The Balanced Scorecard Method

MANISH KUMAR GAURAV

MANISH KUMAR GUPTA

SUSHOVAN BEJ

Definition

The balanced scorecard is a strategic planning and management system that is used extensively in business and industry, government, and non profit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals.

Balance Score card is the management tool that looks beyond short term financial position of an organisation as a measure of its performance. By incorporating a variety of perspectives into its organisational outlook its gives a more holistic view of performance.

It was originated by Dr. Robert Kaplan (Harvard Business School) and Dr. David Norton as aperformance measurement framework to give managers and executives a more 'balanced' view of organizational performance.

Balanced Scorecard Perspectives

4© 1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved.

The Four Perspectives Apply to Mission Driven As Well As Profit Driven Organizations

• What must we do to satisfy our stakeholders?

• Who is our customer?• What do our customers expect from

us?

• What internal processes must we excel at to satisfy our regulatory and social obligations, our customers and the requirements of our shareholder?

• How must our people learn and develop skills to respond and participate in these and future challenges?

Profit DrivenProfit Driven Vision DrivenVision Driven

• What must we do to satisfy our shareholders?

• What do our customers expect from us?

• What internal processes must we excel at to satisfy our shareholder and customer?

• How must our people learn and develop skills to respond to these and future challenges?

Financial Perspective

Customer Perspective

Internal Perspective

Learning & Growth Perspective

Importance of asking right questions.

Management Strategy Process

Translating Vision

The aim is to make consensus around the organization’s vision and strategy.

For employees to act on words in vision and strategy statements, those statements must be expressed as an integrated set of objectives.

Communicating And Linking

The scorecard gives managers a way of ensuring that all levels of organisation understand the long term strategy and that both departmental and individual objectives are aligned with it.

Business Planning

Balanced Scorecard helps managers to allocate resources and set priorities to those initiatives that move them towards their Vision.

Feedback And Learning

It emphasises on whether a company, it’s departments, or it’s individual employees have met their goals or not.

Balanced Scorecard Method

Balanced Scorecard Perspective

Each perspective of the Balanced Scorecard includes objectives, measures of those objectives, target values of those measures and initiatives.

Objectives – to be achieved. Ex. Profitable growth

Measures – parameters used to measure the progress towards achieving objective. Ex. Profitable growth measured by net margin growth

Targets – targets for the measures. Ex. 5% growth in net margin

Initiatives – actions to achieve targets. Ex. More advertisements

Objectives Measures Targets Initiatives

Financial Performance

Customer Value

Internal Business Performance

Learning and Growth

Methodology of Balance Scorecard Method

Articulate the business’s vision and strategy

Identify the performance categories that best link the business’s vision and strategy to its results (such as financial performance, operations, innovation, employee performance)

Establish objectives that support the business’s vision and strategy

Develop effective measures and meaningful standards, establishing both short-term milestones and long-term targets

Ensure companywide acceptance of the measures

Create appropriate budgeting, tracking, communication and reward systems

Collect and analyse performance data and compare actual results with desired performance

Take action to close unfavourable gaps

Balanced Scorecard Example

For any manufacturing company, to improve its profitability.Source : Bain n Company

Balanced Scorecard Example

Uses of Balance Scorecard Method

Clarify or update a business’s strategy

Link strategic objectives to long-term targets and annual budgets

Track the key elements of the business strategy

Incorporate strategic objectives into resource allocation processes

Facilitate organizational change

Compare performance of geographically diverse business units

Increase companywide understanding of the corporate vision and strategy

Advantages

Structured approach to analyse the perspectives

Align organisation strategy with daily operation basis

Work for the long term objectives through short term actions

The balanced scorecard is not a piece of software. Unfortunately, many people believe that implementing software amounts to implementing a balanced scorecard.

Automation adds structure and discipline to implementing the Balanced Scorecard system, helps transform disparate corporate data into information and knowledge, and helps communicate performance information.