Balance scorecard

1. BALANCED BUSINESS
SCORECARDS – BUILDING,
IMPLEMENTING, ALIGNING
AND SUSTAINING

2. Learning Objective
 Introduction and Background
 Defining the fundamental concepts
 Defining the 4 perspectives of the Balanced Scorecard (BSC)
 Building a business case for BSC
 Diagnosis of Best Practice guidelines
 Applying the 9-step, BSC building and implementing process
 Sustaining the BSC

3. ORIGIN AND HISTORY OF THE BSC
 It was originated by Drs. Robert Kaplan & David Norton (Harvard Business School) as
a performance measurement framework that added strategic non-financial
performance measures to traditional financial metrics to give managers and
executives a more 'balanced' view of organizational performance.
 These non-financial metrics are so valuable mainly because they predict future
financial performance rather than simply report what’s already happened.
 Their article (1996), describes how the balanced scorecard can help senior
managers systematically link current actions with tomorrow’s goals, focusing on
that place where, in the words of the authors, “the rubber meets the sky.”
 Predecessors to the BSC:
 Tableau de Bord (Dashboard)
 Early Metric-Driven Incentives (MDIs)

4. MODERN APPLICATION OF THE BSC
 The “new” balanced scorecard transforms an organization’s strategic plan from an
attractive, but passive document into the "marching orders" for the organization
on a daily basis.
 It provides a framework that not only provides performance measurements, but
helps planners identify what should be done and measured. It enables executives
to truly execute their strategies.
 Given the insight and wisdom provided by Kaplan & Norton, the balanced scorecard
is a management system (not only a measurement system) that enables
organizations to clarify their vision and strategy and translate them into action.
 It provides feedback around both the internal business processes and external
outcomes in order to continuously improve strategic performance and results.
 When fully deployed, the balanced scorecard transforms strategic planning from an
academic exercise into the nerve center of an enterprise.

5. BSC MEASURES

6. OBJECTIVES OF THE BSC
 Enables organizations to clarify their vision and strategy and translate them into
action.
 Aligns business activities to the vision and strategy of the organization
 Provides a balanced view of the organizational value and performance
 Enables business planners to identify what should be done and measured, thus
enabling effective execution of business strategies
 Provides feedback around both the internal business processes and external
outcomes in order to continuously improve strategic performance and results
 Monitors organization performance against strategic goals

7. BSC
PERSPECTIVES/DIMENSIONS
 The balanced scorecard suggests that we view the organization from four (4)
perspectives, and to develop metrics, collect data and analyze it relative to
each of these perspectives:
 Learning, Innovation and Growth
 Business (Internal) Processes
 Customer
 Financial

8. ILLUSTRATION: BSC
PERSPECTIVES/DIMENSIONS

10. LEARNING, INNOVATION AND
GROWTH PERSPECTIVE
 Strategic question:
 “To achieve our vision, how will sustain our ability to change and
improve?”
 Examples (measurable indicators):
 Time to develop new generation of products
 Life cycle to product maturity
 Time to market versus competition
 Is there the correct level of expertise for the job?
 Employee turnover
 Job satisfaction
 Training/Learning opportunities
 Value Outcome:
 Organizational knowledge and growth capacity

11. COMPONENTS OF LEARNING,
INNOVATION AND GROWTH

13. BUSINESS (INTERNAL)
PROCESS PERSPECTIVE
 Strategic question:
 “To satisfy our shareholders and customers, what business
processes must we excel at?”
 Examples (measurable indicators):
 Cycle time
 Unit cost
 Yield
 New product introductions
 Number of activities per function
 Duplicate activities across functions
 Process alignment (is the right process in the right department?)
 Process bottlenecks
 Process automation
 Value Outcome:
 Efficiency

15. CUSTOMER PERSPECTIVE
 Strategic question:
 “To achieve our vision, how should we appear to our customers?”
 Examples (measurable indicators):
 Percent of sales from new products
 On time delivery
 Share of important customers’ purchases
 Ranking by important customers
 Delivery performance to customer
 Quality performance for customer
 Customer satisfaction rate
 Customer percentage of market
 Customer retention rate
 Value Outcome:
 Customer satisfaction

16. FINANCIAL PERSPECTIVE
 Strategic question:
 “To succeed financially, how should we appear to our shareholders?”
 Examples (measurable indicators):
 Cash flow
 Sales growth
 Operating income
 Return on Equity (RoE)
 Return On Investment (ROI)
 Return on Capital Employed (RoCE)
 Financial Results (Quarterly/Yearly)
 Value Outcome:
 Financial performance/profitability

17. DEFINING FUNDAMENTAL
CONCEPTS
 Balanced Scorecard (BSC)
 Strategic Planning
 Strategic Plan
 Strategic Management and Execution
 Steps in Strategic Planning and Management
 Strategy Mapping

19. PURPOSES OF THE BSC
 Articulate the business's vision and strategy
 Identify the performance categories that best link the business's vision and
strategy to its results (e.g., financial performance, operations, innovation,
employee performance)
 Establish objectives that support the business's vision and strategy
 Develop effective measures and meaningful standards, establishing both short-
term milestones and long-term targets
 Ensure company-wide acceptance (ownership) of the measures
 Create appropriate budgeting, tracking, communication, and reward systems
 Collect and analyze performance data and compare actual results with desired
performance
 Take action to close unfavourable gaps

20. STRATEGIC UTILITY AND
FUNCTIONAL VALUE OF BSC’S
 Clarify or update a business's strategy
 Link strategic objectives to long-term targets and annual budgets
 Track the key elements of the business strategy
 Incorporate strategic objectives into resource allocation processes
 Facilitate organizational change
 Compare performance of geographically diverse business units
 Increase company-wide understanding of the corporate vision and strategy

22. 4-STEP STRATEGIC
MANAGEMENT PROCESS

23. STRATEGY MAPPING
 Strategy maps are communication tools used to tell a story of how value is
created for the organization.
 They show a logical, step-by-step connection between strategic objectives
(shown as ovals on the map) in the form of a cause-and-effect chain.
 Generally speaking, improving performance in the objectives found in the
Learning & Growth perspective (the bottom row) enables the organization to
improve its Internal Process perspective Objectives (the next row up), which in
turn enables the organization to create desirable results in the Customer and
Financial perspectives (the top two rows).

24. ILLUSTRATION: STRATEGY
MAP

25. EXAMPLE: STRATEGY MAP

26. EXAMPLE: STRATEGY MAP

27. ILLUSTRATION: HIERARCHY OF
BALANCED SCORECARD
COMPONENTS

29. THE 9-STEP BSC BUILDING AND
IMPLEMENTING PROCESS

30. STEP 1: ASSESSMENT - INTERNAL AND
EXTERNAL STRATEGIC ASSESSMENT
 Step one of the scorecard building process starts with an assessment of the
organization’s Mission and Vision, challenges (pains), enablers and values.
 The following strategically-relevant items form the scope to be scrutinized
by business managers:
 The company's mission statement
 The company's strategic plan/vision
 The financial status of the organization
 How the organization is currently structured and operating
 The level of expertise of their employees
 Customer satisfaction level
 Tools:
 SWOT Analysis
 PESTEL Analysis

31. THE NATURE OF THE BUSINESS
ENVIRONMENT – V-U-C-A

32. A WINNING STRATEGY
 CAPITALIZE ON STRENGTHS
 MINIMIZE WEAKNESSES
 EXPLOIT OPPORTUNITIES
 COUNTERACT THREATS

34. STEP 2: STRATEGY - CUSTOMER VALUE,
STRATEGIC THEMES AND RESULTS
 In Step Two, elements of the organization’s strategy, including Strategic
Results, Strategic Themes and Perspectives, are developed by managers to
focus attention on customer needs and the organization’s value proposition.

35. STEP 3: OBJECTIVES - STRATEGY
ACTION COMPONENTS
 The strategic elements developed in Steps one and two are decomposed into
Strategic Objectives, which are the basic building blocks of strategy and
define the organization's strategic intent.
 Metrics must also be aligned with the company's strategic plan.
 The metrics set up also must be S-M-A-R-T

36. STEP 4: STRATEGY MAP - CAUSE-
EFFECT LINKS
 In Step Four, the cause and effect linkages between the enterprise-wide Strategic
Objectives are formalized in an enterprise-wide Strategy Map.
 The previously constructed theme Strategy Maps are merged into an overall
enterprise-wide Strategy Map that shows how the organization creates value for its
customers and stakeholders.
 Apply cause-effect logic
 A Strategy Map highlights that delivering the right performance in the one
perspective (e.g. financial success) can only be achieved by delivering the
objectives in the other perspectives (e.g. delivering what customers want) -
basically creating a map of interlinked objectives
 It allows companies to create a truly integrated set of strategic objectives on a
single page.

38. STEP 5: PERFORMANCE MEASURES -
MEASURES AND TARGETS
 Leading and lagging measures are identified
 Lagging indicators are typically “output” oriented, easy to measure but hard to
improve or influence
 Leading indicators are typically input oriented, hard to measure and easy to
influence
 Expected targets and thresholds are established
 Baseline and benchmarking data is developed
 Key Performance Indicator (KPI) and Performance Measure Development

39. 5 STEPS TO FIND THE RIGHT
MEASURES

40. STEP 6: INITIATIVES -
STRATEGIC PROJECTS
 Strategic Initiatives are developed that support the Strategic Objectives.
 To build accountability throughout the organization, ownership of
Performance Measures and Strategic Initiatives is assigned to the appropriate
staff and documented in data definition tables.
 Development of strategic project plans

42. STEP 7: PERFORMANCE ANALYSIS - SOFTWARE,
PERFORMANCE REPORTING AND ANALYSIS
 The implementation process begins by applying performance measurement
software to get the right performance information to the right people at
the right time.
 Automation adds structure and discipline to the system and helps people
make better business decisions.

43. STEP 8: ALIGNMENT - CASCADING TO
UNIT AND INDIVIDUAL SCORECARDS
 The organizational level scorecard (the first Tier) is translated into business
unit or support unit scorecards (the second Tier) and then later to team
and individual scorecards (the third Tier).
 Cascading translates high-level strategy into lower-level objectives,
measures and operational details and is the key to organization alignment
around strategy.
 The organization alignment should be clearly visible through strategy, using
the strategy map, performance measures and targets, and initiatives.
 Scorecards are used to improve accountability through objective and
performance measure ownership and desired employee behaviours are
incentivized with recognition and rewards.

44. 3-TIER BALANCED
SCORECARD CASCADING

45. STEP 9: EVALUATION - STRATEGY
RESULTS AND REVISED STRATEGIES
 During this evaluation, the organization tries to answer questions such as:
 Are our strategies working?
 Are we measuring the right things?
 Has our environment changed?
 Are we budgeting our money strategically?

46. STRATEGY EVALUATION – BSC
FRAMEWORK

47. SUSTAINING THE BSC
 Critical implementation success factors
 Applying the control process

48. 10 CRITICAL IMPLEMENTATION
SUCCESS FACTORS
 Balanced Scorecard is a transformation journey and change initiative, not a
once off project - ensure that you have designed a Change Management plan
which should run parallel to the Balanced Scorecard.
 Maintain a committed and engaged leadership - change should be driven from
the top
 Develop an organizational culture based on results by establishing a strategy
management office
 Focus the organization on strategy by holding review meetings organized
around strategy
 Enhance individual accountability for results through objective ownership

49. 10 CRITICAL IMPLEMENTATION
SUCCESS FACTORS
 Align the organization, systems and employee performance around strategy
through a rewards and recognition programme
 Create a performance, results oriented culture
 Link budget formation, cost accounting and performance results
 Emphasize continual improvement
 Link key organization initiatives to the balanced scorecard development
process

50. APPLYING THE CONTROL
PROCESS

51. Strategy is never ending story