The Balanced Scorecard

Management
Management translates
translates its
its strategy
strategy into
into
performance
performance measures
measures that
that employees
employees
understand
understand and
and accept.
accept.

Financial Customers

Performance
measures
Internal Learning
business and growth
processes
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 The Balanced Scorecard: From Exh.
10-11

Strategy to Performance Measures

Performance Measures
Financial What are our
Has our financial
financial goals?
performance improved?

Customer What customers do Vision

we want to serve and
Do customers recognize that
how are we going to and
we are delivering more value? win and retain them? Strategy

Internal Business Processes What internal busi-

Have we improved key business ness processes are
processes so that we can deliver critical to providing
more value to customers? value to customers?

Learning and Growth

Are we maintaining our ability
to change and improve?
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 The Balanced Scorecard:
Non-financial Measures

The balanced scorecard relies on non-financial measures

in addition to financial measures for two reasons:


 Financial
Financial measures
measures areare lag
lag indicators
indicators that
that summarize
summarize
the
the results
results of
of past
past actions.
actions. Non-financial
Non-financial measures
measures are
are
leading
leading indicators
indicators of
of future
future financial
financial performance.
performance.


 Top
Top managers
managers areare ordinarily
ordinarily responsible
responsible for
for financial
financial
performance
performance measures
measures –– not
not lower
lower level
level managers.
managers.
Non-financial
Non-financial measures
measures areare more
more likely
likely to
to be
be
understood
understood and
and controlled
controlled by
by lower
lower level
level managers.
managers.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
The Balanced Scorecard for Individuals

The entire organization Each individual should

should have an overall have a personal
balanced scorecard. balanced scorecard.

AApersonal
personal scorecard
scorecard should
should contain
contain measures
measures that
that can
can be
be
influenced
influenced by
by the
the individual
individual being
being evaluated
evaluated and
and that
that
support
support the
the measures
measures in in the
the overall
overall balanced
balanced scorecard.
scorecard.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 The Balanced Scorecard

A balanced scorecard should have measures

that are linked together on a cause-and-effect basis.

If we improve Another desired

Then
one performance performance measure
measure . . . will improve.

The balanced scorecard lays out concrete

actions to attain desired outcomes.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 The Balanced Scorecard
and Compensation

Incentive compensation
should be linked to
balanced scorecard
performance measures.

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

 The Balanced Scorecard Exh.
10-13

Jaguar Example
Profit
Financial
Contribution per car

Number of cars sold

Customer
Customer satisfaction
with options

Internal
Business Number of Time to
options available install option
Processes

Learning Employee skills in

and Growth installing options
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 The Balanced Scorecard
Jaguar Example
Profit

Contribution per car

Number of cars sold

Customer satisfaction Results

with options Satisfaction
Increases
Strategies
Increase Number of Time to
Options options available install option Time
Decreases

Increase Employee skills in

Skills installing options
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 The Balanced Scorecard
Jaguar Example
Profit

Contribution per car

Results
Cars sold
Number of cars sold Increase

Customer satisfaction
with options Satisfaction
Increases
Strategies
Increase Number of Time to
Options options available install option

Employee skills in
installing options
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 The Balanced Scorecard
Jaguar Example
Results
Profit

Contribution per car Contribution

Increases

Number of cars sold

Customer satisfaction
with options

Number of Time to
options available install option Time
Decreases
Strategies
Increase Employee skills in
Skills installing options
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 The Balanced Scorecard
Jaguar Example
Results
Profit Profits
Increase
If number
Contribution per car Contribution
of cars sold Increases
and contribution
per car increase, Number of cars sold
profits
increase. Customer satisfaction
with options Satisfaction
Increases
Strategies
Increase Number of Time to
Options options available install option Time
Decreases

Increase Employee skills in

Skills installing options
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 Advantages of Graphic Feedback

Tim e to Install an Option

35
Time to Install in Minutes

30
25
20
15
10
5
0
1 2 3 4 5 6 7 8 9 10
Week

When interpreting its performance, Jaguar will look for

continual improvement. It is easier to spot trends or
unusual performance if this data is presented graphically.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 Delivery Performance Measures

Order Production Goods

Received Started Shipped

Process Time + Inspection Time

Wait Time + Move Time + Queue Time

Throughput Time

Delivery Cycle Time

Process time is the only value-added time.

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

 Delivery Performance Measures

Order Production Goods

Received Started Shipped

Process Time + Inspection Time

Wait Time + Move Time + Queue Time

Throughput Time

Delivery Cycle Time

Manufacturing
Value-added time
Cycle =
Efficiency Manufacturing cycle time
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 Quick Check 

AA TQM
TQM team
team at
at Narton
Narton Corp
Corp has
has recorded
recorded the
the
following
following average
average times
times for
for production:
production:
Wait
Wait 3.0
3.0 days
days Move
Move 0.5 0.5 days
days
Inspection
Inspection 0.4
0.4 days
days Queue
Queue 9.39.3 days
days
Process
Process 0.20.2 days
days
What
What is
is the
the throughput
throughput time?
time?
a.
a. 10.4
10.4 days
days
b.
b. 0.2
0.2 days
days
c.
c. 4.1
4.1 days
days
d.
d. 13.4
13.4 days
days
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 Quick Check 

AA TQM
TQM team
team at
at Narton
Narton Corp
Corp has
has recorded
recorded the
the
following
following average
average times
times for
for production:
production:
Wait
Wait 3.0
3.0 days
days Move
Move 0.5 0.5 days
days
Inspection
Inspection 0.4
0.4 days
days Queue
Queue 9.39.3 days
days
Process
Process 0.20.2 days
days
What
What is
is the
the throughput
throughput time?
time?
a.
a. 10.4
10.4 days
days
b.
b. 0.2
0.2 days
days= Process + Inspection + Move + Queue
Throughput time
c.
c. 4.1
4.1 days
days= 0.2 days + 0.4 days + 0.5 days + 9.3 days
d.
d. 13.4 days= 10.4 days
13.4 days
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 Quick Check 

AA TQM
TQM team
team at
at Narton
Narton Corp
Corp has
has recorded
recorded the
the
following
following average
average times
times for
for production:
production:
Wait
Wait 3.0
3.0 days
days Move
Move 0.5 0.5 days
days
Inspection
Inspection 0.4
0.4 days
days Queue
Queue 9.39.3 days
days
Process
Process 0.20.2 days
days
What
What is
is the
the MCE?
MCE?
a.
a. 50.0%
50.0%
b.
b. 1.9%
1.9%
c.
c. 52.0%
52.0%
d.
d. 5.1%
5.1%
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 Quick Check 

AA TQM
TQM team
team at
at Narton
Narton Corp
Corp has
has recorded
recorded the
the
following
following average
average times
times for
for production:
production:
Wait
Wait 3.0
3.0 days
days Move
Move 0.5 0.5 days
days
Inspection
Inspection 0.4
0.4 days
days Queue
Queue 9.39.3 days
days
Process
Process 0.20.2 days
days
What
What is
is the
the MCE?
MCE?
a.
a. 50.0%
50.0%
b. 1.9% MCE = Value-added time ÷ Throughput time
b. 1.9%
= Process time ÷ Throughput time
c. 52.0%
c. 52.0%
= 0.2 days ÷ 10.4 days
d.
d. 5.1%
5.1% = 1.9%
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
 Quick Check 

AA TQM
TQM team
team at
at Narton
Narton Corp
Corp has
has recorded
recorded the
the
following
following average
average times
times for
for production:
production:
Wait
Wait 3.0
3.0 days
days Move
Move 0.5 0.5 days
days
Inspection
Inspection 0.4
0.4 days
days Queue
Queue 9.39.3 days
days
Process
Process 0.20.2 days
days
What
What is
is the
the delivery
delivery cycle
cycle time?
time?
a.
a. 0.5
0.5 days
days
b.
b. 0.7
0.7 days
days
c.
c. 13.4
13.4 days
days
d.
d. 10.4
10.4 days
days

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.

 Delivery cycleQuick Check
time = Wait 
time + Throughput time
= 3.0 days + 10.4 days
= 13.4 days
AA TQM
TQM team
team at
at Narton
Narton Corp
Corp has
has recorded
recorded the
the
following
following average
average times
times for
for production:
production:
Wait
Wait 3.0
3.0 days
days Move
Move 0.5 0.5 days
days
Inspection
Inspection 0.4
0.4 days
days Queue
Queue 9.39.3 days
days
Process
Process 0.20.2 days
days
What
What is
is the
the delivery
delivery cycle
cycle time?
time?
a.
a. 0.5
0.5 days
days
b.
b. 0.7
0.7 days
days
c.
c. 13.4
13.4 days
days
d.
d. 10.4
10.4 days
days

McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.