BALANCED SCORE CARD
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Management Truism
You cannot control what you cannot measure
Thus checking is in the heart of the control loop
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Pilot Overheard……
Yesterday I had used altitude to control the flight. Today I will use speed……
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Which alignment do we prefer?
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Twin objectives
Control using metrics Alignment of efforts
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Traditional Measures
Traditional organizations used financial measures to control their operations
Companies like Du-Pont led these efforts These models could not incorporate non-
financial measures for capturing intangible assets
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Limitations of financial measures
We cannot measure (so control) strategically important non financial aspects such as
Brand Value (Rolex) Processes (HUL) Human Capital (3M)
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Balanced Scorecard- Going Beyond Financials
Balanced scorecard retains the financial perspective but also gives equal emphasis to non financial perspectives
The scorecard balances use of financial and non-financial measures
The scorecard balances the external measures and internal measures
The scorecard balances outcome measures and their drivers (lag and lead indicators)
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Balance scorecard-strategy map Strategy of an SBU is articulated on one
A4 sheet In all four organizational perspectives
and their linkages (alignment) are explicitly considered in making the strategy map
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Four perspectives
Learning
Process
Customer
Financial
Mission/
Vision
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Financial Perspective
How do the shareholders see the company performance?
Core Metrics (common to all) include Return On Equity EVA
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Financial Perspective
Company specific metrics1. Revenue from new products and
markets2. Additional revenue from existing
customers3. Cost Reduction/productivity4. Asset utilization
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Customer perspective core
Customer acquisition, retention, satisfaction, profitability and market share
Note these are all lag indicators which will be common for all organizations
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Customer perspective Value proposition
Product service attributes1. Cost2. Quality3. Time4. Others Customer relationship Brand
These are lead indicators which will differ from company to company. They will depend on the market segment that the company targets.
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What will their customers value
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What is lead and lag indicator Lead indicator Lag Indicator
Animal behavior and earthquake Product that wows is a lead indicator
that I will retain my customer (lag indicator)
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Linkage between customer and financial perspective
Customer
Satisfaction
Financial Success
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Internal Process
Types of processes1. Innovation-Identify Market, Create
product2. Operations-Build products, deliver
product3. Post sale- Service customer Parameters of any process: time, cost,
quality and flexibility
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Linkage between process and customer perspective
Robust processe
s
Customer
Satisfaction
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BSC view of strategically important process
Processes required to deliver customer value proposition and financial objectives
Some processes (that add efficiency) contribute directly to the financial perspective without impacting customer perspective
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Identifying the missing process Processes which would be required to
deliver customer value may be missing as of now. Such processes have to be introduced
E.g. construction company having problems with recovery
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Learning and growth perspective
Core 1. Employee satisfaction2. Employee retention3. Employee productivity Enablers1. Staff competencies2. Climate3. Technology infrastructure
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Four perspectives- Total picture
Learning
Process
Customer
Financial
Mission/
Vision
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Importance of metrics
You cannot control what you cannot measure
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Choice of metrics
Include lead and lag indicators Beware of starting a tom and jerry game
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Set Targets
Set stretch targets Check actually achieved performance
with targets
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Cascading the scorecard
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Cascading the scorecard
All targets add up- Actions to achieve targets (initiatives)
become more operational as we go down the ladder
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An example
Microsoft Word Document
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Thank You