Balance Score Card

Balance Score Card

At the highest level, the Balanced Scorecard is A framework that helps organizations translate strategy into operational objectives that drive both behavior and performance.

Balanced Scorecard History

Measurement and Reporting
1992 Articles in Harvard Business Review:

Alignment and Communication

1996

Enterprise-wide Strategic Management

2000

Acceptance and Acclaim:

The Balanced Scorecard Measures that Drive Performance January - February 1992 Putting the Balanced Scorecard to Work September - October 1993 Using the Balanced Scorecard as a Strategic Management System January - February 1996 1996

The Balanced
Scorecard is translated into 18 languages

Selected by Harvard
Business Review as one of the most important management practices of the past 75 years.

2000

What is Balance Score Card?

A new approach to strategic management was developed in the early 1990's by Drs. Robert Kaplan (Harvard Business School) and David Norton. They named this system the balanced scorecard The balanced scorecard is a management system that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results.
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The scorecard is a method of designing, organizing and communicating performance measures across multiple perspectives (i.e. customer, financial, business process and learning and growth), utilizing both short and long term time horizons. The scorecard conveys the strategic plan to organization members, and it monitors each perspective simultaneously so that each perspective continuously supports the strategic plan.
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Kaplan and Norton describe the innovation of the balanced scorecard as follows: The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation."

The balanced scorecard suggests that we view the organization from FOUR perspectives.

The Premise Behind the Balanced Scorecard Is that Measurement Motivates Behavior
The Premise

Measurement Communicates Values, Priorities And Direction

The Conclusion

Measurement Must Be Linked To Strategy

Strategy

Balanced Scorecard

Measurement To Communicate, Not To Control

Kaplan and Norton cite the following benefits of using the balanced scorecard:
Focusing the whole organization on the few key things needed to create breakthrough performance. Helping to integrate various corporate programs, such as quality, re-engineering, and customer service initiatives. Breaking down strategic measures to local levels so that unit managers, operators, and employees can see what's required at their level to roll into excellent performance overall.
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Best practices of the Balanced Scorecard include:

Measure performance of all strategic goals. Maintain a balanced set of measures . People are held personally accountable for results. Develop solid baseline data. Match resources to goals and objectives.
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Effective measures should be:

Aligned with enterprise strategy. Supported by leadership. Clear and understandable. A balance of lagging and leading indicators. Linked to individuals and/or teams, with organizational goals in-sight. A centerpiece of the management process.
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Barriers to successful measurement include:

Inability to reach consensus on goals or measures. Insufficient involvement of end users of the measurement system. Routine habits, inflexible processes, cherished systems, and static culture are all obstacles to successful measurement. Fear or unwillingness to change. Measuring what is easy or known, rather than identifying what needs to be measured.
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Measures

At its simplest, measures are the quantification of an action or activity. Different measurements occur at different organizational levels. Some measurements are lagging, and some measurements are leading: A good scorecard has a balance of both. Both outcomes and performance drivers should be included in each business unit's balanced scorecard.
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Measures (contd)

Outcomes are lagging indicators, and are the final results of all of an organization's products and services. Examples would be: enhanced mobility, safe drinking water, and increasing the quantity and quality of open space. Performance drivers, also known as leading indicators or inputs, are measures that are unique to each organization or business unit. Performance drivers and inputs measure the employee and unit activities, which in turn, result in outcomes.

The Balanced Scorecard Is Based on an Understanding of the Basic Building Blocks of the Strategy
Financial Perspective
Revenue Strategy Return on Investment Productivity Strategy

1. The economic model of key levers driving financial performance

Sources of Growth

Sources of Productivity

Customer Perspective
Value Proposition
Price Quality Time Function Image Relatioship

2. The value proposition of target customers

Internal Process Perspective

Build the Brand

Make the Sale

Deliver the Product

Service Exceptionally

3. The value chain of core business processes

Learning & Growth Perspective

Staff Competencies

Technology Infrastructure

Climate for Action

4. The critical enablers of performance improvement, change and learning

We Use the Scorecard to Articulate Strategic Hypotheses in Cause-effect Terms

And Realize the Vision

Financial Results

To Drive Financial Success...

Needed to Deliver Unique Sets of Benefits to Customers...

Customer Benefits

Internal Capabilities

To Build the Strategic Capabilities..

Knowledge, Skills, Systems, and Tools

Equip our People...

BSC Terminology

Strategy Map: Diagram of the cause-and-effect relationships between strategic objectives

Strategic Theme: Operating Efficiency
Financial Profitability More customers

Statement of what strategy must achieve and whats critical to its success

How success in achieving the strategy will be measured and tracked

The level of performance or rate of improvement needed

Key action programs required to achieve objectives

Fewer planes Customer Flight Is on time

Objectives
Lowest prices

Measurement

Target

Initiative

Fast ground
turnaround

On Ground Time On-Time

Departure

30 Minutes 90%

Cycle time
optimization

Internal Fast ground turnaround Learning Ground crew alignment

Balanced Scorecard Example

Strategic Theme: Operating Efficiency
Financial Profitability Fewer Planes More Customers

Objectives

Measurement

Target

Initiative

Profitability More
Customers

Customer Flight Is on Time

Fewer planes Flight is on

time Lowest prices

Market Value Seat Revenue Plane Lease

Cost FAA On Time Arrival Rating Customer Ranking (Market Survey)

30% CAGR 20% CAGR 5% CAGR

#1 #1 Quality
management Customer loyalty program

Lowest Prices

Internal Fast Ground Turnaround

Fast ground
turnaround

On Ground Time 30 Minutes Cycle time On-Time 90% optimization

Departure program 70% yr. 3 90% yr. 5 100%

Learning Ground Crew Alignment

Ground crew
alignment

% Ground crew yr. 1

trained

% Ground crew
stockholders

ESOP Ground crew

training

Some of the Indicators of Good Balanced Scorecard

1. Executive Involvement Strategic decision makers must validate and own the strategy and related measures

2. Cause-and-Effect Relationships

A good Balanced Scorecard will tell the story of your strategy in actionable terms.

Every objective selected should be part of a chain of cause and effect linkages that represent the strategy

3. Balance between outcome and leading

measures There should be a balance of outcome measures and leading measures to facilitate anticipatory management 4. Financial Linkage Every objective can ultimately be related to financial results

5. Linkage of Initiatives and Measures: Each

initiative should be based on a gap between baseline and target.

Some Goals of the Balanced Scorecard

Provide a generic framework to translate strategy into operational terms Create a systems approach to form an integrated Strategic Management Process Provide a clear line of sight to the vision and strategy of the company Provide a tool for communicating the :

strategy, and
processes and systems required for implementing the strategy Draw a cause and effect roadmap to stakeholder value shareholder, customer, and employee.

How Does the Scorecard Benefit Your Organization?

Improves management effectiveness by having a shared and actionable view of the strategy
Optimizes and ensures strategic outcomes for a given set of resources Enables employees to work in a coordinated, collaborative fashion towards organizational goals Speeds time to value through faster more informed decisionmaking on time and resource allocation Accelerates the approach, and its accuracy to the strategic destination

Review/Summary
The Balanced Scorecard is a framework that helps organizations translate strategy into operational objectives that drive both behavior and performance The Balanced Scorecard is based on the premise that measurement motivates The scorecard is broken down into four perspectives that are linked The balanced scorecard has benefits across organizations