A general overview

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Gartner Group suggests that over 50% of large
US firms have adopted the BSC
Bain & Co finds that about 44% of organisations in North America use the BSC
Germany, Switzerland, and Austria - 26% of firms use BSCs
The widest use of the BSC approach can be found in the US, the UK, Northern Europe and
Japan http://www.apinstitute.com/Balanced%20Scorecard.html

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The balanced scorecard is for everyone in the organization. This means that the balanced scorecard should be cascaded to all departments/business units and teams
– both operating and support units. This is the only way to ensure successful strategy execution...
Sandy Richardson, Strategy Focused
Business Solutions Inc.

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 developed in 1992 - Robert Kaplan and David Norton
Translating corporate vision and strategy into a set of strategic objectives that drive behavior and performance built upon the premise that measurement motivates and that measurement must start with a clearly described strategy pioneering work of General Electric on performance measurement reporting in the 1950’s and the work of
French process engineers (who created the Tableau
de Bord – literally, a "dashboard" of performance measures) in the early part of the 20th century
http://www.balancedscorecard.org/BSCResources/AbouttheBalancedScorecard/tabid/55/Default.aspx

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 establishing the linking between Balanced
Scorecard and the Strategic Management system
BSC not linked to the Strategic management turns from the fundamental system into just the collection of the isolated indicators which do not have any influence on the strategic development of the company

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Better Strategic Planning –powerful framework for building and communicating strategy
Improved Strategy Communication & Execution –strategy with all its interrelated objectives is mapped on one piece of paper allows companies to easily communicate strategy internally and externally
Better Management Information
–forces organisations to design key performance indicators for their various strategic objectives
Research shows that companies with a BSC approach tend to report higher quality management information
Improved Performance Reporting –create meaningful management reports and dashboards to communicate performance both internally and externally
Better Strategic Alignment –align their organisation with the strategic objectives
Better Organisational Alignment –help to align organisational processes such as budgeting, risk management and analytics with the strategic priorities

Developed by the Balanced Scorecard Institute
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Step One: Assessment
Step Two: Strategy
Step Three: Objectives
Step Four: Strategy Map
Step Five: Performance Measures
Step Six: Initiatives
Step Seven: Automation
Step Eight: Cascade
Step Nine: Evaluation
Building & Implementing a Balanced Scorecard:
Nine Steps to Success TM http://www.balancedscorecard.org/BSCResources/TheNineStepstoSuccess/tabid/58/Default.aspx

Developed by the Balanced Scorecard Institute
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Step One: Assessment- BSC Development Plan
◦ assessment of the organization’s Mission and Vision, challenges (pains), enablers, and values
◦ Preparation of a change management plan for the organization
◦ conducting a focused communications workshop to identify key messages, media outlets, timing, and messengers
Step Two: Strategy - Customer Value
◦ Strategic Results, Strategic Themes, and Perspectives, are developed -focus attention on customer needs and the organization’s value proposition
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Step Three: Objectives- Strategy Action
Components
◦ Strategic Objectives are first initiated and categorized on the Strategic Theme level, categorized by Perspective, linked in cause-effect linkages (Strategy Maps)
Building & Implementing a Balanced Scorecard:
Nine Steps to Success TM http://www.balancedscorecard.org/BSCResources/TheNineStepstoSuccess/tabid/58/Default.aspx

Developed by the Balanced Scorecard Institute
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Step Four: Strategy Map-Cause-and-Effect
Links
◦ the cause and effect linkages between the enterprisewide Strategic Objectives are formalized in an enterprisewide Strategy Map
Step Five: Performance Measures
◦ Develop Performance Measures are for each of the enterprise-wide Strategic Objectives
◦ Lead and lag measures are identified
◦ Determine targets and thresholds, and
◦ Develop baseline and benchmarking data
Step Six: Initiatives
◦ Strategic Initiatives are developed that support the
Strategic Objectives
Building & Implementing a Balanced Scorecard:
Nine Steps to Success TM http://www.balancedscorecard.org/BSCResources/TheNineStepstoSuccess/tabid/58/Default.aspx

Developed by the Balanced Scorecard Institute
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Step Seven: Automation
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◦ Software
◦ Performance Reporting
◦ Knowledge Sharing
Step Eight: Cascade-key to organization alignment
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◦ Cascading a balanced scorecard means to translate the corporate-wide scorecard (referred to as Tier 1) down to first business units, support units or departments (Tier 2) and then teams or individuals (Tier 3)
◦ Cascading translates high-level strategy into lower-level objectives, measures, and operational details
◦ Determine performance measures at each level – more operational and tactical
Step Nine: Evaluation
◦ Strategy Results
◦ Revised Strategies
Building & Implementing a Balanced Scorecard:
Nine Steps to Success TM http://www.balancedscorecard.org/BSCResources/TheNineStepstoSuccess/tabid/58/Default.aspx

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The Balanced Scorecard is just one of three levels in the business management process:
Top level: Company-wide Strategy maps
Middle Level: Balanced Scorecard
Bottom Level: Initiatives

Exh.
10-11
Performance Measures
Financial
Has our financial performance improved?
What are our financial goals?
Customer
Do customers recognize that we are delivering more value?
What customers do we want to serve and how are we going to win and retain them?
Vision and
Strategy
Internal Business Processes
Have we improved key business processes so that we can deliver more value to customers?
Learning and Growth
Are we maintaining our ability to change and improve?
What internal business processes are critical to providing value to customers?
The Balanced Scorecard: From
Strategy to Performance
Measures

http://www.managerialaccounting.org/Balanced%20Scorecard.htm

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Translates a company’s mission and strategy into a comprehensive set of performance measures
Financial and nonfinancial aspects

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Who are your stakeholders?
What do your stakeholders need?
What are their strategic goals?
Create a Strategy Map-identify your priorities
Consider the four perspectives-
Business Processes, Customer
Relationship, Education and Growth, and
Finance

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 strategy map view
◦ articulates the strategy in a series of linked objectives representing the most important priorities for the organization scorecard view
◦ Gives specific measures and targets
◦ represent the yardstick and expected level of success
◦ the strategic initiatives or action programs that are the ways to achieve targets outside of current capabilities.
http://www.lenskold.com/content/articles/rigatuso_aug07.html

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The Learning & Growth Perspective
◦ includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement
The Business Process Perspective
◦ refers to internal business processes
The Customer Perspective
◦ the importance of customer focus and customer satisfaction in any business
◦ Lead indicators
The Financial Perspective
Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a Strategic Management System,” Harvard
Business Review (January-February 1996): 76.

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Organization & Learning: people, teams, training and recruiting
Internal Process: business process, automation, technology & plant infrastructure
Customer: marketing, value proposition, and product/service in the eyes of the customer
Financial: revenue, growth, earnings, corporate governance, shareholder value

http://www.ap-institute.com/resources_whitepapers.asp

http://www.torontospin.com/torontospin/events/doc/presentations/20041124-
MarkKozak-Holland.pdf

http://www.torontospin.com/torontospin/events/doc/presentations/20041124-
MarkKozak-Holland.pdf

http://www.torontospin.com/torontospin/events/doc/presentations/20041124-
MarkKozak-Holland.pdf

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 historical internal (company) data (from operational systems) historical external data (from third parties) forecast external data (from third parties) forecast company internal data (financial and non-financial) target values (eg EPS targets, Sales
Quotas, etc)
Data availability – existing vs. to be collected

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Decreed by executive management
Negotiated between the operational and line management
Selected from an industry benchmark
Selected from competitors known (or assumed) values
Selected as % change over last years historical value

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Key Performance Indicators
◦ reflect the critical success factors of an organization
◦ must be quantifiable stay with the same definition from year to year set targets for each Key Performance
Indicator identify everything that is easy to measure and count collect and report the data on everything that is easy to measure and count

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 help organizations understand how well they are performing in relation to their strategic goals and objectives
Show whether the organization is on track or not serve to reduce the complex nature of organisational performance to a small number of key indicators

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Good Key Performance Indicators vs. Bad
Bad:
◦ Title of KPI: Increase Sales
◦ Defined: Change in Sales volume from month to month
◦ Measured: Total of Sales By Region for all region
◦ Target: Increase each month
◦ What needs to be corrected?
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Good:
◦ Title of KPI: Employee Turnover
◦ Defined: no of employees resigned + no of employees terminated due to performance number of employees at the beginning of the year
◦ Measured: information available at human resources
◦ Target: Reduce Employee Turnover by 5% per year

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Who should design your indicators?
◦ Strategist and a line manager
Do you have good indicators?
◦ indicators should not repeat each other, but taken together, they should describe
90% of your company or business unit
Are your indicators easy to measure?
◦ should be easy to understand and measure
How many indicators?
◦ three or four indicators in each category. If you have more, you are overloading your scorecard

Marr, B. (2010) How to design
Key Performance Indicators,
Management Case Study,
The Advanced Performance
Institute (www.apinstitute.com). http://www.apinstitute.com/download s/100608%20How%20t o%20design%20Key%
20Performance%20Indi cators.pdf

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Type of data
◦ Raw
◦ Progress
◦ Change
Source of data
Frequency of data
Target performance graphs

http://www.enterprise-dashboard.com/2007/04/05/difference-between-balanced-scorecard-and-enterprise-dashboard/

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Culture change
Human resources
◦ tasks, responsibilities
◦ Performance appraisal, bonuses
Measurement and data collection
Information management

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 http://www.scorecardtrainings.com
http://www.balancedscorecard.org
http://www.bscdesigner.com

1. Recruitment KPI
2. Training KPI
3. Health and safety KPI
4. Performance KPI
5. Employee loyalty KPI
6. Working time KPI
7. HR efficiency KPI
8. Compensation KPI
9. Labor relation KPI
10. Regulation compliance KPI
11. Employee satisfaction KPI
• Attitude about compensation and benefits.
• Attitude about coworkers.
• Attitude about supervisors / managers.
• Attitude about promotions, training.
• Attitude about work tasks.
12. HR budget KPI
13. Job leaving KPI
◦ 1. Job leaving ratio per year.
◦ 2. Job leaving ratio per department.
◦ 3. Average age of employees that retire.
◦ 4. Percentage of early retirements
14. Workforce information KPI http://www.humanresources.hrvinet.com/recruitment-key-performance-indicators-kpi/

1. Customer care KPI
Customer care KPIs include KPIs such as frequency impact to customers, the rate of service charges / profits etc.
2. Customer appraisal KPI customer etc.
3. Complaints of customer KPI etc.
4. Market share KPI
They are KPIs related to market share of company such as market share of the company compared with the entire market, relative market share etc.
5. Customer loyalty KPI
These KPIs measure customer loyalty of company. Some KPIs are total customer lost, the rate of lost customers lost after purchasing first time etc.
6. Shops and supermarkets KPI measure effectiveness of sale channel of shop or supermarket.
7. Sales contact by telephone KPI
These ratios relate to effectiveness of contacting by telephone of salesman.
8. Sales rep KPI http://www.humanresources.hrvinet.com/sales-kpi/

1. Public relations KPI
PR KPI include KPIs related to appraisal indicators of Public relations such as effective PR items, press releases, conducting survey, the level of awareness of the enterprise through the public relations did etc.
2. Promotion KPI activities in marketing such as the rate of sales in promotion period and before the promotion, percentage of sales in promotion and after promotion etc.
3. Advertisement KPI
Advertisement KPI include KPIs related to appraisal indicators of advertisement activities in marketing such as the cost of advertising etc.
4. E-marketing KPI
E-marketing KPI include KPIs related to appraisal indicators of Emarketing in marketing such as the rate of new visitors, number of page views / visitors etc http://www.humanresources.hrvinet.com/marketing-kpi/

1. Manufacturing cycle time
Measured from the Firm Planned Order until the final production is reported. It usually takes into account the original planned production quantity verses the actual production quantity.
2. Defects per million opportunities (DPMO)
DPMO is a Six Sigma calculation used to indicate the amount of defects in a process per one million opportunities.
multiply the answer by 1 Million.
3. Average production costs of items
Average production costs of items produced within measurement period.
4. Mean-time between failure (MTBF) rate of equipment.
5. Loss ratio of material per order
This is lost ratio of material per order. The rate is usually 3 – 5% custom types orders.
6. Rate of material defect by causes of material itself value of money.
7. Rate of damaged material by error of workers money.
8. Scrap value %
Scrap value as a percentage of production value
http://www.humanresources.hrvinet.com/production-kpi/

1. Delivery on time
• Formula: the number of delivery on time / total delivery.
• Apply this formula to each provider and entire company every month.
2. Delivery is not enough quantity, quality
• Formula: with the total number of delivery with enough quality/ quantity / the number of total delivery .
3. Quantity bought over required
• This rate determine the number of products using in actual in comparison with quantity
• This rate determines the effectiveness of the purchasing order.
• The rate may be identified in quantity or money.
5. Purchasing cost
• By value of purchasing / sales value
• Compare this with the percentage rate as planned.
6. Cost of purchasing units
• This rate is total purchase cost / total sales.
7. Transaction cost unit of purchasing
• Formula = (Total cost of purchasing – a total cost of goods) / sales turnover.
• You can compare this rate with different goods in order to view transaction costs a high or low
8. Suppliers rating.
• The number of suppliers of goods per year
• Number of new suppliers per year..
http://www.humanresources.hrvinet.com/purchasing-procurement-kpi/

General Financial KPIs
1. Weighted Average Days Paid
Weighted Average Days Paid in Receivables Management
2. Weighted Average Days Past Due
Average days past due for open AP invoices weighted by open amount
3. Weighted Days Delinquent Sales Outstanding
Weighted Days Delinquent Sales Outstanding in Receivables Status dashboard
4. Weighted Terms Outstanding
Weighted Terms Outstanding in Receivables Status dashboard
5. Receipts Amount
Receipts Amount in Receivables Management
6. Revenue (P&L)
Revenue KPI in Profit and Loss Analysis Dashboard
7. T&E per Head
Travel and entertainment expenses / Headcount
8. Total Receipts
Total Receipts (Rolling 30 Days) in Receivables Status dashboard
9. Unapplied Receipts
Unapplied Receipts Amount
10. Weighted Average Days Due
Sum of days until due weighted by invoice amount for open AP invoices
http://www.humanresources.hrvinet.com/financial-kpi/

1. Operating income: Operating Income equals Gross Profit minus SG&A Expenses. It is the income from current operations.
amount available to cover other operating expenses.
3. Gross profit margin: Gross Profit Margin equals Gross Profit divided by Revenue, expressed as a percentage.
4. Cost of goods sold (COGS): Cost of Goods Sold includes all expenses directly associated overhead, and depreciation). It does not include SG&A.
5. Operating margin: Operating Margin equals Operating Income divided by Revenue, expressed as a percentage.
6. Goodwill: Goodwill is an accounting term used to reflect the portion of the book value of a business entity not directly attributable to its assets and liabilities.
7. Total Assets: Total Assets are everything of value that is owned by a company.
8. Accounts Payable: Money owed (payable) to suppliers for goods or services purchased on credit that must be paid within a year.
9. Long-Term Debt: Long-Term Debt represents the amount of borrowings due more than one year from the date of the balance sheet.
business and all claims creditors have on its assets.
11. Cumulative Annual Growth Rate (CAGR): difference is CASH is used inplace of Profit.
13. SG&A expenses: Selling, General, and Administrative Expenses include all salaries, indirect production, marketing, and general corporate expenses.
14. Net profit margin: Net Profit Margin equals the Total Net Income divided by Revenue, expressed as a percentage.
of common stock that is most actively traded
.

16. Total Equity: Total Equity equals Preferred Stock Equity + Common Stock Equity.
17. Total Current Assets: Total Current Assets equals Cash and Equivalents + Receivables
+ Inventories + Other Current Assets.
18. Other Current Assets: Other Current Assets includes prepayments, deferred charges, and amounts (other than trade accounts) due from parents and subsidiaries.
19. Inventories: Inventories is merchandise bought for resale or supplies and raw materials purchased for use in revenue producing operations.
20. Net Receivables: Net Receivables are amounts owed to the company, net of any provisions for bad debts.
21. Cash: Cash consists of cash and may include cash-like items such as short-term investments that can be quickly converted to cash.
22. Net Change in Cash: Net Change in Cash is the difference between the Cash and Cash
Equivalents at the beginning of the reporting period minus the amount at the end of the reporting period.
23. Common Stock Equity: Common Stock Equity is the amount of shareholders’ equity attributable to common stock.
attributable to the preferred stock issued by the parent company.
25. Other Noncurrent Liabilities: The liabilities that are not assigned to Long-Term Debt or deferred Income Taxes.
26. Short-Term Debt: Short-Term Debt represents the amount of borrowings (principal and interest) that must be paid in the near future.
27. Other Noncurrent Assets: Assets that are not assigned to Net Fixed Assets or intangibles.
28. Total Current Liabilities: Total Current Liabilities equals Accounts Payable + Short-Term
Debt + Other Current Liabilities.
29. Other Current Liabilities: Other Current Liabilities includes all other liabilities not assigned to Short-Term Debt or Accounts Payable.
30. Net Fixed Assets: Net Fixed Assets are the assets of a company that are of a relatively
http://www.humanresources.hrvinet.com/sample-kpi/