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RAFIQAH BINTI FAUZI
2013420654
BM7001DF
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BALANCE SCORECARD
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1.1 ORIGINS AND BACKGROUND
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Robert Kaplan David Norton
1990
Study on Measuring Performance in the
Organization of the Future
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1.1 ORIGINS AND BACKGROUND
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Harvard Business Review article
Using the Balanced Scorecard as a
Strategic Management System
(JanuaryFebruary 1996)
Harvard Business Review article
The Balanced Scorecard-Measures
that Drive Performance
(JanuaryFebruary 1992)
Harvard Business Review article
Putting the Balanced Scorecard to
Work
( SeptemberOctober 1993)
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1.2 DEFINITION
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The term scorecard signifies quantified
performance measures and balanced
signifies the system is balanced between:
Short-term and long term objectives
Financial and non-financial measures
Lagging and leading indicators
Internal and external performance perspectives
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1.2 DEFINITION
(Riven, P.R., 2006)
The BalancedScorecard as acarefully selectedset of quantifiablemeasures derivedfrom anorganizations
strategy.
(Smith, R.F., 2007)
A BalancedScorecard is amanagement toolthat provides seniorexecutives with acomprehensive setof measures toassess how theorganization is
progressing towardsmeeting its strategicgoals.
(Olve, Roy &Wetter, 2000)
The BalancedScorecard is a methodfor reachingagreement on wherean operation shouldbe heading forreaching agreementon where an operationshould be heading and
for making sure that itstays on course
(Kaplan, R.S. &Norton, D.P.,
1996) The Balanced
Scorecard providesmanagers with theinstrumentationthey need tonavigate to future
competitivesuccess.
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1.3 USES OF BALANCED SCORECARD
To set
objective
To determine
measures
To predict
outcomes
To determineinitiatives
To gain thebig picture
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2.0 BALANCED SCORECARD PERSPECTIVES
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3.0 PROCESS OF BUILDING A BALANCED
SCORECARD
1 Define the industry, describe its development and the role of the company
2 Establish/confirm the companys vision
3 Establish the perspectives
4 Break the vision down according to each perspective and formulate overall
strategic goals
5 Identify critical factors for success
6 Develop measures, identify causes and effects and establish a balance
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3.0 PROCESS OF BUILDING A BALANCED
SCORECARD
7 Establish the top-level scorecard
8 Breakdown of the scorecard and measures by organizational unit
9 Formulate goals
10 Develop an action plan
11 Implementing the scorecard
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Source: (Olve, Roy and Wetter, 2000)
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3.0 PROCESS OF BUILDING A BALANCED
SCORECARD
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1 Define the industry, describe its development and the role of the company
To develop a foundation for establishing a consensus on the
characteristics and requirements of the industry
SWOT analysis Porters fivecompetitive forces
KappAhl retail-clothing chain
KappAhl gone too far in
imitating the efforts of
competitors to focus on
youthful target group
KappAhlsstrength and
soul were to be gound
in another profilethat
of a service company for
the general public, but
with an up-to-date
image
A succession of
management changes
proved difficult to
restore profitability
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3.0 PROCESS OF BUILDING A BALANCED
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2 Establish/confirm the companys vision
Since the balance-scorecard model is based on a shared comprehensive
vision, it is essential to ascertain at an early stage whether a jointly held
vision in fact exists
1996
Vision, mission statement, and main strategies were
revised and confirmed
KappAhl as the industrys
leading service company
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3 Establish the perspectives
The development perspective should thus show the ways in which
management intends to develop the organization and the products and
services offered for the purpose of streamlining processes and/or adding
value for customers
Finance
Development /
Learning and
growth
Internal business
process
Customer
Employees
KappAhl perspectives
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4 Break the vision down according to each perspective and formulate overallstrategic goals
The purpose of this step is to translate the vision into tangible terms from the
established perspectives and thereby to achieve the overall balance which is
the unique feature of the model and the method
Finance: High and even earnings
Customer: Increased market share and delighted customers
Employees: Satisfied employees
Process: On time; short process times
Development: Innovation force; learning organization
KappAhl Strategic goals
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5 Identify critical factors for success
The company must now decide what are the most critical factors for
success and rank them in order of priority
Critical factors for
achieving desired
levels of profit and
cash flow
Fewer seasonalvariations
Lower markdowns
Performance/sq.
metre
Critical factors for
customer
Match customers
expectations
In-store traffic
Merchandising
Critical factors for
employees
Leadership
Critical factors for
process
Timeliness
Lead time order-to-storeCritical factors for
development
Daring to test new
ways
KappAhl critical factors for success
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3.0 PROCESS OF BUILDING A BALANCED
SCORECARD
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Employees
Leadership Satisfied
Employee Index
Process
Timeliness Percentage on-
time
Lead time order-
to-store
Days from order
to deliveryDevelopment
Daring to test new
ways
Satisfied
Employee Index
KappAhl key measures
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7 Establish the top-level scorecard
The top-level scorecard is put together for approval and for presentation to
the person concerned
KappAhl as the industrys
leading service company
Good value for smart
dressers
Finance DevelopmentprocessCustomer Employees
High and even
earning
Innovation force;
learning
organization
On time; short
process times
Increased market
share; delighted
customers
Satisfied employees
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SCORECARD
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Reduced
seasonality
Low
markdowns
Performance/sq
. metre
Daring to test
new ways
Timeliness
Lead time
order-to-store
Match
customers
expectation
In-store traffic
Merchandising
Leadership
Profit Q1 and
Q3
Markdowns
Days of
inventoried
goods
Gross profit/sq.metre
Satisfied
Employees
Index
Percentage on-
time
Days from order
to delivery
Market share
Customer
satisfaction
index
Number of
visitors
Radar
Satisfied
Employees
Index
An overview of KappAhlsoverall balanced scorecard
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SCORECARD
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8 Breakdown of the scorecard and measures by organizational unit
The Individual
The workgroup
TheDepartment/Function
The Business Unit
The companyCorporate
group
Division 1 Division 2 Division 3
Production
Productionunit 1
Chassis
Productionline
Interior
Productionunit 2
Construction Purchasing
Example of a breakdown of top-level measure
The documentation was
turned over to 15 different
project groups correspondingto units in the formal
organization
The groups were asked to
prepare scorecards for their
respective units at KappAhl :each unit was determine how
it could contribute to
achieving the vision in the
top-level scorecard
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9 Formulate goals
Goal consistent with vision and overall strategy
To see that the process
maintained momentum and
remained consistent with
the purpose indicated in
KappAhlstop level
scorecard
To make sure that the
measures were well defined
and that goals were set at
reasonable levels
To observe whether there is
potential for conflict
between goals
The project group maintained continuous contact with the 15 different units as they weredeveloping their scorecards
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10 Develop an action plan
Specify the steps to be taken to achieve the goals and the vision which have
been established
Businessareas
Supply chainmanagement
Concept &marketing
Operations(stores) Area of focus
Finance
Development
process
Customer
Employees
Budget&objectives
Vision&BusinessIdea
Measures of the above
Performance drivers Outcome measures
How different organizational units enter into the different perspectives at KappAhl
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Example
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11 Implementing the scorecard
The implementation plan should therefore include rules and suggested
ways to ensure that balanced scorekeeping becomes part of the daily
work of the company
Everyone readily accepted this way of thinking, and even
without any formal system of performance monitoring,
the scorecards for the different units at KappAhl proved
to be major factor in turning the company around
The company was already showing a profit of over 100
million SEK in 1997
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KEY PERFORMANCE INDICATORSKPIs)
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4.1 DEFINITION OF KPI
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Key Performance Indicator
Include anything that
allows the business
to gain a competitive
advantage overothers in the same
market. The
indicators should
deal only with the
aspects of the
business that help itsucceed
KPI is to find actions
and events that the
business can clearly
identify, measureand quantify, and
that the company
itself or its
employees can
influence
An "indicator"
should be a metric
that helps predict
future results
Source: (Cultrona, 2009)
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4.1 DEFINITION OF KPI
KPIs represent a setof measures
focusing on those
aspects oforganizational
performance thatare the most criticalfor the current andfuture success ofthe organization
(Parmenter, 2007)
Key performance
indicator areimportant indicators
for assessing the
outcome of
management
(Wu & Chen, 2012)
Key performanceindicator arequantifiable
measurements,agreed to
beforehand, thatreflect the critical
success factors of anorganization
(Reh, 2009)
Key performanceindicator means
factors to which the
development,performance or
position thebusiness of the
company can bemeasure effectively
Source: Company act2006, section 471(6)
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5.0 DEVELOPING AND USING KPIs
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A 12- step model
(Parmenter, 2007)
1 Senior Management Team
commitment
2 Establish a Winning KPI project
team
3 Establish a Just Do It culture
and process
4 Setting up a holistic KPI
development strategy
5 Marketing the KPI system to all
employees
6 Identifying organization-wide
critical success factor
7 Recording performance measures
in a database
8 Selecting Team-Level
performance measures
9 Selecting organizational Winning
KPIs
10 Developing the reporting
framework at all level
11 Facilitating the use of Winning
KPIs
12 Refining KPIs to maintain their
Relevance
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6.0 IMPORTANCE OF KPI
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Goalmeasurement
VitalInformation
Education
Continuity Consideration
Source: (Hamlett, 2006)
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7.0 HOW TO MEASURE A KPI
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STEP 1
Choose the target
and range for your
business
STEP 2
Set the time
period formeasuring KPI
STEP 3
Assign numerical
values to the
categories of the
KPI range
Source: (Lorette, 1996)
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7.1 HOW MANY KPIs?
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the choice of which ones are key is unique to
each company and its strategy; it is therefore
impossible to specify how many KPIs a company
should have. However, our experience suggests
that between four and ten measuresare likely to be key for most types of company.
Source: www.corporatereporting.com
There have been several inspiredtheories on the optimal number of
KPIs but in practice 59 KPIs
work well
Source: www.simplekpi.com
Measures that matter across industries
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8 0 RELATIONSHIP BETWEEN KPI AND BALANCED
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8.0 RELATIONSHIP BETWEEN KPIs AND BALANCED
SCORECARD
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2
Issue
IssueIssue
Financial
results
Customer
satisfaction
Learning &
growth
Internal
processes
Staff
satisfaction
Community &
environment
IssueIssue
Issue
Critical
success
factors
Balanced
scorecard
Scorecard andserves as a
base for
specifying the
KPIs
(Iveta, 2012)
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