Balanced Scorecard

Kaplan & Norton: HBRJuly-August 2005: repeat of 1992 seminal article

Feb 2004: Strategy MapOct 2005: Examples

March 2006: Implementation examples

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Perspectives

• GOALS & PERFORMANCE MEASURES– Financial perspective

• How do we look to shareholders?

– Customer perspective• How do customers see us?

– Internal Business perspective (BPR)• What must we excel at?

– Innovation & Learning perspective• Can we continue to improve & create value?

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Example: anonymous semiconductor company

• FINANCIAL perspective

GOALS MEASURES

Survive Cash flow

Succeed Quarterly sales

Growth

Operating income by division

Prosper Increase in market share

Increase in Return on Equity

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CUSTOMER perspective

GOALS MEASURES

New products % sales from new products

% sales from proprietary products

Responsive supply

On-time delivery

(customer definition)

Preferred suppliers

Share of key accounts’ purchases

Ranking by key accounts

Customer partnerships

# of cooperative engineering efforts

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INTERNAL BUSINESS perspective

GOALS MEASURES

Technology capability

Benchmark vs. competition

Manufacturing excellence

Cycle time

Unit cost

Yield

Design productivity

Silicon efficiency

Engineering efficiency

New product innovation

Schedule: Actual vs. PlannedFinland 2010

INNOVATION & LEARNING perspective

GOALS MEASURES

Technology leadership

Time to develop next generation

Manufacturing learning

Process time to maturity

Product focus % products equalling 80% of sales

Time to market New product introduction vs. competition

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2004 article: Strategic Readiness

• Strategy map: framework to link intangible assets to shareholder value creation– Through the 4 perspectives

• 3 Intangible Asset categories essential to implement strategy (Learning & Growth)– Human Capital

• Skills, training, knowledge

– Information Capital• Databases, information systems, networks, infrastructure

– Organizational Capital• Culture, leadership, alignment with goals, knowledge sharing

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Strategy Map: Intangible assets link to Internal Process

• Intangible assets make up Learning & Growth perspective• Map to Internal Process perspective

– Operations Management• Produce & deliver products & services

– Customer Management• Enhance customer value

– Innovation• Create new products & services

– Regulatory & Social• Improve communities & the environment

• Customer perspective– Price, quality, availability, selection, functionality, service, partnership, brand

• Financial perspective– Productivity strategy

• Improve cost structure• Increase asset utilization

– Revenue growth strategy• Enhance customer value• Expand revenue opportunities

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Consumer Bank (anonymous) example: Human Capital

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Information Capital Readiness

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Organization Capital Readiness

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SCM & BSCBeasley, Chen, Nunez & Wright, Strategic Finance 87:9 [2006]

CATEGORY Purpose Aim

Learning & Growth for Employees

To achieve our vision How will we sustain our ability to change & improve?

Internal Business Processes

To satisfy our stakeholders & customers

Where must we excel in our business processes?

Customer Satisfaction To achieve our vision How should we appear to our customers?

Financial Performance To succeed financially How should we appear to our stakeholders?

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Learning & Growth for Employees

GOALS MEASURES

Increase employee process ownership Employee survey scores

Improve information flows Changes in information reportsFrequencies across supply chain partners

Increase employee identification of potential supply chain disruptions

Compare actual disruptions with reports of potential disruption drivers

RISK-RELATED GOALS

Increase employee awareness Number of employees attending risk management training

Increase supplier accountability Supplier contract provisions on risk

Increase employee awareness of supply chain risks & other enterprise risks

Number of departments participating in supply chain risk identification & assessment workshops

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Internal Business ProcessesGOALS MEASURES

Reduce waste across supply chain Pounds of scrap

Shorten time from start to finish Time from raw material purchase to product/service delivery to customer

Achieve unit cost reductions Unit costs per product/service delivered% of target costs achieved

RISK-RELATED GOALS

Reduce probability & impact of threats Number of employees attending risk management training

Identify specific tolerances for key processes

Number of process variances exceeding specified acceptable risk tolerances

Reduce number of exchanges of supply chain risks to other enterprise processes

Extent of risks realized in other functions from supply chain process risk drivers

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Customer Satisfaction

GOALS MEASURES

Improve product/service quality Number of customer contact points

Improve timeliness of product/service delivery

Time from customer order to delivery

Improve customer perception of value Customer scores of value

RISK-RELATED GOALS

Reduce customer defections Number of customers retained

Monitor threats to product/service reputation

Extent of negative coverage of quality in press

Increase customer feedback Number of completed customer surveys about delivery comparisons to other providers

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Financial PerformanceGOALS MEASURES

Higher profit margins Profit margin by supply chain partner

Improved cash flows Net cash generated over supply chain

Revenue growth Increase in customers & sales per customer% annual return on supply chain assets

RISK-RELATED GOALS

Reduce threats from price competition Number of customer defections due to price

Reduce cost overruns Surcharges paidHolding costs incurredOvertime charges applied

Reduce costs outside the supply chain from supply chain processes

Warranty claims incurredLegal costs paidSales returns processed

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Gaudenzi & BorghesiThe International Journal of Logistics Management 17:1 [2006]

• AHP in balanced scorecard style– Develop formula to evaluate risk within

departments

• Focus on top level criteria– On-time delivery– Completeness– Correctness– Damage/defect free products

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Gaudenzi & Borghesi Weights

Criteria Mean weights Extreme1 weights Extreme2 Weights

On-time delivery

100 0.317 100 0.402 50 0.215

Completeness 90 0.286 66 0.265 100 0.429

Correctness 75 0.238 50 0.201 50 0.215

Damage-defect free

50 0.159 33 0.133 33 0.142

315 249 233

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Weights: Contingent uponOn-time first vs. Completeness

firstCriteria On-time first Completeness firstOn-time delivery 0.36 0.22Completeness 0.29 0.43Correctness 0.21 0.21Damage-defect free 0.14 0.14

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On-time delivery evaluation – Manager subjective scores

Procurement Warehouse Order Cycle

Mfg Trans.

On-time delivery

0.36 0 0.5 1 0.5 0

Completeness 0.29 0 0.5 1 1 1

Correctness 0.21 1 1 1 1 0.5

Defect free 0.14 0.5 1 1 1 0

Value scores 0.28 0.675 1 0.82 0.395

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Completeness evaluation – Managerial subjective scores

Procurement Warehouse Order Cycle

Mfg Trans

On-time delivery

0.22 0 0.5 1 0.5 0

Completeness 0.43 0 0.5 1 1 1

Correctness 0.21 1 1 1 1 0.5

Defect free 0.14 0.5 1 1 1 0

Value scores 0.28 0.675 1 0.89 0.535

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Other Business Scorecards in Broader Perspectives

• Internal auditing in accounting– Campbell, Adams, Campbell & Rose

• Financial Executive 22:1 [2006]

• Mental health governance– Sugarman & Kakabadse

• The International Journal of Clinical Leadership 16 [2008]

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Marketing natural gas vehiclesJanssen, Lienin, Gassmann & Wokaun, Transportation Research Part

A 40 [2006]

INDICATORS1. Ratio of natural gas vehicles per

compress natural gas fueling stations

2. Type coverages (how many different natural gas vehicle types were available)

3. Natural gas vehicle investment pay-back time

4. Sales per type

5. Subsidies par automobile

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