Balanced Scorecard

Objective
Provide a more complete and balanced view of corporate performance Give senior managers a concise but comprehensive view of the business Balanced Scorecard (BSC) approach described by Kaplan and Norton

Premise
Measurement motivates

Measurable Items
Broadened set of measurable items to complement financial measures Multiple measures provide balanced perspective Included customer, internal process, and learning and growth measures

Perspective
Traditional financial metrics are backwardlooking
Now look at leading indicators that are predictors of future success

Performance Perspectives
Customer perspective
Internal perspective Innovation and learning perspective Financial perspective

Use of BSC
BSC is deployed in more than half the Fortune 500 companies*

Intelligent Enterprise, July 2002

What is the BSC?

Financial
Initiatives
To succeed financially, how should we appear to our shareholders?

Objectives

Measures

Targets

Initiatives

To satisfy our shareholders and customers, what business processes must we excel at?

Objectives

Customer

Targets

Measures

VISION AND STRATEGY

Internal Business Process

Measures Targets

Objectives

Learning & Growth

Initiatives
To achieve our vision, how will we sustain our ability to change and improve?

To achieve our vision, how should we appear to our customers?

Objectives

Measures

Targets

Initiatives

Customer Perspective
Who are our customers? What is our value proposition?
Operational excellence (Wal-Mart) Product leadership (Nike) Customer intimacy (Nordstrom)

Internal Process Perspective

What are our key processes? Should be based on our value proposition
Operational excellence (Wal-Mart) Product leadership (Nike) Customer intimacy (Nordstrom)

Learning and Growth Perspective

Do we have key skills and information systems? Where are the gaps?

Financial Perspective
Profitability...

Developing Objectives Customers

Who are our customers, and what is our value proposition in serving them?
Customer intimacy increase customer retention

Developing Objectives Internal Processes

To satisfy our customers and shareholders, at what processes should we excel?
Customer objective processes

Developing Objectives Financial

What financial steps are necessary to ensure the execution of our strategy?
Cost-leadership lower unit costs

Developing Objectives Internal Employee Learning

What capabilities and tools do our employees require to help them execute our strategy?
Skill gap Information systems

Commonly Used Financial Measures

Total assets Total assets per employee Profits as a % of total assets Return on total assets Revenues/total assets Gross Margin Net Income Profit as a % of sales Profit per employee Revenue Revenue from new products ROE ROI

Commonly Used Customer Measures

Customer Satisfaction Customer Loyalty Market Share Customer Complaints Return rates Response time Direct Price Price relative to competition Total cost to customer Customers lost Customer retention Customer acquisition costs Number of customers

Commonly Used Internal Process Measures

Average cost per transaction On-time delivery Average lead time Patents pending Stockouts Labor utilization rates Response time to requests Defect percentage Breakeven time Cycle time Warranty claims Waste reduction

Commonly Used Learning and Growth Measures

Employee participation Training investment Average years of service Turnover rate Employee suggestions Motivation index Diversity rates Quality of work environment Training hours Reportable accidents Ethics violations

Example

Holding Company

Subsidiary 1

Subsidiary 2

Subsidiary 3

Subsidiary 4

Subsidiary Scorecard Example

Consolidated ROA
Subsidiary on-time goals by month Subsidiary baggage handling goals by month

Subsidiary operational dependability goal by month

Link Measurements to Strategy

Define mission and strategy
Determine how performance will differ if I succeed with vision Determine Critical Success Factors Determine critical measurements

Implementation
3-4 measures per perspective Frequency of measurement Establishing targets Performance measurement Incentive systems

Building a Balanced Scorecard

Preparation Interviews (first round) Executive workshop (first round) Interviews (second round) Executive workshop (second round) Implementation Periodic reviews

First Generation BSC

BSC software developed and designed as reporting or management dashboard tools First applications to integrate financial and non-financial reporting Red, yellow, green reporting of achievement of targets

Goal of First Generation BSC Reporting

Quickly understand health of organization
Focus attention on areas requiring attention

Evolution of BSC
Use BSC to help implement and manage strategy

Strategy Map

Strategy-Focused Organization
Executive leadership to lead change Translate strategy into operational terms Align organization to strategy Make strategy everyones job Make strategy a continual process

Sources
BSCol Functional Standards
www.bscol.com/standards

Balanced Scorecard Institute

www.balancedscorecard.org