Balance Scorecard

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BSC one of the most amazing strategy tools I ever worked with. I am sure this topic been discussed many times but I try to explain it from my point of view

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Balance Scorecard

  1. 1. Balance Scorecard Eng. Murhaf Ashi Cascading to Details 10 March , 2010
  2. 2. Strategic point of view “ Do not repeat the tactics which have gained you one victory, but let your methods be regulated by the infinite variety of circumstances ” Sun Tzu c. 490 BC, Chinese military strategist Eng. Murhaf Ashi
  3. 3. Balance Scorecard Company current situation BSC Target Strategy Eng. Murhaf Ashi
  4. 4. Agenda • Introduction to BSC • Measure Performance • BSC history • Stake Holder analysis • S.W.O.T Analysis • BSC four perspective • Key Performance Indicators (KPI) • Initiatives Matrix • BSC strategy map examples • References Eng. Murhaf Ashi
  5. 5. Dose it work • By 2004, the balanced scorecard has been at least partially implemented in about 57% of global corporations, according to a survey by Bain. This site contains some examples of companies and government organizations that have reported their use of the balanced scorecard. We have prepared a database of over 130 of these organizations. For details please see our examples of balanced scorecard usage. Eng. Murhaf Ashi
  6. 6. Success Stories AMEDD Finds Direction in Strategic Planning The Army Surgeon General and Commander of the US Army Medical Command champion the use of the balanced scorecard as "the principal tool by which they improve operational and fiscal effectiveness and better meet the needs of patients and stakeholders. Award for Excellence The Institute honors Mecklenburg County, NC with an Award for Excellence for successfully transforming the county government and positioning it for tough times. Scorecard Driving Strategy at Veolia Water North America With a new CEO and ambitious revenue goals, Veolia NA first successfully implemented a balanced scorecard and then integrated the scorecard deeper into its organization using an e-learning tool Eng. Murhaf Ashi
  7. 7. Agenda • Introduction to BSC • Measure Performance • BSC history • Stake Holder analysis • S.W.O.T Analysis • BSC four perspective • Key Performance Indicators (KPI) • Initiatives Matrix • BSC strategy map examples • References Eng. Murhaf Ashi
  8. 8. Why We Should Measure Performance ? Performance measurement improves communications internally among employees, as well as externally between the organization and as customers and stakeholders. The emphasis on measuring and improving performance (i.e., "results- oriented management") has created a new climate, affecting all government agencies, and most private sector and nonprofit institutions as well. Eng. Murhaf Ashi
  9. 9. Good Performance Measures • Provide a way to see if our strategy is working • Focus employees' attention on what matters most to success • Allow measurement of accomplishments, not just of the work that is performed • Provide a common language for communication • Are explicitly defined in terms of owner, unit of measure, collection frequency, data quality, expected value(targets), and thresholds • Are valid, to ensure measurement of the right things • Are verifiable, to ensure data collection accuracy Eng. Murhaf Ashi
  10. 10. Agenda • Introduction to BSC • Measure Performance • BSC history • Stake Holder analysis • S.W.O.T Analysis • BSC four perspective • Key Performance Indicators (KPI) • Initiatives Matrix • BSC strategy map examples • References Eng. Murhaf Ashi
  11. 11. What is the balanced scorecard? • The balanced scorecard is a strategic planning and management system that is widely applicable to organizations regardless of size or type of business. • The system, extensively used in business and industry, government, and nonprofit organizations worldwide, provides a method of aligning business activities to the vision and strategy of the organization, improving internal and external communications, and monitoring organization performance against strategic goals Eng. Murhaf Ashi
  12. 12. BSC history • It was originated by Robert Kaplan and David Norton of Harvard University in about 1990, but the roots of the balanced scorecard are deep, and include the pioneering work of General Electric on performance measurement reporting in the 1950’s and the work of French process engineers in the early part of the 20th century in France. David Norton Robert Kaplan Eng. Murhaf Ashi
  13. 13. Basic Concepts Balanced Scorecard views the organization from 4 distinct perspectives: Learning and Growth Perspective – What do we excel at? Business Process Perspective – How do we continue to grow and create value? Customer Perspective – How do our customers see us? Financial Perspective – How do we achieve the lowest cost? Eng. Murhaf Ashi
  14. 14. Basic Concepts Balanced Scorecard views the organization from 4 distinct perspectives: Learning and Growth Perspective • What do we excel at? Business Process Perspective • How do we continue to grow and create value? Customer Perspective • How do our customers see us? Financial Perspective • How do we achieve the lowest cost? Eng. Murhaf Ashi
  15. 15. Agenda • Introduction to BSC • Measure Performance • BSC history • Stake Holder analysis • S.W.O.T Analysis • BSC four perspective • Key Performance Indicators (KPI) • Initiatives Matrix • BSC strategy map examples • References Eng. Murhaf Ashi
  16. 16. Stake Holder analysis Keep Satisfied Manage Closely This tool should be High GM- Peter applied at the early Mngr- H.Q stages of the BSC to CEO- John identified all Mngr- Vector .S stakeholder who will benefit from the BSC VP- David. A strategy. Power Identifying the nature Monitor Minimum Keep Informed of each stakeholder Effort Blocker, Neutral and press contractor Supporter will help to understand their demand and to find Coworker- Government sector what the new strategy low could promises them low Interest High
  17. 17. Agenda • Introduction to BSC • Measure Performance • BSC history • Stake Holder analysis • S.W.O.T Analysis • BSC four perspective • Key Performance Indicators (KPI) • Initiatives Matrix • BSC strategy map examples • References Eng. Murhaf Ashi
  18. 18. S.W.O.T Analysis SWOT analysis is a tool for auditing an organization and its environment. It is the first stage of planning Strengths Weaknesses SWOT stands for strengths, weaknesses, opportunities, and threats. Strengths and weaknesses are internal factors. Opportunities and threats are external factors. Opportunities Threats
  19. 19. Agenda • Introduction to BSC • Measure Performance • BSC history • Stake Holder analysis • S.W.O.T Analysis • BSC four perspective • Key Performance Indicators (KPI) • Initiatives Matrix • BSC strategy map examples • References Eng. Murhaf Ashi
  20. 20. BSC four perspective Product quality Customer & quantity satisfaction Branch and leafs strength Process Employees Quality of Soil Skills and education
  21. 21. BSC four perspective Customer Perspective Business Process Perspective Learning and Growth Perspective Financial Perspective
  22. 22. Customer Perspective Customer focus, orientation, and satisfaction are key components Customer will find other suppliers if they are not satisfied or their requirements are not being met Poor customer satisfaction is a leading indicator of future financial decline. Even if the current financial picture is good Developing metrics in this area requires that customer profiles be done as well as the processes that provide the products and services to them
  23. 23. Business Process Perspective This refers to internal business processes. Metrics are used in this perspective to determine how well the organization’s businesses are running. Determine whether the businesses products and services conform to customer requirements (the Mission). Metrics must be carefully designed by those who know the business processes best. Typically there are 2 types of business processes relative to BSC: 1) Mission Oriented Processes that are special functions of major lines of business. Typically this requires specialized metrics. 2) Support Processes that are the day-to-day processes that support the business and organization. Typically they can be measured and benchmarked with generic metrics.
  24. 24. Learning and Growth Perspective Employee training. Corporate culture attitudes on individual and corporate self- improvement. Knowledge worker organization with people as the repository of knowledge. Continuous learning mode of operation driven by rapid technology advancements. Learning is more than training (for example, it includes mentors and tutors, ease of communication, etc.). Utilization of technology tools, “high technology work systems” (for example, the intranet).
  25. 25. Financial Perspective Based on financial data that is timely and accurate funding data Implementation of a corporate financial database is key Centralization and processing, accessibility, and automation of financial data is key Special attention must be paid to any possible “skewing” of the Financial Perspective Risk Assessment and Cost/Benefit Analysis should be included in this perspective
  26. 26. Two type of structures (Depend on organization nature) Profitable organization Non profitable organization Stakeholder Mission Financial Perspective Customer Perspective Customer Perspective Business Process Perspective Business Process Perspective Learning and Growth Perspective Learning and Growth Perspective Financial Perspective Eng. Murhaf Ashi
  27. 27. BSC objective example Operate in the black with 5% margin by increasing Financial Perspective revenues Customer Perspective Increase utilization of services Business Process Perspective Provide high quality services Learning and Growth Perspective Motivate, recognize and retain staff Eng. Murhaf Ashi
  28. 28. Cause & Effect relationship Increase the annual Financial Perspective profit Increase utilization of services Customer Perspective Provide high quality Business Process Perspective services Increase Increase employers employers computer Marketing Learning and Growth Perspective skills skills
  29. 29. Agenda • Introduction to BSC • Measure Performance • BSC history • Stake Holder analysis • S.W.O.T Analysis • BSC four perspective • Key Performance Indicators (KPI) • Initiatives Matrix • BSC strategy map examples • References Eng. Murhaf Ashi
  30. 30. Key Performance Indicators (KPI) Key performance indicators (KPI) are quantifiable measures of progress toward an organization’s goals. For example, the timely collection of receivables is a KPI for the goal of maintaining healthy cash flow, and value added per factory payroll hour is a KPI for the goal of maximizing factory productivity. Key performance indicators can be financial or non-financial. But they must be quantifiable—measurable—accurately and consistently over time. Each objective of the BSC map has a number of KPI’s to measure the accomplishment of the objective. Eng. Murhaf Ashi
  31. 31. Types of KPI’s 1 2 3 4 By what is Forward/Backward By Format measured Measure By Strategic/Operational Number Input Lag Strategic Measures (KPIs) Ratio Process Lead appearing in a BSC Percentage Output Operational Measures not appearing in a BSC Ranking Outcome Rating Index Eng. Murhaf Ashi
  32. 32. Agenda • Introduction to BSC • Measure Performance • BSC history • Stake Holder analysis • S.W.O.T Analysis • BSC four perspective • Key Performance Indicators (KPI) • Initiatives Matrix • BSC strategy map examples • References Eng. Murhaf Ashi
  33. 33. Initiatives Matrix The Initiatives Matrix include all the objectives of the balance scorecard strategy map and all the projects that support each objective. The next slide shows an example of the Initiatives Matrix Eng. Murhaf Ashi
  34. 34. Tourism Centre F1:Use resources effectively LG2: Align employee to strategy IP1:Foster Cultural Development IP2: Build Effective Infrastructure F2: Maximize return of investments C2: Attain a High Quality of Life for All LG4: Make effective use of technology C1: Become a Capital of Islamic Culture LG3: Foster innovative and ethical culture IP5: Advocate Jeddah Vision and Strategy IP3:Offer high quality of integrated services IP4 Plan strategically and build future capacity IP6: Ensure Effective Governance and Partnership C3: Achieve and Maintain Sustainable Development LG1: Recruit and retain talented and motivated people F3:Ensure diversified and sustained sources of income Initiatives Matrix with 4 without projects projects Objective Objective C4: Make Jeddah a Dynamic & Resilient International Commercial & Affordable Housing Markets Programme 3 Area-specific traffic reduction schemes 3 Associated Hajj Institutions located in Jeddah 1 1 2 2 3 1 3 3 3 Bahrah Industrial City 2 1 1 1 -1 -3 City Broadband Network 3 1 1 City Densification City Energy Efficiency 2 1 1 City leisure and entertainment facilities 3 Example of Initiatives Matrix City Produce Markets City Public Transport System Project doesn't support City wide integrated parking objective City Wide Open Space Provision 1 City-wide Street System Upgrade / Public Realm Enhancement 1 Communication Strategy / Ongoing 3 Public Relations 3 3 2 3 Comprehensive Planning Policy Framework 1 3 2 2 2 Comprehensive Waste Management Programme 1 Corniche Projects 1 2 1 1 1 2 1 1 1 1 2 2 Creation of a strategic planning team to build capacity 2 2 2 2 2 3 2 1 2 Designation of Protected Areas Eastern Hills Reserve 1 1 1 Education & Skills Advancement 3 1 2 3 1 2 1 Environmental Performance targets for E-government initative 3 3 3 1 public bodies, businesses and the 1 Establishment of a Jeddah Environmental Authority 1 2 Establishment of an Urban Observatory ? 1 Ground water management 1 Historic Core 1 1 2 2 1 Jeddah Central Station 3 1 1 2 2 Jeddah Cultural Events/Festivals 1 2 3
  35. 35. Agenda • Introduction to BSC • Measure Performance • BSC history • Stake Holder analysis • S.W.O.T Analysis • BSC four perspective • Key Performance Indicators (KPI) • Initiatives Matrix • BSC strategy map examples • References Eng. Murhaf Ashi
  36. 36. BSC strategy map examples Examples of BSC strategy map of global organization BSC STRATEGY MAP EXAMPLES
  37. 37. Eng. Murhaf Ashi
  38. 38. Agenda • Introduction to BSC • Measure Performance • BSC history • Stake Holder analysis • S.W.O.T Analysis • BSC four perspective • Key Performance Indicators (KPI) • Initiatives Matrix • BSC strategy map examples • References Eng. Murhaf Ashi
  39. 39. References Dr. Mohammed Mustafa Mahmoud workshop & material Epstein, Marc, and Jean-François Manzoni. "Implementing Corporate Strategy: From Tableaux de Bord to Balanced Scorecards." European Management Journal , April 1998, pp. 190-203. "Harvard Business Review Balanced Scorecard Report." Harvard Business Review, 2002 to present (bimonthly). Kaplan, Robert S., and David P. Norton. Alignment: Using the Balanced Scorecard to Create Corporate Synergies. Harvard Business School Press, 2006. Kaplan, Robert S., and David P. Norton. "The Balanced Scorecard: Measures That Drive Performance." Harvard Business Review, July 2005, pp. 71-79. Kaplan, Robert S., and David P. Norton. The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business Environment. Harvard Business School Press, 2000. Kaplan, Robert S., and David P. Norton. Strategy Maps: Converting Intangible Assets into Tangible Outcomes. Harvard Business School Press, 2004. Niven, Paul R. Balanced Scorecard Diagnostics: Maintaining Maximum Performance. John Wiley & Sons, 2005. Niven, Paul R. Balanced Scorecard Step-by-Step: Maximizing Performance and Maintaining Results, 2d ed. John Wiley & Sons, 2006 2005 Oak Ridge Associated Universities RL Information Consulting LLC http://www.balancedscorecard.org http://www.bain.com NAPAL excellence in business management , http://www.napl.org www.gate2quality.com www.kellen.net purestonepartners.com/tag/strategy-management/

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