A report on

Balance scorecard
of
Nestle

(Subject – Business Best Practices)

JAYANTA KUMAR BISOI

16/06/DBM/09
MBA (4th sem)
Central University of Odisha
INTRODUCTION
The Balanced Scorecard concept is a management and measurement system which
enables organizations to clarify their vision and strategy and translate them into action. The
goal of the balanced scorecard is to tie business performance to organizational strategy by
measuring results in four areas: financial performance, customer knowledge, internal business
processes, and learning and growth. This report will going to introduce the balance scorecard
concept as explained by original authors Kaplan and Norton, its significance and importance
in today’s world of business through an example i.e. Balance scorecard of Nestle.

BACKGROUND
In 1992, an article by Robert Kaplan and David Norton entitled "The Balanced
Scorecard - Measures that Drive Performance" in the Harvard Business Review caused a lot of
attention for their method, and led to their business bestseller, "The Balanced Scorecard:
Translating Strategy into Action", published in 1996.
The financial performance of an organization is essential for its success. Even non-profit
organizations must deal in a sensible way with funds they receive. However, a pure financial
approach for managing organizations suffers from two drawbacks:
• It is historical. Whilst it tells us what has happened to the organization, it may not tell
us what is currently happening. Nor it is a good indicator of future performance.
• It is too low. It is common for the current market value of an organization to exceed
the market value of its assets. Tobin's-q measures the ratio of the value of a company's assets
to its market value. The excess value is resulting from intangible assets. This kind of value is
not measured by normal financial reporting.

Balance Scorecard
The balanced score card is a strategic planning and management system that is used
broadly in business and industry, organizations worldwide to align business activities to the
vision and strategy of the organization, improve inner and exterior communications, and
monitor organization performance against strategic goals.
The balanced scorecard has grown from its early use as a simple performance measurement
framework to a full strategic planning and management system. The “new” balanced scorecard
transforms an organization’s strategic plan from an attractive but passive document into the
"marching orders" for the organization on a daily basis. It delivers an outline that not only
provides performance measurements, but helps planners identify what should be done and
measured. It allows executives to truly execute their strategies.

4 perspectives of the Balanced Scorecard

The Balanced Scorecard method of Kaplan and Norton is a strategic approach, and
performance management system, that enables organizations to translate a company's vision
and strategy into implementation, working from 4 perspectives:
1. Financial perspective.
 2. Customer perspective.
3. Business process perspective.
4. Learning and growth perspective.
The balanced scorecard forces managers to look at the business from four important
perspectives. It links performance measures by requiring firms to address four basic questions:
• How do customers see us? - Customer perspective
• What must we excel at? - Internal perspective
• Can we continue to improve and create value? - Innovation & learning perspective
• How do we look to shareholders? - Financial perspective
This allows the monitoring of present performance, but the method also tries to capture
information about how well the organization is positioned to perform in the future.

Challenges for Implementing Balance Scorecard

Vague Strategy: Some strategies tend to be high-level, future looking with ideals and
aspirations. While valid to fuel the soul of the organization, they run the risk of diluting the
ability for translation into an effective Balanced Scorecard. The best remedy for these
situations is to revisit and refine the strategy with the owners and get clearer direction on the
aspirations of the business. Some of the key components required for an effective translation
include financial targets over the medium and long-terms, markets and customer segments,
aspirations for brand perception, and customer value. These should be statements of the desired
organization’s end state for the planning horizon (5 or 10 years).
Absence of a Common Vocabulary: It’s common to have different definitions for strategy
elements across the organization. The meaning of Vision, Mission, Objectives, Goals, Tactics,
Initiatives, and other elements has to be communicated and agreed upon by stakeholders across
the enterprise. Without the common vocabulary the risks of misalignment across the enterprise
are amplified. The best remedy for this situation is to create the definitions of this common
vocabulary, publish it, and remind participants of those definitions at the start of planning
meetings.
Complicating the initial implementation: There is a high tendency to get lost in the details
and technicalities of the Balanced Scorecard. The Strategic themes, Strategy Maps, and
Cascading to individual level could cause a lot of confusion around the initial approach. The
best remedy is to phase the approach by starting with articulating the BSC across the four
perspectives by developing the Strategy Map (Objectives with cause and effect relationships).
This provides a sense of clarity for the action plan and can be communicated across the
organization. Later phases can introduce more sophistication with Themes and cascading down
to the organization.
Cascading to individual level is a challenge: Cascading to Individual level requires engaging
the hearts and minds of your workforce. This entails getting their agreement and commitment
to set targets. If that engagement is not achieved the Individual Level BSC becomes nothing
more than a documentations exercise at the end of each reporting period. The behaviour of
your workforce will not change. The best remedy for this is to engage the team in formulating
the Balanced Scorecard (objectives & targets) and have them participate in setting targets.
Getting lost in the mechanics of tracking: The absence of automation to record and roll-up
results early in the implementation can severely derail your team into the mechanics of
recording actuals vs. targets. This will be compounded when the team tries to build
sophisticated formulas to roll-up to an overall result by objective or department across the four
perspectives. The best remedy for this is to remind your team during the initial implementation
that the spirit is to use the Balanced Scorecard as a navigation compass to steer the ship and
not to get 100% accurate and weighted results.

Benefits of the Balanced Scorecard

Kaplan and Norton cite the following benefits of the usage of the Balanced Scorecard:
 Focusing the whole organization on the few key things needed to create breakthrough
performance.
 Helps to integrate various corporate programs. Such as: quality, re-engineering, and
customer service initiatives.
 Breaking down strategic measures towards lower levels, so that unit managers,
operators, and employees can see what's required at their level to achieve excellent
overall performance.

Need of the Balance Scorecard

Managers can review the balance score card for the alignment of the activities of the
different people related to the different perspectives means whether the activities of one
perspective effect the activities of other? Or the activities of one perspective is in the best
practice of the other perspective so by this thing the performance of the organization can be
optimize.

Nestles Balance Scorecard for Performance Analysis

1. Learning & Growth Perspective
 Self-assessment for continuous improvement
 Self-assessment for strategic & tactical planning
2. Business Process Perspective
 Zero % defective
 Continuous Production
 Work Specialization
 Do the right things right every time
 Maximum Utilization of Resources
3. Financial Perspective
 Maximum Profit
 Efficient use of capital
4. Customer Perspective
 Quality product
 Availability
 Lifetime loyalty
 Competitive intelligence
 Firstly, the financial perspective can help the company understand its shareholders’
perception. Nestlé’s EBIT grew steadily in the past 5 year period from CHF 13302 million
to CHF 16194m in the year 2010, a growth of 21.7% (Nestle, 2011c). Significantly, 2009’s
EBIT was reported at CHF 15699m, an increase of just 0.15%. Moreover, the relative sales
figures grew from CHF 98458m in 2006 to CHF 109722m in 20010, dropping at
CHF107618m in 2009 after a successful year in 2008 where sales were at CHF109908m
(Nestle, 2011c).
 Secondly, an internal analysis makes it possible to identify the level of operational
procedures of Nestlé. During the year 2006, Nestlé’s workforce involved 265 000 people,
a number that increased in the year 2008 to 283000. Throughout 2009, the company cut
about 5000 jobs resulting in a 281000 person workforce for 2010 (Nestle, 2011b). In
addition, the company in 2009 was operating 449 factories 30 less from the year 2006
(Nestle, 2007b; 2010a).
 With respect to the third perspective of Learning & Innovation, Nestlé seems to have a
strong focus throughout the years. Taking into consideration Nestlé’s product innovation,
it can be seen that the company is aiming for a deeper scope within this area. In 2006,
Nestlé spent about CHF 1.7 billion for its R&D with a further increase in the following
years (Nestle, 2007b). According to Nestlé (2010a) spends about 1.9% of its annual
revenues on its R&D program which is considered as one of the key drivers of growth.
 Finally, the consumer perspective is related to how customers perceive Nestlé. This can be
measured through Nestlé’s PPP model which aims to focus on low-income consumers
around the world (Nestle, 2010b). Within 2007, the PPP performance involved 37 countries
 while in 2008 this number almost doubled to 70, generating an organic growth of 27%
(Nestle, 2008). In 2009, PPP achieved sales of CHF 8.8bn with an organic growth of 12.7%
(Nestle, 2010b). As a final point, 2010’s concept encompassed 90 countries with sales
figures of CHF 11bn and a double digit growth (Bulcke, 2011)

Overall, the analysis of such indicators shows that Nestlé has been able to improve its
performance over the last five years. Despite the crisis triggered in 2008, Nestlé is actually
steady on a financial and non-financial scale. It seems that the long term strategy generates
positive results for the short term as well. Giving focus on customization of local markets
through the PPP concept, the company builds strong roots for the future, particularly in
emerging markets as there are high growth potentials.

HR and the Balanced Scorecard

One effective approach to the measurement (if the strategic performance of
organizations, including their Industrial Relations (IR) departments, is the balanced scorecard.
The balanced scorecard is a framework organizations use to report on a diverse set of
performance measures. Organizations that use a balanced scorecard recognize that focusing
strictly on financial measures can limit their view. The balanced scorecard balances financial
and nonfinancial measures so that managers focus on long-term drivers of performance and
organizational sustainability. As shown in Figure. The balanced scorecard measures
performance in four areas:
• Financial measures: Traditional financial measures such as profit and loss,
operating margins, utilization of capital, return on investment, and return on assets
are needed to ensure that the organization manages its bottom line effectively.
• Internal business processes: Product and service quality, efficiency and
productivity, conformance with standards, and cycle times can be measured to
ensure that the operation tunes smoothly and efficiently.
• Customer relations: Customer satisfaction, loyally, and retention are important to
ensure that the organization is meeting customer expectations and can depend on
repeat business from its customers.
• Learning and growth activities: Employee training and development, mentoring
programs, succession planning, and knowledge creation and sharing provide the
necessary talent and human capital pool to ensure the future of the organization.
Organizational results in each of these areas determine it the organization is progressing
toward its strategic objectives. For example, some firms have noticed that when survey results
show a decline in employee satisfaction, several months later there is a decline in customer
loyalty and repeat customer sales. Or expenditures in employee leadership development
training can be linked to lower employee turnover and reduced time to hire managers from
outside the organization.
More than 60% of organizations claim to use a balanced storecard approach. Firms as
diverse as Blue Cross. Verizon, and the Mayo Clinic have used this approach to align
performance measures with their organizational strategy. Using the balanced storecard requires
spending considerable time and effort to identify the appropriate HR measures in each of the
four areas and how they tie to strategic organizational success. The balanced scorecard should
align with company goals and focus on results. To be effective, the HR scorecard should
address three elements—accountability, validity, and actionable results. However, regardless
of the time and effort spent trying to develop and use objective measures in the balanced
scorecard, subjectivity in what is selected and how the measures are interpreted can still occur.
Critical questions, answering the report:
 What is a balance scorecard and why it is?
 Why business need it?
 What are the biggest challenges about balance scorecard?
 How it will help the performance analysis?
 Is Nestle successfully used it, for their success?

References
http://www.whatishumanresource.com/balanced-scorecard
https://www.lawteacher.net/free-law-essays/commercial-law/hm-treasury-s-anti-
money-laundering-policy.php
https://www.scribd.com
http://bluelighthouse.org/2012/10/5-balanced-scorecard-implementation-challenges/
https://en.wikipedia.org/wiki/Balanced_scorecard