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Developing a Balanced Scorecard
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What is a Balanced Scorecard A strategic and operational tool
Owned by the Executive
Shared by everyone
Balances:- Long and short term
Hard and soft measures
Leading and trailing indicators Internal/external perspectives
Like writing a novel, not writing a list
Measures support change, not monitoring
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It is NOTA new idea
An end in itself
A playing field for internal politics
An initiative of Finance, HR,Marketing etc.
Boardroom art
A make-work exercise
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Its origins Nolan-Norton Consultants 1990
12 client Organisation of the Future study group
Based on premise that financial measures wereinsufficient for a modern business
Principles espoused previously by:-
Rensis Likert (The Human Organisation, 1960)
TQM gurus (Deming, Crosby, Juran etc.)*
European Foundation for Quality Management (1985)
Maisel and McNair parallel models
* Original K&N source was part of a TQ programme
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The EFQM Excellence Model
10%
9%
8%
9%
14%
9%
20%
6%
15%
(percentages show how each elements is scored for importance)
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Customer
Balanced
ScorecardFinancials
Learning
& growth
Business
Processes
Kaplan and Norton model (1996)
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Customer perspective
Corrective activity
Developmental activity
Balancing compliance
with added value
Balanced
Scorecard
Financial Measures
Key performance ratios
Financial health
Balancing leading with
trailing indicators
Learning and growth
People measures
Knowledge measures
Balancing soft andhard indicators
Business Processes
Drumbeat
Time, cost, quality
Balancing inputs
and outputs
A question of balance?
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Building the Balanced Scorecard
The keyquestion
How do you
create value?
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Where does it fit?
Culture and values (leadership/style/relationships etc.)
R
ewards
Targets
M
easures
P
rojects
A
lliances
S
ystems
Structure
VisionMission and CSFs
Strategic Objectives
Balanced
Scorecard
BuildingUsing
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A strategic tool Starts with strategy
Continuous process
Needs to becomeculturally embedded
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To be successful for our shareholders, we must be (position in market),
which means that we must return super ior f inancial resul ts in .......
Our customers are the people who wil l secure these results for us so wemust offer our customers super ior value by .........
To deliver this super ior value we must excel in the way we manage the
processes for .......
These processes are operated by our people. We must provide our people
with ....... to achieve excellent performance.
The story of a scorecard
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Cause and effect chainStrategic Objective
Financial Measure
Customer Value Measure
Process Measure
Employee Measure
What
How
How
How
May be
reversed
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Example Retail Strategic themesThemes
Broadening the
offer Focus on Health
and Beauty
Friendly and Fun
Destination ofChoice
Projects
Pharmacy store
expansion New store
opening process
Living the Mission
Categorymanagement
Measures
Pharmacy store
sales growth Brand Penetration
(Market Research)
Mystery Shopper
Footfall and basketsize
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Customer perspective
Basket Size
Mystery Shopper index
Footfall
Complaints
Balanced
Scorecard
Financial Measures
Sales Revenue growth
Return on Turnover
Cost of sales
Shrinkage
Learning and growth
Absence level
Stability index
Mission involvement indexStarfish.net ideas
Business Processes
Stock Outs
New store plan vs. actual
Strategic Projects delivery
Supply chain process time
Sample retail scorecard
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Recruitment
Morale (absence)
Development
Staff Loyalty Complaints*
Satisfaction
Loyalty*
Market share*
Sales Growth*
Cost Controls (Sales var)
Profitability*
Driving extra sales to bottom
line*Stock Mgt
Waste Mgt*
Stock availability
Productivity
One in Front*
PEOPLE
OPERATIONS FINANCE
CUSTOMER
only in smaller store
formats - Metro and
Express
Blue arrows indicate positive correlation. Red arrows negative. Broken line is a weaker connection
Number at arrow head indicates size of Pearson co-efficient of correlation.
Superstores used for consistency of statistic except where indicated.
-0.28
0.13
-0.20
0.1
0.27
only in Metro and
Extra Stores
-0.1
-0.1
0.11
0.17
-0.16
0.16
0.16
* No data available
for this element
0.22
Joined up thinking?
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Using the Balanced Scorecard
Drill-down into HR Systems
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The Complete Balanced Scorecard Strategy Map
Improve Shareholder Value
Productivity Strategy Revenue Growth Strategy
Improve CostStructure
Increase AssetUtilization
Enhance CustomerValue
Create Value fromNew Products &
Services
Human, Information, and Organizational Capital
Shareholder Value
ROCE
Cost per Unit Asset Turnover CustomerProfitability
New RevenueSources
Price
Financial
Perspective:the drivers of
shareholder
value
Product/Service Attributes
StrategicCompetencies
StrategicTechnologies
Climate forAction
(Processes that Produce
and Deliver Products
& Serv ices)
(Processes that
Enhance Customer
Value)
Operations Theme CustomerManagement
Theme
Innovation Theme Regulatory andSociety Theme
Customer Value Proposition
Quality
Low Total Cost
Customer Solutions
Product Leader
Customer Satisfaction Customer Acquisition Customer Retention
Time Function Service Relations Brand
Relationship Image
Market and Account ShareCustomer
Perspective:
thedifferentiating
value
proposition
Internal
Perspective:
how value iscreated and
sustained
Learning & Growth
Perspective: role for
intangible assets
people, systems,
climate and culture
(Processes thatCreate New
Products and
Serv ices)
(Processes thatImprove the
Env i ronment
an d
Communi t ies )
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Performance managementAge What is
valued?Key process Key Output Culture
Pre-industrialAge
CommunityLoyalty
Belonging Contribution Social
Industrial Age Obedience
Output
Compliance Output Work-ethic
InformationAge
KnowledgeInnovation
Empowerment New value Mobility
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Learning and growth Employee satisfaction
Employee capability
Information availability Knowledge growth
Performance and reward
management systems Cultural measures from surveys e.g.
leadership, communication,recognition (enablers)
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Success factors Drill-down into Systems
Planning and objective setting
Operational targets
Budgeting
Internal audit
Continuous improvement
Project management
Performancemanagement/appraisal
Reporting and meeting regimes
Reward and recognition.......
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Unfortunately, this years
low score on morale in theemployee survey means our
balanced scorecard index is
below the threshold for the
bonus award
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BSC ImplementationProcess
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Implementation Plan
Creating the preconditions for systemintroduction (the level of enterprise)Establishing the basic architecture (the level ofenterprise)Achievement of consent of strategic goalsstatement among groups members (pilot level)Defining the key performance indicators and themeasure units for each of them (pilot level)Defining the plan of actions in time (pilot level)Assigning responsibilities to monitor the
activities (pilot level)
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Common Mistakes in BSCImplementation
1. Non involvement or Non Commitment by TopManagement
2. Absence of Specialist Teams or Core Teams
3. Delay in Planning and Implementation in search ofPerfection
4. Delay in Implementation in developing Measures ofPerformance
5. Concept of Continuous Improvement is missing6. Emphasis on M&E instead of Improving
Communication7. Non Availability of Resources
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Check List for Evaluating Organization's Readinessfor BSC Implementation : Comprehensiveness of
BSC
a. How strategic goals are represented in Balanced
Scorecard?
b. What KPI (Key Performance Indicators) are? What aretheir key properties?c. What are two key rules about KPI?d. What winning indicator is? How to test your indicator?e. How strategic goals and indicators are connected to the
action?f. What level of implementation of BSC in your business
structure is necessary to achieve success with Balanced
Scorecard ?
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Check List for Evaluating Organization's Readinessfor BSC Implementation : How Good the Plan is
a. Do you have Balanced Scorecard implementation plan in written
from?b. How many top-level employees or investors are involved in the
implementation?c. How many line-level managers and employees are involved in theimplementation?d. Does the plan include design of Balanced Scorecard for each
business unit in your company?e. Does the plan include the design of strategy map?
f. What is estimated timeline for Balanced Scorecard design,implementation and usage?g. If you plan to review your Balanced Scorecard? What is timeline
for the review?h. If you plan to develop improvement plan for each of indicators and
their values?
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Does Implemented Balanced Scorecardwork for your Organization
a. If each indicator in your Balanced Scorecard is
associated with employee responsible for the value of
the indicator?
b. If there are indicators that improved their values in amonth?c. If there are some indicators that changed their value
significantly in a month?
d. If there are indicators that have not changed theirvalues in a month?e. If there are some tasks that your employees do that
are not linked to indicators and strategic goals?
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When Balanced Score Card Produces Best Results
1. Balanced Scorecard is an internal systems tool. Noneed to cheat or trick when you are dealing withyourself. Monitoring function, the BSC provides is aimed
only to improve the performance, not to showsomething to someone. Monitoring is needed tomanage, not to show
2. One of the features of the BSC is focusing. The
aspiration of management for extracting a synergy fromcumulative influence of set of factors often leads tosystem contradictions. Concentrate on High Prioritiesfunction/indicators.
3. Indicators of the KEY activities linked with each otherby well organized logical structure.
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CASE STUDIES
Students Orientation to Practical
Examples of BSC