Balanced scorecard

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BALANCED
SCORECARD
NURSEN BAYKAL
HOTEL MANAGEMENT
JANUARY 2011

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What is Balanced Scorecard?
• The Balanced Scorecard;
is a strategic planning and
management system that is
used extensively in business and
industry, government, and
nonprofit organizations
worldwide to align business
activities to the vision and
strategy of the organization,
improve internal and external
communications, and monitor
organization performance
against strategic goals.

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History
• Art Schneiderman
• Dr. Robert S. Kaplan
• David P. Norton

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How Works Balanced Scorecard
• The balanced scorecard has
evolved from its early use as a
simple performance
measurement framework to a full
strategic planning and
management system.
• 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.

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• 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.

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The Balanced Scorecard
Framework

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The Learning & Growth Perspective
• Learning and growth metrics
address the question of how the
firm must learn, improve, and
innovate in order to meet its
objectives. Much of this
perspective is employee-
centered.

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The following table outlines some examples of
process objectives and measures:
Objective Specific Measure
Manufacturing
learning
Time to new process maturity
Product focus
% of products representing
80% of sales
Time to market
Time compared to that of
competitors

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The Internal Business Process
Perspective
• Internal business process
objectives address the
question of which processes
are most critical for satisfying
customers and shareholders.
These are the processes in
which the firm must
concentrate its efforts to
excel.

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Objective Specific Measure
Manufacturing excellence Cycle time, yield
Increase design
productivity
Engineering efficiency
Reduce product launch
delays
Actual launch date vs.
plan
The following table outlines some examples of
process objectives and measures:

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The Customer Perspective
• The customer perspective
addresses the question of how
the firm is viewed by its
customers and how well the
firm is serving its targeted
customers in order to meet the
financial objectives. Generally,
customers view the firm in terms
of time, quality, performance,
and cost. Most customer
objectives fall into one of those
four categories.

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The following table outlines some examples of
specific customer objectives and measures:
Objective Specific Measure
New products % of sales from new products
Responsive supply Ontime delivery
To be preferred supplier Share of key accounts

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The Financial Perspective
• Financial perspective
addresses the question of
how shareholders view the
firm and which financial
goals are desired from the
shareholder's perspective.
The specific goals depend
on the company's stage in
the business life cycle.

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• For example:
• Growth stage - goal is growth, such as revenue growth
rate
• Sustain stage - goal is profitability, such ROE, ROCE, and
EVA
• Harvest stage - goal is cash flow and reduction in capital
requirements
The following table outlines some examples of financial
metrics:
Objective Specific Measure
Growth Revenue growth
Profitability Return on equity
Cost leadership Unit cost

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The Balanced Scorecard Journey

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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.

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• 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).

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Balanced Scorecard Software
Balanced Scorecard
system helps;
• To transform disparate
corporate data into
information and
knowledge
• To helps communicate
performance information

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Balanced Scorecard Benefits
Some of the benefits of the Balanced
Scorecard system include:
• Translation of strategy into
measurable parameters.
• Communication of the strategy to
everybody in the firm.
• Alignment of individual goals with the
firm's strategic objectives - the BSC
recognizes that the selected
measures influence the behavior of
employees.
• Feedback of implementation results
to the strategic planning process.

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Potential Pitfalls
The following are potential pitfalls
that should be avoided when
implementing the Balanced
Scorecard:
• Lack of a well-defined strategy:
The Balanced Scorecard relies on
a well-defined strategy and an
understanding of the linkages
between strategic objectives and
the metrics. Without this
foundation, the implementation
of the Balanced Scorecard is
unlikely to be successful.

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• Using only lagging measures:
Many managers believe that
they will reap the benefits of
the Balanced Scorecard by
using a wide range of non-
financial measures. However,
care should be taken to identify
not only lagging measures that
describe past performance, but
also leading measures that can
be used to plan for future
performance.

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• Use of generic metrics: It
usually is not sufficient
simply to adopt the metrics
used by other successful
firms. Each firm should put
forth the effort to identify
the measures that are
appropriate for its own
strategy and competitive
position.

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