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ROBERT S. KAPLAN AND DAVID P. NORTON ‘S

THE
BALANCE SCORECARD
TRANSLATING STRATEGY IN TO ACTION
Where it started…..
Introduced in 1992, by Robert Kaplan and David Norton, the
balance Scorecard is the most commonly used framework for
ensuring that agencies execute their strategies. Today about
70% of the fortune 1000 Companies utilize the balance
scorecard to help manage performance
Robert Kaplan and David Norton first publicized the
balanced scorecard in a series of journal articles and
published this concept in their book, The Balanced
Scorecard.
Developed in the early 1990’s by Dr. Robert
Kaplan and David Norton
"The balanced scorecard retains traditional financial
measures. But financial measures tell the story of past
events, an adequate story for industrial age companies for
which investments in long-term capabilities and customer
relationships were not critical for success. These financial
measures are inadequate, however, for guiding and
evaluating the journey that information age companies
must make to create future value through investment in
customers, suppliers, employees, processes, technology,
and innovation."
WHAT IS THE BALANCE SCORECARD

BSC

translates an organizational mission and

strategy into comprehensive set of performance
measures that provides the frame work for strategic
measurement and Management system
The Balanced Scorecard:
• Balances financial and non-financial measures
• Balances short and long-term measures
• Balances performance drivers (leading indicators) with
outcome measures (lagging indicators)
• Should contain just enough data to give a complete
picture of organizational performance… and no more!

• Leads to strategic focus and organizational alignment.
•The Balanced scorecard is a management system that
enables organizations to clarify their vision and strategy
and translate them into action.
•Provides an organization with feedback of both the internal
business processes and external outcomes, which allows for
continuous improvement of strategic performance and
results.
•Nerve center of an enterprise
Why is it important to build a scorecard that
communicates a business unit’s strategy?
scorecard describes the organization’s vision of the
future to the entire organization. It creates shared
understanding.
• The scorecard creates a holistic model of the strategy that
allows all employees to see how they contribute to
organizational success. Without such linkage, individuals and
departments can optimize their local performance but not
contribute to achieving strategic objectives.
• The scorecard focuses change efforts. If the right objectives
and measures are identified, successful implementation will
likely occur, if not investments and initiatives will be wasted.
• The
 The balanced scorecard is centered on four
performance metrics or perspectives:
Customers
Internal processes
Financial
Learning and growth

 When implemented properly, each one of these
perspectives contains four subparts consisting of
Objectives
Measures
Targets
Initiatives
FINANCIAL

Vision
and
Strategy

LEARNING and
GROWTH
Can we
continue to
improve and
create value?

What must
we excel at?

Objective
Measures
Targets
Initiatives

How do our
customers
see us?

INTERNAL BUSINESS
PROCESS

Objective
Measures
Targets
Initiatives

CUSTOMER

Objective
Measures
Targets
Initiatives

How do we
look to
shareholders?

Objective
Measures
Targets
Initiatives

BALANCE SCORECARD PRESPECTIVES
Objectives, Measures, Targets and Initiatives

• Objectives

: what the strategy is to achieve in that perspective

• Measures : how progress for that particular objective will
be measured
• Targets : refer to the target value that the company seeks to
obtain for each measure
• Initiatives : what will be done to facilitate the reaching of the
target
FINANCIAL PERSPECTIVE
The financial performance perspective of the balanced
scorecard addresses the question of how shareholders
view the firm and which financial goals are desired
from the shareholder’s 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 longterm shareholder value. This goal is driven by two
factors, namely : revenue growth and cost efficiency.
Financial objectives tend to be influenced by the
organization's position on the life-cycle curve.

GROWTH

HARVEST
SUSTAIN
There are three main stages to this cycle which include:

Growth stage -goal of the company is growth
An example of a growth goal would be revenue
growth, sales in new market, sales to new customers.
Sustain stage - the goal of the firm is profitability
Measures in this stage may include ROE, ROCE, and
EVA, cost reduction rates, discounted cash flows.
Harvest stage - the goal of the firm is cash flow and
reduction in capital requirements. Current cash flows,
payback period, spending ratios, product line
profitability.
Strategic themes for the financial perspective
• Revenue

Growth and Mix refer to expanding product and
service offerings, reaching new customers and markets, changing
the product and service mix toward higher value added offerings
and repricing products and services.
•Cost reduction and productivity improvement refers to efforts
to lower the direct costs of products and services, reduce indirect
costs and share common resources with other business units.
•Asset utilization theme, managers attempt to reduce the working
capital levels required to support a given volume and mix of
business. Objectives, such as return on employed, return on
investment and economic value added, provide overall outcome
measures of the success of financial strategies to increase revenues,
reduce costs and increase asset utilization.
Strategic themes for the Financial Perspective
Strategic themes
Asset
Utilization

Growth

Business unit strategy

Revenue
Cost Reduction
Growth and Mix / Productivity
Improvement
Sales growth rate , increase Revenue
% revenue from
productivity
new products,
services and
customers

Investment (% in
sales)
R&D

Sustain

Share of targets
customers and
accounts,

Cost reduction
rates, indirect
expenses

Working capital
ratios, ROCE

Harvest

customer and
product line
profitability, %
unprofitable
customers

Unit costs

Payback period
CUSTOMER PERSPECTIVE
Customer perspective identifies targeted customer and
market segments and measures the organization’s success in
these segments.
It measure the level of customer satisfaction, customer
retention and market share held by the organization.
The Customer Perspective – Core measures

Market
Share

Customer
Acquisition

Customer
Profitability

Customer
Satisfaction

Customer
Retention
Market share – reflects the proportion of business in a given
market ( in terms of number of customers, dollars spent or unit
volume sold) that a business unit sells.
Customer Acquisition – measures tracks, in absolute or relative
terms, the rate at which a business unit attracts or wins new
customers or business.
Customer Retention – the rate at which a business unit retains
or maintains ongoing relationships with its customers.
Customer Satisfaction – assesses the satisfaction level of
customers along specific performance criteria within the value
proposition.
Customer Profitability – measures the net profit of a customer,
or a segments, after allowing for the unique expenses required to
support that customer.
Customer value proposition

Customer
Satisfaction

Customer
Acquisition

Value =

Product /
service
attributes

+

Image

Customer
Retention

+

Relationship

Brand equity
Functionality Quality Price Time

Convenient

Trusted

Responsive
There are four broad categories that Kaplan and Norton
base the customer perspective around.
Best buy
Companies that supply services and products at low prices and fast
service.

Product leadership and innovation
Companies that focus on customer that buy the newest and most
advanced cutting edge technology.

Customer complete solutions
Companies that try to sell things like computers where customers
customize them to their liking.

Lock in
Companies that will make a product then to buy accessories for
that product you have to buy the same brand name because other
brands out work with that product.
INTERNAL BUSINESS PROCESS PERSPECTIVE
Internal business process objectives address the question of
which processes are the most critical for satisfying
customers and shareholders
A firm must concentrate its efforts to excel in these areas

Metrics based on this prospective allow the managers to know
how well their business is running and whether its products
and services conform to customer requirements
INTERNAL BUSINESS
PROCESS

3 sub
processes

Innovation
Process
Creating Products/
Services &
Processes to meet
the demand of
Customers

Operations
Process

Post sale service
Process

Producing &
delivering the
Existing products
that will meet
the needs Of
Customers

Providing service
and Support to
the customer
after the sale of a
product or service
LEARNING AND GROWTH PERSPECTIVE
Learning and Growth Perspective includes measures
such as Employee satisfaction, employee retention and
skill sets etc. Objectives in learning and growth
perspective are drives that encourage implementation
of goals set in the financial, customer and internal
processes objectives. It identifies the infrastructure
that the organization must build to create long term
growth and improvement.
Objectives

Capability

Employee Skills

Long term
success

Information Systems

Organizational
Processes

Measures
Satisfaction
Retention
Training
Capabilities
Accuracy
Real time availability
Pervasiveness

Alignment of incentives
with key success factors
Improvement in key
customer & internal
processes
Balanced Scorecard Measurements
Strategy Map Framework

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 perspective
Strategy Map Framework
Commercial Industry: Regional Airline
BALANCED SCORECARD AS A MANAGEMENT SYSTEM
BSC reviewed regularly to enhance operational decision-making
• Success of initiatives assessed based on DATA… not opinions
• Leading indicators evaluated to confirm accuracy of assumptions
The BSC is a “Living Document” that requires regular revision of
objectives, measures and initiatives:
How are we doing?
Are we measuring the right things?
What initiatives do we need to get us where we want to go?
Have our organizational goals changed?
• Clarify and translate vision and strategy
• Communicate and link strategic objectives and measures
• Plan, set targets and align strategic initiatives
• Enhance strategic feedback and learning
Clarifying and
Translating the
Vision & Strategy
Clarifying the Vision
Gaining Consensus

Communicating
& Linking

Comm and
Educating
Setting Goals
Linking Rewards
to Performance
measures

Balance
Scorecard

Planning & Target Setting

Setting Targets
Aligning Strategic
Initiatives
Allocating Resources
Establishing Milestones

Strategic Feedback
&
Learning
Articulating the
shared Vision
Supplying Strategic
Feedback
Facilitating Strategy
review and Learning
Clarifying and Translating the Vision and Strategy

Translating the vision: helping all employees understand
how their day-to-day work contributes to long-term goals.
The strategy is the reference point the entire management
process.
The shared vision is the foundation for strategic learning.
• clarifying the vision
• formulating by Sr. Executives
• reaching consensus
• sorting out differences
• joint accountability
Communicating and Linking
Communicating and linking: disseminating long-term
goals both up and down an organizational hierarchy,
ensuring that both departmental and individuals
objectives are in alignment.
• goal alignment exists from top to bottom
• education and open communication about strategy
are basis for employee empowerment
• compensation is linked to strategy.
There are three distinct mechanisms are used
Communication and education programs. Under it the
communication to the board of directors, senior executives
and employees for understand the strategies. A consistent
and continuing program to educate the organization on the
component of strategy as well as reinforcing this education
with feedback on actual performance, is the foundation of
organizational alignment.
Brochures, newsletters and electronic bulletin boards are the
tools of a communication/ education program.
Goal Setting Programs : once a base level of understanding
exists, individuals and teams throughout the business unit must
translate the higher level strategic objectives in to the personal
and team objectives. E.g. an on time delivery objective for the
business unit’s customer perspective can be translated in to an
objective to reduce setup times at the bottleneck machine or for
rapid transfer of orders from one process to the next. In this way
local improvement efforts become aligned with overall
organizational success factors.
Reward System Linkage : alignment of the organization
toward the strategy must ultimately be motivated through the
incentive and reward system. Alignment and accountability will
clearly be enhanced when individual contributions to achieving
scorecard objectives are linked to recognition, promotion and
compensation programs.
Planning and Target Setting
Business planning: taking long-term strategy and
using it as the basis for how resources and capital are
allocated
Four steps are needed to use the scorecard in an
integrated long range strategic planning and operational
budgeting process.
•
•
•
•

Stretch targets are established and accepted
Strategic initiatives are clearly identified
Investments are determined by the strategy
Annual budgets are linked to long range plans
Set stretch targets : managers should set ambitious targets
for measures that all employees can accept and buy in to. The
cause and effect relationships in the scorecard help identify
the critical drivers that will allow breakthrough performance
on important outcome measures, particularly financial and
customer ones.
Identify and rationalize strategies initiatives : the gaps
between the ambitious targets set for scorecard measures and
the current performance on those measures enable managers
to set priorities for capital investments and action programs
intended to close the gaps. Manager eliminate or deemphasize initiatives that will not have a major impact on one
or more scorecard objectives.
Identify critical cross business initiatives : managers
identify the initiatives that will deliver benefits to the
strategic objectives of other business units or the
corporate parent.

Link to annual resource allocation and budgets:
managers link 3 to 5 years strategic plan to
discretionary expenses and budgeted performance for
the upcoming year. These milestones enable them to
track the business unit’s trajectory along its strategic
journey
Strategic Feedback and Learning

Feedback and learning: the scorecard enables strategic
and real-time learning because it measures daily
performance and spending in the context of overarching
goals, allowing organizations to make necessary
changes.
Feedback system used to test the hypotheses on
which strategy is based
Team problem solving
Strategy development is a continuous process
Periodic Review and Change
Targets-achieved or not
Past and future Review
Information from all
Double loop learning
Cause and effect Relationship
Validity and Viability
Strategy replacement according to outcomes/
performance drivers
An effective strategic learning process has three essential
ingredients:

• a shared strategic framework that communicates the strategy
and allows each participant to see how his or her activities
contribute to achievement of all overall strategy
• a feedback process that collects performance data about the
strategy and allows the hypotheses about interrelationships
among strategic objectives and initiatives to be tested
• a team problem solving process that analysis and learns from
the performance data and then adapts the strategy to emerging
conditions and issues
Different Management System for Strategic Implementation
•The strategy is the reference point for the entire management process
•The shared vision is the foundation for strategic planning
Clarifying & translating the vision
and strategy

•Goal alignments from
top to bottom
•Education and open
communication about strategy

Communicating
& linking
•Compensation is linked
To Strategy

Balanced
scorecard

•Feedback system used to t
The hypothesis on which s
Is based
Strategic
feedback &
learning
•Team problem solving

Planning & target
setting

•Stretch targets are established and accepted
•Strategic initiatives are clearly identified
•Investments are determined by strategy
•Annual Budgets are linked to long term planning

•Strategy development is a
Continuous Process
Metropolitan Bank’s Strategy

Metro bank is the retail banking division of a major bank with
8000 employees, a 30% market share of the region’s core
Deposit and accounts and about $1 billion in total revenue.
Metro bank implemented the balance scorecard, starting in
1993, to communicate and reinforce a new strategy. To increase
income and revenue by broadening the service sold to a targeted
group of customers.
Metropolitan Bank: Cause and Effect
Increase Return to
Stockholders
Broaden
Revenue Mix

Financial Perspective

Customer
Perspective

Increase Customer Satisfaction
With Our Products

Develop new
products

Develop
Selling
Skills

Understand
Customer
Needs

Cross sell
products

Increase employee
productivity

Access to
Strategic
Information

Align
Personal
Goals

Internal Process
Perspective

Learning
perspective
Metropolitan Bank’s Balanced Scorecard
Strategic Objectives

Strategic Measures

Learning

Internal Customer

Financial

Lag Indicators

Lead Indicators

 Improve Returns to Stockholders
 Broaden Revenue Mix

 Return on Investment
 Revenue Mix
 Revenue Growth

 Increase Customer Satisfaction
 Knowledgeable People
 Convenient Access
 Superior Service

 Customer Retention
 Depth of Relation (Sale of
Multiple Products to a
Customer)

 Customer Satisfaction
Survey

 Understand Our Customers
 Create Innovative Products
 Cross-Sell Products

 Share of Segment
 Revenue from New
Products
 Cross-Sell Ratio

 Product Development
Cycle
 Hours with Customers

 Instill a Selling Culture
o Build Strategic Information
o Develop Strategic Skills
o Align Incentives

 Revenue per Employee
 Employee Satisfaction
Survey

 Strategic Information
Availability
 Strategic Job Coverage
 Personal Goals Alignment
Barriers to effective Implementation of BSC

•Vision and Strategy Not Actionable
•Strategy Not Linked to Departmental Team and Individual
Goals
•Strategy Not Linked to resource allocation
•Feedback that is Tactical Not strategic
1.Vision and strategy not actionable

Strategy and vision
2. Strategy not linked to
Departmental team and
Individual goals
Personal MBO and
incentives

4. Feedback that is
Tactical not strategic

Budget

Financial plan and capital
allocation
3. Strategy not linked to resource allocation

Monthly review
Barrier No 1: Vision and strategy not Actionable

Cant be translated into action
Cant be acted Upon
Cant be understood
Fragmentation & Sub optimization of efforts
Lacking consensus & Clarity
Different Agendas
No integration
Not linked coherently to overall strategy
Barrier No 2 : Strategy not Linked to Departmental,
Team and Individual Goals

• Not translated into Department/ individual
Goals
• Different Priorities
• Failure of Human Resource Management
• Disalignment in Goals
Barrier No 3: Strategy not Linked to Resource Allocation

Separate Processes for Long term & Short
term Strategic planning
Funding to unrelated priorities
Poor Monthly Reviews
Unfocused New Mgt Techniques
Poor Integration
Barrier No 4: Feed back not tactically strategic

Bulk of feedback is only financial measures
Little time on strategy implementation &
success
No priority to periodic review and meetings
Inadequate information
Poor tactical review process
The Balance Scorecard

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The Balance Scorecard

  • 1. ROBERT S. KAPLAN AND DAVID P. NORTON ‘S THE BALANCE SCORECARD TRANSLATING STRATEGY IN TO ACTION
  • 2. Where it started….. Introduced in 1992, by Robert Kaplan and David Norton, the balance Scorecard is the most commonly used framework for ensuring that agencies execute their strategies. Today about 70% of the fortune 1000 Companies utilize the balance scorecard to help manage performance Robert Kaplan and David Norton first publicized the balanced scorecard in a series of journal articles and published this concept in their book, The Balanced Scorecard.
  • 3. Developed in the early 1990’s by Dr. Robert Kaplan and David Norton "The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation."
  • 4. WHAT IS THE BALANCE SCORECARD BSC translates an organizational mission and strategy into comprehensive set of performance measures that provides the frame work for strategic measurement and Management system
  • 5. The Balanced Scorecard: • Balances financial and non-financial measures • Balances short and long-term measures • Balances performance drivers (leading indicators) with outcome measures (lagging indicators) • Should contain just enough data to give a complete picture of organizational performance… and no more! • Leads to strategic focus and organizational alignment.
  • 6. •The Balanced scorecard is a management system that enables organizations to clarify their vision and strategy and translate them into action. •Provides an organization with feedback of both the internal business processes and external outcomes, which allows for continuous improvement of strategic performance and results. •Nerve center of an enterprise
  • 7. Why is it important to build a scorecard that communicates a business unit’s strategy? scorecard describes the organization’s vision of the future to the entire organization. It creates shared understanding. • The scorecard creates a holistic model of the strategy that allows all employees to see how they contribute to organizational success. Without such linkage, individuals and departments can optimize their local performance but not contribute to achieving strategic objectives. • The scorecard focuses change efforts. If the right objectives and measures are identified, successful implementation will likely occur, if not investments and initiatives will be wasted. • The
  • 8.  The balanced scorecard is centered on four performance metrics or perspectives: Customers Internal processes Financial Learning and growth  When implemented properly, each one of these perspectives contains four subparts consisting of Objectives Measures Targets Initiatives
  • 9. FINANCIAL Vision and Strategy LEARNING and GROWTH Can we continue to improve and create value? What must we excel at? Objective Measures Targets Initiatives How do our customers see us? INTERNAL BUSINESS PROCESS Objective Measures Targets Initiatives CUSTOMER Objective Measures Targets Initiatives How do we look to shareholders? Objective Measures Targets Initiatives BALANCE SCORECARD PRESPECTIVES
  • 10. Objectives, Measures, Targets and Initiatives • Objectives : what the strategy is to achieve in that perspective • Measures : how progress for that particular objective will be measured • Targets : refer to the target value that the company seeks to obtain for each measure • Initiatives : what will be done to facilitate the reaching of the target
  • 11. FINANCIAL PERSPECTIVE The financial performance perspective of the balanced scorecard addresses the question of how shareholders view the firm and which financial goals are desired from the shareholder’s 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 longterm shareholder value. This goal is driven by two factors, namely : revenue growth and cost efficiency.
  • 12. Financial objectives tend to be influenced by the organization's position on the life-cycle curve. GROWTH HARVEST SUSTAIN
  • 13. There are three main stages to this cycle which include: Growth stage -goal of the company is growth An example of a growth goal would be revenue growth, sales in new market, sales to new customers. Sustain stage - the goal of the firm is profitability Measures in this stage may include ROE, ROCE, and EVA, cost reduction rates, discounted cash flows. Harvest stage - the goal of the firm is cash flow and reduction in capital requirements. Current cash flows, payback period, spending ratios, product line profitability.
  • 14. Strategic themes for the financial perspective • Revenue Growth and Mix refer to expanding product and service offerings, reaching new customers and markets, changing the product and service mix toward higher value added offerings and repricing products and services. •Cost reduction and productivity improvement refers to efforts to lower the direct costs of products and services, reduce indirect costs and share common resources with other business units. •Asset utilization theme, managers attempt to reduce the working capital levels required to support a given volume and mix of business. Objectives, such as return on employed, return on investment and economic value added, provide overall outcome measures of the success of financial strategies to increase revenues, reduce costs and increase asset utilization.
  • 15. Strategic themes for the Financial Perspective Strategic themes Asset Utilization Growth Business unit strategy Revenue Cost Reduction Growth and Mix / Productivity Improvement Sales growth rate , increase Revenue % revenue from productivity new products, services and customers Investment (% in sales) R&D Sustain Share of targets customers and accounts, Cost reduction rates, indirect expenses Working capital ratios, ROCE Harvest customer and product line profitability, % unprofitable customers Unit costs Payback period
  • 16. CUSTOMER PERSPECTIVE Customer perspective identifies targeted customer and market segments and measures the organization’s success in these segments. It measure the level of customer satisfaction, customer retention and market share held by the organization.
  • 17. The Customer Perspective – Core measures Market Share Customer Acquisition Customer Profitability Customer Satisfaction Customer Retention
  • 18. Market share – reflects the proportion of business in a given market ( in terms of number of customers, dollars spent or unit volume sold) that a business unit sells. Customer Acquisition – measures tracks, in absolute or relative terms, the rate at which a business unit attracts or wins new customers or business. Customer Retention – the rate at which a business unit retains or maintains ongoing relationships with its customers. Customer Satisfaction – assesses the satisfaction level of customers along specific performance criteria within the value proposition. Customer Profitability – measures the net profit of a customer, or a segments, after allowing for the unique expenses required to support that customer.
  • 19. Customer value proposition Customer Satisfaction Customer Acquisition Value = Product / service attributes + Image Customer Retention + Relationship Brand equity Functionality Quality Price Time Convenient Trusted Responsive
  • 20. There are four broad categories that Kaplan and Norton base the customer perspective around. Best buy Companies that supply services and products at low prices and fast service. Product leadership and innovation Companies that focus on customer that buy the newest and most advanced cutting edge technology. Customer complete solutions Companies that try to sell things like computers where customers customize them to their liking. Lock in Companies that will make a product then to buy accessories for that product you have to buy the same brand name because other brands out work with that product.
  • 21. INTERNAL BUSINESS PROCESS PERSPECTIVE Internal business process objectives address the question of which processes are the most critical for satisfying customers and shareholders A firm must concentrate its efforts to excel in these areas Metrics based on this prospective allow the managers to know how well their business is running and whether its products and services conform to customer requirements
  • 22. INTERNAL BUSINESS PROCESS 3 sub processes Innovation Process Creating Products/ Services & Processes to meet the demand of Customers Operations Process Post sale service Process Producing & delivering the Existing products that will meet the needs Of Customers Providing service and Support to the customer after the sale of a product or service
  • 23. LEARNING AND GROWTH PERSPECTIVE Learning and Growth Perspective includes measures such as Employee satisfaction, employee retention and skill sets etc. Objectives in learning and growth perspective are drives that encourage implementation of goals set in the financial, customer and internal processes objectives. It identifies the infrastructure that the organization must build to create long term growth and improvement.
  • 24. Objectives Capability Employee Skills Long term success Information Systems Organizational Processes Measures Satisfaction Retention Training Capabilities Accuracy Real time availability Pervasiveness Alignment of incentives with key success factors Improvement in key customer & internal processes
  • 26. Strategy Map Framework 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 perspective
  • 29. BALANCED SCORECARD AS A MANAGEMENT SYSTEM BSC reviewed regularly to enhance operational decision-making • Success of initiatives assessed based on DATA… not opinions • Leading indicators evaluated to confirm accuracy of assumptions The BSC is a “Living Document” that requires regular revision of objectives, measures and initiatives: How are we doing? Are we measuring the right things? What initiatives do we need to get us where we want to go? Have our organizational goals changed? • Clarify and translate vision and strategy • Communicate and link strategic objectives and measures • Plan, set targets and align strategic initiatives • Enhance strategic feedback and learning
  • 30. Clarifying and Translating the Vision & Strategy Clarifying the Vision Gaining Consensus Communicating & Linking Comm and Educating Setting Goals Linking Rewards to Performance measures Balance Scorecard Planning & Target Setting Setting Targets Aligning Strategic Initiatives Allocating Resources Establishing Milestones Strategic Feedback & Learning Articulating the shared Vision Supplying Strategic Feedback Facilitating Strategy review and Learning
  • 31. Clarifying and Translating the Vision and Strategy Translating the vision: helping all employees understand how their day-to-day work contributes to long-term goals. The strategy is the reference point the entire management process. The shared vision is the foundation for strategic learning. • clarifying the vision • formulating by Sr. Executives • reaching consensus • sorting out differences • joint accountability
  • 32. Communicating and Linking Communicating and linking: disseminating long-term goals both up and down an organizational hierarchy, ensuring that both departmental and individuals objectives are in alignment. • goal alignment exists from top to bottom • education and open communication about strategy are basis for employee empowerment • compensation is linked to strategy.
  • 33. There are three distinct mechanisms are used Communication and education programs. Under it the communication to the board of directors, senior executives and employees for understand the strategies. A consistent and continuing program to educate the organization on the component of strategy as well as reinforcing this education with feedback on actual performance, is the foundation of organizational alignment. Brochures, newsletters and electronic bulletin boards are the tools of a communication/ education program.
  • 34. Goal Setting Programs : once a base level of understanding exists, individuals and teams throughout the business unit must translate the higher level strategic objectives in to the personal and team objectives. E.g. an on time delivery objective for the business unit’s customer perspective can be translated in to an objective to reduce setup times at the bottleneck machine or for rapid transfer of orders from one process to the next. In this way local improvement efforts become aligned with overall organizational success factors. Reward System Linkage : alignment of the organization toward the strategy must ultimately be motivated through the incentive and reward system. Alignment and accountability will clearly be enhanced when individual contributions to achieving scorecard objectives are linked to recognition, promotion and compensation programs.
  • 35. Planning and Target Setting Business planning: taking long-term strategy and using it as the basis for how resources and capital are allocated Four steps are needed to use the scorecard in an integrated long range strategic planning and operational budgeting process. • • • • Stretch targets are established and accepted Strategic initiatives are clearly identified Investments are determined by the strategy Annual budgets are linked to long range plans
  • 36. Set stretch targets : managers should set ambitious targets for measures that all employees can accept and buy in to. The cause and effect relationships in the scorecard help identify the critical drivers that will allow breakthrough performance on important outcome measures, particularly financial and customer ones. Identify and rationalize strategies initiatives : the gaps between the ambitious targets set for scorecard measures and the current performance on those measures enable managers to set priorities for capital investments and action programs intended to close the gaps. Manager eliminate or deemphasize initiatives that will not have a major impact on one or more scorecard objectives.
  • 37. Identify critical cross business initiatives : managers identify the initiatives that will deliver benefits to the strategic objectives of other business units or the corporate parent. Link to annual resource allocation and budgets: managers link 3 to 5 years strategic plan to discretionary expenses and budgeted performance for the upcoming year. These milestones enable them to track the business unit’s trajectory along its strategic journey
  • 38. Strategic Feedback and Learning Feedback and learning: the scorecard enables strategic and real-time learning because it measures daily performance and spending in the context of overarching goals, allowing organizations to make necessary changes. Feedback system used to test the hypotheses on which strategy is based Team problem solving Strategy development is a continuous process
  • 39. Periodic Review and Change Targets-achieved or not Past and future Review Information from all Double loop learning Cause and effect Relationship Validity and Viability Strategy replacement according to outcomes/ performance drivers
  • 40. An effective strategic learning process has three essential ingredients: • a shared strategic framework that communicates the strategy and allows each participant to see how his or her activities contribute to achievement of all overall strategy • a feedback process that collects performance data about the strategy and allows the hypotheses about interrelationships among strategic objectives and initiatives to be tested • a team problem solving process that analysis and learns from the performance data and then adapts the strategy to emerging conditions and issues
  • 41. Different Management System for Strategic Implementation •The strategy is the reference point for the entire management process •The shared vision is the foundation for strategic planning Clarifying & translating the vision and strategy •Goal alignments from top to bottom •Education and open communication about strategy Communicating & linking •Compensation is linked To Strategy Balanced scorecard •Feedback system used to t The hypothesis on which s Is based Strategic feedback & learning •Team problem solving Planning & target setting •Stretch targets are established and accepted •Strategic initiatives are clearly identified •Investments are determined by strategy •Annual Budgets are linked to long term planning •Strategy development is a Continuous Process
  • 42. Metropolitan Bank’s Strategy Metro bank is the retail banking division of a major bank with 8000 employees, a 30% market share of the region’s core Deposit and accounts and about $1 billion in total revenue. Metro bank implemented the balance scorecard, starting in 1993, to communicate and reinforce a new strategy. To increase income and revenue by broadening the service sold to a targeted group of customers.
  • 43. Metropolitan Bank: Cause and Effect Increase Return to Stockholders Broaden Revenue Mix Financial Perspective Customer Perspective Increase Customer Satisfaction With Our Products Develop new products Develop Selling Skills Understand Customer Needs Cross sell products Increase employee productivity Access to Strategic Information Align Personal Goals Internal Process Perspective Learning perspective
  • 44. Metropolitan Bank’s Balanced Scorecard Strategic Objectives Strategic Measures Learning Internal Customer Financial Lag Indicators Lead Indicators  Improve Returns to Stockholders  Broaden Revenue Mix  Return on Investment  Revenue Mix  Revenue Growth  Increase Customer Satisfaction  Knowledgeable People  Convenient Access  Superior Service  Customer Retention  Depth of Relation (Sale of Multiple Products to a Customer)  Customer Satisfaction Survey  Understand Our Customers  Create Innovative Products  Cross-Sell Products  Share of Segment  Revenue from New Products  Cross-Sell Ratio  Product Development Cycle  Hours with Customers  Instill a Selling Culture o Build Strategic Information o Develop Strategic Skills o Align Incentives  Revenue per Employee  Employee Satisfaction Survey  Strategic Information Availability  Strategic Job Coverage  Personal Goals Alignment
  • 45. Barriers to effective Implementation of BSC •Vision and Strategy Not Actionable •Strategy Not Linked to Departmental Team and Individual Goals •Strategy Not Linked to resource allocation •Feedback that is Tactical Not strategic
  • 46. 1.Vision and strategy not actionable Strategy and vision 2. Strategy not linked to Departmental team and Individual goals Personal MBO and incentives 4. Feedback that is Tactical not strategic Budget Financial plan and capital allocation 3. Strategy not linked to resource allocation Monthly review
  • 47. Barrier No 1: Vision and strategy not Actionable Cant be translated into action Cant be acted Upon Cant be understood Fragmentation & Sub optimization of efforts Lacking consensus & Clarity Different Agendas No integration Not linked coherently to overall strategy
  • 48. Barrier No 2 : Strategy not Linked to Departmental, Team and Individual Goals • Not translated into Department/ individual Goals • Different Priorities • Failure of Human Resource Management • Disalignment in Goals
  • 49. Barrier No 3: Strategy not Linked to Resource Allocation Separate Processes for Long term & Short term Strategic planning Funding to unrelated priorities Poor Monthly Reviews Unfocused New Mgt Techniques Poor Integration
  • 50. Barrier No 4: Feed back not tactically strategic Bulk of feedback is only financial measures Little time on strategy implementation & success No priority to periodic review and meetings Inadequate information Poor tactical review process