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?

Objectives

Targets

Initiatives

Targets
Measures
Objectives

Targets

Learning & Growth

Objectives

Measures

Targets

Initiatives

Initiatives

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

Internal Business Process

VISION
AND
STRATEGY

Measures

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

Measures

Objectives

Customer

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

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

Initiatives

Financial

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