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Overview of the Balanced

Scorecard Development Process

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What Is a Balanced Scorecard?

At the highest level, the Balanced Scorecard is


A framework that helps organizations
translate strategy into operational objectives
that drive both behavior and performance.

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Balanced Scorecard History

Measurement Enterprise-wide
Alignment and
and Strategic
Communication
Reporting Management

1992 1996 2000

Articles in Harvard Business Review: Acceptance and Acclaim:


 “The Balanced Scorecard —  “The Balanced
Measures that Drive Performance” Scorecard” is translated
January - February 1992 into 18 languages
 “Putting the Balanced Scorecard to  Selected by Harvard
Work” September - October 1993 Business Review as
one of the “most
 “Using the Balanced Scorecard as
important management
a Strategic Management System”
practices of the past 75
January - February 1996
years.“
1996 2000

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The Premise Behind the Balanced Scorecard Is that
Measurement Motivates Behavior
The Premise
Measurement Communicates
Values, Priorities And Direction

The Conclusion
Measurement Must Be Linked To Strategy

Strategy
Balanced
Scorecard

Measurement To Communicate, Not To Control


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The Balanced Scorecard Is Based on an Understanding
of the Basic Building Blocks of the Strategy
Financial Perspective 1. The economic model of
Return on key levers driving financial
Revenue
Investment
Productivity performance
Strategy Strategy

Sources of Growth Sources of Productivity

Customer Perspective 2. The value proposition of


Value Proposition
target customers
Relatio-
Price Quality Time Function Image
ship

Internal Process Perspective


3. The value chain of core
“Build the “Make the “Deliver the “Service
business processes
Brand” Sale” Product” Exceptionally”

Learning & Growth Perspective 4. The critical enablers of


Staff Climate for
performance improvement,
Technology
Competencies + Infrastructure + Action change and learning

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We Use the Scorecard to Articulate Strategic
Hypotheses in Cause-effect Terms

And Realize
the Vision

Financial
To Drive Financial
Results Success...

Customer
Benefits Needed to Deliver Unique
Sets of Benefits to Customers...

Internal
To Build the Strategic Capabilities..
Capabilities

Knowledge, Skills, Systems, and Tools Equip our People...

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BSC Terminology
Strategy Map: Diagram of the
cause-and-effect relationships
between strategic objectives

Strategic Theme: Statement of How success


Operating Efficiency what strategy in achieving The level of Key action
Financial
must achieve the strategy performance programs
Profitability and what’s will be or rate of required to
critical to its measured and improvement achieve
More success tracked needed objectives
Fewer planes
customers

Customer
Flight Lowest
Is on time prices

Objectives Measurement Target Initiative


Internal
• Fast ground • On Ground Time • 30 Minutes • Cycle time
Fast ground turnaround • On-Time • 90% optimization
turnaround Departure

Learning

Ground crew
alignment

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Balanced Scorecard Example

Strategic Theme:
Objectives Measurement Target Initiative
Operating Efficiency
Financial
Profitability • Profitability • Market Value • 30% CAGR
• More • Seat Revenue • 20% CAGR
More Customers
Fewer Planes
Customers • Plane Lease • 5% CAGR
• Fewer planes Cost
Customer • Flight is on - • FAA On Time • #1 • Quality
Flight Lowest time Arrival Rating management
Is on Time Prices • Lowest prices • Customer • #1 • Customer
Ranking (Market loyalty
Survey) program
Internal • Fast ground • On Ground Time • 30 Minutes • Cycle time
Fast Ground turnaround • On-Time • 90% optimization
Turnaround Departure program

Learning • Ground crew • % Ground crew • yr. 1 70% • ESOP


alignment trained yr. 3 90%
Ground Crew yr. 5 100%
• Ground crew
Alignment • % Ground crew training
stockholders

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Some of the Indicators of Good Balanced Scorecard
1. Executive Involvement
Strategic decision makers must validate and own
the strategy and related measures

2. Cause-and-Effect Relationships
Every objective selected should be part of a chain of
A good Balanced cause and effect linkages that represent the
Scorecard will strategy
“tell the story” of
3. Balance between outcome and leading
your strategy in measures There should be a balance of outcome
actionable terms. measures and leading measures to facilitate
anticipatory management
4. Financial Linkage
Every objective can ultimately be related to financial
results

5. Linkage of Initiatives and Measures: Each


initiative should be based on a gap between
baseline and target.

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Some Goals of the Balanced Scorecard

 Provide a generic framework to translate strategy into


operational terms
 Create a systems approach to form an integrated Strategic
Management Process
 Provide a clear line of sight to the vision and strategy of the
company
 Provide a tool for communicating the :
• strategy, and
• processes and systems required for implementing the strategy
 Draw a cause and effect roadmap to stakeholder value –
shareholder, customer, and employee.

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How Does the Scorecard Benefit Your Organization?

• Improves management effectiveness by having a shared


and actionable view of the strategy
• Optimizes and ensures strategic outcomes for a given set
of resources
• Enables employees to work in a coordinated, collaborative
fashion towards organizational goals
• Speeds time to value through faster more informed
decision-making on time and resource allocation
• Accelerates the approach, and its accuracy to the strategic
destination

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Some Results of Balanced Scorecard Users
CIGNA Property & Casualty Mobil USM&R
1993 – $275 loss 1993 – #6 in Profitability
1998 – Top Quartile 1995 – #1 in Profitability
1999 – $3b spin-off 1998 – #1 in Profitability
1999 -- Acquired by Exxon

Brown & Root Engineering (Rockwater) ATT Canada


1993 – Losing money 1995 – $300M loss
1996 – # 1 in Niche 1998 – Customer base doubles
(growth & profits) 1999 – $7b spin-off

Zeneca Agricultural Southern Citrus


1995 1998
1994 – BSC introduced
1998 – Sales growth 2X industry
Profits > competitors
• Shipments on Spec 70% 97%
• On Time Delivery 89% 98%
• Rework 6% 2%
Chemical Bank
• Absenteeism 10% 1%
Profits • Employee Turnover 100 31
1993 – X • Cost per Pound (¢) 28.8 18.9
1998 – 20X

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Balanced Scorecard Six Step Development Process

Step 3
Step 1 Step 5
Draft a
Develop a Strategy Map Select Strategic
Project Plan With Linkages Initiatives
And Themes

Step 2
Step 4 Step 6
Build a
Determine Plan for
Strategic
Measures and implementation
Architecture
Targets of the SFO

Typically 8-12 Weeks

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Typical Balanced Scorecard Project Schedule

Week 1 2 3 4 5 6 7 8 9 10 11 12

Step1: Develop a project


plan

Step 2: Build a strategic


architecture

Step 3: Uncover strategic


linkages and key
themes

Step 4: Determine Measures


and Targets

Step 5: Select Strategic


Initiatives

Step 6: Plan for


Implementation

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Steps 1 to 3 Are the Basis for the BSC

Step 3
Steps 1 Uncover Step 5
Strategic
Develop a Linkages Select Priority
Project Plan and Key Initiatives
Themes

Step 2 Step 4
Step 6
Build a Determine
Plan for SFO
Strategic Measures and
Implementation
Architecture Targets

Work/Inputs Outputs:

• Strategy Documents Refine and • Agreed upon


• Draft themes and
Agree upon Review and stretch targets
rework Discuss
linkages based on stretch refine • Finalized theme(s)
draft next steps • Strategy map
Strategic Destination targets themes
linkages

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Step 4: Measures Development

Steps 1 Step 3
Step 5
Define Build the
Select Priority
Strategic Strategic
Initiatives
Destination Linkages

Step 2
Step 4
Step 6
Identify Key
Determine
Themes Plan for SFO
Measures and
Driving the Implementation
Targets
Strategy

Work/Inputs Outputs:

• Refined strategy • 90% complete


• Existing Refine and Review Begin Plan for linkages
measures Design new • Complete
validate draft targets measures
assigned to measures measures
objectives
linkages measures discussion development • Measures
• Draft measures development
developed plan in place

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Steps 5 & 6: Initiative Prioritization and
Implementation Planning

Steps 1 Step 3
Step 5
Define Build the
Select Priority
Strategic Strategic
Initiatives
Destination Linkages

Step 2
Step 4
Step 6
Identify Key
Determine
Themes Plan for SFO
Measures and
Driving the Implementation
Targets
Strategy

Outputs:
Work/Inputs:
Review and
• Refined linkages Align/ • “Locked in” on
and measures validate Review Brainstorm objectives and linkages
rationalize
• Inventory of linkages existing new • Measures defined
initiatives
existing initiatives and initiatives initiatives • Initiatives defined
• Proposed new to themes • Plan for initiatives
measures
initiatives review established
• Plan for implementation

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Review/Summary

• The Balanced Scorecard is a framework that helps organizations


translate strategy into operational objectives that drive both
behavior and performance
• The Balanced Scorecard is based on the premise that
measurement motivates
• The scorecard is broken down into four perspectives that are
linked
• The balanced scorecard has benefits across organizations
• A typical balanced scorecard project is 12 weeks, during which
time we help organizations translate strategy into operational
objectives, determine measures, and provide guidance on
setting targets and defining strategic initiatives

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