The Balanced Scorecard. A Discussion at. SIRC of ICAI. September 19, Led by Murli Ramachandran CEO Coach & Management Consultant

Transcription

1 The Balanced Scorecard A Discussion at SIRC of ICAI September 19, 2015 Led by Murli Ramachandran CEO Coach & Management Consultant

2 Requests & Caveats 2

3 Agenda What is a Scorecard? History and evolution of The Balanced Scorecard Key features of The Balanced Scorecard 4 Perspectives Balance Cause-effect linkages Application of BSC 3

4 What is a Score? What if we never scored or never measured anything? 4

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7 Common Features: Outcome -Fairly clearly / unambiguously defined Outcome -reflected in a Simple / Single measure 7

8 Is similar simple scoring possible for more complex systems / issues? 8

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11 Personal Health? 11

12 Or Success / Health of a Business or Company? 12

13 HACOA HumansAreControlOrientedAnimals 13

14 The concept of Measurement goes a long, long way back in the evolutionary history of mankind This red ochre stone is engraved with what must be tally marks. It is one of two such stones recently found in the Blombos Cave in South Africa and is 77,000 years old, making them the oldest form of recorded counting ever found. 14

15 What gets measured, gets done! What gets measured well, gets done well! 15

16 Evolution Of Measurement Systems Measurement systems have been driven by and have reflected Management Focus / Theme of the times Six Sigma Late 20th Century Shareholder Value Competencies/ Capabilities Competitive Advantage Customer Satisfaction Comparative Benchmarking Business Process Reengineering Operational Metrics 19th Century Management Accounting Pre 15th Century Double-entry Bookkeeping Financial Strategic Operational 16

17 History of the Balanced ScoreCard( BSC ) GE, CMU, Drucker, Japan, Baldridgeaward, Arthur M. Schneiderman(consultant at Analog Devices Inc) -during 1950s to 1980s study by Nolan Norton Institute (part of KPMG) David P Norton (study leader) and Robert S Kaplan (Harvard Prof.) Year long study of 12 companies -"Measuring Performance in the Organization of the Future," Advanced Micro-Devices American Standard Apple Computer Bell South CIGNA Conner Peripherals Study - What have these organizations done? Cray Research Dupont EDS GE HP Shell Canada 17

18 History of the BSC The study found that successful organizations, that outperform competitors, would: Measure performance in selected strategic areas Balance measures across a number of critical perspectives Include these balanced measures in management reviews Use the data to drive organizational change 18

19 The BSC Strategic Areas Market Finance Operations Business Tangibles Intangibles 19

20 The BSC The 4 Perspectives Financial Perspective Goals Measures How do we look to our shareholders? Customer Perspective Goals Measures How do we look to our customers? Balanced Scorecard Internal Processes Learning & Growth Goals Measures Are we able to sustain innovation, change and improvement? Goals Measures What must we excel at? What business processes are the value drivers? Source: Nolan Norton,

21 The BSC Balanced Measures What are successful organizations doing? Successful organizations translate their vision and strategy into a balanced set of measures strategic financial external lagging Vision leading internal non-financial tactical / operational 21

22 The BSC Author s Definition The Balanced Scorecard is a management tool for strategy deployment. It provides a comprehensive framework that translates a company s vision and strategy into a coherent, tangible set of performance measures. -Robert S. Kaplan, David P. Norton 22

23 The BSC Cause-Effect Linkage 4. Increased customer satisfaction will lead to better financial results. 3. Improved work processes will lead to increased customer satisfaction. 2. Skilled, empowered employees will improve the ways they work. 1. Knowledge & skills of employees is foundation for all innovation and improvements. Financial Customer Internal Process Learning & Growth 23

24 The BSC Links Objectives, Measures, Targets, and Initiatives Objective Measure Target Initiatives Broaden revenue mix Increase customer satisfaction Revenue mix Customer retention 10% Product A 40% Product B 50% Product C 95% Sales Promotions New Channel Marketing Frequent Buyers Club Develop new products Develop strategic skills % Revenue from new products Skill coverage % % % 90% R & D Program Customer Mailing Custom Training Knowledge Library 24

25 The BSC Breadth of Coverage Balanced Scorecard Six Sigma Late 20th Century Shareholder Value Competencies/ Capabilities Competitive Advantage Customer Satisfaction Comparative Benchmarking Business Process Reengineering Operational Metrics 19th Century Management Accounting Pre 15th Century Double-entry Bookkeeping Financial Strategic Operational 25

26 The BSC 3 Generations Generation 1 Generic / industry defined measures in the 4 perspectives Generation 2 Measures that are relevant to the organization s strategy Generation 3 Measures that are drawn from the Strategy Map and corresponding initiatives (cause effect linkages) 26

27 The BSC Implementation An important condition for a successful implementation of the scorecard is to begin with a clear vision, translated to appropriate objectives, directly linked to critical success factors and measurable ambition levels. Where is the organization going? Vision How do we get there? Strategy What do we need to do well? Critical Success Factors How do we measure how well we are doing? Financial Perspective Key Performance Indicators Customer Perspective Internal Processes Learning & Growth 27

28 The BSC Strategy Mapping 28

29 The BSC A Case Study ClikCart* Contrived, imaginary case created to demonstrate the BSC Reflects a simple application of the concepts *Fictitious co all resemblance to any real entity is purely coincidental! 29

30 ClikCart* Case Background Background Online marketplace; last year had: 15 million products in 70 categories supplied by 3000 vendors employees 30 million registered users 60 million shipments Gross Merchandise Value ( GMV ) Rs.30,000 crores GMV target for current year Rs.60,000 crores *Fictitious co all resemblance to any real entity is purely coincidental! 30

31 ClikCart* Case BSC - Gen1 Financial Customer Internal Process Learning & Growth Gross Merchandise Value Revenue Profits Growth on above parameters Number of registered users Transactions per user Average bill value Repeat customer % % uptime of website Response time Time to deliver order Shipment errors % Training hours per employee Attrition / retention % Employee satisfaction score New products / categories Valuation Number of items / categories Customer satisfaction rating Trends on above 31

32 ClikCart* Case BSC Gen2 Assumptions on strategy critical items: Growth in number of registered users Acquisition of business(es) Additional GMV of about Rs.5000 crore pa Migration to Mobile App Fund mobilization 32

33 ClikCart* Case BSC Gen2 Financial Customer Internal Process Learning & Growth Gross Merchandise Value Revenue Profits Growth on above parameters # of registered users Transactions per user Average bill value Repeat customer % % uptime of website System response time Time to deliver order Shipment errors % Training hours per employee Attrition / retention % Employee satisfaction score New products / categories Valuation Value of Acquisition GMV from acquisition % GMV through App Number of items / categories Customer satisfaction rating Trends on above # of App users Reliability of Mobile App 33

34 ClikCart* Case BSC Gen3 Assumptions on strategy critical items: Growth in number of registered users Acquisition of business(es) Additional GMV of about Rs.5000 crore pa Migration to Mobile App Fund mobilization 34

35 ClikCart* Case GMV of 60K crores BSC Gen3 Partial Strategy Map Retain current GMV from existing users Launch New products / categories Add fresh GMV from other avenues Migrate to App Introduce Loyalty Program 35

36 ClikCart* Case BSC Gen3 Partial Strategy Map Add fresh GMV from other avenues Additional GMV from current users Increase repeat visits GMV from new users Launch New products / categories GMV from acquisitions Increase conversion Increase Ads, promotions Increase price Introduce Loyalty Program 36

37 ClikCart* Case BSC Gen3 Financial Valuation Value of Acquisition % GMV through App Customer Internal Process Learning & Growth # of new users Number of items / categories Customer satisfaction rating Trends Vendor introduction cycle time Acquisition process cycle time Time to deliver order Reliability of Mobile App New products / categories Attrition / retention % Employee satisfaction score # of App users Ad / promo effectiveness 37

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39 References Jan-Feb 1992 Jan-Feb 1996 Sep-Oct

40 References And many more 40

41 Thank you Murli Ramachandran CEO & Executive Coach Management Consultant # , Tower 4, Estancia GST Road (NH45), Vallanchery Distt. Kanchipuram, TN INDIA