Balance Scorecard and Porter's Five Forces, Strategic Management

1. Balance Scorecard
• Robert Kaplan and David Norton developed
the Balanced Scorecard, a performance
measurement system that considers not only
financial measures, but also customer,
business process, and learning measures.
• A set of measures that gives top managers a
fast but comprehensive view of business
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2. • It identifies four key performance measures
as follows
– Customer perspective- How do customer see
us?
– Internal business perspective- what must we
excel at?
– Innovation & learning perspective- can we
continue to improve & create value?
– Financial perspective- How do we look at
shareholders?
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3. 3
Balance
Scorecard
Financial
Customer
Business
Process
Learning &
Innovation

4. • The balanced scorecard translates the
organization's strategy into four
perspectives, with a balance between the
following:
– between internal and external measures
– between objective measures and subjective
measures
– between performance results and the drivers
of future results
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5. • Financial perspective - includes measures
such as operating income, return on capital
employed, and economic value added.
• Customer perspective - includes measures
such as customer satisfaction, customer
retention, and market share in target segments.
• Business process perspective - includes
measures such as cost, throughput, and quality.
These are for business processes such as
procurement, production, and order fulfilment.
• Learning & growth perspective - includes
measures such as employee satisfaction,
employee retention, skill sets, etc.
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6. 6
Department Areas
Finance
Return On Investment
Cash Flow
Return on Capital Employed
Financial Results (Quarterly/Yearly)
Internal Business
Processes
Number of activities per function
Duplicate activities across functions
Process alignment (is the right process in the right
department?)
Process bottlenecks
Process automation
Learning &
Growth
Is there the correct level of expertise for the job?
Employee turnover
Job satisfaction
Training/Learning opportunities
Customer
Delivery performance to customer
Quality performance for customer
Customer satisfaction rate
Customer percentage of market
Customer retention rate

7. Objectives, Measures, Targets, and Initiatives
• Objectives - major objectives to be achieved, for
example, profitable growth.
• Measures - the observable parameters that will be
used to measure progress toward reaching the
objective. For example, the objective of profitable
growth might be measured by growth in net margin.
• Targets - the specific target values for the
measures, for example, +2% growth in net margin.
• Initiatives - action programs to be initiated in order
to meet the objective.
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8. These can be organized for each
perspective in a table
Objectives Measures Targets Initiatives
Financial
Customer
Process
Learning
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9. Balanced Scorecard facilitating the
following functions
• Clarifying strategy
• Communicating strategic, objectives
• Planning, setting targets, and aligning
strategic initiatives
• Strategic feedback and learning
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10. • A Balanced Scorecard should result in:
– Improved processes
– Motivated/educated employees
– Enhanced information systems
– Monitored progress
– Greater customer satisfaction
– Increased financial usage
• The Balanced Scorecard has been applied
successfully to private sector companies, non-
profit organizations, and government agencies.
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11. Example
• Pantaloon Retail Limited
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12. • Financial Perspective
• Goals
– Financial Growth (25%)
– Increase shareholders wealth
– Increase Profit Margin
– Sales target 1200cr (2015-16)
• Measures
– Cost management
– Financial Ratios
– Profit growth 25%
– Sales growth 30%
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13. • CUSTOMER PERSPECTIVE
• Goals
– Customer Satisfaction
– After Sale services to retain customer
– Market Penetration
• Measures
– Customer retunes and complaints.
– Customer satisfaction surveys.
– Coverage and strength of distribution channel.
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14. • Business Process (Internal Operation
Perspective):
• Goals
– Reduce Number of defects, amount of rework,
number of returns.
– Increase machine efficiency.
• Measures
– Innovations and Research & Development
– Training to employees
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15. • Innovation and Learning Perspective
• Goals
– Increase Number of new apparel designs.
– Increase R & D output success rate.
– Employee turnover, number of complaints.
– Employee satisfaction and retention.
• Measures
– Increase Number of training hours.
– Introduce New Technology
– Employee Welfare
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16. Porter's Five Forces
• Michael Porter provided a framework
that models an industry as being
influenced by five forces.
• The strategic business manager
seeking to develop an edge over rival
firms can use this model to better
understand the industry context in
which the firm operates
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17. 17
SUPPLIER POWER
THREAT OF
SUBSTITUTES
BUYER POWER
THREAT OF NEW
ENTRANTS
COMPETITIVE
RIVALRY

18. SUPPLIER POWER
• Supplier concentration
• Importance of volume to supplier
• Differentiation of inputs
• Impact of inputs on cost or differentiation
• Switching costs of firms in the industry
• Presence of substitute inputs
• Threat of forward integration
• Cost relative to total purchases in industry
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19. THREAT OF
SUBSTITUTES
• Switching costs
• Buyer inclination to substitute
• Price-performance trade-off of substitutes
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20. BUYER POWER
• Bargaining leverage
• Buyer volume
• Buyer information
• Brand identity
• Price sensitivity
• Threat of backward integration
• Product differentiation
• Buyer concentration vs. industry
• Substitutes available
• Buyers' incentives
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21. THREAT OF
NEW ENTRANTS
• Barriers to Entry
– Absolute cost advantages
– Proprietary learning curve
– Access to inputs
– Government policy
– Economies of scale
– Capital requirements
– Brand identity
– Switching costs
– Access to distribution
– Expected retaliation
– Proprietary products
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22. COMPETITIVE RIVALRY
• Exit barriers
• Industry concentration
• Fixed costs/Value added
• Industry growth
• Intermittent overcapacity
• Product differences
• Switching costs
• Brand identity
• Diversity of rivals
• Corporate stakes
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23. Example-Paint Industry
• The Indian Paint industry, estimated to be Rs.21,
000 Cr.
• growing at a rate of above 15%
• organized players of the industry cater to about
65%
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24. • The industry consists of two segments
– Decorative segment -Major segments in decorative
include exterior wall paints, interior wall paints, wood
finishes and enamel and ancillary products such as
primers, putties etc
– account for over 77.3%
– Industrial segment - Three main segments of the
industrial sector include automotive coatings, powder
coatings and protective coatings.
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25. • Supply: Supply exceeds demand in both the
decorative as well as industrial paints segments,
Industry is fragmented.
• Demand: Demands is for decorative paints
depend on the housing sector and good
monsoons. Industrial paint demand is linked with
user industries like auto, engineering and
customer durables.
• Barriers to entry: Brand, distribution network,
working capital efficiency, and technology play a
crucial role.
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26. • Bargaining power of suppliers: Price increases
constrained with the presence of the unorganized
sector for the decorative segment. Sophisticated
buyers of industrial paints also limit the bargaining
power of suppliers. It is therefore that margins are
better in the decorative segment.
• Bargaining power of customers: High due to
availability of high choices.
• Competition: In both categories, companies in
organized sector focus on brand building. Higher
pricing through product differentiation is also
followed as a competitive strategy.
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27. Model Analysis
• Bargaining power of buyers
– housing requirements, the buyers can be customers
(building contractors who buy in bulk) and end customers
(people who paint/re-paint their house). Customers are
more price sensitive because for them number of options
are available and decisions are made based on qaulity,
price and differentiating factors
– Industrial segment is low margin high revenue business
and buyers of these segments are knowledgeable about
their needs. Therefore, price comparison is done
effectively by the customers
• Thus, Bargaining power of buyer is Medium.
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28. • Bargaining power of suppliers: The Indian
Paint industry is raw material intensive industry
with more than 300 products going into the
manufacturing of the final products.
• The raw material can be divided into different
categories like pigments, additives, solvents,
binders etc. Titanium Dioxide is one of the key
pigment used in the production of paint and is
facing a global supply shortage. Thus supplier of
this material has solid bargaining power.
• Thus, Bargaining power of supplier is Medium.
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29. • Competitive Rivalry: About 80% of organized
market is created to by the below four palyers of
Indian Paint Industry. But the current market growth
rate can provide ample room of opportunity for all
the players of the industry to flourish.
• However, competition will keep on increasing as
market will get saturated, but this will take some
time to happen, till then one can keep satisfy
customer need with good margin.
• Also, the presence of unorganized market does
provide room for competition. Thus, on the whole
competitive rivalry for the Indian paint industry is
Low to Medium.
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30. • Availability of Substitute: The availability of substitute
of very minimal. In the rural areas lime wash is
conventionally used substitute for paints. One alternative
option for decorative walls available today is Wallpaper.
Thus, the availability of substitutes in the Indian Paint
Industry is Low to Medium.
• Threat of new entrants: As it has been stated earlier
that the paint market in Indian is dominated by few
players, making it difficult for anyone new entering the
industry to compete. Since new technologies are also
available to shorten production life cycle of paint. Thus,
Threat to new entrant is Medium.
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