“When you can measure what you are speakingabout, and express it in numbers, you know somethingabout it; but when you cannot measure it, when youcannot express it in numbers, your knowledge is of ameager and unsatisfactory kind....” Lord Kelvin Irish Mathemetician
What is Balanced Scorecard Model Balanced Scorecard model is a performance measurement system developed at the Harvard Business School in 1992 by Dr. Robert Kaplan, an Accounting Professor at Harvard and Dr. David Norton, a Business Consultant Both commercial and not-for-profit organizations have tasted success by employing the BSC model since then Harvard Business review recently hailed BSC Model as one of the 75 most influential ideas of the 20th century
Overview of Performance Measurement Systems A performance measurement system enables an enterprise to Plan, Measure, and Control its performance according to a pre-defined strategy It not only says where the organization is and what is the performance, but also aids in understanding where the organization is heading to and helps in continual improvement
Balanced Scorecard Model We can describe the Balanced Scorecard as a carefully selected set of quantifiable measures representing a tool for leaders to use in communicating to employees and external stakeholders the outcomes and performance drivers by which the organization will achieve its mission and strategic objectives.
Balanced Scorecard Model ( Contd..) Balanced Scorecard Model provides a holistic measurement of the enterprise by taking the following four perspectives Financial Perspective Customer Perspective Internal Business Process Perspective Learning and growth Perspective
Cause and effect Relation in BSC All the four perspectives follow a cause and effect relationship in a way that some perspective act as an ingredient leading to some other Eg: Revenue Growth (Financial Perspective) can be attained through improved customer satisfaction (Customer Perspective) which can be produced through value added services (Internal Process Perspective), whose modalities can be designed only through introspection and data analysis (Learning and Growth Perspective)
BSC as a Measurement System Through these perspectives, the leading and lagging performance measures or indicators are identified Lag Indicators are those performance measures that give a review of the happenings in the past. They are outcomes of actions taken previously Lead Indicators are drivers of future performance of the enterprise.
Leading and Lagging PerformanceMeasures examples P A S Leading Performance Measures T • Employee Competency development • Customer Satisfaction • Product development Lagging Performance Measures • On time Delivery • Revenue Growth • ProfitabilityF • Market capitalizationUTURE
Points to note.. It is normal for enterprises to have as low as four to as many as several hundred performance measures while designing a BSC model However, it is better to have not more than 25 measures for an enterprise to produce and enjoy the optimum benefits of the BSC model Internal business process perspective measures should have greater weight in the model as the organizational strategy is primarily employed through the business processes All the other three models should have more or less equal weights
An example for Measures and weights Perspective #of Metrics WeightFinancial 5 22%Customer 5 22%Learning and Innovation 5 22%Internal Processes 9 34% 24 measures 100%
Uses of BSC Model “If directors were getting a Balanced Scorecard, they would be much more likely to be informed about their companies on an ongoing basis. The Scorecard’s emphasis on strategy (linking it to all activities, day-to-day and long-term) could help directors stay focused.” Jay .W. Lorsch Harvard University professor