Professional Documents
Culture Documents
BALANCED
Management
SCORECARD
Balanced Score Card
Balanced Scorecard 2
Balanced Score Card
• A new approach to strategic management
was developed in the early 1990's by Drs.
Robert Kaplan (Harvard Business School)
and David Norton (Balanced Scorecard
Collaborative).
• They named this system the 'balanced
scorecard'. Recognizing some of the
weaknesses and vagueness of previous
management approaches, the balanced
scorecard approach provides a clear
prescription as to what companies should
measure in order to 'balance' the financial
perspective.
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Balanced Score Card
• Kaplan and Norton describe the innovation of
the balanced scorecard as follows:
Financial Perspective
How should we appear
to our shareholders?
Internal Business
Customer Perspective
How should we Vision Perspective
appear to our And At what business
customers? Strategy practice must we
excel?
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Balanced Scorecard
Financial Perspective
How do we look to our
shareholders?
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Balanced Scorecard for a Retailer
Financial Perspective
EVA (Residual Income)
Profit per square foot
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Vertical Balanced Scorecard
Financial Objectives
Customer Objectives
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A Balanced Scorecard
“Is a performance measurement system
that translates an organization’s strategy
into clear objectives, measures, targets,
and initiatives.”
(Kaplan and Norton, Harvard Business Review, 1996)
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Balanced Scorecard
The balanced scorecard (BSC) provides a
framework for selecting multiple performance
measures focused on critical aspects of business
(Kaplan and Norton 1992).
2
Translating Strategy Into Initiatives
For each perspective:
Strategy
Targets Initiatives
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A Strategic Scorecard
• Should include leading indicators
Leading indicators: Drivers of long term
value
Lagging indicators: Feedback measures
on current performance
• Should include outcome measures as well as
measures of the drivers of those outcomes
• Should link all measures with the overall
strategy
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Diagnostic vs Strategic Measures
Diagnostic measures
Monitor whether the business remains
“in control”
Signal when unusual events occur that
require immediate attention
Necessary, but not sufficient, for
achieving long term goals
Strategic measures
Articulate a strategy designed for
competitive excellence
Evaluate strategies based on new
information about competitors,
customers, markets, technologies &
suppliers
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Financial Perspective
Customizing Measures for the Growth Stage
• Sales growth rate
• Sales in new markets
• Sales to new customers
• Sales from new products
• Investment in product development
• Investment in information technology
• Investment in employee skills
• Investment in new distribution channels
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Financial Perspective
Customizing Measures for the Sustain Stage
• Return on capital employed
• Economic Value Added (EVA)
• Operating income/Gross margin
• Discounted cash flows
• Asset utilization rates
• Cost reduction rates
• Cost benchmarked against competitors
• Customer and product line profitability
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Financial Perspective
Customizing Measures for the Harvest Stage
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Customer Perspective:
Strategic Outcome Measures
Financial Objectives
Customer Outcomes
Market
Share Customer
Account Profitability
Share
Customer Customer
Acquisition Retention
Customer
Satisfaction
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Customer Perspective:
Unique Value Proposition
Customer Customer
Acquisition Retention
Customer
Satisfaction
Product/Service
Value = Attributes + Image + Relationship
Uniqueness Functionality Quality Price Time Brand Equity Convenient Trusted Responsive
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The Internal Perspective
Generic Service Value Chain Model
Post-Sale
Innovation Cycle Operations Cycle
Service Cycle
Create Satisfy
Identify
Identify Identify the Produce Deliver Service Satisfy
Custome the the the the Custome
Custome
Custome Service
rrNeeds Market Offering Services Services Customer rrNeeds
Needs
Needs
Efficiency
Effectiveness
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Learning and Growth Perspective
Objectives Capability Measures
Employee
Skills
• Real-time availability
Long Term Information • Accuracy
Success Systems • Pervasiveness
Organizational • Alignment of incentives
Processes with key success factors
• Satisfaction
• Improvement in key
• Retention customer and internal
• Training processes
• Capabilities
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So, A Balanced Scorecard…
• Is much more than a collection of indicators
of key success factors.
• Is a flight simulator, not a dashboard of
instrument dials.
• Integrates performance measures with a
unique strategy.
• Incorporates cause-and-effect relationships,
including leads, lags and feedback loops.
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Linking the Balanced Scorecard to Strategy
A Strategy Is a Set of Hypotheses About Cause and Effect
Return on
Financial Capital Employed
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Link to Financial Objectives
• Balanced scorecard retains a strong
emphasis on financial outcome measures.
• Ultimately, causal paths from all
performance measures should be linked
to financial objectives.
• Failure to link improvement programs
(e.g. TQM, cycle time reduction,
reengineering, and employee
empowerment) results inevitably in
organizations becoming disillusioned
about lack of tangible payoffs.
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The Balanced Scorecard for The Women’s Store Employed in the Experiment
Measure Target Actual Percent Better
than Target
Financial:
1. Sales margins 60% 67.02% 11.70%
2. Sales growth per store 15% 16.75% 11.67%
3. Inventory turnover 6 6.59 9.83%
4. Debt-to-assets ratio < 20% 18.07% 9.65%
Customer:
1. Price relative to competitors’ price +7% 7.79% 11.29%
2. Customer satisfaction rating 80% 88.44% 10.55%
3. Sales per square foot of retail space $30,000 $33,090 10.30%
4. Number of credit card customers per store 8,000 8,911 11.39%
Internal Process:
1. Brand recognition rating 80% 87.60% 9.50%
2. Number of stock-outs < 3 times 2.66 11.33%
3. “Mystery Shopper” audit rating 85% 93.47% 9.96%
4. Time to process customer returns < 4 min. 3.54 11.50%
Learning and Growth:
1. Employee satisfaction 80% 87.96% 9.95%
2. Employee suggestions per year 2.5 times 2.74 9.60%
3. Store computerization 60% 66.24% 10.40%
4. Hours of training invested in brand managers each 80 hours 89.10 11.38%
Metropolitan Bank’s Strategy
• “We must increase our income and revenue by
broadening the services sold to a targeted
group of customers.”
• “We cannot continue only
receiving deposits and
processing checks.
Competitive pressure implies
that we develop and
sell new services such as
mutual funds, credit
cards and financial advice.”
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Metropolitan Bank: Cause and Effect
Financial
Increase Return to
Perspective
Stockholders
Broaden
Revenue Mix
Customer
Increase Customer Satisfaction Perspective
With Our Products
Instill a Learning
Selling Culture Perspective
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Metropolitan Bank’s Balanced Scorecard
Strategic Objectives Strategic Measures
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Why Do We Need a Balanced Scorecard?
To Implement Business Strategy!
“Business Strategy is now
the single most important
issue… and will remain so for
the next five years”
Business Week
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Scorecard Structure
• Scorecard is very context-specific
Industry and competitive factors
Life-cycle of business unit
Business strategy
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To Implement a Balanced Scorecard
The organization must
• Define and develop measures for its
primary strategic objectives.
• Understand how different business
processes contribute to its strategic
objectives.
• Identify the drivers of performance on
strategic objectives.
• Develop a set of measures to monitor
drivers of strategic objectives.
• Communicate its beliefs about how
processes create results.
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