A Measurement System? A Management System? A communication Tool?
The Balanced Scorecard is a managementtool that provides stakeholders with acomprehensive measure of how theorganization is progressing towards theachievement of its strategic goals.
Traditional financial reports look backward Reflect only the past: spending incurred and revenues earned Do not measure creation or destruction of future economic value The Balanced Scorecard identifies the factors that create long-term economic value in an organization, for example: Customer Focus: satisfy, retain and acquire customers in targeted segments Business Processes: deliver the value proposition to targeted customers Customers innovative products and services high-quality, flexible, and responsive operating processes excellent post-sales support Processes People Organizational Learning & Growth: develop skilled, motivated employees; provide access to strategic information align individuals and teams to business unit objectives
Translate mission, vision, strategy Provide the framework Measure four perspective Customer relation Financial Internal services process Learning innovation and growth
Long-Term Shareholder Value Improve Increase Expand Revenue EnhanceFinance Cost Structure Asset Utilization Opportunities Customer ValueCustomer Price Quality Availability Selection Functionality Service Partnership Brand Operation management Customer Management Innovation Management Social & RegulatoryInternal - Supply - Selection - Opportunities Identification - EnvironmentProcess - Production - Acquisition - R&D Portfolio - Safety and Health - Distribution - Retention - Design & Develop - Employment - Risk Management - Growth - Launch - Community Human Capital Information Capital Organization Capital - Skills - SystemsLearning - Culture - Training - Databases& Growth - Leadership - Knowledge - Networks - Alignment - Teamwork
• Change The Revenue Growth Strategy The Productivity Strategy “Improve stability by broadeni ng the sources of rev enue fro m “Improve operating efficiency by s hifting c ustomers to more cost- current customers” effective channels of distribution” Formulate and communicate a Improve Returns Financial Perspective Improve Broaden Operating Revenue Efficiency Mix Increase Increase Customer Customer Customer Confidenc e in Satisfaction Perspective Our Financi al Through Superi or Advice Execution new strategy for a more Internal Perspective Understand Develop Cross-Sel l Shift to Provide Mini mize Customer New the Product Appropriate Rapid Problems Segments Products Line Channel Response Increase Employee Productivity Learning Perspective competitive environment Develop Access to Align Strategic Strategic Personal Skills Information Goals• Growth Increase revenues, not just cut costs and enhance productivity• Implement From the 10 to the 10,000. Every employee implements the new growth strategy in their day-to- day operations
Clarifyingthe vision Gaining consensus Example???????? Metro bank
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At the highest level, the Balanced Scorecard is a frameworkthat helps organizations to translate strategy into operationalobjectives that drive both behavior and performance. The BSC is a structured approach to performancemeasurement and performance management that links theorganization’s strategic thinking to the activities necessary toachieve desired results The BSC is a vehicle for communicating an organization’sstrategic direction and for measuring achievements towardsthese predetermined objectives The BSC clearly establishes linkage between strategicobjectives, the measures for determining progress, thestretch targets established, and the focused initiatives neededto move the organization forward to meet thoseorganizational goals
Three layers of management Top management Middle management First line management
Advantages of Communicating and linking Easy information flow Better understanding of company long term strategic goal Build a stronger commitment to achieve those goals
STRATEGIC IMPLEMENTATION: BALANCED SCORECARD Score card users generally engage in three activities Communicating and educating Setting goals Three levels of information Corporate objectives , measures and targets Leaves room for translating The corporate targets into targets for each business unit The company asks both individual and teams to articulate which of their own objectives would be consistent with the business unit and corporate objectives Linking rewards to performance measures E.g An oil company uses the scorecard as the basis of calculating incentive compensation.Source: “Using the Balanced Scorecard as a Strategic Management System”, Kaplan and Norton, HBR, Jan-Feb 1996.
Lets managers communicate their strategy up and down the organisation and links it to departmental and individual objectives Traditionally departments are evaluated by their financial performance and individual incentives are tied to short term financial goals The scorecard gives managers a way of ensuring that all levels of the organisation understand the long term strategy.
Attractive and powerful linkages carries risk Assigning weights to each objective
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Long run planning Short run planning
Every organization haveseparate procedures andorganizational unit forstrategic planning and forresource allocation andbudgeting
Resource allocation andbudgeting process run by thefinance staff set financial targetfor revenues , expenses , profitand investment for next fiscalyear
Financially & Non Financiallymeasurement of theorganization is called balancedscorecard
Creating a balanced scorecard forces companies to integrate there strategic planning and budgeting processes that helps to ensure that there budget support there strategies Scorecard user select measure of progress from all set targets The organizations determine which action will drive them toward their targets
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Give capacity about strategic learning Existing feedback and review process focus on companies budgeted financial goal Withbalance scorecard company can monitor short –term results Enable companies to modified strategies
single loop learning process Double loop learning process
1. Articulate the company shared vision2. Supply essential strategic feedback system3. Scorecard facilitates strategy review that essential to strategic learning
Company found significant correlation between employ morals ,a measure in learning and growth perspectives, and customer satisfaction Correlated with payment of invoices Correlation between employ moral and employ suggestions
Balanced score card can be used to: - clarify and update strategy - communicate strategy throughout the company - align unit and individual goals with the strategy - link strategic objectives to long term targets & annual budgets - identify and align strategic initiatives - conduct periodic performance reviews to learn about and improve strategy GEN0190n.ppt 36