The document discusses the Balanced Scorecard (BSC) framework for measuring organizational performance. The BSC balances traditional financial measures with non-financial measures across four perspectives: financial, customer, internal processes, and learning and growth. It allows organizations to track financial results while also monitoring capabilities for future growth. A strategy map illustrates the causal relationships between objectives in each perspective. The BSC is well-suited for non-profits and governments as it can assess performance through non-financial metrics related to constituents.

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The Balanced ScorecardThe Balanced ScorecardThe Balanced ScorecardThe Balanced Scorecard
and Strategy Mapand Strategy Mapand Strategy Mapand Strategy Map
Chapter 2Chapter 2

2. © 2012 Pearson Prentice© 2012 Pearson Prentice Hall. All rights reserved.Hall. All rights reserved.
Performance MeasrementPerformance MeasrementPerformance MeasrementPerformance Measrement
SystemsSystemsSystemsSystems

Measurement must supportMeasurement must support the company’s strategythe company’s strategy
and operationand operation

Must be designed so companies get better atMust be designed so companies get better at
managing and improving the value created frommanaging and improving the value created from
their intangible assetstheir intangible assets

Need to move Need to move from reliance on ffrom reliance on financial measuresinancial measures
to a mix ofto a mix of financial and nonfinancial measuresfinancial and nonfinancial measures

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Balanced ScorecardBalanced Scorecard

The Balanced Scorecard (BSC provides a system
for measuring and managing all aspects of a
company’s performance

The scorecard balances traditional financial
measures of success! such as profits and return on
capital! "ith nonfinancial measures of the drivers
of future financial performance

The Balanced Scorecard measures organi#ational
performance across different perspectives

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PerspectivesPerspectives

$our different but lin%ed perspectives are derived
from the organi#ation’s mission! vision and
strategy&
' $inancial
' Customer
' rocess
' )earning and gro"th

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Balanced MeasrementsBalanced Measrements

The BSC enables companies to&
' Trac% financial results
' Monitor ho" they are building the capabilities for
future gro"th and profitability

*ith customers

*ith their internal processes

*ith their employees and systems

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StrategyStrategy

+ strategy accomplishes t"o principal functions&
' Creating a competitive advantage by positioning
the company in its external environment "ith
resources to support customers better than its
competitors
' ,aving a clear strategy provides clear guidance for
ho" internal resources should be allocated to gain
a competitive advantage in the mar%etplace

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!"#ectives!"#ectives

Concise statements that articulate "hat the
organi#ation hopes to accomplish

+ction phrases

Tell the story of the strategy through the cause-
and-effect relationships

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!"#ectives!"#ectives

Typical ob.ectives found in each of the four BSC
perspectives include&
' /ncrease revenues through expanded sales to
existing customers ($inancial perspective
' 0ffer complete solutions to our targeted customers
(Customer perspective
' +chieve excellence in order fulfillment through
continuous improvements (rocess perspective
' +lign employee incentives and re"ards "ith the
strategy ()earning and gro"th perspective

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MeasresMeasres

rovide specificity and reduce the ambiguity that
is inherent in "ord statements

Specifying exactly ho" an ob.ective is measured
"ill give employees a clear focus for their
improvement efforts

0nce the ob.ectives have been translated into
measures! managers select targets for each
measure

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TargetsTargets

Targets establish the level of performance or rate
of improvement re1uired for a measure
' Should be set to represent excellent performance
' Should! if achieved! place the company as one of
the best performers in its industry
' Should create distinctive value for customers and
shareholders

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Strategy MapStrategy Map

/llustrates the causal relationship among the strategic
ob.ectives across the four perspectives
$inancial Perspective %etrn on &nvestment
'stomer Perspective 'stomer (oyalty
!n)Time *elivery
Process Perspective
(earning and
+ro,th Perspective
Process -ality 'ycle Time
mployees/ Process &mprovement Sills

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$inancial Perspective$inancial Perspective

The ultimate ob.ective for profit-see%ing
companies

$inancial performance measures indicate "hether
the company’s strategy! implementation! and
execution are contributing to bottom-line
improvement

+ company’s financial performance can be
improved in t"o "ays& productivity improvements
and revenue gro"th

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$inancial Perspective$inancial Perspective

/ncreased productivity occurs by&
' )o"ering direct and indirect expenses
' tili#ing their financial and physical assets more
efficiently

Companies generate revenue gro"th by&
' Selling additional products or services to existing
customers
' Selling ne" products! selling to ne" customers!
and expanding into ne" mar%ets

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'stomer Perspective'stomer Perspective

/dentify the targeted customer segments in "hich
the business unit competes and the measures of the
business unit’s performance in these targeted
segments

This perspective typically includes several
common measures of the successful outcomes
from a "ell-formulated and implemented strategy&
' +chieve customer satisfaction and loyalty
' +c1uire ne" customers
' /ncrease mar%et share
' 3nhance customer profitability

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'stomer Perspective'stomer Perspective

+ strategy identifies specific segments targeted for
gro"th and profitability

Companies must also identify the ob.ectives and
measures for the value proposition it offers
customers

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'stomer Perspective'stomer Perspective

The value proposition is the uni1ue mix of product
performance! price! 1uality! availability! ease of purchase!
service! relationship! and image offered to the targeted
customers
' 4efines the company’s strategy
' Communicates "hat the company expects to do for its
customers better or differently from its competitors

5alue propositions used successfully by different
companies include&
' 6Best buy7 or lo"est total cost
' roduct leadership
' Complete customer solutions

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Process PerspectiveProcess Perspective

Means by "hich the organi#ation "ill&
' Create and deliver the value proposition for
customers
' +chieve the productivity improvements for the
financial ob.ectives

The rocess perspective identifies the critical
processes in "hich the organi#ation must excel to
achieve its customer! revenue gro"th! and
profitability ob.ectives

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Process PerspectiveProcess Perspective

0rgani#ations perform many different processes!
"hich may be classified into four groupings&
' 0perating processes

4ay-to-day processes by "hich companies produce
their existing products and services and deliver them
to customers
' Customer management processes

rocesses by "hich companies expand and deepen
relationships "ith targeted customers

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Process PerspectiveProcess Perspective
' /nnovation processes

rocesses by "hich companies develop ne"
products! processes! and services
' 8egulatory and social processes

rocesses by "hich companies ensure that they
meet or exceed regulations on business practices

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(earning and +ro,th(earning and +ro,th
PerspectivePerspective

/dentifies ob.ectives that drive improvement in the
process ob.ectives
' ,uman 8esources
' /nformation Technology
' 0rgani#ation Culture and +lignment

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(earning and +ro,th(earning and +ro,th
PerspectivePerspective

,uman 8esources
' Strategic competency availability

3mployees have the appropriate mix of s%ills! talent!
and %no"-ho"

/nformation Technology
' Strategic information availability

Systems and applications contribute to effective
strategy execution

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(earning and +ro,th(earning and +ro,th
PerspectivePerspective

0rgani#ation Culture and +lignment
' Culture and climate

3mployees have an a"areness and understanding of
the shared vision! strategy! and cultural values
' 9oal +lignment

3mployee goals and incentives are aligned "ith the
strategy
' :no"ledge sharing

3mployees and teams share best practices and other
%no"ledge relevant to strategy execution

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BS' in onprofit andBS' in onprofit and
+overnment !rganiations+overnment !rganiations

The BSC is especially "ell-suited for nonprofit
and government organi#ations (N90s

Their success has to be measured by their
effectiveness in providing benefits to constituents

Because nonfinancial measures can assess
performance "ith constituents! the BSC provides
the natural performance management system for
N90s

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P+!s and StrategyP+!s and Strategy

Many N90s encountered difficulties in
developing their initial BSC! finding that they
didn’t have a clear strategy

Many N90s place their mission ob.ective at the
top of their scorecard and strategy map
' Cannot use the standard BSC architecture "here
financial ob.ectives are the ultimate! high-level
outcomes to be achieved

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Managing ,ith the BS'Managing ,ith the BS'

The benefits from BSC are reali#ed as the
organi#ation integrates its ne" measurement
system into management processes that&
' Communicate the strategy to all employees and
organi#ational units
' +lign employees’ individual ob.ectives and
incentives to successful strategy implementation
' /ntegrate the strategy "ith ongoing management
processes

26. Barriers to ffective 3seBarriers to ffective 3se

Senior management is not committed

Scorecard responsibilities do not filter do"n

The solution is overdesigned! or the scorecard is a
one-time event

The scorecard is treated as a systems or consulting
pro.ect
© 2012 Pearson Prentice Hall. All rights reserved.

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