The Balanced Scorecard

Transcription

1 The Balanced Scorecard Translating Strategy Into Action Robert S. Kaplan David P. Norton

2 Learning Objectives After successfully completing this lesson, you will be able to: 1. Explain the concept of balanced scorecard 2. Explain the concept of strategic map 3. Understand the concept of alignment in an organization 4. Design a set of metric for a given company goal

3 What is a Balanced Scorecard? The Balanced Scorecard is a strategic planning and management system used to align business activities to the vision and strategy of the organization by monitoring performance against strategic goals.

4 Balanced Scorecard Concept Was first published in 1992 by Kaplan and Norton, a book followed in Traditional performance measurement that only focus on external accounting data are obsolete. The approach is to provide 'balance' to the financial perspective.

5 Why Use a Balanced Scorecard? Improve organizational performance by measuring what matters Increase focus on strategy and results Align organization strategy with workers on a day-to-day basis Focus on the drivers key to future performance Improve communication of the organization s Vision and Strategy Prioritize Projects / Initiatives

6 4 Original Business Perspectives The Balanced Scorecard model suggests that we view the organization from 4 perspectives. Then Develop metrics, collect data and analyze it relative to each of these perspectives Adapted from The Balanced Scorecard by Kaplan & Norton

7 4 Business Perspectives Questions Financial What must we do to create sustainable economic value? Internal Business Process To satisfy our stakeholders, what must be our levels of productivity, efficiency, and quality? Learning and Growth How does our employee performance management system, including feedback to employees, support high performance? Customer What do our customers require from us and how are we doing according to those requirements?

8 Balanced Scorecard Measurements

9 Key Implementation Success Factors Obtaining executive sponsorship and commitment Involving a broad base of leaders, managers and employees in scorecard development Choose the right Scorecard Champion Beginning interactive (two-way) communication first Viewing the scorecard as a long-term journey rather than a short-term project Getting outside help if needed

10 Balanced Scorecard Example STRATEGY MAP BALANCED SCORECARD ACTION PLAN PROCESS: MANUFACTURING EXCELLENCE THEME: ROCE > xx%, VOLUME = xx,xxx units OBJECTIVES MEASUREMENT TARGET INITIATIVE BUDGET FINANCIAL PERSPECTIVE Long-Term Shareholder Value ROCE > xx% Improve Productivity Grow Revenue Operating Cost & Efficiency Capacity Utilization Capability Utilization Brand / Image Cost/Unit, Efficiency % Utilization Trial Prod. Spare Parts Prod Warranty Cost t Monthly Monitoring Weekly/Monthly Monitoring Monthly Monitoring Weekly/Monthly Monitoring CUSTOMER PERSPECTIVE Low Cost Manufacturing Man-hour per Unit Weekly Monitoring OFFER PRODUCTS & SERVCIES THAT ARE CONSISTENT, TIMELY and LOW-COST Low Cost Customer Satisfaction World Class Enhance Brand World-Class Quality Standards World-Class Delivery Timing Knowledgeable & Skilled Partner High Customer Satisfaction Reinforce Brand Image Defect per Unit Sales Delivery Direct Pass Rate Market Feedback Sales Volume Daily Monitoring Daily Monitoring Daily Monitoring Weekly Monitoring Monthly Monitoring Prod. & Sales Mtg. OPEX RM XX M INTERNAL PERSPECTIVE ENSURE OPERATIONAL EXCELLENCE WITH INNOVATION AS WELL BEING SOCIALLY RESPONSIBLE Operational Excellence Alliances with SBUs Process Innovation Socially Responsible Productivity Delivery Continuous Improvement NPI Safety & Health Environment Cycle Time Meet Daily Plan WIP KAIZEN ICC Timely Introduction Industrial Accident Commuting Accident Toxic Waste Disposal ISO 9002 Hourly Monitoring Daily Monitoring Daily Monitoring Monthly follow-up Specific Programmed Weekly Follow-up Cross Audits Defensive Driving Facility Readiness Certification CAPEX RM xx M LEARNING & GROWTH PERSPECTIVE STRATEGIC JOB & SYSTEMS Skills Info. System Develop the Necessary Skills Information Systems Availability Strategic Awareness R&D & Development ALC, Procurement, Financial Alignment Training and Skill Build-up Set-up, Test and Validation Communication Programmed

11 Balanced Scorecard Strategy Map

12 Department Level Scorecard Example

13 Scorecard Potential Pitfalls & Criticisms

14 Scorecard Potential Pitfalls & Criticisms Lack of a well Defined Strategy The balanced scorecard relies on a well defined strategy and understanding of linkages between strategic objections and metrics. Without this foundation the implementation could fail. Too much focus on the lagging measures Focusing on only the lagging measures may cause a lack of priority or opportunity for the leading measures. Use of Generic Metrics Don t just copy metrics from another firm. Identify the measures that apply to your strategy and competitive position. Self-serving managers Managers whose goal is to achieve a desired result in order to obtain a bonus or other self reward.

15 Balanced Scorecard Benefit Re-Cap Helps align key performance measures with strategy at all levels of an organization The methodology facilitates communication and understanding of business goals and strategies at all levels of an organization Strategic initiatives that follow "best practices" methodologies that cascade through the entire organization Transforms an organization s mission statement and strategic plan from a passive document into the "marching orders" for the organization on a daily basis. It enables executives to truly execute their strategies by identifying what should be done and measured. To date, some form of a Balanced Scorecard is used by nearly 60% of Fortune 500 companies

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