Balanced Scorecard

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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
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