BALANCE SCORECARD
INTRODUCTION
•A
new
approach
to
strategic
management was developed in the early
1990's…
• by Drs. Robert Kaplan (Harvard Business
School) and David Norton.
•They named this system the 'balanced
scorecard'.
Rationale
•Growing dissatisfaction with traditional,
financial measures of performance.
•These measures suffer from a number
of serious drawbacks:
oshort-term view
ohistoric view of performance.
Rationale Cont.
• The shift towards flexible
production/service systems
and
lean
• requirement for performance measurement
systems to become more broadly based,
• incorporating both non-financial and external
measures of performance.
Lean production is an approach to mgt that focuses
on cutting out waste, whilst ensuring quality.
Importance of the Scorecard
• it provides a better assessment of performance.
• It enables companies to track financial results
while simultaneously monitoring non financial
performance.
• Is a management system that enables
organizations to clarify their vision, strategy and
translate them into action.
BALANCED SCORECARD
Four Perspectives
•
•
•
•
The Customer Perspective
The Business Process Perspective
The Innovation and Learning Perspective
The Financial Perspective
Perspective
Customer
Internal
Business
Innovation
and learning
Financial
Question
Explanation
What do existing and new Gives rise to targets that matter
customers value from us?
to customers: cost, quality,
delivery, inspection, handling
and so on.
What processes must we Aims to improve internal
excel at to achieve our processes and decision making.
financial
and
customer
objectives?
Can we continue to improve Considers the business's capacity
and create future value?
to maintain its competitive
position through the acquisition
of
new
skills
and
the
development of new products.
How do we create value for Covers traditional measures such
our shareholders?
as growth, profitability and
shareholder value but set through
talking to the shareholder or
shareholders direct.
CHARACTERISTICS OF BALANCED SCORECARD
1. It is a top-down reflection of the company’s
mission and strategy.
2. It is forward-looking. It addresses current
and future success.
3. It integrates external and internal measures
4. It helps you focus: balanced scorecard
requires managers to reach agreement on
only those measures that are most critical
Example
Financial Perspective
Customer Perspective
GOALS
Survive
MEASURES
Cash flow
GOALS
New Product
MEASURES
Percentage of sales
from new products
Succeed
Monthly sales growth and
operating income by
division
Responsive
supply
On-time
delivery
(defined by customer)
Increase market share and
ROI
Preferred
Supplier
Share of key accounts
purchases
Ranking
by
key
accounts
Customer
partnership
Number
of
cooperative
engineering effort
Prosper
Internal Business Perspective
GOALS
Technology
capacity
MEASURES
Manufacturing
configuration vs
competition
Manufacturing Cycle time
excellence
Unit cost
Yield
Innovation and Learning Perspective
GOALS
Technology
leadership
Silicon efficiency
Engineering efficiency
New product Actual introduction
introduction
schedule vs plan
Time to develop next
generation of products
Manufacturing Process
learning
maturity
Product focus
Design
productivity
MEASURES
time
to
Percentage of products
that equal 80% sales
Time to market New
introduction
competition
product
vs
READ ON
Balanced
Scorecard
Organizations
and
Not-For-Profit
Question
Spotlight Productions has in the past produced
just one fairly successful product. Recently,
however, a new version of this product has been
launched. Development work continues to add a
related product to the product list. Given below
are some details of the activities during the
month of November.
Units produced
– existing product
– new product
25,000
5,000
Cost of units produced – existing product GH¢375,000
– new product
GH¢70,000
Sales revenue
– existing product GH¢550,000
– new product
GH¢125,000
Hours worked
– existing product
– new product
Development costs
5,000
1,250
GH¢47,000
Required
(a) Suggest and calculate performance indicators
that could be calculated for each of the four
perspectives on the balanced scorecard.
(b) Suggest how this information would be
interpreted.
Clue
Customer: Percentage of sales of new product to
total sales 18.5%
Internal: • Productivity (Hrs/unit)
 Existing = 5 units per hour
 New Product = 4 units per hour
• Unit cost (Cost/unit)
 Existing = $15 per unit
 New Product = $14 per unit
Financial: Gross profit =(turnover-cost)/turnover
 Existing = 32%
 New Product = 44%
Innovation and learning: Development costs as
development cost/total turnover = 7%
THANK YOU