10)balanced scorecard and kpis

8/13/2019 10)Balanced Scorecard and KPIs

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RAFIQAH BINTI FAUZI

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BALANCE SCORECARD

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1.1 ORIGINS AND BACKGROUND

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Robert Kaplan David Norton

1990

Study on Measuring Performance in the

Organization of the Future

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1.1 ORIGINS AND BACKGROUND

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Harvard Business Review article

Using the Balanced Scorecard as a

Strategic Management System

(JanuaryFebruary 1996)


The Balanced Scorecard-Measures

that Drive Performance

(JanuaryFebruary 1992)


Putting the Balanced Scorecard to

Work

( SeptemberOctober 1993)

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1.2 DEFINITION

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The term scorecard signifies quantified

performance measures and balanced

signifies the system is balanced between:

Short-term and long term objectives

Financial and non-financial measures

Lagging and leading indicators

Internal and external performance perspectives

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1.2 DEFINITION

(Riven, P.R., 2006)

The BalancedScorecard as acarefully selectedset of quantifiablemeasures derivedfrom anorganizations

strategy.

(Smith, R.F., 2007)

A BalancedScorecard is amanagement toolthat provides seniorexecutives with acomprehensive setof measures toassess how theorganization is

progressing towardsmeeting its strategicgoals.

(Olve, Roy &Wetter, 2000)

The BalancedScorecard is a methodfor reachingagreement on wherean operation shouldbe heading forreaching agreementon where an operationshould be heading and

for making sure that itstays on course

(Kaplan, R.S. &Norton, D.P.,

1996) The Balanced

Scorecard providesmanagers with theinstrumentationthey need tonavigate to future

competitivesuccess.

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1.3 USES OF BALANCED SCORECARD

To set

objective

To determine

measures

To predict

outcomes

To determineinitiatives

To gain thebig picture

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2.0 BALANCED SCORECARD PERSPECTIVES

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3.0 PROCESS OF BUILDING A BALANCED

SCORECARD

1 Define the industry, describe its development and the role of the company

2 Establish/confirm the companys vision

3 Establish the perspectives

4 Break the vision down according to each perspective and formulate overall

strategic goals

5 Identify critical factors for success

6 Develop measures, identify causes and effects and establish a balance

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SCORECARD

7 Establish the top-level scorecard

8 Breakdown of the scorecard and measures by organizational unit

9 Formulate goals

10 Develop an action plan

11 Implementing the scorecard

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Source: (Olve, Roy and Wetter, 2000)

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1 Define the industry, describe its development and the role of the company

To develop a foundation for establishing a consensus on the

characteristics and requirements of the industry

SWOT analysis Porters fivecompetitive forces

KappAhl retail-clothing chain

KappAhl gone too far in

imitating the efforts of

competitors to focus on

youthful target group

KappAhlsstrength and

soul were to be gound

in another profilethat

of a service company for

the general public, but

with an up-to-date

image

A succession of

management changes

proved difficult to

restore profitability

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2 Establish/confirm the companys vision

Since the balance-scorecard model is based on a shared comprehensive

vision, it is essential to ascertain at an early stage whether a jointly held

vision in fact exists

1996

Vision, mission statement, and main strategies were

revised and confirmed

KappAhl as the industrys

leading service company

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3 Establish the perspectives

The development perspective should thus show the ways in which

management intends to develop the organization and the products and

services offered for the purpose of streamlining processes and/or adding

value for customers

Finance

Development /

Learning and

growth

Internal business

process

Customer

Employees

KappAhl perspectives

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4 Break the vision down according to each perspective and formulate overallstrategic goals

The purpose of this step is to translate the vision into tangible terms from the

established perspectives and thereby to achieve the overall balance which is

the unique feature of the model and the method

Finance: High and even earnings

Customer: Increased market share and delighted customers

Employees: Satisfied employees

Process: On time; short process times

Development: Innovation force; learning organization

KappAhl Strategic goals

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5 Identify critical factors for success

The company must now decide what are the most critical factors for

success and rank them in order of priority

Critical factors for

achieving desired

levels of profit and

cash flow

Fewer seasonalvariations

Lower markdowns

Performance/sq.

metre


customer

Match customers

expectations

In-store traffic

Merchandising


employees

Leadership


process

Timeliness

Lead time order-to-storeCritical factors for

development

Daring to test new

ways

KappAhl critical factors for success

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Employees

Leadership Satisfied

Employee Index

Process

Timeliness Percentage on-

time

Lead time order-

to-store

Days from order

to deliveryDevelopment

Daring to test new

ways

Satisfied

Employee Index

KappAhl key measures

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7 Establish the top-level scorecard

The top-level scorecard is put together for approval and for presentation to

the person concerned

KappAhl as the industrys

leading service company

Good value for smart

dressers

Finance DevelopmentprocessCustomer Employees

High and even

earning

Innovation force;

learning

organization

On time; short

process times

Increased market

share; delighted

customers

Satisfied employees

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Reduced

seasonality

Low

markdowns

Performance/sq

. metre

Daring to test

new ways

Timeliness

Lead time

order-to-store

Match

customers

expectation

In-store traffic

Merchandising

Leadership

Profit Q1 and

Q3

Markdowns

Days of

inventoried

goods

Gross profit/sq.metre

Satisfied

Employees

Index

Percentage on-

time

Days from order

to delivery

Market share

Customer

satisfaction

index

Number of

visitors

Radar

Satisfied

Employees

Index

An overview of KappAhlsoverall balanced scorecard

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8 Breakdown of the scorecard and measures by organizational unit

The Individual

The workgroup

TheDepartment/Function

The Business Unit

The companyCorporate

group

Division 1 Division 2 Division 3

Production

Productionunit 1

Chassis

Productionline

Interior

Productionunit 2

Construction Purchasing

Example of a breakdown of top-level measure

The documentation was

turned over to 15 different

project groups correspondingto units in the formal

organization

The groups were asked to

prepare scorecards for their

respective units at KappAhl :each unit was determine how

it could contribute to

achieving the vision in the

top-level scorecard

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Example


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9 Formulate goals

Goal consistent with vision and overall strategy

To see that the process

maintained momentum and

remained consistent with

the purpose indicated in

KappAhlstop level

scorecard

To make sure that the

measures were well defined

and that goals were set at

reasonable levels

To observe whether there is

potential for conflict

between goals

The project group maintained continuous contact with the 15 different units as they weredeveloping their scorecards

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10 Develop an action plan

Specify the steps to be taken to achieve the goals and the vision which have

been established

Businessareas

Supply chainmanagement

Concept &marketing

Operations(stores) Area of focus

Finance

Development

process

Customer

Employees

Budget&objectives

Vision&BusinessIdea

Measures of the above

Performance drivers Outcome measures

How different organizational units enter into the different perspectives at KappAhl

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Example


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11 Implementing the scorecard

The implementation plan should therefore include rules and suggested

ways to ensure that balanced scorekeeping becomes part of the daily

work of the company

Everyone readily accepted this way of thinking, and even

without any formal system of performance monitoring,

the scorecards for the different units at KappAhl proved

to be major factor in turning the company around

The company was already showing a profit of over 100

million SEK in 1997

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KEY PERFORMANCE INDICATORSKPIs)

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4.1 DEFINITION OF KPI

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Key Performance Indicator

Include anything that

allows the business

to gain a competitive

advantage overothers in the same

market. The

indicators should

deal only with the

aspects of the

business that help itsucceed

KPI is to find actions

and events that the

business can clearly

identify, measureand quantify, and

that the company

itself or its

employees can

influence

An "indicator"

should be a metric

that helps predict

future results

Source: (Cultrona, 2009)

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4.1 DEFINITION OF KPI

KPIs represent a setof measures

focusing on those

aspects oforganizational

performance thatare the most criticalfor the current andfuture success ofthe organization

(Parmenter, 2007)

Key performance

indicator areimportant indicators

for assessing the

outcome of

management

(Wu & Chen, 2012)

Key performanceindicator arequantifiable

measurements,agreed to

beforehand, thatreflect the critical

success factors of anorganization

(Reh, 2009)

Key performanceindicator means

factors to which the

development,performance or

position thebusiness of the

company can bemeasure effectively

Source: Company act2006, section 471(6)

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5.0 DEVELOPING AND USING KPIs

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A 12- step model

(Parmenter, 2007)

1 Senior Management Team

commitment

2 Establish a Winning KPI project

team

3 Establish a Just Do It culture

and process

4 Setting up a holistic KPI

development strategy

5 Marketing the KPI system to all

employees

6 Identifying organization-wide

critical success factor

7 Recording performance measures

in a database

8 Selecting Team-Level

performance measures

9 Selecting organizational Winning

KPIs

10 Developing the reporting

framework at all level

11 Facilitating the use of Winning

KPIs

12 Refining KPIs to maintain their

Relevance

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6.0 IMPORTANCE OF KPI

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Goalmeasurement

VitalInformation

Education

Continuity Consideration

Source: (Hamlett, 2006)

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7.0 HOW TO MEASURE A KPI

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STEP 1

Choose the target

and range for your

business

STEP 2

Set the time

period formeasuring KPI

STEP 3

Assign numerical

values to the

categories of the

KPI range

Source: (Lorette, 1996)

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7.1 HOW MANY KPIs?

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the choice of which ones are key is unique to

each company and its strategy; it is therefore

impossible to specify how many KPIs a company

should have. However, our experience suggests

that between four and ten measuresare likely to be key for most types of company.

Source: www.corporatereporting.com

There have been several inspiredtheories on the optimal number of

KPIs but in practice 59 KPIs

work well

Source: www.simplekpi.com

Measures that matter across industries

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8 0 RELATIONSHIP BETWEEN KPI AND BALANCED


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8.0 RELATIONSHIP BETWEEN KPIs AND BALANCED

SCORECARD

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2

Issue

IssueIssue

Financial

results

Customer

satisfaction

Learning &

growth

Internal

processes

Staff

satisfaction

Community &

environment

IssueIssue

Issue

Critical

success

factors

Balanced

scorecard

Scorecard andserves as a

base for

specifying the

KPIs

(Iveta, 2012)


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10)balanced scorecard and kpis

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