Balanced Scorecard

By : Fareed Virk

Executing Strategy...Is the greatest challenge for organizations

• VisionOnly 5% of workforce gets it!

• People 25% of managers have incentives linked to strategy

• Management 85% of executive teams spend less than 1 hour/mo discussing strategy

• Resource 60% of organizations don’t link budgets to strategy

• 9 out of 10 companies fail to execute their strategies.

2

Bad execution, not bad strategy is the cause of 70% of CEO failures

3

Challenges in Executing Strategy

4

Financial Management Tools

Balance SheetsIncome Statements

Statement of Cash Flow

People ManagementToolsMBO

Training ProgramsHRIS

360 Feedback

Customer ManagementToolsC R M

Customer Segment AnalysisCustomer Surveys

Process ManagementTools

Six SigmaSupply Chain Management

TQMStrategy Management

Tools

???

• Situation

Navigating an organization is as complex as an Aero plane

Industrial Age Financial Control

ROCE Prod Control Profitability Physical Capital

Many measures like these

are obsolete now.

Information Age

Develop Customer Relationship

Introduce innovative products/services

Quality products at low cost Employee development and

motivation Deploy information

technology

Newer capabilities required

BSC provides managers with

the instrumentations they

need to Navigate future

competitive success.

Why Use a Balanced Scorecard?

A Balanced Scorecard framework can provide:

Focus Alignment Accountability Communication

What a Balanced Scorecard is NOT

It's Not Just an Executive Report It's Not Just an Analyst's Tool It's Not Generic It's Not One-Size-Fits-All It's Not a Panacea

BSC translates an organizational mission and strategy into

comprehensive set of performance measures that provides the frame work

for strategic measurement and

Management system.

If we succeed, how will we look to our

shareholders?

Financial Perspective

To achieve our vision, how must we

look to our customers?

Customer Perspective

To satisfy our customers, which processes must we

excel at?

Internal Perspective

To achieve our vision, how must our

organization learn and improve?

Learning & Growth Perspective

The Strategy

4 Perspectives in BSC

Develop Strategic

Goals

Mission VisionClarify mission & Vision statement

Strategic Goals

Derive Sub-Goals

Sub-Goals

Map Sub-Goals to each quadrant of the Balanced Score Card

- identify measurement areas - develop measurement goals - postulate indicators - identify data elements

For each BSC Quadrant

Data Elements

Module

Tro

uble

Report

sIndicators

Balanced Scorecard

Internal Business• Sub-Goals

Learning & Growth• Sub-Goals

Customer• Sub-Goals

Financial• Sub-Goals

Internal Business• Sub-Goals

Learning & Growth• Sub-Goals

Customer• Sub-Goals

Financial• Sub-Goals

Methodology Overview

If an organization is to be profitable (financial), the customers must

be loyal (customer) and if they are to be loyal ,the organization has

to provide good service. In order to provide good service, the

organization needs appropriate and well-functioning processes

(internal processes) and for that purpose it has to develop the

capabilities of its employees (learning and growth). At every step the

scorecard serves as the means of communication in the

organization.

BSC

Learning and

Growth

Internal Process

es

Customer

Financial

Cost Efficiency

Long-term Shareholder Value

Revenue Growth

Price Availability BrandServiceQuality

Operations Management

Processes

Human Capital

CustomerManagement

Processes

Innovation Processes

Regulatory and Social Processes

Organization Capital Information Capital

Financial

Customer

Internal Process

Learning & Growth

Strategy Map Framework

Financial 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 long-term shareholder value. This goal is driven by two factors, namely : revenue growth and cost efficiency.

Long-term Shareholder Value

Revenue Growth

Improve Cost Structure

Increase Asset Utilization

Cost Efficiency

Expand Revenue Opportunities

Enhance Customer Value

Customer Perspective

Customer perspective covers the following elements: Customer acquisition Customer retention Customer profitability Market share Customer satisfaction

Price Availability BrandServiceQuality

Customer Acquisition

Customer Satisfaction

Customer Retention

Customer Profitability

Market Share

Internal Process Perspective

This perspective reflects the processes in key business that should be optimized in order to meet the needs of the customers.

There are four main themes in this perspective, namely:

Operations Management Process Customer Management Process Innovation Process Regulatory and Social Process

Operations Management

Processes

CustomerManagement

Processes

Innovation Processes

Regulatory and Social Processes

Processes that produce and

deliver products and

services

Processes that enhance

customer value

Processes that create new

products and services

Processes that improve

communities and the

environment

• Supply

• Production

• Distribution

• Selection

• Acquisition

• Retention

• Growth

• New Ideas

• R&D Portfolio

• Design/ Develop

• Launch

• Environment

• Safety & Health

• Employment

• Community

Learning & Growth Perspective

This perspective reflects the capability that a company should have, namely:

Human Capital Organization Capital Information Capital

Human Capital

Organization Capital

Information Capital

• Skills• Knowledge• Attitude

• Systems• Database• Networks

• Culture• Leadership• Organization Development

Benefits of BSC

Better Strategic Plannning

Improved Strategy communication and execution

Better Management Information

Improved Performance Reporting

Better Strategic Alignment

Difficult to establish Fin-Non financial Linkages

Improvements at all levels may not be possible

Both subjective-objective measures Consideration

Considering Cost & benefits of initiatives

Non-financial Achievements are ignored

Pitfalls in Implementing BSC

Balanced Scorecard Example

26

• % Ground crew trained

• % Ground crew stockholders

Objectives Measurement

• Market Value

• Seat Revenue

• Plane Lease Cost

• FAA On Time Arrival Rating

• Customer Ranking (Market Survey)

• On Ground Time• On-Time

Departure

Strategic Theme:Operating Efficiency

Initiative

• Cycle time optimization program

• ESOP

• Ground crew training

• Quality management

• Customer loyalty program

Target

• 30% CAGR

• 20% CAGR

• 5% CAGR

• #1

• #1

• 30 Minutes• 90%

• yr. 1 70%yr. 3 90%yr. 5 100%

ProfitabilityFinancial

Learning

MoreCustomers

Ground Crew Alignment

Lowest Prices

Fewer Planes

Customer

Internal

Fast Ground Turnaround

Flight Is on Time

• Profitability

• More Customers

• Fewer planes

• Flight is on -time

• Lowest prices

• Fast ground turnaround

• Ground crew alignment

BSC at Taj

Optimize HR Efficiency

Drive Long termShareholder Value

Enhance People & Organizational Effectiveness

Achieve HR Process

Excellence

Develop Strategic & Functional HR Competencies

Build Strategic Employee

Competencies

Drive Organizational

Performance

Enhance Technology for HR

Create Climate for HR Action

HR Strategy Map Template

Financial

Customer

HR Internal Process

Learning & Growth

Create Positive Work Environment

Provide Quality HR

Service

Provide High Performance

People

Optimize IT Efficiency

Drive Long termShareholder Value

Enhance IT Impact on Enterprise Outcome

Maintain a Reliable IT

Infrastructure

Develop Strategic & Functional IT Competencies

Develop Effective Decision

Support System

Propose and Deliver Transformational

Applications

Enhance IT Tools that Enhance the IT Function

Promote Customer-focused Culture

IT Strategy Map Template

Financial

Customer

IT Internal Process

Learning & Growth

Deliver Consistent, High Quality IT

Service

Provide Business Units with Innovative IT

Solutions

Optimize Financial Efficiency

Drive Long termShareholder Value

Enhance Finance Effectiveness on

Enterprise Outcome

Achieve FinanceProcess

Excellence

Develop Strategic & Functional Finance

Competencies

Develop Financial Information to

Improve Decision Making

Ensure Compliance with Regulatory Requirements

Use Technology to Improve Financial

Information Delivery

Finance Strategy Map Template

Financial

Customer

Finance Internal Process

Learning & Growth

Deliver Responsive & Efficient Finance

Operations

Provide Clear & Reliable Required Disclosure

Promote Customer-focused Culture

Optimize Marketing Efficiency

Drive Long termShareholder Value

Increase Sales Revenue

Develop Innovative Marketing

Communication Program

Develop Strategic & Functional Marketing

Competencies

Develop Marketing Business

Intelligence

Accelerate New Product Development

Ideas

Enhance Technology for Marketing

Foster Creative Thinking & Innovative

Solutions

Marketing Strategy Map Template

Financial

Customer

Internal Process

Learning & Growth

Create Satisfied and Loyal Customers

Enhance Brand Image

Develop Effective Customer Relation

Management

Thank You