Strategic Cost Management

Balance Scorecard
Assignment

Submitted To: Mr. Naveen Kumar

Submitted By: Mahbobullah (22105)

What is a Balanced Scorecard?
A balanced scorecard is a strategic management performance metric used to identify and improve
various internal business functions and their resulting external outcomes. Balanced scorecards are used
to measure and provide feedback to organizations. Data collection is crucial to providing quantitative
results as managers and executives gather and interpret the information and use it to make better
decisions for the organization. A short look at the development of the balanced scorecard - "one of the
most significant management ideas of the past 75 years"

Brief History
The balanced scorecard is a concept that has become deeply embedded in organisations of all kinds
around the world - and yet, remarkably, it has only existed for fifteen years.

By 2003, the editors of the Harvard Business Review were naming the balanced scorecard as one of the
most significant management ideas of the past 75 years, and a survey has found that around half the
Fortune 1000 companies in the USA and 40 percent of those in Europe use balanced scorecards. Yet the
concept was only developed in the early 1990s.

The balanced scorecards of the 1990s

The concept of the balanced scorecard was first touted in the Harvard Business Review in 1992 in a
paper written by Robert S Kaplan and David P Norton. The paper introduced the idea of focusing on
human issues as well as financial ones, and measuring performance across a much wider spectrum than
businesses had done before.
By the mid-1990s other organisational theorists had taken up Kaplan and Norton's work and modified
the design method of balanced scorecards, ironing out early flaws. Kaplan and Norton published their
ideas in full in The Balanced Scorecard: Translating Strategy into Action in 1996 and it became a business
best seller.

Balanced scorecards in a new millennium

The idea of balanced scorecards spawned variations like the "performance prism", "results-based
management" and the "third-generation balanced scorecard".

The idea of three generations of balanced scorecards was built on in Cobbold and Lawrie's work of 2002,
which described how the balanced scorecard - or BSC, as it is often referred to - can support three
distinct management activities and has evolved into the use of strategy maps as a strategic management
tool.

The future of the balanced scorecard

Balanced scorecards, and management tools and strategies based on them, are used by some of the
world's most successful companies - and by companies of all sizes.

Specialist software tools have been developed to help companies benefit from the theories of balanced
scorecards. An increasingly diverse range of organisations, including charities, government agencies and
sports teams as well as businesses, are finding them profitable.
Objectives, Measures, Targets, and Initiatives
For each perspective of the Balanced Scorecard four things are monitored (scored):

Objectives: major objectives to be achieved, for example, profitable growth.

Measures: the observable parameters that will be used to measure progress toward reaching the
objective. For example, the objective of profitable growth might be measured by growth in net margin.

Targets: the specific target values for the measures, for example, 7% annual decline in manufacturing
disruptions.

Initiatives: projects or programs to be initiated in order to meet the objective.

4 Perspective of Balance Scorecard

The Balanced Scorecard method of Kaplan and Norton is a strategic approach, and performance
management system, that enables organizations to translate a company's vision and strategy into
implementation, working from 4 perspectives:

1. Financial perspective
Under the financial perspective, the goal of a company is to ensure that it earns a return on the
investments made and manages key risks involved in running the business. The goals can be achieved by
satisfying the needs of all players involved with the business, such as the shareholders, customers, and
suppliers.

The shareholders are an integral part of the business since they are the providers of capital; they should
be happy when the company achieves financial success. They want to be sure that the company is
continually generating revenues and that the organization meets goals such as improving profitability
and developing new revenue sources. Steps taken to achieve such goals may include introducing new
products and services, improving the company’s value proposition, and cutting down on the costs of
doing business.

2. Customer perspective
The customer perspective monitors how the entity is providing value to its customers and determines
the level of customer satisfaction with the company’s products or services. Customer satisfaction is an
indicator of the company’s success. How well a company treats its customers can obviously affect its
profitability.

The balanced scorecard considers the company’s reputation versus its competitors. How do customers
see your company vis-à-vis your competitors? It enables the organization to step out of its comfort zone
to view itself from the customer’s point of view rather than just from an internal perspective.

Some of the strategies that a company can focus on to improve its reputation among customers include
improving product quality, enhancing the customer shopping experience, and adjusting the prices of its
main products and services.

3. Internal business processes perspective

A business’ internal processes determine how well the entity runs. A balanced scorecard puts into
perspective the measures and objectives that can help the business run more effectively. Also, the
scorecard helps evaluate the company’s products or services and determine whether they conform to
the standards that customer’s desire. A key part of this perspective is aiming to answer the question,
“What are we good at?”

The answer to that question can help the company formulate marketing strategies and pursue
innovations that lead to the creation of new and improved ways of meeting the needs of customers.

4. Organizational capacity perspective

Organizational capacity is important in optimizing goals and objectives with favorable results. The
personnel in the organization’s departments are required to demonstrate high performance in terms of
leadership, the entity’s culture, application of knowledge, and skill sets.

Proper infrastructure is required for the organization to deliver according to the expectations of
management. For example, the organization should use the latest technology to automate activities and
ensure a smooth flow of activities
What Is a Strategy Map?
One of the most powerful elements in the BSC methodology is the use of strategy mapping to visualize
and communicate how value is created by the organization. A strategy map is a simple graphic that
shows a logical, cause-and-effect connection between strategic objectives (shown as ovals on the map).

Benefits of a Balanced Scorecard

1. Better Strategic Planning
The Balanced Scorecard provides a powerful framework for building and communicating strategy. The
business model is visualized in a Strategy Map which helps managers to think about cause-and-effect
relationships between the different strategic objectives. The process of creating a Strategy Map ensures
that consensus is reached over a set of interrelated strategic objectives. It means that performance
outcomes as well as key enablers or drivers of future performance are identified to create a complete
picture of the strategy.

2. Improved Strategy Communication & Execution

Having a one-page picture of the strategy allows companies to easily communicate strategy internally
and externally. We have known for a long time that a picture is worth a thousand words. This 'plan on a
page' facilitates the understanding of the strategy and helps to engage staff and external stakeholders in
the delivery and review of the strategy. The thing to remember is that it is difficult for people to help
execute a strategy which they don’t fully understand.

3. Better Alignment of Projects and Initiatives

The Balanced Scorecard help organisations map their projects and initiatives to the different strategic
objectives, which in turn ensures that the projects and initiatives are tightly focused on delivering the
most strategic objectives.

4. Better Management Information

The Balanced Scorecard approach helps organisations design key performance indicators for their
various strategic objectives. This ensures that companies are measuring what actually matters. Research
shows that companies with a BSC approach tend to report higher quality management information and
better decision-making.

5. Improved Performance Reporting

The Balanced Scorecard can be used to guide the design of performance reports and dashboards. This
ensures that the management reporting focuses on the most important strategic issues and helps
companies monitor the execution of their plan.

6. Better Organisational Alignment

The Balanced Scorecard enables companies to better align their organisational structure with the
strategic objectives. In order to execute a plan well, organisations need to ensure that all business units
and support functions are working towards the same goals. Cascading the Balanced Scorecard into those
units will help to achieve that and link strategy to operations.

7. Better Process Alignment

Well implemented Balanced Scorecards also help to align organisational processes such as budgeting,
risk management and analytics with the strategic priorities. This will help to create a truly strategy
focused organisation.

Drawbacks of Balanced Scorecard

1. Balanced Scorecard Term is misleading
The “Balanced Scorecard” has become a buzzword: A typical misleading idea is that it is all about
“balancing” KPIs by placing them into the four perspectives.

2. It must be tailored to the organization

A balanced scorecard is supposed to provide a framework from which to work from, however, it will still
need to be customized to every organization using this system. This can take up a lot of time, and while
examples are helpful, they can’t be copied exactly due to the unique needs of every business.

3. It needs buy-in from leadership to be successful

For the balanced scorecard system to be fully effective, it must be implemented from the bottom all the
way to the top of the organization. This means getting buy-in from leaders, which can sometimes take
some convincing, not to mention the learning curve involved with getting the whole organization to use
the new system.

4. It can get complicated

The framework itself of balanced scorecards takes some time and dedication to understand. There are
countless resources and case studies to read from and it’s easy to get bogged down with the many
different ways of using this method.

5. It requires a lot of data

Most of the time balanced scorecards require managers and team members to report information,
which means logging data. Many don’t like this because they find it tedious and also, it can get in the
way of doing the work required to meet objectives.
Balanced Scorecard Examples
The development process of the Balanced Scorecard in a company involves several steps, which we have
summarized here:

1. Establish a clear vision of the future

2. Define the strategic objectives
3. Determine the critical success factors
4. Choose indicators to measure and monitor performance
5. Set goals, action plans, and initiatives

All 5 steps for each of the 4 perspectives.

These points, are only some aspects of how to set goals and choose indicators. What we would like to
present now are 3 examples of strategic maps that are generated during the development of Balanced
Scorecard projects, which summarize all of the work for the organization, including objectives, targets,
indicators, and also the actions and initiatives that should be implemented.

Balanced Scorecard example: Strategic map for a Jewelry store

The examples of Balanced Scorecards presented are entirely hypothetical and rather schematic. Usually,
they may contain more initiatives for each objective, as well as more goals. The important thing is to
understand the concept and how to use it correctly in your particular business.

Who Uses the Balanced Scorecard (BSC)

BSCs are used extensively in business and industry, government, and nonprofit organizations worldwide.
More than half of major companies in the US, Europe, and Asia are using the BSC, with use growing in
those areas as well as in the Middle East and Africa. A recent global study by Bain & Co listed balanced
scorecard fifth on its top ten most widely used management tools around the world. BSC has also been
selected by the editors of Harvard Business Review as one of the most influential business ideas of the
past 75 years.

How do you create a Balanced Scorecard?

Take these five proven steps to build your scorecard:

1. Create a purpose statement (outward view).

2. Design a change agenda (inward view).
3. Draw a strategy map with strategic objectives.
4. Choose measures to help drive the strategy.
5. Align initiatives or key projects to the strategy.

Conclusion
Balanced Scorecard is a very effective management tool, which develop to integrate and breakdown the
organization's strategic goals. BSC focuses on the same goal for the whole organization to turn their
strategy into actions. Financial targets, Customer Satisfaction, Internal Business Process, and Learning &
Growth Performance are the key measurements to meet short and long-term objectives and targets. To
sum it up, Emerson needs to use the BSC measurement system more effectively, and make it available
for all business units if they want all of their business units to grow.