Balanced Scorecard

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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 dont 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
measuresthe 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

• Cross Functional
• Links to customers and Suppliers
• Customer Segmentation
• Global Scale
• Innovation
• Knowledge Workers

New Operating Environment
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Information Age

• Total Quality Management
• JIT-Production and Distribution
• Time based Competition
• Lean Production/Lean Enterprise
• Building Customer-focused Org
• Activity Based Cost Management
• Employee Empowerment
• Reengineering

Improvement initiatives
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Capital You dont 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 place that ensure effective use of The human
capital
Organizational 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 Reporting-1992
Alignment Communication 1996
Enterprise Strategic Management-2000

• Articles in HB Review
• The BSC-Measures that
• Drive performance---1992
• Putting BSC to work-1993
• Using BSC as a Strategic
• Management System-1996

• Acceptance and Acclaim
• BSC Translated in 18 languages
• Selected by HBR as most
• Important management
• Practice in 75 years

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Financial Measures are Inadequate
For Guiding Information age Organizations
Must Create future Value
Through

• Investment in
• Customers
• Suppliers
• Employees
• Processes
• Technology
• Innovation

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A balance scorecard translate a organizations
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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Goal 2008
Objective 2013
Mission 2028
5000 Cr
12,000 Cr
50,000 Cr
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Goal 2009
Objective 2014
Mission 2029
7000 Cr
15,000 Cr
55,000 Cr
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Balance Scorecard as a Management System
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Emphasizes
Balance Scorecard
Financial and Non Financial measures must be Part
of Information System
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4 Perspectives
Financial Perspective
Customer Perspective
Internal Business Process Perspective
Learning Growth Perspective
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Mission
Vision
Strategic Goals
Balanced Scorecard
Sub-Goals
Map Sub-Goals to each quadrant of the Balanced
Score Card
MethodologyOverview
For each BSC Quadrant
- identify measurement areas - develop
measurement goals - postulate indicators -
identify data elements
Indicators
Data Elements
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A Balanced Scorecard Perspective on Performance
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4 Perspectives
Financial Perspective Evaluate the Profitability
of the Strategy
Financial Perspective
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4 Perspectives
Customer Perspective
Customer Perspective identifies Targeted
Customer and market Segments and Measures the
Organizations success in these Segments
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4 Perspectives
Internal 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 Perspectives
Internal Business Process Perspective
3 sub Processes
Innovation Process Creating Products Services
Processes To meet the demand Of Customers
Operations Process Producing
delivering Existing products that Will meet the
needs Of Customers
Postsales-Service Process Providing service
and Support to the customer After the sale of a
product or service
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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
Operating income From Productivity Gain Operati
ng Income From Growth Revenue Growth
Financial Perspective Increase Shareholder va
lue
Manage Cost And Unused Capacity Build
Strong Customer Relationship
Rs 20 Cr Rs 20.12Cr Rs 30 Cr Rs 34.20
Cr 6 6.48
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Customer Perspective


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

Reduce Delivery Time Meet Specified Delivery
dates on time delivery Improve post Sales
Services Improve Processes Improve Manufacturi
ng Capability
Reduce Setup time Automation of Orders
Re-engineer order Delivery process Re-engineer
order 92 90 Delivery
process Improve Customer Service process
30 days 30 days
Service Response Time Number of Impv. In
Business Processes of processes With
Advanced Controls
Within 4 hrs
Within 3 hrs
Organize teams from Sales Manuf Organize
RD/Mfg Teams to implement Adv. control
5 5
75 75
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Target Actual Objective
Measures Initiatives
Perform Perform
Learning and Growth Perspective

Align Employee And Organizational Goals Develop
Process Skill Empower Work Force
Employee Satisfac- tion Rating Employees
Trained in Process Quality Mgt
Workers Empowered to Manage Processes
80 88 Employees Give
top Two Ratings 90
92 80 80
Employee Participation to Build Team
Work Employees Training Programme Supervisors
as Coaches rather Decision Makers
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BSC as Strategic Management System
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1 Clarify and Translate vision Strategy 2
Communicate and link strategic objectives and
Measures 3 Plan, Set Targets and align Strategic
Initiatives 4 Enhance Strategic Feedback and
Learning
Balanced Scorecard as a Strategic Management Syst
em
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• Clarifying and
• Translating the
• Vision Strategy
• Clarifying the Vision
• Gaining Consensus

• Communicating
• Linking
• Comm and Educating
• Setting Goals
• Linking Rewards to
• Performance

• Strategic Feedback
• Learning
• Articulating the shared Vision
• Supplying Strategic Feedback
• Facilitating Strategy review
• and Learning

Balance Scorecard

• 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
• Sorting Out Differences
• Joint Accountability

Clarifying and Translating the Vision Strategy
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• Communicating and Educating
• Newsletter
• Bulletin board
• Brochure
• Videos
• Intranet
• meetings
• Setting Goals
• Linking Rewards to
• Performance
• Every one Understand
• Strategy for achievement
• Outcome Measures
• Efforts and Initiatives required

Communicating Linking

• On time Delivery
• Reduce setup time
• Buy new machines
• Improve delivery time
• Improve packing

• Communicating to
• Directors
• Executives
• Employees

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• Plan to Change
• Set target for 3-5 years
• Stretch targets
• Benchmarking
• Alignment of Targets
• Alignment of Strategic Planning
• with operational Budgets

Planning Target Setting
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• Periodic Review and Change
• Targets-achieved or not
• Past and future Review
• Information from all
• Double loop learning
• Cause and effect Relationship
• Validity and Viability
• Strategy replacement according
• to outcomes/performance drivers

Strategic Feedback Learning
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Features of Balance Score Card

• Indicate companys strategy and its link with
  perspectives
• Strategy is communicated to all
• Strategy translated into measurable targets
• Motivates Managers to achieve targets
• BSC limits the measures to only four
• Highlights effect of one perspective on another

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• Pitfalls in Implementing Balanced Score Card
• Difficult to establish Fin-Non financial Linkages
• Improvements at all levels may not be possible
• Both subjective-objective measures Consideration
• Considering Cost benefits of initiatives
• Non-financial Achievements are ignored

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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 Vision
2 Strategy not Linked to Dept Team Individual
Goals
Personal MBO Incentives
Monthly Review
Budget
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 Translating The Strategy Vision

• Goal alignments from
• top to bottom
• Education and open communication about strategy
• Compensation is linked
• To Strategy

• Feedback system used to test
• The hypothesis on which strategy
• Is based
• Team problem solving
• Strategy development is a
• Continuous Process

Strategic Feedback Learning
Balance Scorecard
Communicating And Linking
Planning 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 Perspective
Internal Business Process Perspective
Learning Growth Perspective
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Translating the strategy to operational terms
The Strategy
If we succeed, how will We look to
our Shareholders?
Financial Perspective
Measurement is the language that gives
clarity To vague concepts
To achieve our vision, How must we look to
our Customers ?
Customers Perspective
Measurement is used to communicate, Not to control
To satisfy our customers, Which processes
must We excel ?
Internal Perspective
Strategy can be described as a series of Cause
and Effect relationship
To achieve our vision, how must our
organisation team Improves?
Organizational Learning
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• Clarifying and
• Translating the
• Vision Strategy
• Clarifying the Vision
• Gaining Consensus

• Communicating
• Linking
• Comm and Educating
• Setting Goals
• Linking Rewards to
• Performance

• Strategic Feedback
• Learning
• Articulating the shared Vision
• Supplying Strategic Feedback
• Facilitating Strategy review
• and Learning

Balance Scorecard

• Planning Target Setting
• Setting Targets
• Aligning Strategic
• Initiatives
• Allocating Resources
• Establishing Milestones

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Make Strategy Everyones Job
CORP SBU
Education
Personal Goal Alignment
Balanced Pay checks
The Strategy Focused Workforce
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Make Strategy a continuous Process
Strategy
Strategic Learning Loop
60 OF Org Dont link Strategy budgets
85 of Mgt teams Spends less than 1 hr per
month On strategy issues
Balanced Scorecard
78 orgs lock Budgets to an Annual cycle
Budget
92 of orgs Do not report On lead indicators
Management Control Loop
Performance
Input
Output
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Questions