Balanced Score Card

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Balanced Score Card

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Acknowledgement: We created this material from several sources

on the Internet.

If you would like to get more information, please visit

1.

Indonesian Production and Operations Management Society

(IPOMS). http://www.ipoms.or.id/mambo and then click
Knowledge Resources.

2.

Ahmad Syamils website http://www.clt.astate.edu/asyamil/

Balanced Scorecard
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The scorecard
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Describes the organizations vision of the future to

the entire organization
Creates shared understanding
Creates a holistic model of the strategy that
allows all employees to see how they contribute to
organizational success
Focuses change efforts on the right objectives

BSC Key Concepts

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Balanced because
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Cause and effect relationships that link to financials

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More than financial measures it looks across the organization

Relies on performance drivers and outcomes (leading and lagging indicators)
Every measure should be an element in a chain of cause-and-effect
relationships
Its a hypothesis of what needs to happen to be able to fulfill the strategy
Think of If/Then statements
Ultimately, causal paths from all the measures on a scorecard should be
linked to financial objectives

Strategic versus diagnostic:

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A BSC should contain between 16-25 measures that focus the organization
on a single strategy
There should be separate diagnostic measures:
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blood pressure and body temp measure health, but not ability for career
success

The basics of the Balanced Score Card

Financial Perspective
Goals closely related to the
financial expectations of the
investors

Customer Perspective

Internal Perspective

Goals that refer to how our

customers see us.

Goals with regard to the

exceleration at certain
businss processes

Learning Perspective
Goals that will sustain the
ablitity to change and to
improve in the future.

Quadrant 1:
Finance Perspective
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Financial measures are valuable in summarizing the

readily measurable economic consequences of
actions already taken.
Financial performance measures indicate whether a
company's strategy, implementation, and execution
are contributing to bottom-line improvement.
Financial objectives typically relate to profitability for example:
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Operating income,
Return-on-capital-employed,
Economic value-added

Quadrant 2:
Customer Perspective
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Start by identifying:
z The customer and market segments in which the business unit
will compete and
z The measures of the business unit's performance in these
targeted segments.
Core outcome measures include:
z Customer satisfaction, customer retention, new customer
acquisition, customer profitability, and market and account share
in targeted segments.
Include measures of the value propositions that we will deliver to
customers in targeted market segments.
z Whats critical for customers to switch to or remain loyal to Intel?
z For example, customers could value short lead times and on-time
delivery, or a constant stream of innovative products and services.

Quadrant 3:
Business Process Perspective
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z
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Identifies the critical internal processes in which the organization

must excel, and will enable:
z delivery of the value propositions that will attract and retain
customers in targeted market segments, and
z satisfying shareholder expectations of excellent financial returns.
Usually identifies entirely new processes at which an
organization must excel.
For many companies:
z Future financial performance is not driven by short-term
operations (make/market/service)
z Successful multi-year product development processes
(design/develop) may be more critical for future economic
performance than managing existing operations efficiently,
consistently, and responsively.

Quadrant 4:
Learning and Growth Persp.
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Identifies the infrastructure that the organization must build to

create long-term growth and improvement.
Come from three principal sources: people, systems, and
organizational procedures:
z Employee based measures:
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Information systems capabilities

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Employee satisfaction, retention, training, and skills - along with

specific drivers of these generic measures, such as detailed, business
specific indexes of the particular skills required for the new competitive
environment.
Measured by real-time availability of accurate, critical customer and
internal process information to employees on the front lines of
decision making and actions.

Organizational procedures:
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Examine alignment of employee incentives with overall organizational

success factors, and measured rates of improvement in critical
customer-based and internal processes.

Financial Perspective
Goals closely related to the
financial expectations of the
investors

Customer Perspective

Goals that refer to how our

customers see us.

Internal Perspective
Goals regarding the
exceleration at businss
processes

Learning Perspective
Goals that will sustain the
ablitity to change and to
improve in the future.

Keep costs low

INTERNAL
LEARNING

Generate Cash Flows

High market share

CUSTOMERS

FINANCIAL

Achieve Profit

Strong customer relationship

Customer acquisition

High customer satisfaction

Network of strat. partnerships

Low down-time-rate

Efficient use of budget

Continuous improvement
Motivated employees

Up-to-date technology
Use of media

Cause and Effect Hierarchies

Simplified BSC
BSC Quadrants

Metric Hierarchy

4. Profitability!

Financial
Performance

Pre-Tax
Profit

Customer

Customer
Satisfaction

Internal Biz
Processes

Post Sales
Support

2. We can provide the

support our
customers desire

Key Skills

1. If we have the
appropriately
skilled people

Learning and
Growth

3. Resulting in their
satisfaction

Barriers to Strategy Fulfillment

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Vision and strategy not actionable

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A leader with a clear vision lacks the mechanisms

to share this vision with the people that make it
actionable (Senge)
This causes different groups to pursue different
agendas (quality, continuous improvement,
reengineering) based on their own interpretation
of the strategy
Their efforts are neither integrated nor cumulative
since they are not linked coherently to an overall
strategy

Barriers to Strategy Fulfillment

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Strategy not linked to departmental, team and

individual goals
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Incentive systems are linked to short term

financial measures (annual or less)
Departments focus on achieving tactical goals
rather than building capabilities that will enable
longer term strategic goals

Barriers to Strategy Fulfillment

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Strategy not linked to resource allocation

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Separate processes for long-term strategic

planning and for short-term budgeting
Discretionary funding and capital allocations are
often unrelated to strategic priorities
Monthly and quarterly reviews focus on explaining
deviations between actual and budget, not on
whether progress is being made on strategic
objectives
Strategic planning and finance efforts not
integrated

Barriers to Strategy Fulfillment

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Feedback that is tactical, not strategic

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Management systems provide feedback about

short-term, operational performance, with the bulk
of this feedback on financial measures
Little time is spent examining indicators of
strategy implementation and success

BSC Implementation Challenges

and Opportunities

BSC Implementation Challenges

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Sponsorship
Link to existing programs
Strategic versus tactical measures
Data access and quality
Tools for preparing and presenting the BSC

Sponsorship
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Project manager
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Concept champion
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Knows BSC, drives project

Gets it, has political clout to sell it
Actively and aggressively promotes it

GM or CEO buy-in
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Only person with authority to embed a BSC into

the fabric of the organization

Link to Existing Programs

The Balanced
Scorecard is a mgmt
system that can
channel the energies,
abilities, and specific
knowledge held by
people throughout
the organization
toward achieving
long-term strategic
goals.

Source: Balanced Scorecard,

Kaplan & Norton, 1996

Vision,
Strategy, Values

Financial
Performance

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Me

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Learning and
Growth

To succeed financially, how

should we appear to our
shareholders?

To achieve our vision, how

will we sustain our ability to
change and improve?

Customer
Knowledge

Internal Biz Processes

To achieve our vision, how

should we appear to our
customers?

erm
t
g

To satisfy our shareholders

and customers, what biz
processes must we excel at?

Employee Bonus

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Data
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Dont assume that the required data is:

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Available
Consistent (i.e., time-spans, org coverage, cost
allocations, etc.)
High quality (error-free)
Electronic MS-Excel is the glue that holds
many orgs together

Tools .my limited experience

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We used Excel and PowerPoint

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Cheap and easy to get going proof of concept

phase
Highly manual and time consuming
Significant potential to create errors

Investigated specialized BSC packages

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Typically cost ~$100,000 for software

Add implementation costs, annual maint.
Didnt pursue due to funding constraints