Balanced Scorecard

The Balanced Scorecard
7 Benefits of a Balanced Scorecard

1. Better Strategic Planning
2. Improved Strategy Communication & Execution
3. Better Alignment of Projects and Initiatives
4. Better Management Information
5. Improved Performance Reporting
6. Better Organizational Alignment
7. Better Process Alignment
2 | 2024 Team Development | Bahnasawi | 16 Jan. 2024 | Link it Together | Business Use Only
Outline
 Introduction to the Balanced Scorecard
• What is it?
• Why do it?
 Balanced Scorecard Fundamentals

• The Four Perspectives
• Measures, Targets and Initiatives
• Roles and Responsibilities
 Using the Balanced Scorecard as a Management System

 Issues and Challenges with the Balanced Scorecard
 Implementing the Balanced Scorecard
The Balanced Scorecard, What is it?
Definition:
The Balanced Scorecard is a management tool that provides stakeholders with a

comprehensive measure of how the organization is progressing towards the
achievement of its strategic goals.
The Balanced Scorecard:
 Balances financial and non-financial measures

 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.
|52024 Team Development | Bahnasawi | 16 Jan. 2024 | Link it Together | Business Use Only
 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
|62024 Team Development | Bahnasawi | 16 Jan. 2024 | Link it Together | Business Use Only
The Balanced Scorecard, Why do it?
 To achieve strategic objectives.
 To provide quality with fewer resources.
resources
 To eliminate non-value added efforts.

 To align customer priorities and expectations with the customer.
 To track progress.
progress
 To evaluate process changes.

 To continually improve.
improve
 To increase accountability.
accountability
The Balanced Scorecard, Why do it?
It works!
In just 90 days, Sandia Labs was able to redirect $190,000 in savings by
dropping initiatives that didn’t fit their overall strategy.
“The BSC has forced our management team to focus beyond financial
measures… too often in the past we would get sucked into short-term thinking.”
“The BSC dramatically improved our data analysis… we don’t overreact nearly
as much as we used to.”
The Strategy Focused Organization
Mission Vision Strategies Measures
What we How we Indicators of

What we do
aspire to be accomplish our progress
our goals
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
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2024 Team Development | Bahnasawi | 16 Jan. 2024 | Link it Together | Business Use Only
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
Business
Processes
Stakeholder
Performance
Value
Measurement System A business process is a Propositions
collection of linked business
A management process that is
activities that enable or Descriptions of the “give and get”
used to monitor business
deliver goods, services, relationships between the firm
activities and thereby facilitate
information or money and each of its stakeholders,
achievement of the firm’s
relative to alternatives
objectives
Environmental Scan
Strengths Weaknesses
Opportunities Threats
A Model for Values

Strategic Planning
Mission &
Vision
Strategic Issues
Strategic Priorities
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Objectives, Initiatives, and Evaluation
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
Source: The Strategy Focused Organization, Norton & Kaplan
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”
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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
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 Focuses on a few measurements

 Reflects mission and strategies
 Provides a quick, but comprehensive, picture of the organization’s health
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Two Primary Applications of BSC
Since its introduction two distinct applications have emerged:
 Strategic Balanced Scorecards;

• Focus on what the organization 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
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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
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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
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The Increasing Sophistication of Corporate
Performance Measurement
Value-linked measurements for
business strategy, stakeholder needs,
process attributes and the business
Measurement Systems
environment
Sophistication of
Balanced scorecard
Economic value added
Quality-related operating
measures Activity-based costing
Operating measures
Traditional accounting measures
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Time
 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
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Elements of the scorecard
 Perspectives
 Strategic Objectives
 Metrics
 Targets
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The Balanced Scorecard Links Performance Measures
How do we look to shareholders?
Financial Perspective
Goals Measures
How do customers see us? What must we excel at?

Customer Perspective Internal Business
Perspective
Goals Measures
Goals Measures
Learning and
Innovation Perspective
Goals Measures Can we continue to improve
and create value?
The scorecard measures are “balanced” into four areas
 The user perspective

 The finance perspective
 The internal process perspective
 The learning and future perspective
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Rationale for the BSC: Getting Control of the Data
 Focus
 Balance
 Assessment
 Intelligibility
|25
Choosing Metrics…. Reflecting Values
 What is important?
 What are we trying to accomplish?
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Choosing Metrics… Being Practical
 Use existing measures when possible

 Use sampling
 Collect data centrally
 Minimize work by front line
The scorecard in practice
 Experimentation and adaptation

 Varied staff reaction
 Responding to budget problems
 Revision of mission and goals
Balanced Scorecard Variations
 The constituent scorecard
• Focused on major stakeholders
• Incomplete description of corporate strategy
• Fails to identify drivers to achieve goals
 The key performance indicator scorecard

• An outgrowth of the quality movement
• Array of measure categories
• No cause and effect relationships among measures
 The strategy scorecard

• Focuses the organization on its strategy
• Show how each measure fits in a cause/effect sequence that drives high-level strategy outcomes
• Strategy map approach offers logic for measure development
The Balanced Scorecard and The Big Picture
•Activity Based Costing
Strategic •Economic Value Added
Planning •Forecasting
•Benchmarking
•Market Research
•Best Practices
•Six Sigma
•Statistical Process Control
•Reengineering
•ISO 9000
•Total Quality Management
Balanced •Empowerment
Scorecard •Learning Organization
•Self-Directed Work Teams
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•Change Management
Strategic Direction
Create Environment
Strategic Performance
For Change Management System
Communicate Strategies
Define Objectives
Implement BSC
Balanced Scorecard
Measure Performance
Improve Processes
Linking it all together…. Evaluate and Adjust

Continuous Improvement
Redefine Initiatives
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FINANCIAL/REGULATORY CUSTOMER
To satisfy our constituents, what To achieve our vision,
financial & regulatory objectives must what customer needs must
we accomplish? we serve?
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?
Customer Perspective
 To achieve our vision, what customer needs must we serve?

 Possible Performance Measures
• Customer Satisfaction (Average)
• Satisfaction Gap Analysis (Satisfaction vs. Level of Importance)
• Satisfaction Distribution (% of each area scored)
Financial / Regulatory Perspective
 To satisfy our constituents, what financial and regulatory objectives must we

accomplish?

• Cost / Unit
• Unfunded Requirements or Projects
• Cost of Service
• Budget Projections and Targets
Internal Perspective
 To satisfy our customers, in which business processes must we excel?

• Cycle Time
• Completion Rate
• Workload and Employee Utilization
• Transactions per employee
• Errors or Rework
Learning and Growth
 To achieve our goals and accomplish core activities, how must we learn,
communicate and work together?

• Employee Satisfaction
• Retention and Turnover
• Training Hours and Resources
• Technology Investment
BSC Representation Methods
 “Traditional” BSC
• Four levels
• Bubbles, but no connecting lines of a map (too confusing)
• Some partitioning of functions on a horizontal scale
 There are other way to represent the BSC

• Simple lists with metrics and goals
• Quadrants with everything on one page
 A popular way is to list the objectives in a table, with metrics

• Assign portfolios of projects
• Cascade the Scorecard down to the functional manager level
• Tie “every thing” to an objective even the level of effort projects
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Measurements…
Why Measure?
• To determine how effectively and efficiently the process or service satisfies the customer.
• To identify improvement opportunities.
• To make decisions based on FACT and DATA
Measurements
• Translate customer expectations into goals.
• Evaluate the quality of processes.
• Track our improvement.
• Focus our efforts on our customers.
• Support our strategies.
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Targets
• Targets need to be set for all measures
• Should have a “solid basis”
• Give personnel something for which to aim
• If achieved will transform the organization
• Careful not to develop measures/targets in a fragmented approach:
“i.e. Asking people to increase customer satisfaction has to be backed up with the knowledge,
tools, and means to achieve that target.”
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Setting the Targets
 Specific targets indicating full success, partial success, and failure
 Targets that are challenging, but not impossible
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Initiatives
 Once measures and targets are established, it is the responsibility of
management to determine HOW the organization will achieve its goals.
 Measures are used to determine the effectiveness of strategic initiatives.
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The Leadership Team
 Develops the division’s vision, strategy and goals

 Develops organizational objectives and targets
 Provides leadership, endorsement and vision for the project
 Clears barriers to scorecard progress
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The Core Team
 Drafts the strategy map and scorecard
 Works with employees to develop measures supporting strategic objectives
 Works with the Leadership Team to plan and implement the Balanced Scorecard in the FAS Division
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| 2024 Team Development | Bahnasawi | 16 Jan. 2024 | Link it Together | Business Use Only
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The Balanced Scorecard

7 Benefits of a Balanced Scorecard

2. Improved Strategy Communication & Execution

3. Better Alignment of Projects and Initiatives

4. Better Management Information

5. Improved Performance Reporting

6. Better Organizational Alignment

7. Better Process Alignment

 Balanced Scorecard Fundamentals

 Using the Balanced Scorecard as a Management System

The Balanced Scorecard is a management tool that provides stakeholders with a

 Balances financial and non-financial measures

 Should contain just enough data to give a complete picture of organizational

 Leads to strategic focus and organizational alignment.

 Underlying philosophy includes:

 To eliminate non-value added efforts.

 To evaluate process changes.

Mission Vision Strategies Measures

What we How we Indicators of

 Clear sense of direction:

 Profound understanding of the business model:

 Ability to focus and prioritize:

 Agility: flexibility driven by learning:

A Model for Values

The Five Principles

1.Translate the strategy to operational terms.

Source: The Strategy Focused Organization, Norton & Kaplan

 Managing fit is “strategic management”

 Operational effectiveness involves continual improvement that have no trade

 Focuses on a few measurements

Since its introduction two distinct applications have emerged:

 Strategic Balanced Scorecards;

 Value creation is the objective

 Performance standards are externally driven

 Purposes of the balanced scorecard include

How do customers see us? What must we excel at?

 The user perspective

 Use existing measures when possible

 Experimentation and adaptation

 The key performance indicator scorecard

 The strategy scorecard

Linking it all together…. Evaluate and Adjust

LEARNING & GROWTH

 To achieve our vision, what customer needs must we serve?

 To satisfy our constituents, what financial and regulatory objectives must we

 Possible Performance Measures

 To satisfy our customers, in which business processes must we excel?

 Possible Performance Measures

 There are other way to represent the BSC

 A popular way is to list the objectives in a table, with metrics

 Measures are used to determine the effectiveness of strategic initiatives.

 Develops the division’s vision, strategy and goals

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