balanced scorecard.oxford

7/31/2019 Balanced Scorecard.oxford

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10-Mar-12


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Typically business use financial measures forperformance to gauge success

Some criticisms against over-reliance onfinancial measures Not consistent with todays realities

Tangible assets no longer the primary driver forbusiness value

Employee knowledge, customer relationships, culture

of innovation and change drive value Financial measures report the past

where the business has been, not where it is headed


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Sacrifice long term thinking In case of budget cuts, the first thing hit is employee

training or employee numbers.

Short term impact is positive. What about long term?


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A management system that helps business set, track, and

achieve its strategies and objectives

It complements financial measures of past performance with

measures of drivers for future performance

Objectives and measures are derived from organisations vision

and strategy

Organisations performance is viewed from four perspectives

Customer

Financial

Internal Business Process

Learning and Growth


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Customer measures customer satisfaction and their performance

requirements (product leadership, long term relationship,convenience and no-frills)

Financial tracks financial requirements and performance

Internal Business Process measures critical process requirements and performance to

add value to customers

Learning and Growth focuses on employee training, knowledge management,

and how it is used to maintain competitive edge


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The 4 perspectives have to be measured, analysed, and

improved continuously together. Ignoring any perspective

leads to unbalance

Involves setting strategies, goals, objectives, and tactics to

make each perspective happen.

Strategies and tactics should be congruent. They have to

work together and create a single thread, tying them together

in ways that make sense.


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Customers is what makes your business exist.Without customers there is no business

Know your customers what they want, when theyneed it

While looking at existing customer, also look at thefuture (for future customers) new trends, where ismarket heading, impact of technology, etc.

Remember internal customers !

Balanced Scorecard strategy looks at all customer(external and internal)


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Managing money is key to successful business Senior executives and financial people decide on

financial measures that an organisation focuses on

Financial measures (irrespective of what they are)

basically look at one of the following Earnings

Profits

Cash flow

Common mistakes Leaders focusing on short term returns & quick fixes

At operational & tactical level, people focusing on ownperformance measure without understanding the impact atorganisational performance


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Looks at critical processes that a business shouldexcel at

These processes enable business unit to Deliver value that will attract and retain customers in target market

segments

Satisfy shareholder expectations of financial returns

Traditional approach attempt monitoring and improvingexisting processes for delivering todays products andservices to todays customers

The balanced scorecard approach will also identify new

processes for future performance / value creation (example,processes to anticipate customer needs, or deliver newservices / products that customers value)


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Identifies infrastructure that organisations mustbuild to create long term growth and improvement

Learning and growth comes from 3 sources People

Systems

Organisational procedures

Objectives from other 3 perspectives may identifygaps in current capabilities. These gaps have to befilled


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The objective & measures of the BSC are derived from thetop-down process driven by mission and strategy

The measures are balanced between external measures(customers and shareholders) and internal measures (criticalbusiness process and Learning and Growth)

BSC process starts with senior executive mgmt team workingtogether to translate its strategy into specific strategicobjectives Financial: revenue and market growth, profitability, or cash flow

Customer: which customer and market segment, what level of superior

service Internal business process: which is the most critical process to achieve

performance for customers and shareholder (need not be the standardstuff such as improving quality or cycle time)

Learning & Growth: provide rationale for investments in re-skillingemployees


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BSC should be more than collection of criticalindicators

Multiple measures in BSC should be consist oflinked series of objectives and measure that are

consistent and mutually reinforcing (cause-effectrelationships, outcome and performance drivers)

The linkage should traverse across the fourperspectives


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BSC should be a mix of outcome measures (laggingindicators) and performance drivers (leading indicators)

One without the other does not give the full story, nor give anearly indicator on whether the strategy is being implementedproperly

Example Outcome measures: Profitability, market share

Performance drivers: Cycle time & part-per-million (PPM) defectrates

Performance drivers alone reflects operational improvement,

but does not indicate if it is leading for better financialmeasures (outcomes)

Outcome measures alone does not indicate what is leading tothe better performance


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Strategy Map is a 2D depiction of the operations (functions)and strategy of an organisation

It shows financial objectives as final goal, with strategicobjectives from each of the 4 perspectives connected to eachother by arrows indicating links.

Similar to cause effect relationships Example


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The BSC across levels should tie together Strategic

Reduce the cost of product by 75% over 3 years

Operational

Quarterly goal of reducing overall defects by 25% Tactical

Measuring defects per day

The BSC across levels helps your drill down orup If a measure at tactical level is off-target, it will

impact a measure at the operational level, which inturn will impact a measure at the strategic level


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Strategic level scorecards involve long-termgoals (3-5 year timeframes)

To create the strategic level scorecard Take a look at your market

Understand where you want to be as a company

Understand the impact of above two on yourproducts, services, and customer base

Compare where you stand vis--vis the competition


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Measures the work done to achieve thescorecard objectives & measures

Is a more short term view vis--vis theoperational level scorecard

Provides the early warning signals forstrategic and operational level scorecards


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balanced scorecard.oxford

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