Definitions

BALANCED SCORECARD
Was developed by Kaplan and Norton(1961)

Kaplan and Norton (1996) noted that the Balanced

Scorecard provides managers with the
instrumentation they need to navigate to future
competitive success.

It translates an organization's mission and strategy

into a comprehensive set of performance measures
that provide the framework for a strategic
measurement and management system.
It retains an emphasis on achieving financial
objectives whilst including performance drivers of
these financial objectives thereby also monitoring
progress in building the capabilities and acquiring the
intangible assets they need for future growth.

NB. Balanced score card is therefore a system of

performance measurements that organizations uses to
track performance on its primary and secondary
objectives.
The organization's planning and strategy defines what
relationship s the organization must develop with
employees, its suppliers and the community to be
successful with its targeted customers, defines the
focus and scope of the balanced scorecard.

According to Atkinson,Banker,Kaplan and Mark

Young(1997) BSC should meet two requirements:
 IMPORTANCE OF A BALANCED SCORECARD
 Better Strategic Planning
 The Balanced Scorecard provides a powerful framework for
building and communicating strategy.
 The business model is visualised in a STRATEGY MAP which
helps managers to think about cause-and-effect relationships
between the different strategic objectives.
 The process of creating a Strategy Map ensures that consensus
is reached over a set of interrelated strategic objectives.
 It means that performance outcomes as well as key enablers or
drivers of future performance are identified to create a
complete picture of the strategy.
Improved Strategy Communication & Execution

 Having a one-page picture of the strategy allows companies to

easily communicate strategy internally and externally.
 We have known for a long time that a picture is worth a
thousand words.
 This 'plan on a page' facilitates the understanding of the
strategy and helps to engage staff and external stakeholders in
the delivery and review of the strategy.
 The thing to remember is that it is difficult for people to help
execute a strategy which they don’t fully understand.
Better Alignment of Projects and Initiatives

 The Balanced Scorecard help organisations map

their projects and initiatives to the different
strategic objectives, which in turn ensures that
the projects and initiatives are tightly focused on
delivering the most strategic objectives
 Better Management Information

 The Balanced Scorecard approach helps organisations

design key performance indicators for their various
strategic objectives.
 This ensures that companies are measuring what
actually matters.
 Research shows that companies with a BSC approach
tend to report higher quality management information
and better decision-making.
Improved Performance Reporting

 The Balanced Scorecard can be used to guide the

design of performance reports and dashboards.
 This ensures that the management reporting
focuses on the most important strategic issues
and helps companies monitor the execution of
their plan.
 Better Organisational Alignment

 The Balanced Scorecard enables companies to better

align their organisational structure with the strategic
objectives.
 In order to execute a plan well, organisations need to
ensure that all business units and support functions
are working towards the same goals.
 Cascading the Balanced Scorecard into those units will
help to achieve that and link strategy to operations.
 Better Process Alignment

 Well implemented Balanced Scorecards also help

to align organisational processes such as
budgeting, risk management and analytics with
the strategic priorities.
 This will help to create a truly strategy focused
organisation
PERSPECTIVES IN BALANCE D SCORECARD

BSC is a set of performance targets and results relating to

four dimensions of performance namely:
 Financial,
Customer,
 Internal process, and innovation
learning and growth.
 THE FINANCIAL PERSPECTIVE

Common measures at business unit level are the

operating profit, return on investment, residual income
and economic value added.

Other measures include relevant growth, cost reduction,
asset utilization.

Financial performance measures provide a common

language for analyzing and comparing companies thereby
providing an aggregate view of an organization's success
However, financial measures by themselves do not
provide incentives for success.

These tell a story about the past, but not the future
and hence do not guide performance in creating value
THE LEARNING AND GROWTH PERSPECTIVES

It is the perspective that identifies the infrastructure that

the business must build to create long-term growth and
improvements.
Emphasis investing for the future in areas other than
investing in assets and new product research and
development as these are included in internal business
process.
So organizations must invest in ,people ,systems and
organization procedures to achieve their long term
financial objectives:
Key measures identified by Kaplan

Employee capabilities

Information system capabilities

Motivation, Empowerment and alignment

EMPLOYEE CAPABILITIES

Core measurements are employee satisfaction employee

satisfaction, employee retention, employee productivity.

Employee satisfaction can be measured by surveys looking at

involvement in decision making, creativness etc.

Employee retention can be measured by annual percentage key

staff turnover or employee productivity.

INFORMATION SYSTEM CAPABILITIES
Availability of information on customers, internal processes
and financial consequences enhances competitive capabilities.

Measures include percentage of process with real time quality,
cycle time and cost feedback available, percentage of customer
facing employees having online information about customers.

Measures seek to provide indications of the availability of

internal process information to front line employees.
MOTIVATION, EMPOWERMENT AND ALIGNMENT

Outcomes of improvements per employee in relation to

motivation and empowerment are key.

Measures are percentage of employee with personal goals

aligned to balanced scorecard and the percentage of
employees who achieve personal goals.
 THE CUSTOMER PERSPECTIVE

This enables managers to identify the customer and

market segments in which the business unit will compete.
Target segments include existing and potential
customers.
Managers should then develop performance measures
that track the business unit’s ability to create satisfied and
loyal customers in targeted segments.
The perspectives include core and genuine measures
that relate to customer loyalty.
Measures relate to market share,
 customer retention,
 new customer acquisition,
customer satisfaction and
customer profitability.
MEASURING VALUE PROPOSITIONS

Value propositions are attributes that supplying

Companies provide through their products and services to
create loyalty and satisfaction in targeted customer
segments.
Common attributes despite variations in industries are:
Product or service attributes.
Customer satisfaction/relationship
Image and reputation/market share
Customer profitability
Product and service attributes encompass desirable
product or service features, price and quality.

The customer relationship dimension includes

delivery of the product or service to customer
including the response and delivery time, how the
customer feels about the buying experience.

The image and reputation dimension reflects the

intangible factors that attract a customer to a
company.
THE INTERNAL BUSINESS
PERSPECTIVE

In this perspective ,managers identify the critical internal

process for which the organization must excel in
implementing its strategy.
The internal business process measures should focus on
internal processes that will have greatest impact on
customer satisfaction and achieving the organization's
financial objectives.
Kaplan and Norton identify three principal internal
business processes namely:

Innovation

Operation processes

Post-service sales processes

INNOVATION
In this process ,managers research needs of customers
and then create the products or services that will meet
those needs.
Companies identify markets, new customers and the
emerging and the latent needs of existing customers.
They then design and develop new products and services
that enable them to reach these new markets and
customers.
Research to establish market size ,customer
preferences and the price sensitivity for targeted
product and service has be done.
The major problems with research and development is
that the benefits are enjoyed after a long time.
Kaplan and Norton point out that typical develop
process in the electronics industry could have two to
five years of sales.
Kaplan and Norton further highlight some of the
innovation measures they observed in organizations
as:
Percentage of sales from new products.
New product introduction versus competitors/new
product introduction versus plan.
Time to develop next generation of the products
Number of key items in which the company is the first
or second to the market.
Break even time
 OPERATION PROCESS

This process starts with the receipt of a customer order

and finishes with the delivery of the product or service to
the customer.
The major aim here is to deliver efficient ,consistent and
timely delivery of existing products and services to
customers.
the emergence of the global competitive environment and
the need to make customer satisfaction an overriding
priority has resulted in many companies supplementing
their financial measures with measures of
quality ,reliability ,delivery etc create value for customers.
Thus many organizations now focus on measures that
relates to achieving excellence in terms of time, quality and
cost.
CYCLE TIME MEASURES
Total cycle time measures the length of time required
from placing of an order by a customer to the delivery of
the product or service to the customer.
In manufacturing organisations cycle time measures the
time it takes from starting to finishing the production
process.
Cycle times should be measured and monitored and
trends observed
Total manufacturing time consist of the sum of
processing time, inspection time, wait time and move
time.
Only process time adds value and the remaining
activities are non –value adding activities .
The aim is to reduce time spent on non value added
activities and thus minimizing the manufacturing
cycle time.
Thus MCE = process time
 process time +inspection time wait time
move time.
QUALITY MEASURES
These includes measures such as:
Process parts –per million(ppm) defect rates
Yields (ratio of good items produced to good items entering
the process.
First pass yields
Waste
Scrap
Rework
Returns
Percentage of process under statistical process control
POST-SALES SERVICE PROCESSES
This is the last category relating to the internal business
process perspective which includes warranty and repairs
activities ,treatment of defects and returns and the
process and administration of customer payments.
Excellent community relationship is vital strategic
objective for ensuring continuity community support
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