The Balance Scorecard

SCIENCE ENGLISHSCIENCE

MATHEMATICS

ENGLISH

BEHAVIOR

FINANCIAL STABILITY

HAPPINESS

HEALTH

FINANCIAL STABILITY

KNOWLEDGE & CAREER

KNOWLEDGE & CAREER

FAMILY

What is a Scorecard?What is a Scorecard? A scorecard is an “easy-to-understand” A scorecard is an “easy-to-understand” generic format for:generic format for:

Describing and communicating the Describing and communicating the organization’s strategic intentions;organization’s strategic intentions;

Discussing activities that are motivated by the Discussing activities that are motivated by the strategic aims; andstrategic aims; and

Monitoring and rewarding such activitiesMonitoring and rewarding such activities

FINANCIAL PERSPECTIVE

How do we look to shareholders?

INNOVATION & LEARNING PERPECTIVE (DEVELOPMENT)

Can we continue to Improve and create value?

INTERNAL BUSINESS PERPECTIVE

What must we excel at?

CUSTOMER PERSPECTIVE

How do customers see us?









Learning & Growth (Development) PerspectiveLearning & Growth (Development) Perspective

Comes from people, systems and Comes from people, systems and procedures – the infrastructure that the procedures – the infrastructure that the organization must continually build to organization must continually build to

deliver value to customers and deliver value to customers and shareholders, in an environment of shareholders, in an environment of

intense global competition.intense global competition.

Process PerspectiveProcess Perspective

Identifies the critical Internal Identifies the critical Internal business processes in which business processes in which the organization must excel – all the organization must excel – all these have the greatest impact these have the greatest impact on customer satisfaction and on customer satisfaction and financial objectives.financial objectives.

The inclusion of innovation The inclusion of innovation measures gives the organization measures gives the organization “drivers” for long term financial “drivers” for long term financial successsuccess

Customer PerspectiveIdentifies the customer and market

segment or niche in which the business will compete and measures performance in the targeted areas.

Financial Perspective

Financial measures are important in summarizing the measurable economic consequences of actions already taken. They indicate whether a company’s strategy and its execution are contributing to bottom-line considerations.

The Balanced Scorecard

Used as customized communication tools within a management control system

First proposed in 1992 by

Robert S. Kaplan, a Harvard Business School Professor and

David P. Norton, President of Massachusetts – based Consultancy Firm

What the scorecard accomplishes:

Translating the Vision

Communicating and Linking

Business Planning

Giving Feedback and Learning

The Balanced Scorecard

Describes business activity from four (usually)

different “perspective”

Uses a small number of measures for each,

Where the description may refer to the current performance

of a business or to its goal for the next period

Objective Setting for ResultsCORPORATE or STRATEGIC

PLANS

DIVISION BUSINESS PLANS

DEPARTAMENTAL GOALS

UNIT OR TEAM GOALS

INDIVIDUAL PERFORMANCE OBJECTIVES

Is the Is the BALANCED BALANCED

SCORECARDSCORECARD another performance report another performance report

that simply combines financial that simply combines financial and non-financial metrics?and non-financial metrics?

There is more to the Scorecard

The 4 perspective aim for a complete description of what one needs to know about the business

There is a time dimension

It shows both internal and external aspects of the business

The scorecard is linked through cause and effect assumptions







CUSTOMER PERSPECTIVECustomer satisfaction indices

New clients serviceResponse Time

Market ShareHow do customers see us?


(Process)Efficiency

Manufacturing Cost



New Skills, New ProductsCan we continue to Improve and create value?


Profitability, growth, deft, equity, cash flow, operating profit


THE BALANCED SCORECARD LINKS PERFORMANCE MEASURE

















To succeed financially

We need to satisfy our customers

We need to excel at business process

We need to learn in terms of internal processes and value proportions

Customer Concerns tend to fall into categories:

Market segment or niche identified

Time (lead time, delivery)

Quality (defects)

Performance (benchmarking)

Service

Cost

Internal Business Perspective means

Critical Operations that enables the company to satisfy customer needs

Critical technologies or core competencies

Innovation & Learning (development) Perspective:

Ability and willingness to change

Comes from people, systems, & procedures

E.g. product-focus and market leadership

Management information for decisions

Financial Perspective

Survive; Cash Flow

To succeed: Sales growth, operating income

To prosper: Increased market share, ROE

Ex. Car Manufacturing

Category: profitability (40% weight)Primary measurement: Operating profit2002 Target: 0.1% of ROE

Category: Market Dev.: (20% weight)Primary measurement: Market share2002 Target: 20.5%

Category: Mnfg. Productivity 920%)Primary measurement A: Hours per vehicle(HPV) “Harbour Report” Market share2002 Target: 95 HPVPrimary measurement B: <fng. Cost (exc. Material and warranty) 2002 Target: P85.5 T/unit

Car Manufacturing

Category: Quality (20% weight)Primary measurement A: Customer Sat. In.2002 Target: 1 Rank up fr. Previous survey

Primary measurement B: Sales Sat. Index

2002 Target: 2 Rank up fr. Previous survey

Primary measurement C: Claims Ratio

2002 Target : 12 %

What strategy must be achieved and what is critical to its success

How success will be measured and tracked

Key action programs required to achieve

objectives

Key actions required to achieve

objectives

OBJECTIVE MEASURES TARGET INITIATIVES

Financia

l

Broaden revenue mix

Revenue mix

10% Product A

* Sales Promotions

40% Product B

* New channel

50% Product C

* Marketing

Custo

mer

Increase customer satisfaction

Customer retention

95% * Frequent Buyer's club

Inte

rnal

Develop new products

% revenue from new products

1999 - 15% * R and D Program

2000 - 50% * Customer mailing

2001 - 60% 　

Learn

ing &

Gro

wth

Develop strategic skills

Cross train 90%

* Custom Training

* Knowledge Library

Identify Vision

It is easy to create a Scorecard

But to create a manageable scorecard is something else

Identify Strategies

Identify Measures Identify Critical success factors and perspective

Evaluate Critical Action PlansFollow up and

Manage

Define vision for the organization Which strategies shall we follow?

Which shall we focus?

Define vision for the organization Which should we measure in each perspective?

How do we evaluate our scorecard?

Which actions should be initiated to reach our targets?

How do we follow-up update and maintain our scorecard?

VARIANTS

FROM THE ORIGINAL

FOUR-PERSPECTIVE

Kaplan & Norton

SCORECARD

Employees or Human Resources

Is there a need for additional perspective?

Environment

Like:

Partners (Stakeholders)

MATHEMATICS

FINANCIAL STABILITY


Human resources


KNOWLEDGE & CAREER

INTERNAL BUSINESS

PERSPECTIVE

Development perspective

MATHEMATICS

FINANCIAL STABILITY


Human resources


KNOWLEDGE & CAREER

INTERNAL BUSINESS

PERSPECTIVE

In some organizations, it was the development (learning and growth) perspective that was converted into an HR perspective – on grounds that development was essentially a matter of human

performance

MATHEMATICS

FINANCIAL STABILITY



KNOWLEDGE & CAREER

HUMAN RESOURCES

PERSPECTIVE

Some service industries limited their scorecards to 3 perspective attributing the effects of improved competencies and attitudes on

customer satisfaction and profits

MATHEMATICS

FINANCIAL STABILITY


DEVELOPMENT PERPERSTIVE


KNOWLEDGE & CAREER

INTERNAL BUSINESS

PERSPECTIVE

HR Measures are already included in the 4 perspective

HUMAN RESOURCES

MATHEMATICS

FINANCIAL STABILITY


DEVELOPMENT PERPERSTIVE


KNOWLEDGE & CAREER

INTERNAL BUSINESS

PERSPECTIVE

FINANCIAL STABILITY

FINANCIAL

INTELLECTUAL CAPITAL

KNOWLEDGE & CAREERHUMAN CAPITAL

HR Measures are already included in the 4 perspective

FINANCIAL STABILITYCUSTOMER

CAPITAL

KNOWLEDGE & CAREER

INNOVATION CAPITAL

MATHEMATICSPROCESS CAPITAL


The HR scorecard

By Becker, Huselid, & Urich

Extend to which a validated competency model serves as the

basis for hiring, developing, managing

and rewarding employees

Percentage of the workforce that is

regularly assessed via a normal performance

appraisal

HR SYSTEM ALIGNMENT

In R and D

Percentage of selection decisions based on competency

model

Percentage of hires made at “elite” level

Extent to which appropriate retention policies have been developed and implemented

HR alignment Index above 80%

In Manufacturing

Recruiting cycle time at or below 14 days

HR alignment Index above 80%

HR DELIVERABLES

Percentage of employees who have the requisite technical competencies

Percentage of turnover among high performing R

and D scientists

Percentage of open job requisition in

manufacturing

Cost per hire

HR EFFICIENCY

Lower R and D cycle time

IMPACT

MATHEMATICS

FINANCIAL STABILITY

Total Quality and other High Performance Work Systems

Health & Safety Workplace Management and Good

Housekeeping

Human Resource Management and

Development

KNOWLEDGE & CAREER

Employment Relations, Labor Standards and Social

Compliance

Developing your own HR Scorecard Planning the Training Program

Some Applications of the Scorecard

Management Control (totally based on scorecard)

Scorecards used as format for discussing strategies only

Scorecard used as a tool for sorting/classifying existing measures to provide an overview

Scorecards introduced as a substitute for budget

Customized scorecards for different organizational levels

Some Applications of the Scorecard

Scorecards for projects with a fairly long lifespan

Scorecards for separate corporate functions e.g. HR

Scorecards for reporting performance e.g. annual reports

Scorecards for Government and Non-Profit Organizations

A complete Organizational Scorecards will have the following components:

Strategic teams identified

Strategic objectives identified

Measures of the execution of the strategic objectives

Competitive benchmarks for the measures selected

Short-term and long-term targets for identified measures

Initiatives aligned to the strategic objectives for implementation and review

Once completed, the Scorecard is to be used as a method for aligning initiatives

Human Resources – to translate strategy to daily management.

Big Boss

The Traditional approach promotes fragmentation & “silos”

Boss

Me

You

Them Them ThemThem Them

Date post:	07-Dec-2015
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The Balance Scorecard

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