Balanced scorecard


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Balanced scorecard

  1. 1. Balanced Scorecard : Creating Strategy Map to Drive Corporate 1
  2. 2. Contents : 1. Corporate Performance Scorecard 2. Strategy Map Framework 3. Four Perspectives in Balanced Scorecard 4. Identifying Key Performance Indicators 5. Strategy Map in Corporate Functions (HR, IT, Finance and Marketing) If you find this presentation useful, please consider telling others about our site ( 2
  3. 3. Corporate Performance 3
  4. 4. Performance Management Framework Vision Strategy Map Mission Strategy Key Performance Indicators Company strategy Identifying Defining Measuring Reporting 4
  5. 5. Performance Management Component Three critical components for effective process of performance management Performance management cycle is continuous and Performance consistent Management Process Performance Performance Management Management Infrastructure Culture Logistic support and Culture that is based performance management on performance administration 5
  6. 6. Performance Management Cycle STRATEGY Set Measures and Target Reward and Coach Plan and Execute Monitor and 6
  7. 7. Managing Performance with Balanced Scorecard Balanced Scorecard is a management tool that provides stakeholders with a comprehensive measure of how the organization is progressing towards the achievement of its strategic 7
  8. 8. Managing Performance with Balanced Scorecard • Balances financial and non-financial measures • Balances short and long-term measures • Balances performance drivers (leading indicators) with outcome measures (lagging indicators) • Leads to strategic focus and organizational 8
  9. 9. 4 Perspectives in Balanced Scorecard Financial Perspective The Strategy If we succeed, how will we look to our shareholders? Customer Perspective To achieve our vision, how must we look to our customers? Internal Perspective To satisfy our customers, which processes must we excel at? Learning & Growth Perspective To achieve our vision, how must our organization learn and improve? 9
  10. 10. Strategy and Balanced Scorecard Mission – Why We Exist Strategic Strategy Outcomes Map : Translate the Satisfied Vision – Strategy Shareholders What We Strategy : Our Game Delighted Want to Be Plan Customers Excellent Balanced Processes Values – Scorecard : What’s Measure and Motivated Important Focus Workforce to 10
  11. 11. Strategy Map Framework • The strategy map framework is presented in the following slides. • This framework describes the types of strategic target that should be presented in each perspective, namely the financial perspective, customers, internal business process, and learning & growth 11
  12. 12. Strategy Map Framework Long-term Shareholder Value Cost Efficiency Revenue Growth Financial Price Quality Service Availability Brand Customer Regulatory Operations Customer Innovation and Social Management Management Processes Processes Processes Processes Internal Process Learning & Growth Human Capital Organization Capital Information 12
  13. 13. Financial Perspective • In private companies, the financial perspective is the main objective (ultimate goal) – without having to sacrifice the interests of other relevant stakeholders (community, environment, government, etc.) • In the financial perspective, the strategic goal is the long-term shareholder value. This goal is driven by value two factors, namely : revenue growth and cost 13
  14. 14. Strategic Objectives in Financial Long-term Shareholder Value Cost Efficiency Revenue Growth Improve Cost Structure Expand Revenue Opportunities Increase Asset Utilization Enhance Customer 14
  15. 15. Customer Perspective • This perspective is very instrumental, because without customers, how can a company survive? • Customer perspective covers the following elements: • Customer acquisition • Customer retention • Customer profitability • Market share • Customer 15
  16. 16. Strategic Objectives in Customer Customer Retention Customer Profitability Customer Satisfaction Market Share Customer Acquisition Price Quality Service Availability 16
  17. 17. Internal Process Perspective • This perspective reflects the processes in key business that should be optimized in order to meet the needs of the customers. • There are four main themes in this perspective, namely: • Operations Management Process • Customer Management Process • Innovation Process • Regulatory and Social 17
  18. 18. Strategic Objectives in Internal Process Operations Customer Regulatory Innovation Management Management and Social Processes Processes Processes Processes Processes that Processes that Processes that Processes that produce and enhance customer create new improve deliver products value products and communities and and services services the environment • Supply • Selection • New Ideas • Environment • Production • Acquisition • R&D Portfolio • Safety & • Distribution • Retention • Design/ Health • Growth Develop • Employment • Launch • 18
  19. 19. Learning & Growth Perspective • This perspective reflects the capability that a company should have, namely: • Human Capital • Organization Capital • Information Capital • This perspective shows us that good human resource development system, organizational system and information system forms a solid foundation for improving company 19
  20. 20. Strategic Objectives in Learning & Growth Organization Information Human Capital Capital Capital • Skills • Culture • Systems • Knowledge • Leadership • Database • Attitude • Organization • Networks 20
  21. 21. Strategy Map Template • The following slide displays the strategy map template comprising of four perspectives : financial, customer, internal business process, and learning & 21
  22. 22. Strategy Map Template Enhance Long-term Shareholder Value Improve Increase Revenue Growth Cost Efficiency Financial Build High Expand Enhance Performance Products Market Share Brand Image Customer Achieve Drive Demand Implement Good Manage Dramatic Operational through Customer Environmental Growth through Excellence Relation Policy Innovation Management Internal Process Learning & Growth Develop Strategic Build Learning Expand Capabilities with Competencies Culture 22
  23. 23. Identifying Key Performance Indicators (KPI) 23
  24. 24. Key Performance Indicators (KPI) KPI = Measurement or Vision indicator that provides information on how far we Mission Strategy have succeeded in and Values achieving the strategic objectives Strategic Objectives Key Performance Indicators Finance Key Performance Customer Indicators Internal Business Process Key Performance Indicators HR 24
  25. 25. KPI Guidelines Guidelines in Formulating the KPI • The measure of success must show clear, specific and measurable performance indicators. • The measure of success should be declared explicitly and in detail so that it is clear what is being measured. • Costs to identify and monitor the measure of success should not exceed the value that will be known from the 25
  26. 26. KPI Guidelines Relevant to the Does KPI have a linkage with the strategic Strategic Objective objectives? Controllable Are the KPI achievements still under control? Actionable Can any action be taken to improve the performance? Simple Is the KPI easy to explain? Credible Is the KPI not easy to manipulate? 26
  27. 27. KPI Family Dimension Productivity Measures employee output (units/ transactions/ dollars), the uptime levels and how employees use their time (sales-to- assets ratio, dollar revenue from new customers, sales pipeline). Quality Measures the ability to meet and/or exceed the requirements and expectations of the customer (customer complaints, percent returns, DPMO -- defects per million opportunities) 27
  28. 28. KPI Family Dimension Profitability Measures the overall effectiveness of the management organization in generating profits (profit contribution by segment/customer, margin spreads). Timeliness Measures the point in time (day/week/ month) when management and employee tasks are completed (on-time delivery, percent of late orders) 28
  29. 29. KPI Family Dimension Process Measures how effectively the management Efficiency organization incorporates quality control, Six Sigma and best practices to streamline operational processes (yield percentage, process uptime, capacity utilization). Resource Measures how effectively the management Utilization organization leverages existing business resources such as assets, bricks and mortar, investments (sales per total assets, sales per channel, win rate) 29
  30. 30. KPI Family Dimension Cost Measures how successfully the management Savings organization achieves economies of scale and scope of work with its people, staff and practices to control operational and overhead costs (cost per unit, inventory turns, cost of goods). Growth Measures the ability of the management organization to maintain competitive economic position in the growth of the economy and industry (market share, customer acquisition/retention, account penetration) 30
  31. 31. KPI Category Dimension The actual raw data value as measured (e.g., Direct sales volume). The comparison of the changes in Percent performance of one value relative to the same value at a different time, geography, etc. (e.g., percentage change in sales vs. last year) 31
  32. 32. KPI Category Dimension The comparison of one value relative to another to Simple provide a benchmark for comparison of Ratio performance (e.g., average sales per day). A combination of several separate measures Index added together that result in an overall indicator of performance (e.g., (company sales growth)/ (industry sales growth) for a specific geography) 32
  33. 33. KPI Category Dimension The addition of the weighted averages of several Composite similar measures that result in an overall composite Average indicator of performance (e.g., customer satisfaction composite is mixture of results from surveys, focus groups and product returns). Multiple measures such as mean, variance, Statistics standard deviation and variance that capture the spread and distribution of the performance measures (e.g., sales distribution by demographics, geography, channel) 33
  34. 34. Strategy Map for Corporate Functions (HR, IT, Finance and Marketing) 34
  35. 35. Integration between Corporate and Division/Department Vision Mission Strategy Corporate Scorecard The Division Scorecard is built by referring to the Division corporate scorecard 35
  36. 36. Corporate and Division Scorecard Corporate Finance Financial Corporate Marketing Customer Production Supply Chain R&D Internal Process Learning & Growth Corporate HR Info 36
  37. 37. Corporate and Division Scorecard • Division Scorecard is formulated by looking at the four perspectives in Corporate Scorecard. • As shown in the previous slides, the learning & growth perspective provides guidelines for developing scorecard at the Human Resource and IT divisions, while the internal process perspective provides guidelines for developing scorecard at the supply chain division or R& 37
  38. 38. Corporate and Division Scorecard Sample from GE Lighting Business Group Level of Organization Financial Customer Internal Process Learning & Growth Corporate Scorecard Increase profit margin Improve customer Increase inventory turns Increase level of satisfaction level Improve internal process employee competency Division Scorecard Optimize cost of production Improve customer Increase inventory turns Increase level of Reduce inventory levels satisfaction level Improve internal process employee competency Plant Scorecard Optimize cost of production Increase percent of Increase inventory turns Number of "on the Increase yields ratio on time delivery Reduce number of defects job training" delivered Increase labor productivity Reduce customer per million Number of performance Reduce inventory levels complaints per million Improve quality incoming coaching session materials Maintain optimum equipment speed Frontline Employee Reduce waste Reduce equipment downtime Number of "on the Scorecard Reduce overtime Reduce number of poor job training" attended Increase production rates solders Number of performance Reduce number of cracked coaching session bulbs attended The above example shows how the scorecard at corporate level is cascaded to division level, and further to plant level and employee 38
  39. 39. Division Strategy Map Template • The strategy map for HR Division, Information Technology Division, Finance Division, and Marketing Division are presented in the following 39
  40. 40. HR Strategy Map Template Drive Long term Shareholder Value Enhance People & Organizational Optimize HR Efficiency Effectiveness Financial Create Positive Work Provide Quality Provide High Environment HR Service Performance People Customer Achieve HR Build Strategic Drive Process Employee Organizational Excellence Competencies Performance HR Internal Process Learning & Growth Develop Strategic & Enhance Technology Create Climate for Functional HR Competencies for HR HR 40
  41. 41. IT Strategy Map Template Drive Long term Shareholder Value Enhance IT Impact on Optimize IT Efficiency Enterprise Outcome Financial Deliver Consistent, High Provide Business Units with Quality IT Service Innovative IT Solutions Customer Maintain a Develop Effective Propose and Deliver Reliable IT Decision Transformational Infrastructure Support System Applications IT Internal Process Learning & Growth Develop Strategic & Enhance IT Tools that Promote Customer- Functional IT Competencies Enhance the IT Function focused 41
  42. 42. Finance Strategy Map Template Drive Long term Shareholder Value Enhance Finance Effectiveness on Optimize Financial Efficiency Enterprise Outcome Financial Deliver Responsive & Efficient Provide Clear & Reliable Finance Operations Required Disclosure Customer Achieve Finance Develop Financial Ensure Compliance Process Information to with Regulatory Excellence Improve Decision Requirements Making Finance Internal Process Learning & Growth Develop Strategic & Use Technology to Improve Promote Customer- Functional Finance Financial Information focused Culture Competencies 42
  43. 43. Marketing Strategy Map Template Drive Long term Shareholder Value Increase Sales Optimize Marketing Efficiency Revenue Financial Create Satisfied and Enhance Brand Loyal Customers Image Customer Develop Effective Develop Innovative Develop Accelerate Customer Relation Marketing Marketing Business New Product Management Communication Intelligence Development Program Ideas Internal Process Learning & Growth Develop Strategic & Enhance Technology Foster Creative Thinking Functional Marketing for Marketing & Innovative Solutions 43
  44. 44. Recommended Further Readings: 1. Robert Kaplan and David Norton, Strategy Map : Converting Intangible Assets into Tangible Outcomes, HBS Press 2. Robert Kaplan and David Norton, Alignment : Using the Balanced Scorecard to Create Corporate Synergies, HBS 44
  45. 45. End of 45