Balanced Scorecard

How would you feel about boarding the plane after

the following conversation with the pilot?
Q: I am surprised to see you operating the plane with only
a single instrument. What does it measure ?

A: Airspeed .I am really working on airspeed of this flight.

Q: That is Good. Airspeed certainly seems important. But what
about altitude. Would not an altimeter be helpful?

A: I have worked on altitude for the last few flights and I have
gotten pretty good on it. Now I have to concentrate on proper
air speed.
Q: But I notice you don’t have a fuel gauge.
Would not that be useful ?

A: You are right; fuel is significant, but I cannot concentrate

on doing too many things at the same time. So on flight
I am focusing on air speed. Once I get to be excellent at
Air speed, as well as altitude, I intend to concentrate on
Fuel consumption on the next set of flights.
Would you like to board this plane after having this discussion ?

A: Perhaps not.

What could be the reasons?

Navigating an organization is as complex as an Aero plane
They also require instrumentation to guide their organizations

………. like pilots have to guide an aeroplane

Would you be satisfied as manager getting one dimensional
Information about your organization ?
 Perhaps not, therefore

You need instrumentations/ information

to navigate in this competitive world
BSC provides managers with the instrumentations
they need to Navigate future competitive success.
BSC translates an organizational mission and strategy
into comprehensive set of performance measures that
provides the frame work for strategic measurement and
Management system

Four Perspectives
Financial
Customers
Internal Business Processes
Learning & Growth
Competing in the Information Age
Industrial Age
Financial Control
ROCE
Prod Control
Profitability
Physical Capital
 Made
Many
Such
Measures
Obsolete
Information Age
Financial Control
ROCE
Prod Control
Profitability
Physical Capital
 Required
New
Capabilities

Information Age

Develop Customer Relationship

Introduce innovative products/services
Quality products at low cost
Employee development and motivation
Deploy information technology
Information Age

New
Cross Functional
Operating
Links to customers and Suppliers
Environment
Customer Segmentation
Global Scale
Innovation
Knowledge Workers
Information Age

Total Quality Management

Improvement JIT-Production and Distribution
initiatives Time based Competition
Lean Production/Lean Enterprise
Building Customer-focused Org
Activity Based Cost Management
Employee Empowerment
Reengineering
 Capital You don’t see on the Balance Sheet

Human Capital

The collective skill, knowledge

attitudes and behavoiur of the
People in the Organization Information Capital

The resources and processes in

Organizational Capital
place that ensure effective use of
The human capital

The values, working relationship

And cultural norms at work in
The organisation
balanced scorecard
 Financial For Guiding
Measures are Information age Must Create future Value
Inadequate Organizations
Through

Investment in
Customers
Suppliers
Employees
Processes
Technology &
Innovation
A balance scorecard translate a organization’s
mission and strategy into set of performance
measures that provide the framework for
implementing its strategy
A strategy is a set of goals and specific
action plans that, if achieved, provide
the desired competitive advantage

Strategic Management involves identifying and

implementing these goals and action plans
 strategic thinking

•Anticipating changes
•Product/service and production designed
to accommodate expected changes
•Flexibility
•Ability to make quick changes
•Speed to market
•Agile manufacturing/ service
•Driving firm by using windshield not
the rear view mirror
•Creative and integrative thinking………
Do we need to be clear about……?

Goal
Objective
Mission
Vision
Balance Scorecard as a Management System
 Balance Financial and
Scorecard Emphasizes Non Financial
measures must be
Part of Information
System
 Clarify mission &
Mission Vision
Vision statement

Develop Strategic Goals

Strategic Goals

Derive Balanced Scorecard

Sub-Goals
Sub-Goals
Financial
• Sub-Goals
Map Sub-Goals to Internal Business
Methodology
Customer
each quadrant of the • Sub-Goals • Sub-Goals
Balanced Score Card
Overview
Learning & Growth
• Sub-Goals

For each BSC Quadrant

- identify measurement areas Indicators

- develop measurement goals
- postulate indicators

Trouble Reports
- identify data elements Module

Data Elements
A Balanced Scorecard Perspective on
Performance
FINANCIAL

Initiatives
Measures
Objective

Targets
How do we
look to
shareholders?

CUSTOMER INTERNAL BUSINESS

Initiatives
Measures
Objective

PROCESS

Initiatives
Measures
Objective
Targets

Targets
How do our
Vision
customers and What must
see us? Strategy we excel at?

LEARNING and
GROWTH
Initiatives
Measures
Objective

Targets

Can we
continue to
improve and
create value?
 4
Perspectives

Financial
Financial Perspective Evaluate
Perspective the Profitability of the Strategy
 4
Perspectives

Customer

Perspective

Customer Perspective identifies Targeted

Customer and market Segments and Measures
the Organization’s success in these Segments
 4
Internal Perspectives
Business
Process
Perspective

This perspective focuses on internal operations

that create value for customers that ,in turn,
furthers the financial perspective by increasing
the shareholder value
 4
Perspectives
Learning &
Growth
Perspective

This perspective identifies the capabilities the

organization must excel at to achieve superior
internal processes that create value for
Customers and shareholders
BSC as Strategic Management System
 Balanced 1 Clarify and Translate vision & Strategy
Scorecard
2 Communicate and link strategic objectives
as a
and Measures
Strategic
Management 3 Plan, Set Targets and align Strategic Initiatives
System
4 Enhance Strategic Feedback and Learning
 Clarifying and
Translating the
Vision & Strategy

Clarifying the Vision

Gaining Consensus

Communicating Strategic Feedback &

& Linking Learning

Comm and Educating Balance Articulating the shared Vision

Setting Goals Scorecard Supplying Strategic Feedback
Linking Rewards to Facilitating Strategy review
Performance and Learning

Planning & Target Setting

Setting Targets
Aligning Strategic
Initiatives
Allocating Resources
Establishing Milestones
 Clarifying the Vision
Formulation by Sr Executives
Reaching Consensus
Clarifying and
Sorting Out Differences
Translating the
Joint Accountability
Vision & Strategy
 Communicating and Educating
Newsletter
Bulletin board
Brochure
Videos
Intranet
meetings
Setting Goals
Linking Rewards to
Performance
Communicating Every one Understand
& Linking Strategy for achievement
Outcome Measures
Efforts and Initiatives required

On time Delivery Communicating to

Reduce setup time
Directors
Buy new machines
Improve delivery time Executives
Improve packing Employees
 Plan to Change
Set target for 3-5 years
Stretch targets
Benchmarking
Planning & Alignment of Targets
Target Setting Alignment of Strategic Planning
with operational Budgets
 Periodic Review and Change
Targets-achieved or not
Strategic Past and future Review
Feedback & Information from all
Learning Double loop learning
Cause and effect Relationship
Validity and Viability
Strategy replacement according
to outcomes/performance drivers
 Features of Balance Score Card

 Indicate company’s strategy and its link with perspectives

Strategy is communicated to all

Strategy translated into measurable targets

Motivates Managers to achieve targets

BSC limits the measures to only four

Highlights effect of one perspective on another

Pitfalls in Implementing Balanced Score Card

Difficult to establish Fin-Non financial Linkages

Improvements at all levels may not be possible

Both subjective-objective measures Consideration

Considering Cost & benefits of initiatives

Non-financial Achievements are ignored

 Barriers to effective Implementation of BSC
1 Vision & Strategy not Actionable

Strategy &
2 Strategy not Vision
Linked to Dept Team
& Individual Goals

Personal MBO & Monthly

Budget
Incentives Review

4 feedback that is tactically

Financial Plan not strategic

& Capital
Allocation

3 Strategy not Linked to Resource Allocation

Barrier No 1: Vision and strategy not Actionable

Cant be translated into action

Cant be acted Upon
Cant be understood
Fragmentation & Sub optimization
of efforts
Lacking consensus & Clarity
Different Agendas
No integration
Not linked coherently to overall strategy
Barrier No 3: Strategy not Linked to Resource Allocation

Separate Processes for Long term &

Short term Strategic planning
Funding to unrelated priorities
Poor Monthly Reviews
Unfocused New Mgt Techniques
Poor Integration
Barrier No 4: Feed back not tactically strategic

Bulk of feedback is only financial measures

Little time on strategy implementation & success
No priority to periodic review and meetings
Inadequate information
Poor tactical review process
 Translating the strategy to operational terms

The Strategy

Financial Perspective
If we succeed, how will
We look to our
Shareholders?
Measurement is the
language that gives clarity
To vague concepts Customers Perspective
To achieve our vision,
How must we look to our
Customers ?
Measurement is used to communicate,
Not to control Internal Perspective
To satisfy our customers,
Which processes must
We excel ?
Strategy can be described as a series of Organizational Learning
Cause and Effect relationship
To achieve our vision, how must
our organisation team
Improves?
Make Strategy Everyone’s Job

CORP
SBU

Education
Personal Goal
Alignment
Balanced Pay checks

The Strategy Focused Workforce

 Make Strategy a continuous Process

Strategy

60% OF Org
Don’t link
Strategic Learning
Strategy & Loop 85% of Mgt teams
budgets Spends less than
1 hr per month
Balanced On strategy
Scorecard issues
78% orgs lock
Budgets to an Budget 92% of orgs
Annual cycle Do not report
On lead
Management Control indicators
Loop

Performance
Input Output
The Balanced ScorecardSCORECARD
BALANCED Should Tell the
Story of the Strategy
Illustrative Example: Southwest Airlines
Strategic Theme:
Operating Efficiency
Financial
Profitability What will drive operating efficiency?”
• More customers on fewer planes
More
Fewer planes
customers
How will we do that?
Customer
• Attract targeted customer segments who value
Flight Lowest
Is on time prices
price and on time arrivals
What must the internal focus be?
• Fast turnaround
Internal
Fast ground Will our people do that?
turnaround
• Educate and compensate ground crew regarding
how they contribute to the firm’s success
Learning
• Employee stockholder program
Ground crew
alignment
 a Minute to SCORECARD
Let’s TakeBALANCED Agree Upon Some
Common Vocabulary
Diagram of the cause and effect Statement of
relationships between strategic what
objectives (Strategy Map) strategy How success
must in achieving The level of Key action
Strategic Theme: achieve and the strategy performance programs
Operating Efficiency what’s will be or rate of required to
Financial critical to its measured and improvement achieve
Profitability
success tracked needed objectives
More
Fewer planes
customers

Customer
Flight Lowest
Is on time prices

Objectives Measurement Target Initiative

Internal
• Fast ground • On Ground Time • 30 Minutes • Cycle time
Fast ground turnaround • On-Time • 90% optimization
turnaround Departure

Learning

Ground crew
alignment
Questions