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Balance Scorecard
Balance Scorecard
Introduction
In this completive world where techniques are change in nights, its very hard for an
organization to stay on one technique to grow business. To maintain the business
performance management use different tool for to track progress of business by the help of
a mix of financial and non-financial measures. One such system was created by Art
Schniderman in 1987 at Analog Devices, a mid-sized semi-conductor company, the Analog
devices Balanced Score Card (BSC). Which is now recognised as a First Generation BSE
design.
Dr. Robert S. Kaplan in conjunction with David P. Norton did a research study on Balance
Scorecard in 1990, during the study they described the work of Art Schneiderman on
performance measurement and public an article in 1992 with detail of this Balance
Scorecard design. This article is not only paper on the topic published in early 1992 but this
paper war a popular success, and quickly followed by second in 1993. In 1996, the two
authors published a book The Balance Scorecard. These articles and the first book spread
knowledge of the concept widely, and has led to Kaplan and Norton being seen as the
creators of the concept.
Hence, by study the above lines we can say that this tool has considered not only the
financial results to be important but also other factors which drives an organization toward
future successes as mentioned earlier. This tool focus on those areas which are required to
be balanced and get a view about the organizational performance and improve the same.
The framework tries to bring a balance and linkage between these measures:
In each of these stages, financial objective of businesses is quite different. At growth stage
objective is sales growth, sales in new markets, sales to new customers, sales from new
goods and services. Financial objective at sustain stage is traditional financial
measurements, such as return on capital, operating income and gross margin. Financial
objectives for the harvest businesses will focus on cash flow. Any investments must have
immediate and certain cash paybacks.
Measures
Survive
Cash Flow
Prosper
Profitability
Return on Equity
Cost leadership
Unit Cost
Market share will give information to company that how well they penetrating a desired
market. For example, temporarily sales growth of a company meet the objectives by
retaining customer in non-targeted segments, but in targeted segments its share is not
increasing. The measure of market share with targeted customers would balance a pure
financial sales to indicate whether an intended strategy is yielding expected results.
Companies can use a second market-share type measure: account share of customers
business, when they targeted particular market segments or customers. In a given time
period, business with these company could be affected by the amount of business they
offering, market share measure is based on this. Share of business with these targeted
customer will be decrease is customers are offering less business to all their suppliers.
Customer Retention:
Customer Acquisition:
All companies want to grow their business with an objective to increase their customers
number in their targeted segments. Customer measure tracks, in absolute or relative terms
at which rate a business unit attracts or get new customers or business opportunities. It
could be measured by either the total sales to new customers or the number of new
customers in these segments.
Customer satisfaction:
Earlier both customer retention and acquisition are based on meeting customers needs.
Customer satisfaction measure provide views of customer on how well the company is
doing. Recent research shows that for achieving high degrees of loyalty, retention, and
profitability, just scoring adequately on customer satisfaction is not sufficient. Company
count repeat purchasing behaviour of customers only when they will rate their buying
experience as completely or extremely satisfied.
Customer Profitability:
Succeeding in all other core customer measures it is not necessary that company has
profitable customers. To get customer extremely satisfied organization need to sell products
and services at very low prices. Achieving higher financial returns, customer satisfaction and
high market share are most important for an organization. To measure individual and
aggregate customer profitability Activity-based cost systems is useful for companies.
Companies want mort satisfied and happy customers, they also want profitable customers.
Customer profitability can help to keep customer-focused organizations from becoming
customer-obsessed.
In summary, customer perspective help managers to articulate there unique customer and
market-based strategy that will deliver superior future financial returns.
Measures
New Product
Customer Relationship
% of retained customer
Responsive Supply
On time Delivery
In this perspective, executives identify the critical processes in which the organization must
excel. The critical processes enable the business unit to perform on the value propositions
of customers in targeted market segments, and satisfied expectations of shareholders of
excellent financial returns. The main focus of measures on the internal processes that will
give greatest impact on customer satisfaction and achieving the financial objectives of
organizations. This internal business process perspective reveals on fundamental differences
between balanced scorecard approaches and traditional approaches to performance
measurement.
Metrics which are based on this internal business process perspective allow the managers to
know how well their business is running, and its products and services conform to customer
requirements.
Measures
Manufacturing Excellence
Number of Accidents
Engineering Efficiency
People;
Systems;
Organizational Procedures.
People are the main resource of an organization. In the current climate of organization
where technology will change daily, it is necessary for worker to be in continuous learning
mode and continues change in system and procedure keep organization in learning mode.
The objective of firms is to always be technological leader, manufacture leader and be
product focused. By learning and growth prospective firm can achieve their objectives.
In summary, we can say that by following learning and growth perspective manager will
take organization as technology leader, manufacturing leader and the company mainly focus
on its products by which the product quality will also improve.
Measures
Technology Leadership
Manufacturing learning
Product Focus
By Diagram: