sell Ratio  Channel Mix Change  Service Error Rate  Request Fulfillment Time  Hours with Customers Learning L1 .Cross-Sell Products I4 .A Good Balanced Scorecard Tells the Story of Your Strategy Through A Set of Linked Cause and Effect Hypotheses Strategic Objectives Financial F1 .Shift Customers to CostEffective Channels I5 .Create Innovative Products  New Product Revenue  Product Development Cycle Internal I3 .Reduce Cost Structure Strategic Measurements (Lag Indicators)  Return on Investment  Revenue Growth  Deposit Service Cost Change (Lead Indicators)  Revenue Mix Customer C1 .Improve Returns F2 .Provide Strategic Info L3 .Broaden Revenue Mix F3 .Understand Our Customers I2 .Develop Strategic Skills L2 .Increase Satisfaction “After the Sale”  Share of Segment  Depth of Relation  Customer Retention  Satisfaction Survey I1 .Align Personal Goals  Employee Satisfaction  Revenue per Employee  Strategic Job Coverage Ratio  Strategic Info Availability Ratio  Personal Goals Alignment (%) .Minimize Operational Problems I6 .Increase Customer Satisfaction With Our Products & People C2 .

Theme Example from Southwest Airlines’ Balanced Scorecard Strategy Map: Diagram of the cause-and-effect relationships between strategic objectives Strategic Theme: Operating Efficiency Financial Profitability Lower Costs Customer Flight is on time Lowest prices Increase Revenue Statement of what strategy must achieve and what’s critical to its success How success in achieving the strategy will be measured and tracked The level of performance or rate of improvement needed Key action programs required to achieve objectives Objectives Internal Fast ground turnaround Measurement Target Initiative • Fast ground turnaround • On Ground Time • On-Time Departure • 30 Minutes • 90% • Cycle time optimization Learning Ground crew alignment .

Assure consistent high quality 4. Improve customer satisfaction 3. Strengthen innovation 2. Provide operational excellence Meet access expectations • 3rd available appointment (% met) • • • „02 xx% „03 xx% „04 xx% • Access project • Meet monthly target • Mkg. Chairs • $ xxxx Learning • Promote ABC Culture Model • Employee Satisfaction Survey • • • • Evaluate survey response • Deadline met • HR Committee • $ xxxx Strategic Tactical . Team • $ xxxx • Internal Assure optimum patient mix • % patient mix • • • ‟02 = 39% ‟03 = 40% ‟04 = 41% „02 xx% „03 xx% „04 xx% • Mix Margins Project • Complete by 2003 • Dept. ABC Hospital System will provide excellent care in our selected specialty areas while maintaining margin and growing share Serve the needs of patients excellently Customer Financial • Grow revenue from patient care • 1.The Balanced Scorecard Supports a Complete Strategic Management System by Linking Long Term Strategy and Measures to More Tactical Planning & Budgeting Longer Term (3-5 year) View Mission Vision Themes/ Goals Objectives Shorter Term (Annual) View Measures • % patient care revenue growth • • • Targets „02 xx% „03 xx% „04 xx% Initiatives Milestones Accountable Resource Alloc.

Inventory management I4 Improve health. Improve hardware and performance I3 Supply. Logistics 1. industry Risk index Delight the Consumer Win-Win Relationship CO UM SE TR - C1 Continually delight the targeted consumer * Share of segment in key markets * Mystery shopper rating C2 Improve dealer/distributor profitability * Dealer/distributor margin on gasoline * Dealer/distributor survey Safe and Reliable I1 Marketing 1. competitors * Trading margin * Inventory level compared to plan & to output rate * Number of incidents * Days away from work I5 Quality * Quality index Motivated and Prepared L E & A G R R N O I W N T G H L1 Organization Involvement L2 Core competencies and skills L3 Access to strategic information * Employee survey * Strategic competing (?) availability * Strategic information availability . competition Profitability index Yield index Competitive Supplier Good Neighbor On Spec On time I N T E R N A L I2 Manufacturing 1.Balanced Scorecard for Mobil N. Trading organization 3. Lower manufacturing costs 2. Dealer/distributor quality * Non-gasoline revenue and margin per square foot * Dealer/distributor acceptance rate of new programs * Dealer/distributor quality ratings * * * * ROCE on refinery Total expenses (per gallon) Vs. Trading. Innovative products and services 2. and environmental performance Delivered cost per gallon .Vs. safety. Reducing delivered cost 2. American Marketing & Refining Strategic Objectives Financially Strong F I N A N C I A L F1 Return on Capital Employed F2 Cash Flow F3 Profitability F4 Lowest Cost F5 Profitable Growth F6 Manage risk * * * * * * Strategic Measures ROCE Cash Flow Net Margin Full cost per gallon delivered to customer Volume growth rate Vs.

97. Financial Perspective Productivity Strategy Maximize utilization of existing assets and integrate the business to reduce total delivered cost. Return on Capital Increased from 6% to 16% Competitive Position (profitability) From last (1993) to first (95. 96. 98) Volume Growth Exceeds industry by 2-2.The Mobil Story (US Marketing & Refining): 1993-1998 Growth Strategy Improve quality of revenue by understanding customer needs and differentiating ourselves accordingly.5% annually Customer Perspective Reduce Cash Expenses Down by 20% Improve Cash Flow From -$500 M/Yr to +$700 M/Yr Customer Satisfaction Continuous improvement for 3 consecutive years Product Innovation Customer Management Internal Perspective Speedpass Active Increasing at rate of 1M per year Dealer Quality Continuous improvement for 4 consecutive years Perfect Orders Continuous improvement for 4 consecutive years Good Neighbor Operational Excellence Quality Continuous improvement for 4 consecutive years Learning & Growth Perspective Capacity Utilization Annual value of lost yield reduced from $175m to $50m Safety Lost work incidents down from 150 to 30 per year Environmental Number of incidents reduced by 63% Motivated & Prepared Workforce Strategic Awareness Annual employee survey shows awareness of strategy increased from 20% to 80% .

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