balanced scorecard
TRANSCRIPT
An Introduction to the
BALANCED SCORECARD
Problems of Strategy
ImplementationMEASUREMENT
MANAGEMENT
COMMUNICATION
You can’t measure what you cannot
describe
You can’t manage what you cannot
measure
You can’t communicate what you cannot describe
The Balanced Scorecard
is:A Measurement System
A Strategic Management
System
+
A Communicatio
n Tool
+
Alignment
Focus
“Measurement is the foundation of management.”
What is the Balanced Scorecard?The BSC Retains the traditional financial measures
The BSC links the financial measures with the drivers of future performance
Financial Perspective
Customer Perspective
Learning and Growth
Internal Perspective
PROFITABLE GROWTH
Current BusinessNew Revenue Productivity Use of Assets
Customer Value Proposition
Best in Product/Service
Best Total Solution
Best Total Cost
Skills Technology Environment
Product Innovation
Customer Intimacy
Operational Excellence
BARRIERS TO
EXECUTION
Source: Kaplan & Norton
STRATEGY
People BarrierOne of 4 managers have
incentives linked to strategy
Vision-Mission BarrierOnly 5% of the work force understands the strategy
Management BarrierStrategy is not regularly discussed and prioritized
Resource BarrierBudgets not linked to
strategy
BARRIERS TO
EXECUTION
Source: Kaplan & Norton
STRATEGY
People BarrierOne of 4 managers have
incentives linked to strategy
Vision-Mission BarrierOnly 5% of the work force understands the strategy
Management BarrierStrategy is not regularly discussed and prioritized
Resource BarrierBudgets not linked to
strategy
BARRIERS TO
EXECUTION
Source: Kaplan & Norton
STRATEGY
Vision-Mission BarrierOnly 5% of the work force
understands the strategy
People BarrierOne of 4 managers have
incentives linked to strategy
Management BarrierStrategy is not regularly discussed and prioritized
Resource BarrierBudgets not linked to
strategy
Vision-Mission BarrierOnly 5% of the work force
understands the strategyThe BSC overcomes Vision-Mission Barrier through the translation of strategy
The BSC is a shared understanding of the Vision-Mission strategy translated into:
Objective
sMeas
ures
Targets
Initiative
sActio
n Plans
Resource
s
FinancialCustomerInternalLearning&Growth
BARRIERS TO
EXECUTION
Source: Kaplan & Norton
STRATEGY
Management BarrierStrategy is not regularly discussed and prioritized
Resource BarrierBudgets not linked to
strategy
Vision-Mission BarrierOnly 5% of the work force understands the strategy
People BarrierOne of 4 managers have
incentives linked to strategy
People BarrierOne of 4 managers have
incentives linked to strategy
‘cascading’ the scorecard overcomes the People Barrier
TOP-DOWN BOTTOM-UP
driving the strategy to
all employees
at all levels
employee sees his/her contribution
to the strategy
“line of sight”
STRATEGY
InternalNew
Products
Understand the
Customers
CRM. Productivity .
Efficient Use of Assets
Increase Employee Competence
• Employee Satisfaction
• Revenue per Employee
Skills Systems
Align Personal Goals
Profitable Growth
New Sources
of Revenue
Expand Current
Business
Increase in
Productivity
Efficient Use
of Assets
Product Service
Image
Customer Value Proposition
Total Solutions
Homebuilder
Learning& Growth
Customer
Financial
customer scorecard
process scorecard
personal scorecard alignment and focus
BARRIERS TO
EXECUTION
Source: Kaplan & Norton
STRATEGY
Management BarrierStrategy is not regularly
discussed and prioritized
Resource BarrierBudgets not linked to
strategy
Vision-Mission BarrierOnly 5% of the work force understands the strategy
People BarrierOne of 4 managers have
incentives linked to strategy
Management BarrierStrategy is not regularly
discussed and prioritizedstrategic learning overcomes the Management Barrier
The Balanced Scorecard translates the vision and strategy into a coherent set of measures in four balanced perspectives
• Marketing program+30%
• Annual Gross Sales
• Grow Revenue from new products
• Skills Development Program
90%• Staff
Competence• Acquire,
Develop Skills
• Cycle Time Reengineering
from 9 down to 6 months
• Time to Market
• Fast Time to Market
• CRM Program+20%
• Customer Profitability
• Satisfy Customer Needs
InitiativeTargetMeasureObjectiveStrategy Map
Financial
Customer
Internal
Learning & Growth
Revenue Growth
New Products
World-Class Product
Development
Highly Skilled Workforce
The Balanced Scorecard describes how the strategy will be executed
BARRIERS TO
EXECUTION
Source: Kaplan & Norton
STRATEGY
People BarrierOne of 4 managers have
incentives linked to strategy
Vision-Mission BarrierOnly 5% of the work force understands the strategy
Management BarrierStrategy is not regularly discussed and prioritized
Resource BarrierBudgets not linked to
strategy
Resource BarrierBudgets not linked to
strategyStrategic Resource Allocation overcomes the Resource Barrier
FinancialCustomerInternalLearning&Growth
Objective
sMeas
ures
Targets
Initiative
sActio
n Plans
Resource
s
Budgetlinked to
the strategy
Balanced Scorecard
Resource BarrierBudgets not linked to
strategyStrategic Resource Allocation overcomes the Resource Barrier
Selecting and Managing Initiatives
On-going & proposed strategic initiatives re-
examined
1
Screen, assess, and identify “Linked and Strategic” initiatives
2
Select strategic initiative that will grow the
enterprise
3
Other projects CRM
TQMJIT,QDP
SCMSRM
CSR
Marketing Projects
CRITERIA: strategies should be linked to the overall strategic goals
List of Priorities
HOW?
Revenue Growth
Quality Production
Quality Materials
Quality Product
Loyal Customers
Skilled Workforce + Technology
Financial
Customer
Internal
Learning & Growth
Cause and Effect Relationships and the Balanced Scorecard
STRATEGY MAPS – a chain of cause-and-effect logic that connects the desired outcomes with the drivers
WHAT?
WHAT?
HOW?WHAT?
HOW?WHAT?
HOW?
Revenue Growth
Loyal Customers
Quality Product
Quality Production
Quality Materials
Skilled Workforce + Technology
Financial
Customer
Internal
Learning & Growth
Skilled Workforce + Technology
CAUSE
Quality Production
Quality Materials EFFECTCAUSE
Quality Product EFFECTCAUSE
Loyal Customers EFFECTCAUSE
Revenue Growth
EFFECT
Cause and Effect Relationships and the Balanced Scorecard
A strategy is a set of hypothesis about CAUSE and EFFECT.
• A chain of cause and effect relationships can be established
as a vertical dimension through the four BSC perspectives.• The BSC tells the story of the strategy
Cause and Effect Relationships and the Balanced Scorecard
A strategy is a set of hypothesis about CAUSE and EFFECT.
CAUSE AND EFFECT ANALOGIES:
cause effect
driver outcome
if then
how what
Revenue Growth
Loyal Customers
Quality Product
Quality Production
Quality Materials
Skilled Workforce + Technology
Financial
Customer
Internal
Learning & Growth
Skilled Workforce + Technology
CAUSE
Quality Production
Quality Materials EFFECT
Loyal Customers
Quality ProductEFFECT
CAUSE
CAUSE
Revenue Growth
EFFECT
The ‘Balance’ in the Balanced Scorecard
… TANGIBLE and INTANGIBLE AssetsBALANCE BETWEEN …
… FINANCIAL and NON-FINANCIAL Measures… EXTERNAL and INTERNAL Constituents… LAG and LEAD Indicators of Performance
TANGIBLE Assets INTANGIBLE Assets
FINANCIAL Measures•Financial Perspective
NON-FINANCIAL Measures•Customer Perspective•Internal Perspective•Learning and Growth Perspective
EXTERNAL Constituents•Financial Perspective•Customer Perspective
INTERNAL Constituents•Internal Perspective•Learning and Growth Perspective
LAG Indicators of Performance
LEAD Indicators of Performance
r1 – Balance between the tangible assets and intangible assets
The ‘Balance’ in the Balanced Scorecard
Revenue Growth
Loyal Customers
Quality Product
Quality Production
Quality Materials
Skilled Workforce + Technology
Financial
Customer
Internal
Learning & Growth
tangible assets
intangible assets
In order to extract value from the intangible assets, these must be transformed.
The ‘Balance’ in the Balanced Scorecard
Non-Financial
FinancialRevenue Growth
Loyal Customers
Quality Product
Quality Production
Quality Materials
Skilled Workforce + Technology
Financial
Customer
Internal
Learning & Growth
Objectives Measures Targets Initiatives
r2 – Balance between the financial measures and non-financial measures
The ‘Balance’ in the Balanced Scorecard
External – where we want to go
Internal – what we have to
do(cause)
(effect)
Revenue Growth
Loyal Customers
Quality Product
Quality Production
Quality Materials
Skilled Workforce + Technology
Financial
Customer
Internal
Learning & Growth
r3 – Balance between the internal and external constituents
The ‘Balance’ in the Balanced Scorecard
Revenue Growth
Loyal Customers
Quality Product
Quality Production
Quality Materials
Skilled Workforce + Technology
Financial
Customer
Internal
Learning & Growth
Objectives Measures Targets Initiatives
vertical dimension of the BSC
horizontal dimension of
the BSClag lead
r4 – Balance between lag and lead indicators of performance
Performance Measures in the BALANCED SCORECARD
Objectives
1
Financial
Customer
Internal
Learning &Growth
Performance Measures
• number of sales calls• hours spent with customers
• sales
historical
lag leadmeasures the results of an action after a time period
measures the ‘lead’ or driver to the lag measures, can measure intermediate processes & activities
predictive
after the fact can make adjustments
PRESENT
The VMO KRA PI SPAT RES Model
Action Program Activities Tasks Resources
Vision
Mission
Objectives
Key Result Areas
Performance Indicators
TOP
-DO
WN
Pla
nnin
gFUTURE
The Balanced Scorecard translates the strategy into the four perspectives
The ‘VERTICAL’ cause and effect dimension of the strategy
FinancialCustomerInternalLearning & Growth
Strategy
BO
TTO
M-U
P P
lann
ing
PASTSWOT Analysis
S W
O
T
Strategies
The Balanced Scorecard Model and the VMO KRA PI SPAT RES Model
Revenue Growth
Innovative Products
World-Class Internal Product Dev’t
Stable High-Talent Workforce
Financial
Customer
InternalLearning &Growth
Objective
s
Measures
Targets
Initiative
s
Action Pla
ns
Resource
s
Vision – Mission – O KRA PI SPATRES
vertical CAUSE AND EFFECT dimension
horizontal CAUSE AND EFFECT dimensionFinance
MarketingOperations
HumanResources
vertical ALIGNMENT
Vision - Mission
Vision – Mission – O KRA PI SPATRES