Overview. Basic idea Goals and benefits of a BSC Conversion Example Exercise

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1 Balanced Scorecard

2 Overview Basic idea Goals and benefits of a BSC Conversion Example Exercise

3 What is a balanced scorecard? it is a management system (not only a measurement system) it is a concept that measures a company's activities in terms of its vision and strategies it gives managers a comprehensive view of the performance of a business was developped by Robert S. Kaplan and David P. Norton in 1992

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5 What is new? The new approach! The BSC doesn t only focus on financial outcomes but also on the human issues (non financial aspects) Structured representation of important factors in only 4 perspectives

6 The four perspectives The financial perspective The customer perspective The internal process perspective The learning and growth perspective

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8 1. The financial perspective traditional perspective examines improvement of the company how should a company appear to their shareholders? measures from other perspectives should be linked in a cause-and-effect relationship with the financial perspective Examples for financial measures: EVA, costs, profit margins, cash flow, ROI

9 2. The customer perspective how should a company appear to their customers? (other questions...) there is an increasing importance of customer focus and customer satisfaction in any business measures selected here should measure both the value that is delivered to the customer and the outcomes that come as a result of this value proposition examples for measures: number of complaints, time between enquiry & offer, delivery performance to customer (by date & by quantity)

10 3. The internal process perspective It focuses on what an organisation must be doing well to meet the customer needs Measures chosen here allow the managers to know how well the business is running how well are the internal processes designed to meet the objectives? Examples for measures: processing time, process quality, defect rates

11 4. The learning and growth perspective supports the other three perspectives How will we sustain our ability to change and improve? this perspective includes employee training and corporate culture attitudes (culture of learning) is concerned with the jobs, the systems and the climate of the enterprise Examples for measures: number of patents applied for, illness rate, number of offered training courses for the employees

12 Balanced Scorecard Cause-Effect Hypothesis Increased customer satisfaction will lead to better financial results. Financial Improved work processes will lead to increased customer satisfaction. Customer Skilled, empowered employees will improve the ways they work. Knowledge & skills of employees is foundation for all innovation and improvements. Internal Process Learning & Growth

13 Objectives: Within each perspective, objectives identify what needs to be done in order to achieve the overall mission Measures: provide a way to determine how an organisation is doing in achieving its objectives Targets: must be set for each measure to control and evaluate the progress towards the objective Initiatives: are a set of activities that are planned within each perspective in order to reach the targets (set for each measure)

14 Alignment of Scorecard Components It is important that the components of your scorecard fit together

15 The Balanced Scorecard Why do it? To achieve strategic objectives To focus improvement efforts on customer benefits To make decisions based on FACT and DATA To track progress To identify improvement opportunities To evaluate process changes To eliminate non-value added efforts

16 Conversion of a BSC Defining the strategy (clear and concise) on the basis of the corporate vision Deduce of strategic objectives from the defined strategy Linking of the strategic objectives Definition of significant measures and targets Fixing of the initiatives Communication of the BSC

17 Example for a BSC (Airline)

18 My sources Weber, Schäffer: Einführung in das Controlling, edition 11 Ziegenbein: Controlling, edition /.de