“One of the most dangerous forms of

human error is forgetting what one is

trying to achieve.”
– Paul Nitze

BALANCED
SCORECARD
Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do
eiusmod tempor incididunt ut labore et dolore magna aliqua.
Our Research Has Identified Four Barriers to
Strategic Implementation
The Vision Barrier

Only 5% of the work force

understands the strategy

The People Barrier The Management Barrier

9 of 10 companies 85% of executive teams spend less
Only 25% of managers have
incentives linked to strategy fail to execute than one hour per month
strategy discussing strategy

60% of organizations don’t link

budgets to strategy

The Resource Barrier

The BSC “Early Adaptors” Have Executed
Their Strategies Reliably and Rapidly
Beat the Odds Fast
9 of 10 companies 2 to 3 years to achieve
fail to execute their breakthrough results
strategies

The Solution Was Already There

• The BSC helped create focus and alignment to unlock the

organization’s “hidden assets”
 BALANCED SCORECARD
Outline

Using the Balanced Scorecard as a

Introduction to the Balanced Management System
Scorecard
What is it? Issues and Challenges with the
Why do it? Balanced Scorecard
.

Balanced Scorecard Fundamentals

The Four Perspectives Implementing the Balanced Scorecard
Measures, Targets and Initiatives .
Roles and Responsibilities

11/11/21 9
 BALANCED SCORECARD
Definition
The Balanced Scorecard is a
management tool that provides
stakeholders with a comprehensive
measure of how the organization is The Balanced Scorecard:
progressing towards the • Balances financial and non-financial measures
achievement of its strategic goals. • Balances short and long-term measures
• Balances performance drivers (leading indicators)
with outcome measures (lagging indicators)
• Should contain just enough data to give a
complete picture of organizational performance…
and no more!
• Leads to strategic focus and organizational
alignment.

10
 BALANCED SCORECARD
What is it?
• Origins
• Multi-company research from 1990's undertaken by R. Kaplan & D. Norton
aimed at developing alternatives to purely financially based performance
management tools (e.g. budgets)
• Early Scorecard experimentation at Analogy Devices Inc. documented from
1987"
• Purpose
• Originally a performance measurement tool
• Now a strategic communication and performance measurement framework
• Underlying philosophy includes:
• The importance of clear communication of goals and priorities
• The benefits of learning & team-working

11
 BALANCED SCORECARD
Why do it?

• To achieve strategic objectives.

• To provide quality with fewer resources.
• To eliminate non-value added efforts.
• To align customer priorities and expectations with
the customer.
• To track progress.
• To evaluate process changes.
• To continually improve.
• To increase accountability.

12
Management Process Linkages
The management process of
discovering, defining and implementing
business activities that will result in a
value-enhanced future of the firm

Business
Strategy

Performance
Measurement
System
A management process that is used
to monitor business activities and
thereby facilitate achievement of the
firm’s objectives
Business
Processes
Stakeholder
Value
A business process is a
collection of linked business Propositions
activities that enable or deliver
goods, services, information or Descriptions of the “give and get”
money relationships between the firm and
each of its stakeholders, relative to
alternatives
 BALANCED SCORECARD
Strategic Leadership
• Clear sense of direction:
• Where is the organization headed?
• Profound understanding of the business model:
• Is the organization doing all the things it needs to be doing?
• Ability to focus and prioritize:
• Striking the balance between long-term development and short-term
operational pressures
• Agility: flexibility driven by learning:
• Incorporating new knowledge in the strategic and operational planning
processes

14
 BALANCED SCORECARD
The Strategy Focused Organization

•Mission – What we do
•Vision – What we aspire to be
•Strategies – How we accomplish our goals
•Measures – Indicators of our progress

15
 Environmental Scan

Strengths Weaknesses

Opportunities Threats

A Model for
Values
Strategic
Planning
Mission &
Vision

Strategic Issues

Strategic Priorities

Objectives, Initiatives, and Evaluation

16 © 2004 Superfactory™. All Rights Reserved.
 BALANCED SCORECARD
The Strategy Focused Organization

The Five Principles

1. Translate the strategy to operational terms.

2. Align the organization to the strategy.
3. Make strategy everyone’s job.
4. Make strategy a continual process.
5. Mobilize change through executive leadership

17
 BALANCED SCORECARD
Strategy vs Operational Excellence
• Strategy creates fit among a firms activities
• The success of strategy depends on doing many things well, not just a few
• All things that are done well must operate within a close knit system
• If there is no fit, there is no strategy
• Without fit management becomes the search for operational excellence
• Improving operational excellence is necessary but it is not the same as
strategy
• Managing fit is “strategic management”

18
 BALANCED SCORECARD
Strategy vs Operational Excellence

• Operational effectiveness involves continual improvement that

have no trade off opportunities
• The operational effectiveness agenda is the proper place for
constant change, flexibility, and relentless efforts to achieve best
practices
• The strategic agenda is the place for making clear tradeoffs and
strengthening the fit between the business components
• Strategy involves the continual search for ways to reinforce and
extend a firms position and the delivery of value

19
 BALANCED SCORECARD

•Focuses on a few measurements

•Reflects mission and strategies
•Provides a quick, but comprehensive, picture
of the organization’s health

20
Two Primary Applications of BSC
Since its introduction two distinct applications have emerged:
• Strategic Balanced Scorecards;
• Focus on what the organisation is trying to achieve
• Work out what needs to happen to achieve it
• Monitor whether it is achieved

• Operational Scorecards;
• Identify the most important processes to be monitored
• Define which aspects of the process to monitor
• Agree on what is considered best practice

21
Performance Measurement Principles
• Value creation is the objective
• Performance measurement is systematic
• Measurement supports business strategy
• Sound logic underlies each performance measure
• 80:20 rule applies to measure selection
• Measures performance of both business and management
processes

22
Performance Measurement Principles
• Performance standards are externally driven
• A measurement culture exists
• Clear rationale for incentive compensation
• Management encourages open communication of results
• Measurement system is simple to use

23 © 2004 Superfactory™. All Rights Reserved.

 The Increasing Sophistication of
Corporate Performance Measurement
Value-linked measurements for
business strategy, stakeholder
needs, process attributes and the
business environment
Sophistication of
Measurement Systems Balanced scorecard
Economic value added

Quality-related operating measures

Activity-based costing

Operating measures
Traditional accounting measures

Time
24 © 2004 Superfactory™. All Rights Reserved.
The Balanced Scorecard
• Ties performance measures to corporate strategy
• “Balance” includes
• short & long term objectives
• financial and non-financial measures
• external & internal measures
• various perspectives
• Purposes of the balanced scorecard include
• clarify & translate vision & strategy
• communicate & link strategic objectives & measures
• plan, set targets & align strategic initiatives
• enhance strategic feedback & learning

25
Elements of the scorecard

•Perspectives
•Strategic Objectives
•Metrics
•Targets

26 © 2004 Superfactory™. All Rights Reserved.

 Translating Vision and
Strategy: Four Perspectives
FINANCIAL
“To succeed Objectives Measures Targets Initiatives
financially,
how should we
appear to our
shareholders?”

CUSTOMER INTERNAL BUSINESS PROCESS

“To achieve our Objectives Measures Targets Initiatives “To satisfy our Objectives Measures Targets Initiatives
vision, how shareholders
should we
Vision and and customers,
appear to our Strategy what business
customers?” processes must
we excel at?”

LEARNING AND GROWTH

“To achieve our Objectives Measures Targets Initiatives
vision, how
will we sustain
our ability to
change and
improve?”
 The Balanced Scorecard

FINANCIAL/REGULATORY
CUSTOMER
To satisfy our constituents,
To achieve our vision,
what financial & regulatory
what customer needs must
objectives must
we serve?
we accomplish?

INTERNAL
To satisfy our customers and
stakeholders, in which business
processes must we excel?

LEARNING & GROWTH

To achieve our goals, how
must we learn, communicate
and grow?

28 © 2004 Superfactory™. All Rights Reserved.

The Balanced Scorecard Focuses on
Factors that Create Long-Term Value
• Traditional financial reports look backward
• Reflect only the past: spending incurred and revenues earned
• Do not measure creation or destruction of future economic value
• The Balanced Scorecard identifies the factors that create long-term economic
value in an organization, for example:
• Customer Focus: satisfy, retain and acquire customers in targeted segments
• Business Processes: deliver the value proposition to targeted customers
• innovative products and services
• high-quality, flexible, and responsive operating processes
• excellent post-sales support Customers
• Organizational Learning & Growth:
• develop skilled, motivated employees;
• provide access to strategic information Processes People

• align individuals and teams to business unit objectives

.
Customer Perspective Financial / Regulatory Perspective
To satisfy our constituents, what
To achieve our vision, what customer needs financial and regulatory objectives
must we serve? must we accomplish?

Possible Performance Measures Possible Performance Measures

o Customer Satisfaction
o Cost / Unit
(Average)
o Unfunded Requirements or Projects
o Satisfaction Gap Analysis
o Cost of Service
(Satisfaction vs. Level of
o Budget Projections and Targets
Importance)
o Satisfaction Distribution (% of
each area scored)

30 © 2004 Superfactory™. All Rights Reserved.

Internal Perspective Learning and Growth
To satisfy our customers, in
which business processes must To achieve our goals and accomplish
we excel? core activities, how must we learn,
communicate and work together?
Possible Performance Measures

o Cycle Time Possible Performance Measures

o Completion Rate
o Workload and Employee Utilization o Employee Satisfaction

o Transactions per employee o Retention and Turnover

o Errors or Rework o Training Hours and Resources
o Technology Investment

31 © 2004 Superfactory™. All Rights Reserved.

The Balanced Scorecard Strategy Map

Improve Shareholder Value

Financial
Perspective Revenue Growth Strategy Shareholder Value Productivity Strategy
ROCE
Build the Franchise Increase Customer Value Improve Cost Structure Improve Asset Utilization
New Revenue Sources Customer Profitability Cost per Unit Asset Utilization

Product Leadership
Customer Intimacy

Customer Value Proposition Operational Excellence

Customer Product/Service Attributes Relationship Image

Perspective Relation-
Function- ships Brand
Service
ality
Price Quality Time

“Increase “Achieve “Be a Good

“Build the Corporate Citizen”
Internal Frnchise”
Customer Value”
(Customer
Operational
Excellence” (Regulatory and
Perspective (Innovation
Management (Operational Environmental
Processes) Processes)
Processes) Processes)

A Motivated and Prepared Workforce

Learning &
Growth Strategic Competencies Strategic Technologies Climate for Action
Perspective
Source: Kaplan & Norton, The Strategy Focused Organization
32 © 2004 Superfactory™. All Rights Reserved.
The Problem: Most of Today’s Feedback
Systems Are “Controls” Oriented
Variance
Detected

Correction
Applied
Management

Feedback &
Control Loop
Strategic Learning – Some Basic
Concepts…
Replacing the budget with the Balanced Scorecard is a step
in the right direction…

Pioneer’s Balanced Scorecard

FINANCIAL
Strategic Objectives Strategic Measures

! Financially Strong ! Return on Capital Employed

! Delight the Consumer ! Mystery Shopper Rating

CUST
! Win-Win Relationship ! Dealer / Pioneer Gross Profit Split
! Safe & Reliable ! Manufacturing Reliability Index
! Days Away from Work Rate

INTERNAL
! Competitive Supplier ! Laid Down Cost vs. Best
corrections ! Good Neighbor
Competitive Ratable Supply
! Environmental Index
result
! Quality ! Quality Index

L&G
! Motivated & Prepared ! Strategic Competency Availability

Performance

Initiatives & Programs

input output

It creates strategic focus but not strategic learning

Strategic Feedback Creates
Strategic Learning
The Strategy
Improve
Returns
Financial
Perspective

FOLLOW-UP
Improve
Broaden Operating
Revenue Mix Efficiency

Increase Customer
Confidence in Our
Financial Advice
Increase
Customer
Satisfaction Through
Superior Execution
Customer
Perspective
ACTION
Internal
“Closing the loop”
Perspective

Understand Develop New Cross-Sell the Shift to Provide

Customer Products Product Line Appropriate Minimize Rapid
Problems
Segments Channel Response

update Increase
Employee
Productivity
Learning
Perspective THE
the Develop
Strategic
Access to
Strategic
Align
Personal
MANAGEMENT
strategic learning
Skills Information Goals

strategy MEETING
loop “Team Problem
Pioneer’s Balanced Scorecard Solving”
FINANCIAL

Strategic Objectives Strategic Measures

! Financially Strong ! Return on Capital Employed

! Delight the Consumer ! Mystery Shopper Rating
CUST

! Win-Win Relationship ! Dealer / Pioneer Gross Profit Split

! Safe & Reliable ! Manufacturing Reliability Index
! Days Away from Work Rate
INTERNAL

! Competitive Supplier ! Laid Down Cost vs. Best

Competitive Ratable Supply
results
! Good Neighbor ! Environmental Index INSIGHT
! Quality ! Quality Index
HARVESTING
L&G

! Motivated & Prepared ! Strategic Competency Availability

reallocate “Testing hypotheses

priorities and capturing
operational control loop learning”

Performance dialog

Initiatives & Programs

The Ingredients of Highly Successful
Balanced Scorecard Programs
1. Leadership From the Top 4. Make Strategy a Continuous
– Create the Climate for Change Process
– Create a Common Focus for – Strategic Feedback That Encourages
Change Activities Learning
– Rationalize and Align the Formulate – Executive Teams Manage Strategic
Organization Themes
– Testing Hypotheses, Adapting, and
Learning

Communicate STRATEGY Navigate

2. Make Strategy Everyone’s Job 3. Unlock and Focus Hidden Assets

– Comprehensive Communication to Execute – Reengineer Work Processes
Create Awareness
– Create Knowledge Sharing Networks
– Align Goals and Incentives
– Integrate Budgeting with Strategic
Planning
– Align Resources and Initiatives
 Not all Environments are Appropriate for a
Balanced Scorecard

• Balanced Scorecard must be driven from the top:

• CEO/COO as sponsor
• Executive leadership team commitment
• A clear sense of purpose is required to:
• Drive change
• Clarify and gain consensus about strategy
• Build a senior executive team
• Focus the organization: align programs and investments
• Integrate cross-functionally
• Educate and empower the organization
• The dynamics of the senior executive team will determine whether the
Balanced Scorecard becomes a strategic management system
 Key Pitfalls to Avoid
Process
• Middle management task force
• Not driven by senior executive
team
• Only one or a few individuals
involved
• Too long a development process
(allowing the “best” to be the
enemy of the “good”)
• Delay introduction because of
missing measurements
• Static not dynamic process
Philosophy
• Measurement to control;
not to communicate
• Management dictating
actions vs. employee
improvisation to achieve
desired outcomes
• For management only, not
shared with all employees
THANK YOU