Overview of the Balanced
Scorecard
Howard Rohm
Founder & Director, U.S. Foundation for Performance Measurement
President, Howard Rohm Consultants, LLC
www.fpm.com
“It’s about management and
strategy first, and measurement
and technology second.”
© U.S. Foundation for Performance Measurement
The Evolution Of Measurement
Balanced Scorecard
Six Sigma
Late
20th Century
Shareholder
Value
Competencies/
Capabilities
Business Process
Reengineering
Customer
Satisfaction
Competitive
Advantage
19th Century
Management
Accounting
15th Century
Double-entry
Bookkeeping
Comparative
Benchmarking
Performance Measurement
Financial © U.S. Foundation forStrategic
Operational
Improvement
Operational
Benefits of Implementing a BSC
• Accelerates behavioral and cultural changes
• Shortens implementation cycle for strategy
• Facilitates communication among managers,
employees, and stakeholders
© U.S. Foundation for Performance Measurement
BSC History
1990 - Nolan Norton Institute study
• David Norton, study leader
• Robert Kaplan, academic consultant from Harvard
Harvard Business Review articles
• Jan-Feb 1992: balanced performance measures
• Sep-Oct 1993: tie to strategic goals and objectives
• Jan-Feb 1996: strategic management system
BSC soon expected to be used by 40% of Fortune
1000 companies; increasingly being adopted by
Federal agencies, by state and local organizations,
and internationally.
© U.S. Foundation for Performance Measurement
Meeting the Challenge with the
Balanced Scorecard
The balanced scorecard is a performance
management system that
• enables an organization to establish,
accomplish, and measure the success of its
strategies
• is used to evaluate an organization’s impact
from several perspectives, such as
customers, employees, internal business
processes, and financial results
• allows effective communication of strategy
and performance information throughout the
organization.
© U.S. Foundation for Performance Measurement
Balanced Scorecard Terms
Vision
Customers
Mission
Goals
Perspectives STRATEGY
Themes
Objectives
Performance Drivers
Critical Success Factors
KPI
Measures
Thresholds
Targets
Initiatives
© U.S. Foundation for Performance Measurement
Advantages of the BSC
•
Emphasizes achieving results and implementing
strategy
•
Focuses on high-impact performance measures
•
Is easy to use and economical to maintain
•
Focuses on customers
•
Empowers process owners to make improvements
•
Allows comparisons to best-in-class performance
(benchmarking)
•
Bridges the gap among strategy, development,
formulation, and implementation
•
Can drive cultural change in an organization
© U.S. Foundation for Performance Measurement
Why Use a BSC?
Addressing “Burning Platforms”
• Losing competitive position
“Burning
Platforms”
• New technological advances
• Changing labor markets
• Employee shifts/Downsizing
• Government management
reforms
© U.S. Foundation for Performance Measurement
Why Use a BSC?
Achieving Government Reform Objectives
•
Program priorities that match Congressional
priorities
•
Demonstrated value of programs to the public
•
Meaningful performance measures (especially
outcome measures) to gauge program success
•
Goals, strategies, and performance measures linked
to annual budget requests
•
Resources and contract costs for each strategy
•
Interagency coordination, to eliminate waste
•
Logical connections among strategy, performance
plans, and performance reports
© U.S. Foundation for Performance Measurement
How Is a BSC Different from Other
Performance Frameworks?
•
People use it.
•
It changes organizational behavior.
•
It covers whole organizations.
•
It puts a discipline and structure in place.
•
It ties strategies to budget.
•
It captures the value of the business.
•
It allows effective communications throughout
the organization.
© U.S. Foundation for Performance Measurement
sssssssWhat Does a Completed
Scorecard System Look Like?
Financial
Objective
Customer
Objective Measure
Target
Initiative
Measure
Target
Initiative
Internal Business Process
Vision
Mission
Strategy
Objective
Learning & Growth
Objective Measure
Adapted from Kaplan and Norton
Target
Initiative
© U.S. Foundation for Performance Measurement
Measure
Target
Initiative
What Questions Does a Scorecard
System Answer?
Financial
Objective
Customer
Objective Measure
Target
To achieve our vision,
how should we appear
to our customers?
Initiative
Measure
Target
Initiative
Internal Business Process
Vision
Mission
Strategy
Objective Measure
Learning & Growth
Objective Measure
Target
Initiative
To achieve our vision, how will
we sustain our ability to learn
and improve?
Adapted from Kaplan and Norton
To succeed financially,
how should we appear to
our owners?
© U.S. Foundation for Performance Measurement
Target
Initiative
To satisfy our
customers, at what
business processes
must we excel?
Meeting the Challenge with the
Balanced Scorecard
Assessment
Strategic
Themes
Evaluate
& Improve
Cascade
Perspectives
& Objectives
Computerize
&
Communicate
Strategic
Map
Performance
Measures
Initiatives
BSC Methodology—Nine Steps to
Building & Implementing a BSC
Phase One: Building a Balanced Scorecard Performance System
• Conducting an Organizational Assessment
• Defining Strategic Themes
• Choosing Perspectives and Developing Objectives
• Developing a Strategic Map of the Organization
• Defining Performance Measures
• Developing Initiatives
Phase Two: Implementing the Balanced Scorecard
• Computerizing and Communicating Performance Information
• Cascading the Scorecard throughout the Organization
• Using Scorecard Information to Evaluate and Improve Performance
© U.S. Foundation for Performance Measurement
Performance Scorecard Toolkit™
Tool Kit
Customer
Satisfaction Model
Who are our customers and how do we satisfy them?
Tree
Diagram
What do we need to do to produce successful outcomes?
“Why”
Model
What intermediate and end outcomes
does our work produce?
CauseEffect
What factors are associated with successful results?
Flow
Charting
What are the critical steps in the processes needed
to produce outputs and outcomes?
Performance
Information
Communication
How should I collect and communicate
performance information throughout the organization?
© U.S. Foundation for Performance Measurement
Example: Strategic Mapping
Broaden
Revenue Mix
Improve
Returns
Improve
Operating
Efficiency
Financial
Increase Customer
Confidence in Our
Advice
Understand
Customer
Segments
Develop
New
Products
Increase
Customer Satisfaction
Through Superior
Execution
Customer
Cross-Sell
the Product
Line
Internal
Processes
Shift to
Appropriate
Channel
Increase
Employee
Productivity
Develop
Strategic
Skills
Provide
Access to
Strategic
Information
Employees
Align
Personal
Goals
© U.S. Foundation for Performance Measurement
Minimize
Problems
Provide
Rapid
Response
Typical Performance Measures
•Shareholder value
•Investment
•Asset utilization
•Resource allocation
•Profitability
Financial
Objective
Measure
Target
Initiative
Internal Business Process
Customer
Objective Measure
Target
•Value proposition
•Retention
•Service quality
•Satisfaction
Initiative
Objective
Strategy
Learning & Growth
Objective Measure
Target
Initiative
•Skills coverage
•Innovation
•Employee development
•Capacity building
•Knowledge transfer
Adapted from Kaplan and Norton
© U.S. Foundation for Performance Measurement
Measure
Target
Initiative
•Production efficiency
•Cost
•Bottlenecks
Example: Linking Objectives, Measures,
Targets, and Initiatives
Objective
Measure
Broaden
revenue mix
Revenue mix
Increase
customer
satisfaction
Customer
retention
Develop new
products
% Revenue from
new products
Develop
Skill coverage
strategic skills
Target
Initiatives
10% Product A
40% Product B
50% Product C
• Sales Promotions
• New Channel
Marketing
95%
• Frequent Buyers’
Club
1999 -- 15%
2000 -- 50%
2001 -- 60%
• R & D Program
• Customer Mailing
90%
• Custom Training
• Knowledge Library
© U.S. Foundation for Performance Measurement
Framework for Implementing a BSC
Formulating and
updating vision,
mission, and
strategic themes
Collecting data,
communicating
information, and
linking/aligning
Balanced
Scorecard
Planning, target
setting, allocating
resources, and
budgeting
Source: Kaplan and Norton
© U.S. Foundation for Performance Measurement
Providing
feedback,
recognition,
and learning
Cascading Scorecards Support
Strategy
Corporate
Business Units
Support Units
Financial
Financial
Goal
Measure
Target Initiative
Financial
Goal
Measure
Target Initiative
Goal
Customer
Customer
Goal
Measure
Target Initiative
Customer
Goal
Measure
Target Initiative
Goal
Measure Target
Initiative
Measure Target
Vision
Mission
Strategy
Initiative
Team/
Individual
Internal Business Process
Internal
Business
Goal
Measure
Target Process
Initiative
Internal
Business
Goal
Measure TargetProcess
Initiative
Learning and Growth
Goal
Growth
Goal Learning
Measure and
Target
Initiative
Learning
and
Growth
Goal
Measure Target
Initiative
Goal
Measure Target Initiative
© U.S. Foundation for Performance Measurement
Measure Target
Initiative
Align Strategy and Work Processes
Corporate
Strategic
Themes
Strategic Business Units
SBU1
1.
SBU
SU1
SU
Teams/
Individuals
TI1
TI
X
X
XX
2.
3.
SBU2
Support Units
X
X
X
XX
.
.
© U.S. Foundation for Performance Measurement
Linking the BSC with Budget and
Operations
Strategic Direction
Balanced Scorecard
Perspective
Objective Measure
Target
Initiative
Planning
Budget Formulation & Costing
Input
Process
Output
Programs & Operations
Adapted from: Balanced Scorecard Collaborative
© U.S. Foundation for Performance Measurement
Management
Challenges of Building and
Implementing a BSC
• Visions and strategies that are poorly defined and
understood and not actionable
• Strategies and goals that are not linked to
performance drivers, measures, initiatives, and
individual goals and incentives
• Strategies that are not linked to resource allocation
and budget
• Measures that are set independently of a complete
BSC system
• Performance targets that are too high or too low
• Feedback that is tactical rather than strategic
• Lack of meaningful employee involvement
© U.S. Foundation for Performance Measurement
Attributes of Good Scorecard
Performance Systems
Management commitment—senior executive
buy-in to change management philosophy and to adopt
performance-based management principles.
Actionable strategies—realistic, "stretch" goals that are
easily understood and workable.
Linked objectives—clear, cause-effect relationships
among strategies, objectives, measures, initiatives, and
resources.
Balanced measures—leading and lagging measures that
help validate strategies and chart new directions.
Employee involvement—good communications that
enable everyone to contribute to dynamic changes to meet
customer requirements.
© U.S. Foundation for Performance Measurement
Typical BSC Cycle: One Iteration
2-4 weeks
1 week
2-8 weeks 6-24+ weeks
Preparation Organization Build
assessment scorecard
system
Implement
scorecard
system
© U.S. Foundation for Performance Measurement
3-6+ weeks
Collect
preliminary
data and
review results
Putting It All Together—
A Nine-Piece Puzzle
Assessment
Strategic
Mapping
Computerize
&
Communicate
Strategic
Themes
Measures
Cascade
Perspectives
&
Objectives
Initiatives
Evaluate
&
Adjust
© U.S. Foundation for Performance Measurement
Acknowledgements
•Performance Drivers, Niles-Goram Olve, Jan Roy and Magnus
Wetter, Wiley
•The Strategy-Focused Organization, Robert Kaplan & David
Norton, Harvard Business School Press
•The Balanced Scorecard, Robert Kaplan & David Norton,
Harvard Business School Press
•Balanced Scorecard Functional Standards, The Balanced
Scorecard Collaborative
•City of Charlotte and Wells-Fargo Online Financial Services,
Case Studies, Harvard Business School
•Keeping Score, Mark Graham Brown, Quality Resources
•How To Measure Performance: A Handbook of Techniques and
Tools, Performance-Based Management Special Interest Group,
U.S. Department of ©Energy
U.S. Foundation for Performance Measurement