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BALANCED SCORECARD

Balanced Scorecard
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How would you feel about boarding the plane after


the following conversation with the pilot?
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Q: I am surprised to see you operating the plane with only


a single instrument. What does it measure ?

A: Airspeed .I am really working on airspeed of this flight.


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Q: That is Good. Airspeed certainly seems important. But what


about altitude. Would not an altimeter be helpful?

A: I have worked on altitude for the last few flights and I have
gotten pretty good on it. Now I have to concentrate on proper
air speed.
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Q: But I notice you don’t have a fuel gauge.


Would not that be useful ?

A: You are right; fuel is significant, but I cannot concentrate


on doing too many things at the same time. So on flight
I am focusing on air speed. Once I get to be excellent at
Air speed, as well as altitude, I intend to concentrate on
Fuel consumption on the next set of flights.
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Q: to the participants
Would you like to board this plane after having this discussion ?

A: Perhaps not.

What could be the reasons?


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Navigating an organization is as complex as an Aero plane


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They also require instrumentation to guide their organizations

………. like pilots have to guide an aeroplane


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Would you be satisfied as manager getting one dimensional


Information about your organization ?
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Perhaps not, therefore

You need instrumentations/ information


to navigate

in this competitive world


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BSC provides managers with the instrumentations


they need to Navigate future competitive success.
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BSC translates an organizational mission and strategy


into comprehensive set of performance measures that
provides the frame work for strategic measurement and
Management system

4 Balanced Perspectives
Financial
Customers
Internal Business Processes
Learning & Growth
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Measures are balanced

Between the outcome measures—the results


from Past efforts---and the measures that
drive
future performance
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4 Perspectives permit a balance between


Short term and long term objectives
Outcomes and performance drivers
Hard objectives measures and
Soft objective measures
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Competing in the Information Age


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Industrial Age

Financial Control
ROCE
Prod Control
Profitability
Physical Capital
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Made
Many
Such
Measures
Obsolete
Information Age

Financial Control
ROCE
Prod Control
Profitability
Physical Capital
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Required
New
Capabilities

Information Age

Develop Customer Relationship


Introduce innovative products/services
Quality products at low cost
Employee development and
motivation
Deploy information technology
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Information Age

New
Operating Cross Functional
Environment Links to customers and Suppliers
Customer Segmentation
Global Scale
Innovation
Knowledge Workers
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Information Age

Total Quality Management


Improvement JIT-Production and Distribution
initiatives Time based Competition
Lean Production/Lean Enterprise
Building Customer-focused Org
Activity Based Cost Management
Employee Empowerment
Reengineering
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Capital You don’t see on the Balance Sheet

Human Capital

The collective skill,


knowledge
attitudes and behavoiur of
the
People in the Organization
Information Capital

The resources and processes in Organizational Capital


place that ensure effective use of
The human capital

The values, working relationship


And cultural norms at work in
The organisation
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balanced scorecard
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History

Measurement Alignment & Enterprise


& Communicatio Strategic
Reporting-1992 n Management-
1996 2000
Articles in HB Review
Acceptance and Acclaim
§The BSC-Measures that
Drive performance---1992 §BSC Translated in 18 languages
§
§Selected by HBR as most
§Putting BSC to work-1993
Important management
Practice in 75 years
§Using BSC as a Strategic
Management System-1996
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For Guiding
Financial Information
Measures are age Must Create future
Inadequate Organizatio Value
ns Through

Investment in
Customers
Suppliers
Employees
Processes
Technology &
Innovation
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A balance scorecard translate a organization’s


mission and strategy into set of performance
measures that provide the framework for
implementing its strategy
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Strategy

Strategy specify how an organization matches its


own capabilities with the opportunities in the
marketplace to accomplish its objectives
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A strategy is a set of goals and specific


action plans that, if achieved, provide
the desired competitive advantage

Strategic Management involves identifying and


implementing these goals and action plans
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strategic thinking

•Anticipating changes
•Product/service and production
designed
to accommodate expected changes
•Flexibility
•Ability to make quick changes
•Speed to market
•Agile manufacturing/ service
•Driving firm by using windshield not
the rear view mirror
•Creative and integrative
thinking………

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Do we need to be clear about……?

Goal
Objective
Mission
Vision
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A goal or objective consist of a projected state of affairs which


a person or a system plans or intends to achieve or bring about
A personal or organizational desired endpoint in some sort of
assumed development.
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Vision: Defines where the organization wants to be in future.


Vision: Defines where the organization wants to be in future.
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Mission: Defines where the organization is going now,


describing
why this organization exists
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Targets: defines goals and objectives


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Objectiv
Goal Mission
e
2008 2028
2013
5000 Cr 12,000 Cr 50,000 Cr
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Objectiv
Goal Mission
e
2009 2029
2014
7000 Cr 15,000 Cr 55,000 Cr
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Balance Scorecard as a Management System


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Balance Financial and


Scorecard Emphasizes Non Financial
measures must be
Part of Information
System
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4
Perspectives

Financial

Perspective Customer
Internal
Perspective
Business
Process
Perspective

Learning &
Growth
Perspective
Clarify missionSCORECARD
BALANCED &
Mission Vision
Vision statement

Develop Strategic Goals


Strategic Goals

Derive Balanced Scorecard


Sub-Goals
Sub-Goals
Financial
• Sub-Goals
Map Sub-Goals to
Methodology Customer Internal Business
each quadrant of the • Sub-Goals
• Sub-Goals
Balanced Score Card
Overview Learning & Growth
• Sub-Goals

For each BSC Quadrant

- identify measurement areas


Indicators
- develop measurement goals
- postulate indicators

Trouble Reports
- identify data elements
Module

Data Elements
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A Balanced Scorecard Perspective
on Performance
FINANCIAL

Initiatives
Measures
Objective

Targets
How do we
look to
shareholders?

CUSTOMER INTERNAL BUSINESS


Initiatives
Measures
Objective

PROCESS

Initiatives
Measures
Objective
Targets

Targets
How do our
Vision
customers and What must
see us? Strategy we excel at?

LEARNING and
GROWTH
Initiatives
Measures
Objective

Targets

Can we
continue to
improve and
create value?
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4
Perspectives

Financial
Financial Perspective Evaluate
Perspective the Profitability of the Strategy
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4
Perspectives

Customer

Perspective

Customer Perspective identifies Targeted


Customer and market Segments and
Measures
the Organization’s success in these Segments
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4
Internal Perspectives
Business
Process
Perspective

This perspective focuses on internal


operations
that create value for customers that ,in turn,
furthers the financial perspective by
increasing
the shareholder value
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4
Internal Perspectives
Business
Process
Perspective

3 sub
Process
es

Operations Process
Innovation Process Postsales-Service
Process
Producing &
Creating Products Providing service and
delivering
Services &Processes Support to the customer
Existing products that
To meet the demand After the sale of a
Will meet the needs
Of Customers product or service
Of Customers
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4
Perspectives
Learning &
Growth
Perspective

This perspective identifies the capabilities the


organization must excel at to achieve superior
internal processes that create value for
Customers and shareholders
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FINANCIAL PERSPECTIVE

Target Actual
Objective Measures Initiatives Perform Perform

Financial Operating income


Perspective From Productivity Manage Cost
Rs 20 Cr Rs 20.12Cr
Gain And Unused
Capacity

Operating Income Build Strong


Increase From Growth
Customer Rs 30 Cr Rs 34.20 Cr
Shareholder Relationship
value
Revenue Growth
6% 6.48%
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Customer Perspective

Target Actual
Objective Measures Initiatives Perform Perform

Customer Market Share in


Perspective Communication Identify future
6% 7%
Network Segment Needs of
Customers
Number of New Identify new 1% 2%
Customers Target
Increase Customer Seg 90% give 87%Gave
Customer Customer
Top two top two
Satisfaction Satisfaction
Increase Cust Ratings Rating
Rating
Focus of Sales
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INTERNAL BUSINESS PROCESS PERSPECTIVETarget Actual
Objective Measures Initiatives Perform Perform

Reduce Reduce Setup time Re-engineer order 30 days 30 days


Delivery Time Automation of Orders Delivery process
Meet Specified
Delivery dates on time delivery Re-engineer order 92% 90%
Delivery process
Improve post Improve Customer
Sales Services Service Response Within
Time Service process Within
4 hrs 3 hrs
Improve
Processes Number of Impv.
In Business Organize teams
from Sales & Manuf 5 5
Processes
Improve
Manufacturing % of processes
With Advanced Organize R&D/Mfg 75% 75%
Capability Teams to implement
Controls
Adv. control
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Learning and Growth Perspective Target Actual
Objective Measures Initiatives Perform Perform

Align Employee Employee Satisfac- 80% 88%


And Employee
tion Rating Participation to Employees
Organizational Give top
Goals Build Team Work
Two
Ratings
Develop % Employees
Process Employees
Trained in Process Training 90% 92%
Skill & Quality Mgt Programme

Empower % Workers
Work Supervisors as
Empowered to Coaches rather 80% 80%
Force Manage Decision
Processes Makers
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BSC as Strategic Management System


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Balanced 1 Clarify and Translate vision & Strategy


Scorecard 2 Communicate and link strategic objectives
as a and Measures
Strategic
3 Plan, Set Targets and align Strategic
Management Initiatives
System
4 Enhance Strategic Feedback and Learning
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Clarifying and
Translating the
Vision & Strategy

Clarifying the Vision


Gaining Consensus

Strategic Feedback &


Communicating Learning
& Linking
Balance Articulating the shared
Comm and Educating
Setting Goals
Scoreca Vision
Supplying Strategic
Linking Rewards to rd Feedback
Performance Facilitating Strategy review
and Learning

Planning & Target Setting

Setting Targets
Aligning Strategic
Initiatives
Allocating Resources
Establishing Milestones
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Clarifying the Vision


Formulation by Sr Executives
Reaching Consensus
Clarifying and Sorting Out Differences
Translating the Joint Accountability
Vision & Strategy
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Communicating and Educating


Newsletter
Bulletin board
Brochure
Videos
Intranet
meetings
Setting Goals
Linking Rewards to
Performance
Communicating Every one Understand
& Linking Strategy for achievement
Outcome Measures
Efforts and Initiatives required

On time Delivery Communicating to


Reduce setup time
Buy new machines
Directors
Improve delivery time Executives
Improve packing Employees
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Plan to Change
Set target for 3-5 years
Stretch targets
Benchmarking
Planning & Alignment of Targets
Target Setting Alignment of Strategic Planning
with operational Budgets
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Periodic Review and Change


Targets-achieved or not
Past and future Review
Strategic Information from all
Feedback & Double loop learning
Learning Cause and effect Relationship
Validity and Viability
Strategy replacement according
to outcomes/performance drivers
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Features of Balance Score Card

vIndicate company’s strategy and its link with perspectives


v
vStrategy is communicated to all
v
vStrategy translated into measurable targets
v
vMotivates Managers to achieve targets
v
vBSC limits the measures to only four
v
vHighlights effect of one perspective on another
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Pitfalls in Implementing Balanced Score Card

vDifficult to establish Fin-Non financial Linkages


v
vImprovements at all levels may not be possible
v
vBoth subjective-objective measures Consideration
v
vConsidering Cost & benefits of initiatives
v
vNon-financial Achievements are ignored
v
v
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Barriers to effective Implementation of BSC

Vision & Strategies not actionable

Strategies not linked to departmental and


Individual Goals

Strategies not linked to Long term/short term


Resource Allocation

Feedback that is tactical not strategic


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Barriers to effective Implementation of BSC
1 Vision & Strategy not Actionable

Strategy &
2 Strategy not Vision
Linked to Dept Team
& Individual Goals

Personal MBO
Monthly
& Budget
Review
Incentives

4 feedback that is tactically


not strategic
Financial Plan
& Capital
Allocation

3 Strategy not Linked to Resource Allocation


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Barrier No 1: Vision and strategy not Actionable

Cant be translated into action


Cant be acted Upon
Cant be understood
Fragmentation & Sub optimization
of efforts
Lacking consensus & Clarity
Different Agendas
No integration
Not linked coherently to overall strategy
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Barrier No 3: Strategy not Linked to Resource Allocation

Separate Processes for Long term &


Short term Strategic planning
Funding to unrelated priorities
Poor Monthly Reviews
Unfocused New Mgt Techniques
Poor Integration
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Barrier No 4: Feed back not tactically strategic

Bulk of feedback is only financial measures


Little time on strategy implementation & success
No priority to periodic review and meetings
Inadequate information
Poor tactical review process
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Different Management System for Strategic Implementation
•The strategy is the reference point for the entire management process
•The shared vision is the foundation for strategic planning

Clarifying &
•Goal alignments from Translating
top to bottom The Strategy & Vision •Feedback system used to test
•Education and open The hypothesis on which strategy
communication about strategy Is based



• Strategic• Feedback
• Communicating Balance •&
• And Linking Scorecard Learning

• •
•Compensation is linked •Team problem solving

To Strategy
•Strategy development is a
Planning & Continuous Process
Target Setting

•Stretch targets are established and accepted


•Strategic initiatives are clearly identified
•Investments are determined by strategy
•Annual Budgets are linked to long term planning
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Let Us Review
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4
Perspectives

Financial

Perspective Customer
Internal
Perspective
Business
Process
Perspective

Learning &
Growth
Perspective
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Translating SCORECARD
the strategy to operational terms

The Strategy

Financial Perspective
If we succeed, how will
We look to our
Shareholders?
Measurement is the
language that gives clarity
To vague concepts Customers Perspective
To achieve our vision,
How must we look to our
Measurement is used to
Customers ?
communicate,
Not to control Internal Perspective
To satisfy our customers,
Which processes must
We excel ?
Strategy can be described as a series of Organizational Learning
Cause and Effect relationship
To achieve our vision, how must
our organisation team
Improves?
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Clarifying and
Translating the
Vision & Strategy

Clarifying the Vision


Gaining Consensus

Strategic Feedback &


Communicating Learning
& Linking
Balance Articulating the shared
Comm and Educating
Setting Goals
Scoreca Vision
Supplying Strategic
Linking Rewards to rd Feedback
Performance Facilitating Strategy review
and Learning

Planning & Target Setting

Setting Targets
Aligning Strategic
Initiatives
Allocating Resources
Establishing Milestones
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Make SCORECARD
Strategy Everyone’s Job

CORP
SBU

Education
Personal Goal
Alignment
Balanced Pay checks

The Strategy Focused Workforce


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Make Strategy a continuous Process

Strategy

60% OF Org Strategic Learning


Don’t link
Strategy & Loop 85% of Mgt
teams
budgets Spends less
than
Balanced 1 hr per month
Scorecard On strategy
issues
78% orgs lock
Budgets to an Budget 92% of orgs
Annual cycle Do not report
On lead
Management Control indicators
Loop

Performanc
Input e Output
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Questions