Balanced scorecard fundamentals
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Balanced Scorecard Fundamentals. Measuring Strategic Performance Dr. Shayne Tracy. Why Use the Balanced Scorecard?.

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Balanced Scorecard Fundamentals

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Balanced scorecard fundamentals

Balanced Scorecard Fundamentals

Measuring Strategic Performance

Dr. Shayne Tracy


Why use the balanced scorecard

Why Use the Balanced Scorecard?

  • To maintain sustainable competitive advantage in the information age, strategic business units must broaden their base of intangible assets and the means by which performance is measured and continuously improved.

  • The balanced scorecard provides a comprehensive framework for implementing strategic plans by translating an organization’s strategy into a set of key performance indicators.


Performance measures yesterday

Performance Measures Yesterday

  • Traditional measures of performance only included financial statistics based on the financial accounting model.

External

FOCUS

Non Financial

MEASURES

Internal

Financial

Historical

Future

TIMEFRAME


Performance indicators today

Performance Indicators Today

  • The balanced scorecard focuses on an integrated system of key performance indicators for critical success factors.

Non Financial

MEASURES

External

Financial

FOCUS

Internal

Historical

Future

TIMEFRAME


The balanced scorecard dimensions

The Balanced Scorecard Dimensions

Financial

Perspective

Customer

Perspective

Internal

Processes

Vision, Values

Mission, Strategy

Learning &

Growth


The financial perspective

The Financial Perspective

  • To succeed financially, what level of financial performance do our investors expect?

    Examples:

    • ROI, EVA

    • Return on capital employed (ROCE)

    • Revenue growth

    • Self-financiable growth rate

    • Cash flow return on assets

    • Market/customer/product profitability growth


The customer perspective

The Customer Perspective

  • To achieve our strategy, how must we appear to our customers?

    Examples:

    • Market share growth

    • Customer acquisition rate

    • Customer retention rate

    • Customer satisfaction scores

    • Number of new products/services

    • Product return rate

    • Defect rate

    • On-time delivery rate


Internal business processes

Internal Business Processes

  • At what business processes must we excel to satisfy our clients/customers?

    Examples:

    • Product-development cycle time

    • Order-to-delivery response time

    • Six sigma (PPM) quality rate

    • Revenue per employee

    • Cash conversion cycle time

    • New product/service introduction rate

    • New product/service breakeven time


Learning growth perspective

Learning & Growth Perspective

  • What people and systems do we need to sustain our ability to change and improve?

    Examples:

    • Employee retention/turnover rate

    • Salaries/wage index

    • Training/development hours per employee

    • Strategic competency index

    • Value-added per employee dollar

    • Sustainable growth analysis

    • Knowledge productivity rate


Economy effectiveness productivity and performance

Economy is concerned with inputs only

Effectiveness refers to the achievement of objectives

Productivity is the ratio of outputs to inputs

Performance is the quality of tasks and activities

total number of labour hours worked during the period

total number of good units of output for the period

number of good units of output per labour hour of input

Number of “0” defects per unit of output per labour hour

Economy, Effectiveness, Productivity and Performance


Balanced scorecard workflow

Balanced Scorecard Workflow

  • Strategic Plan

  • Gap Analysis

  • Implementation of Action Plans

  • Recalibration Annually


Balanced scorecard fundamentals

Balanced Scorecard Planning and Implementation Workflow

ENSURE SENIOR MANAGEMENT COMMITMENT

Identify strategic business units to be measured

Identify and prioritize BSC perspectives

Identify customers of BSC and their requirements

Articulate strategy and mission

Define critical success factors

Determine data gathering methods

Determine source of benchmark / target data

Eliminate redundant indicators

Define relevant performance indicators w/CAR

Gather benchmark and actual data

Estimate future attainable performance

Identify causes of current and future gaps

Determine current performance gap

Align incentives and compensation with BSC performance indicators

Gain constituency acceptance of conclusions

Establish performance goals and objectives

Implement initiatives

Assess progress toward goals

Revise goals, if necessary

Validate/update benchmarks

Periodic Reappraisal

Communication and consensus at each

is critical


Communication tools

Communication Tools

  • Check sheets/lists

  • Goal/Objective Action Plans

  • Project/Process Plans

  • Cause and effect diagrams

  • Histograms, Pareto diagrams

  • Control charts

  • Scatter diagrams, Bar charts


Resources

Resources

  • Frigo, Mark L., & Krumwiede, Kip R. (2000, January). "The Balanced Scorecard: A Winning Performance Measurement System," Strategic Finance. 50-54. 

  • The Society of Management Accountants of Canada. Applying the Balanced Scorecard, Strategic Management Series, Management Accounting Guideline. (1999). Mississauga, ON Canada: Author.

  • Institute of Management Accountants. Statements on Management Accounting 4DD, Tools and Techniques for Implementing Integrated Performance Management Systems. 1998. Montvale, NJ: Author.

  • Harvard Business School Press. Harvard Business Review on Measuring Corporate Performance. 1998. Boston, MA: Author.

  • Chee W. Chow, Kamal M. Haddad, & James E. Williamson. (1997, August). “Applying the Balanced Scorecard to Small Companies”, Management Accounting. 21 – 27.

  • Robert S. Kaplan, David P. Norton. 1996. The Balanced Scorecard Boston, MA: Harvard Business School Press.

  • Institute of Management Accountants. Statements on Management Accounting 4U, Developing Comprehensive Performance Indicators. 1995. Montvale, NJ: Author.


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