Balanced Scorecard

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Balanced Scorecard

  1. 1. MENILAI KINERJ Using Balanced Scorecard as a Holistic Measure of Performance
  2. 2. BAGAIMANA MENILAI PERUSAHAAN <ul><li>Market share. </li></ul><ul><li>Financial performance… </li></ul><ul><ul><ul><li>Sales </li></ul></ul></ul><ul><ul><ul><li>Profitability </li></ul></ul></ul><ul><ul><ul><li>Ratios </li></ul></ul></ul><ul><li>Stock price. </li></ul>10/28/09 BUS 351...Balanced Scorecard
  3. 3. Problems <ul><li>Too simple or too narrow. </li></ul><ul><li>Biased toward financial results. </li></ul><ul><ul><ul><li>Many believe emphasis is on short-term results (quarterly earnings). </li></ul></ul></ul><ul><ul><ul><li>Difficult to see what actions firm is taking for future. </li></ul></ul></ul><ul><li>Operational activities left out. </li></ul>10/28/09 BUS 351...Balanced Scorecard
  4. 4. Balanced Scorecard – What is it? <ul><li>Helps “balance” the way company’s look at performance by using four perspectives or lenses: </li></ul><ul><ul><li>Learning and Growth </li></ul></ul><ul><ul><li>Business Processes </li></ul></ul><ul><ul><li>Customer </li></ul></ul><ul><ul><li>Financial </li></ul></ul>10/28/09 BUS 351...Balanced Scorecard
  5. 5. Learning and Growth <ul><li>This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In a knowledge-worker organization, people -- the only repository of knowledge -- are the main resource. (Balanced Scorecard Institute) </li></ul>10/28/09 BUS 351...Balanced Scorecard
  6. 6. Business Processes <ul><li>This perspective refers to internal business processes. Metrics based on this perspective allow the managers to know how well their business is running, and whether its products and services conform to customer requirements (the mission). (Balanced Scorecard Institute) </li></ul>10/28/09 BUS 351...Balanced Scorecard
  7. 7. Customer <ul><li>This perceptive refers to how customers are being satisfied by products and services being provided by the firm. Poor performance from this perspective is thus a leading indicator of future decline, even though the current financial picture may look good. </li></ul>10/28/09 BUS 351...Balanced Scorecard
  8. 8. Financial <ul><li>This perceptive focuses on the traditional measures of ROI, profitability, stock price etc. </li></ul>10/28/09 BUS 351...Balanced Scorecard
  9. 9. Basic Design of Balanced Scorecard System From “A Balancing Act” by Howard Rohm in Perform magazine. Financial Internal Business Processes Learning and Growth Customers Vision and Strategy
  10. 10. Balanced Scorecard <ul><li>You can see this idea from simulation: </li></ul><ul><ul><ul><li>Financial performance </li></ul></ul></ul><ul><ul><ul><li>Marketing performance </li></ul></ul></ul><ul><ul><ul><li>Marketing effectiveness </li></ul></ul></ul><ul><ul><ul><li>Investment in future </li></ul></ul></ul><ul><ul><ul><li>Wealth </li></ul></ul></ul><ul><ul><ul><li>Asset management </li></ul></ul></ul><ul><ul><ul><li>Manufacturing productivity </li></ul></ul></ul>10/28/09 BUS 351...Balanced Scorecard
  11. 11. Balanced Scorecard <ul><li>You can see this idea from simulation: </li></ul><ul><ul><ul><li>Financial performance </li></ul></ul></ul><ul><ul><ul><li>Marketing performance </li></ul></ul></ul><ul><ul><ul><li>Marketing effectiveness </li></ul></ul></ul><ul><ul><ul><li>Investment in future </li></ul></ul></ul><ul><ul><ul><li>Wealth </li></ul></ul></ul><ul><ul><ul><li>Asset management </li></ul></ul></ul><ul><ul><ul><li>Manufacturing productivity </li></ul></ul></ul>10/28/09 BUS 351...Balanced Scorecard Customers Learning & Growth Business Processes Financial
  12. 12. Benefits <ul><li>Long-term planning is valued. </li></ul><ul><li>Cumulative impact of building shareholder wealth is valued over short-term earnings. </li></ul><ul><li>Highlights areas of weakness and strength. </li></ul><ul><li>… It’s a more complete picture of the firm’s performance. </li></ul>10/28/09 BUS 351...Balanced Scorecard
  13. 13. Criticisms <ul><li>Unnecessarily complex. </li></ul><ul><ul><li>Takes time and effort </li></ul></ul><ul><li>Included variables are (a) somewhat arbitrary and (b) simply what’s available. </li></ul>10/28/09 BUS 351...Balanced Scorecard
  14. 14. Criticisms <ul><li>All information in BSC is reflected in stock price anyway. </li></ul><ul><ul><ul><li>Assumes you buy the traditional view of firm value. </li></ul></ul></ul><ul><ul><ul><li>Depends on good dissemination of information. </li></ul></ul></ul><ul><ul><ul><li>But not appealing to HR, mgmt, engineers and others who feel alienated with financials. </li></ul></ul></ul>10/28/09 BUS 351...Balanced Scorecard
  15. 15. Application to Crucible <ul><li>Financial performance: </li></ul><ul><ul><ul><li>Net profit from current operations / total shares issued </li></ul></ul></ul><ul><ul><ul><li>This is operating profit with R&D and quality improvements added back in </li></ul></ul></ul>10/28/09 BUS 351...Balanced Scorecard
  16. 16. Application to Crucible <ul><li>Market performance: </li></ul><ul><ul><ul><li>Average market share in targeted segments / percent of demand actually served </li></ul></ul></ul><ul><ul><ul><li>So this accounts for stock outs and customer ill will </li></ul></ul></ul><ul><ul><ul><li>Between 0.0 and 1.0; good score around .4 or .5. </li></ul></ul></ul>10/28/09 BUS 351...Balanced Scorecard
  17. 17. Application to Crucible <ul><li>Marketing effectiveness: </li></ul><ul><ul><ul><li>Average market share in targeted segments / percent of demand actually served </li></ul></ul></ul><ul><ul><ul><li>So this accounts for stock outs and customer ill will </li></ul></ul></ul><ul><ul><ul><li>Between 0.0 and 1.0; good score around .4 or .5. </li></ul></ul></ul>10/28/09 BUS 351...Balanced Scorecard
  18. 18. Application to Crucible <ul><li>Investments in future: </li></ul><ul><ul><ul><li>(Current expenditures aimed at future / net revenues) * 10+1 </li></ul></ul></ul><ul><ul><ul><li>=> 1.0 and good score is > 3.0 </li></ul></ul></ul>10/28/09 BUS 351...Balanced Scorecard
  19. 19. Application to Crucible <ul><li>Creation of wealth: </li></ul><ul><ul><ul><li>Net equity / total stockholder’s equity </li></ul></ul></ul><ul><ul><ul><li>= (retained earnings + common stock) / common stock </li></ul></ul></ul><ul><ul><ul><li>= (retained earnings + $5,000,000) / $5,000,000 </li></ul></ul></ul><ul><ul><ul><li>< 1 means equity is paying for operational expenses </li></ul></ul></ul><ul><ul><ul><li>> 1 means firm is adding to wealth </li></ul></ul></ul><ul><ul><ul><li><= 0 means bankruptcy </li></ul></ul></ul>10/28/09 BUS 351...Balanced Scorecard
  20. 20. Application to Crucible <ul><li>Asset management: </li></ul><ul><ul><ul><li>Asset turnover * penalty for excess inventory </li></ul></ul></ul><ul><ul><ul><li>Good score should be around 3.0 </li></ul></ul></ul>10/28/09 BUS 351...Balanced Scorecard
  21. 21. Application to Crucible <ul><li>Manufacturing productivity: </li></ul><ul><ul><ul><li>Reliability judgment * % of operating capacity used in production </li></ul></ul></ul><ul><ul><ul><li>Score between 0.0 and 1.0, with good score around 0.80 </li></ul></ul></ul>10/28/09 BUS 351...Balanced Scorecard
  22. 22. Application to Crucible <ul><li>Total business performance: </li></ul><ul><ul><ul><li>The individual measurements multiplied together into an index </li></ul></ul></ul><ul><ul><ul><li>Compare quarter-to-quarter to see improvement </li></ul></ul></ul><ul><ul><ul><li>Compare with competitors and industry average </li></ul></ul></ul>10/28/09 BUS 351...Balanced Scorecard
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