Balanced Scorecard Objective • Provide a more complete and balanced view of corporate performance • Give senior managers a concise but comprehensive view of the business • Balanced Scorecard (BSC) approach described by Kaplan and Norton Premise • “Measurement motivates” Measurable Items • Broadened set of measurable items to complement financial measures • Multiple measures provide balanced perspective • Included customer, internal process, and learning and growth measures Perspective • Traditional financial metrics are backwardlooking • Now look at “leading indicators” that are predictors of future success Performance Perspectives • Customer perspective • Internal perspective • Innovation and learning perspective • Financial perspective Use of BSC • BSC is deployed in more than half the Fortune 500 companies* Intelligent Enterprise, July 2002 What is the BSC? Objectives Targets Initiatives Targets Measures Objectives Targets Learning & Growth Objectives Measures Targets Initiatives Initiatives To achieve our vision, how will we sustain our ability to change and improve? Internal Business Process VISION AND STRATEGY Measures To achieve our vision, how should we appear to our customers? Measures Objectives Customer To succeed financially, how should we appear to our shareholders? To satisfy our shareholders and customers, what business processes must we excel at? Initiatives Financial Customer Perspective • Who are our customers? • What is our value proposition? – Operational excellence (Wal-Mart) – Product leadership (Nike) – Customer intimacy (Nordstrom) Internal Process Perspective • What are our key processes? • Should be based on our value proposition – Operational excellence (Wal-Mart) – Product leadership (Nike) – Customer intimacy (Nordstrom) Learning and Growth Perspective • Do we have key skills and information systems? • Where are the gaps? Financial Perspective • Profitability... Developing Objectives Customers • Who are our customers, and what is our value proposition in serving them? – Customer intimacy – increase customer retention Developing Objectives – Internal Processes • To satisfy our customers and shareholders, at what processes should we excel? – Customer objective processes Developing Objectives Financial • What financial steps are necessary to ensure the execution of our strategy? – Cost-leadership – lower unit costs Developing Objectives – Internal Employee Learning • What capabilities and tools do our employees require to help them execute our strategy? – Skill gap – Information systems Commonly Used Financial Measures • Total assets • Total assets per employee • Profits as a % of total assets • Return on total assets • Revenues/total assets • Gross Margin • • • • • Net Income Profit as a % of sales Profit per employee Revenue Revenue from new products • ROE • ROI Commonly Used Customer Measures • • • • • • • Customer Satisfaction Customer Loyalty Market Share Customer Complaints Return rates Response time Direct Price • Price relative to competition • Total cost to customer • Customers lost • Customer retention • Customer acquisition costs • Number of customers Commonly Used Internal Process Measures • Average cost per transaction • On-time delivery • Average lead time • Patents pending • Stockouts • Labor utilization rates • Response time to requests • Defect percentage • Breakeven time • Cycle time • Warranty claims • Waste reduction Commonly Used Learning and Growth Measures • Employee participation • Training investment • Average years of service • Turnover rate • Employee suggestions • Motivation index • Diversity rates • Quality of work environment • Training hours • Reportable accidents • Ethics violations Example Holding Company Subsidiary 1 Subsidiary 2 Subsidiary 3 Subsidiary 4 Subsidiary Scorecard Example • Consolidated ROA • Subsidiary on-time goals by month • Subsidiary baggage handling goals by month • Subsidiary operational dependability goal by month Link Measurements to Strategy • Define mission and strategy • Determine how performance will differ if I succeed with vision • Determine Critical Success Factors • Determine critical measurements Implementation • • • • • 3-4 measures per perspective Frequency of measurement Establishing targets Performance measurement Incentive systems Building a Balanced Scorecard • • • • • • • Preparation Interviews (first round) Executive workshop (first round) Interviews (second round) Executive workshop (second round) Implementation Periodic reviews First Generation BSC • BSC software developed and designed as reporting or management dashboard tools • First applications to integrate financial and non-financial reporting • “Red, yellow, green” reporting of achievement of targets Goal of First Generation BSC Reporting • Quickly understand health of organization • Focus attention on areas requiring attention Evolution of BSC • Use BSC to help implement and manage strategy Strategy Map Strategy-Focused Organization • • • • • Executive leadership to lead change Translate strategy into operational terms Align organization to strategy Make strategy everyone’s job Make strategy a continual process Sources • BSCol Functional Standards – www.bscol.com/standards • Balanced Scorecard Institute – www.balancedscorecard.org