Balanced Scorecard 5

8/3/2019 Balanced Scorecard 5

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Balanced Scorecard


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An operations strategy cannot be successful

without proper co-ordination with other

functional departments of the organization. There may be contradicting objectives

between the various functional strategies in

certain situations.


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The task of developing a comprehensive

strategy for a firm that integrates the finance,

marketing and operations function is complex Kaplan and Norton have developed a generic

strategy map template that they use in

consulting work. The template is a starting point for the

strategy design process


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When properly constructed, the strategy map

will portray an integrated and logical

description of how the strategy will beaccomplished


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Financial Perspective

Whether companies use return on investment,

return on capital employed or some othervalue based metric as the high level financial

objective, they have two basic strategies for

driving financial performance: growth andproductivity


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The growth strategy focuses on developing

new sources of revenue or profitability

It generally has two components:

Build the franchise

Increase customer value


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The productivity strategy features the

execution of operational activities in support

of existing customers They focus on cost reduction and efficiency

It has two components:

Improve cost structure

Improve asset utilization


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The productivity strategy yields results

quicker than the growth strategies.

Kaplan and Norton suggest a balancedapproach to ensure that cost and asset

reductions do not compromise a companys

growth opportunities


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Customer Perspective Customer perspective is the heart of the

corporate strategy design process and defines

how growth will be achieved There are three ways in which a company can

differentiate itself in the marketplace

Product leadership Customer intimacy

Operational excellence


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Internal Perspective This perspective defines the business

processes and the specific activities that the

organization must master to support thecustomer value proposition

The essence of strategy is in the activities-

choosing to perform activities differently or toperform different activities than rivals


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There are four sets of business processes

Product leadership

Customer intimacy

Operational excellence

Regulatory and environmental excellence


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Learning and Growth Perspective This defines the intangible assets needed to

enable activities and customer relationships to

be performed at high levels of performance There are three principal categories:

Strategic competencies

Strategic technologies Climate for action


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Learning and growth strategies are important

for long term development of the firm

It is vitally important that a firm align humanresources, information technology, corporate

climate and research activities with

requirements from the strategic businessprocesses and customer differentiation

strategy


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Kaplan and Norton have developed their

concept of the Balanced Scorecard to tell

how well an integrated strategy is beingexecuted.


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The Balanced Scorecard was introduced by

Robert S. Kaplan and David P. Norton in

1992 Emerged from the study Measuring

Performance in the Organization of the

Future conducted in the early 1990s. Most performance measures rely heavily on

financial accounting measures


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The study was motivated by the belief that

these performance measurements were getting

obsolete. Kaplan and Norton developed a framework

for integration and performance measurement

which included strategic, operational andfinancial measures


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According to Kaplan and Norton, financial

measures tell the story of past events, an

adequate story for industrial age companiesfor which investments in long-term

capabilities and customer relationships were

not critical for success. ..(contd)


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These financial measures are

inadequate, however, for guiding and

evaluating the journey that information agecompanies must make to create future value

through investment in customers, suppliers,

employees, processes, technology, and

innovation.


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The balanced scorecard is a concept formeasuring whether the activities ofa companyare meeting its objectives in terms of visionand

strategy.

It focuses not only on financial outcomes but alsoon the human issues

The balanced scorecard helps to provide a morecomprehensive view ofabusiness which in turnhelps organizations to act in their best long-terminterests.


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The strategic management system helps

managers focus on performance metrics while

balancing financial objectives with customer,process and employee perspectives.

Measures are often indicators of future

performance.


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The balanced scorecard is a management

system (not only a measurement system)

It enables organizations to clarify their visionand strategy and to translate them into action.


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It provides feedback around both the internal

business processes and external outcomes in

order to continuously improve strategicperformance and results.

When fully deployed, the balanced scorecard

transforms strategic planning from anacademic exercise into the nerve center of an

enterprise


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Balanced Scorecard is simply a concise report

featuring a set of measures that relate to the

performance of an organization. By associating each measure with one or

more expected values (targets), managers of

the organization can be alerted whenorganizational performance is failing to meet

their expectations.


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The BSC enables an organization to translate

the companys vision and strategy into

implementation working from fourperspectives

Customer perspective

Internal business process perspective Learning and growth perspective

Financial perspective


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The balanced scorecard provides answers tofour basic questions

How do customers see us (customerperspective)

What must we excel in (internal perspective)

Can we continue to improve and create value

(learning and growth perspective) How do we look to shareholders (financial

perspective)


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From the financial perspective, the scorecard

helps in systematic scrutiny of key financial

criteria that the company must achieve tomaintain its standing in the corporate world


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The customer perspective aids the process of

translating strategic statements to specific

measures that really matter to the customer,such as quality and delivery time.


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The internal perspective focuses attention on

critical internal operations that are needed to

satisfy customer requirements and help inidentifying and building the necessary

competencies for competitive success.


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The learning and growth perspective

emphasizes the need to look further into the

future , thereby helping to break away from ashort term focus.


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The Customer Perspective


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Recent management philosophy has shown an

increasing realization of the importance of customer

focus and customer satisfaction in any business.

These are leading indicators: if customers are not

satisfied, they will eventually find other suppliers

that will meet their needs.

Poor performance from this perspective is thus aleading indicator of future decline, even though the

current financial picture may look good.


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In developing metrics for satisfaction,

customers should be analyzed in terms of

kinds of customers and the kinds of processesfor which we are providing a product or

service to those customer groups.


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Internal Business Perspective


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This perspective refers to internal businessprocesses.

Metrics based on this perspective allow themanagers to know how well their business isrunning, and whether its products and servicesconform to customer requirements (the mission).

These metrics have to be carefully designed by those

who know these processes most intimately; with ourunique missions these are not something that can bedeveloped by outside consultants.


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In addition to the strategic management process, twokinds of business processes may be identified: a)mission-oriented processes, and b) support

processes. Mission-oriented processes are the special functions

of government offices, and many unique problemsare encountered in these processes.

The support processes are more repetitive in nature,and hence easier to measure and benchmark usinggeneric metrics.


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Learning and Growth Perspective


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This perspective includes employee training and

corporate cultural attitudes related to both individual

and corporate self-improvement.

In a knowledge-worker organization,people -- the

only repository of knowledge -- are the main

resource.

In the current climate of rapid technological change,it is becoming necessary for knowledge workers to

be in a continuous learning mode.


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Government agencies often find themselves unableto hire new technical workers, and at the same timethere is a decline in training of existing employees.

This is a leading indicator of 'brain drain' that mustbe reversed.

Metrics can be put into place to guide managers infocusing training funds where they can help themost.

In any case, learning and growth constitute theessential foundation for success of any knowledge-worker organization.


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Kaplan and Norton emphasize that 'learning' is morethan 'training'; it also includes things like mentorsand tutors within the organization, as well as that

ease of communication among workers that allowsthem to readily get help on a problem when it isneeded.

It also includes technological tools; what the

Baldrige criteria call "high performance worksystems." One of these, the Intranet, will beexamined in detail later in this document.


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Financial Perspective


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Kaplan and Norton do not disregard the

traditional need for financial data.

Timely and accurate funding data will alwaysbe a priority, and managers will do whatever

necessary to provide it.

In fact, often there is more than enoughhandling and processing of financial data.


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With the implementation of a corporatedatabase, it is hoped that more of the

processing can be centralized and automated. But the point is that the current emphasis on

financials leads to the "unbalanced" situationwith regard to other perspectives.

There is perhaps a need to include additionalfinancial-related data, such as risk assessmentand cost-benefit data, in this category.


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Balanced Scorecard 5

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