BALANCED SCORECARD. Contents. Introduction about BSC Four perspectives Financial Customer Internal business Learning and growth Evaluation of BSC Cause and effect relationship Performance drivers. Diagnostic V/S Strategic measures Sufficiency of perspectives
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Introduction about BSC
Learning and growth
Evaluation of BSC
Cause and effect relationship
Sufficiency of perspectives
Strategic balance scorecard
Implementation of SBSC
The Balanced Scorecard Approach has been developed at the Harvard Business School by Kaplan and Norton in 1992 in an article by Robert Kaplan and David Norton entitled
"The Balanced Scorecard - Measures that Drive Performance”
Due to the shortcomings of traditional management control systems, Kaplan and Norton designed the BSC as a result of a one year research project with 12 companies.
It was developed to communicate the multiple, linked objectives that companies must achieve .
It translates mission and strategy into objectives and measures.
It considers the financial indices as well the non-financial ones in determining the corporate performance level.
It is not just a performance measurement tool but is also a performance enhancing tool.
Financial and the Non-Financial indicators
Tangible and the Intangible measures
Internal and the External aspects
Leading and the Lagging indicators.
Financial Perspective - How do we look at shareholders?
2. Customer Perspective - How should we appear to our customers?
3. Internal Business Processes Perspective - What must we excel at?
4. Learning and Growth Perspective - Can we continue to improve and create value?
Objectives: Major objectives to be achieved, for example, profitable growth.
Measures: The observable parameters that will be used to measure progress toward reaching the objective. For example, the objective of profitable growth might be measured by growth in net margin.
Targets: The specific target values for the measures. For example, 7% annual decline in manufacturing disruptions.
Initiatives: Projects or programs to be initiated in order to meet the objective.
Kaplan and Norton do not disregard the traditional need for financial data.
It indicates wheather the company strategy, implementation and execution are contributing to bottom line improvement.
Financial objectives are typically related to Profitability, Rapid sales growth, Generation of cash flows.
Growth: Increased sales volumes, acquisition of new customers, growth in revenues etc.
Sustain: Calculating the return on investment, the return on capital employed, etc.
Harvest: Payback periods and revenue volume
Managers identify the customer and market segments in which business unit will compete and measures of the business unit’s performance in these segments.
It includes various core or generic measures of the successful outcomes from a well formulated and implemented strategy
New customer acquisition
Market and account share
Common set of attributes that organizes the value proposition are
Product and services attributes
Image and reputation
This perspective show the managers how well their business is running, and whether its products and services conform to customer requirements.
Executives identify the critical internal processes in which organization must excel.
It enables the business unit to:
Deliver value proposition
Satisfy shareholders expectations of excellent financial returns.
Mission-oriented processes. Unique ; problems are encountered in these processes.
Support processes. The support processes are more repetitive in nature, and hence easier to measure and to benchmark. Generic measurement methods can be used.
Identifies the infrastructure that the organization must build to create long term growth and improvement.
Organizational learning and growth come from 3 principal sources
Return on capital employed
Return on equity
Customer satisfaction rate
Customer retention rate
Delivery performance to customers
Number of activities
Opportunity success rate
Learning and growth
It aligns everyone within an organization so that all employees understand how they support the strategy.
It provides a basis for compensation for performance.
It translates vision and strategy into action.
It communicates the objectives and measures to a business unit.
It aligns the strategic initiatives in order to attain the long-term goals.
The scorecard provides a feedback to the senior management if the strategy is working
Multiple measures should consist of a linked series of objectives and measures that should be consistent and mutually reinforcing.
It should be viewed as the instrumentation for a single strategy.
It should incorporate the complex set of cause and effect relationships among the critical variables.
Return on capital employed
Process quality process cycle time
It should identify and make explicit the sequence of hypotheses about the cause and effect relationship between outcome measures and performance drivers of those outcomes.
BSC should have a mix of outcome measures and performance drivers.
Scorecard translates the business unit’s strategy into a linked set of measures that define both long term strategic objectives and the mechanism for achieving those objectives.
It monitors whether the business remains “in control” and signal unusual events.
It defines a strategy designed for competitive excellence and future success.
Measures of BSC are chosen to direct managers and employee to those factors for which superb performance can be expected.
It is subject to extensive and intensive interaction among top and middle level managers
They should be considered a template, not a straitjacket.
No mathematical theorem exists that 4 perspective are both necessary and sufficient.
Use depend upon industry circumstances and business unit’s strategy.
Interest of shareholders through financial perspective and customer through customer perspective.
Measures for employee, suppliers and community appear on BSC when there outstanding performance lead to breakthrough performance.
These management systems often fall short in companies’ practice for two reasons.
Management systems are run on the operating level
Management systems are mostly executed separately from the traditional general management systems
the Institute for Economy and the Environment at the University of St. Gallen.
In the project, the management tool and methodology of the traditional Balanced Scorecard (Kaplan & Norton1997) have been developed further towards the „Sustainability
Balanced Scorecard“ (SBSC) integrating ecological, social as well as economic aspects.
The co-operation with six companies has made it possible to gather valuable experiences when developing and implementing a SBSC.
The SBSC-concept is based on the “traditional” Balanced Scorecard (BSC).
In SBSC fifth perspective is included in order to explicitly address stakeholders issues.
The SBSC may help to detect important strategic environmental and/or social objectives of the company, a single SBU or department and to illustrate causal relationships between qualitative “soft facts” and the financial performance.
In implementing a SBSC strategic, cultural, structural as well as methodological aspects seem to be most relevant.
Define suitable strategies within a strategic planning process. From there, strategic goals, key performance indicators as well as appropriate measures can be deduce Corporate culture should be considered .
Visions, strategies and concrete objectives are difficult to link to each other because of following reasons:
Strategies do not exist at all or are at least not explicit.
The strategies are very similar to visions
which are rather broad and not understood by employees.
Lack of support from the strategic development department.
of St. Gallen over the past decade, revealed an empirical body of evidence that sustainability strategies can be classified according to their strategic orientation (market or society) and strategic behavior (reactive or proactive)
Strategy “safe” aims at reducing and managing
Strategies of the type “credible” are tackling
issues of image and reputation.
is possible by implementing the strategy
The “innovative” strategy aims at differentiating
corporation’s products and services in
“Transformative” strategies aim at creating
new markets by shifting existing institutional frameworks.
Pantaloon Retail India Ltd said that pay per performance
had a lot of subjectivity and the focus was only on rewarding the employees if he/she met the financial targets. “The crux is to capture the health of the company holistically taking all parameters into consideration. Therefore the balanced score card factors in all considerations which go on to measure the employees performance,” said Mr Desai. He added that the Balanced score card aimed at moving into variable pay or bonuses on the basis of the company’s performance.
“The application of this tool ensures the consistency of vision and action which is the first step towards the development of a successful organization. However, it is not easy to implement this tool because it involves a lot of subjectivity.”