Business Strategy

LO3
The Balanced Scorecard Approach
What is a Balanced
Scorecard?
The Balanced Scorecard is a strategic planning
and management system used to align business
activities to the vision and strategy of the
organization by monitoring performance against
strategic goals.
Balanced Scorecard
Concept
 Was first published in 1992 by Kaplan and
Norton, a book followed in 1996.
 Traditional performance measurement that only
focus on external accounting data are
 obsolete.
The approach is to provide 'balance' to the
financial perspective.
Why Use a Balanced
Scorecard?
 Improve organizational performance by
measuring what matters
 Increase focus on strategy and results
 Align organization strategy with workers on a
day-to-day basis
 Focus on the drivers key to future
 performance
Improve communication of the organization’s
 Vision and Strategy
Prioritize Projects / Initiatives
 4 Original Business
Perspectives
 The Balanced
Scorecard model
suggests that we
view the
organization from
4 perspectives.

 Then Develop
metrics, collect
data and analyze it
relative to each of
these
perspectives
Adapted from The Balanced Scorecard by Kaplan & Norton
4 Business Perspectives
Questions
 Financial
 What must we do to create sustainable economic
value?
 Internal Business
 To satisfy Process
our stakeholders, what must be our levels of
productivity, efficiency, and quality?
 Learning and Growth
 How does our employee performance management
system, including feedback to employees, support high
performance?
 Customer
 What do our customers require from us and how are we
doing according to those requirements?
Balanced Scorecard Measurements
Key Implementation Success
Factors
 Obtaining executive sponsorship and
commitment
 Involving a broad base of leaders, managers
and employees in scorecard development
 Choose the right Scorecard Champion
 Beginning interactive (two-way) communication
first
 Viewing the scorecard as a long-term journey
rather than a short-term project
 Getting outside help if needed
 Balanced Scorecard
Example STRATEGY MAP
PROCESS: MANUFACTURING EXCELLENCE
THEME: ROCE > xx%, VOLUME = xx,xxx units
OBJECTIVES
BALANCED SCORECARD
MEASUREMENT TARGET
ACTION PLAN
INITIATIVE BUDGET

FINANCIAL
PERSPECTIVE • Operating Cost & Efficiency • Cost/Unit, Efficiency • Monthly Monitoring
Long-Term Shareholder • Weekly/Monthly
Value ROCE > xx% • Capacity Utilization • % Utilization
Monitoring
• Trial Prod.
• Capability Utilization
• Spare Parts Prod • Monthly Monitoring
Improve Grow
Productivity Revenue •Weekly/Monthly
• Brand / Image • Warranty Cost t
Monitoring

CUSTOMER
PERSPECTIVE • Low Cost Manufacturing • Man-hour per Unit • Weekly Monitoring

OFFER PRODUCTS & SERVCIES • World-Class Quality

• Defect per Unit • Daily Monitoring
THAT ARE CONSISTENT, TIMELY Standards
and LOW-COST • World-Class Delivery Timing • Sales Delivery • Daily Monitoring
Low World • Knowledgeable & Skilled
• Direct Pass Rate • Daily Monitoring
Cost Partner
Customer Class
Enhance • High Customer Satisfaction • Market Feedback • Weekly Monitoring
OPEX
Satisfaction Brand
• Reinforce Brand Image • Sales Volume
• Monthly Monitoring RM XX M
Prod. & Sales Mtg.

INTERNAL
PERSPECTIVE • Productivity • Cycle Time • Hourly Monitoring CAPEX
ENSURE OPERATIONAL EXCELLENCE WITH
INNOVATION AS WELL BEING SOCIALLY
• Delivery
• Meet Daily Plan
• WIP
• Daily Monitoring
• Daily Monitoring RM xx M
RESPONSIBLE • KAIZEN • Monthly follow-up
• Continuous Improvement
• ICC • Specific Programmed
Operational Process • NPI • Timely Introduction • Weekly Follow-up
Excellence Innovation
• Industrial Accident • Cross Audits
Alliances with Socially • Safety & Health
• Commuting Accident • Defensive Driving
SBUs Responsible • Toxic Waste Disposal • Facility Readiness
• Environment
• ISO 9002 • Certification

LEARNING & GROWTH

PERSPECTIVE • Training and Skill
• Develop the Necessary Skills • R&D & Development
Build-up
STRATEGIC JOB & SYSTEMS
•Information Systems • ALC, Procurement, • Set-up, Test and
Availability Financial Validation
Skills Info. System •Communication
• Strategic Awareness • Alignment
Programmed
Balanced Scorecard Strategy
Map
Department Level Scorecard
Example
Scorecard Potential Pitfalls &
Criticisms
 Lack of a well Defined Strategy
 The balanced scorecard relies on a well defined strategy and

understanding of linkages between strategic objections and

metrics. Without this foundation the implementation could
 fail.
Too much focus
 Focusing onthe
on only thelagging
laggingmeasures
measuresmay cause a lack of
priority or opportunity for the leading measures.
 Use of Generic Metrics
 Don’t just copy metrics from another firm. Identify the
measures that apply to your strategy and competitive position .
 Self-serving managers
 Managers whose goal is to achieve a desired result in order to

obtain a bonus or other self reward.

Balanced Scorecard Benefit Re-
Cap
Helps align key performance measures with strategy at all levels of
an organization
 The methodology facilitates communication and understanding of
business goals and strategies at all levels of an organization
 Strategic initiatives that follow "best practices" methodologies that
cascade through the entire organization
 Transforms an organization’s mission statement and strategic plan
from a passive document into the "marching orders" for the
organization on a daily basis.
 It enables executives to truly execute their strategies by identifying
what should be done and measured.

To date, some form of a Balanced Scorecard is used by nearly 60% of

Fortune 500 companies