Balanced Scorecard & Its Applications. 2 The Balanced Scorecard: Great Idea by 2002 Balanced...
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Balanced Scorecard & Its
Applications
2
The Balanced Scorecard: Great Idea by 2002
Balanced Scorecard21 languages
17 languages
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BSC Hall of Frame: Success Story One Bob McCool became head of Mobil NAM&R in
1992 when the past performance was not acceptable. Mobil launched its Balanced Scorecard project in 1994.
From 1994 to 1998. The productivity strategy created a 20-percent reduction in the cost of refining, marketing, and delivering a gallon of gasoline.
The growth strategy, with its new value proposition for targeted segments, produced increased customer satisfaction led to increased revenue that exceeded industry averages by more than 2 percent per year. Kaplan and Norton, 2001
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BSC Hall of Frame: Success Story Two Chrysler Group, the US automobile
division of DaimlerChrysler, which faced a forecast loss of $5.1 billion in 2001.
The division brought in a new CEO, who used the BSC to communicate a turnaround strategy.
Despite continued weakness in the US automobile market, Chrysler generated $1.9 billion in profits in 2004.
Kaplan and Norton, 2006
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Balanced Scorecard (BSC) Initiated by Robert S. Kaplan, a Professor at
HBS and David P. Norton, President of Balanced Scorecard Collaborative/Palladium.
They did research by belief that existing performance measurement approaches, primarily relying on financial accounting measures, were becoming obsolete.
Research finding Balanced
Scorecard—Strategic Measures That Drive Performance
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BSC: Strategic Measuring BSC: Strategic Measuring for Performancefor Performance Four Management Functions :
Planning, Organizing, Leading, Controlling
If you can’t measure, you can’t managed If you can’t measure, you can’t improved What gets measure, gets done
Measurement is core of the Balanced Scorecard
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The Balanced Scorecard expands the set of business unit objective beyond summary financial measures.
A set of cause-and-effect performance measures linkage among four distinct perspectives—finance, customer, internal business process, and learning & growth—used to translate strategy into desired results.
The main focus of initial Balanced Scorecard is as an innovative strategic measurement tool, delivering strategy by emphasising control and communication.
Balanced Scorecard has been evolving from a measurement system to a comprehensive strategy management system.
Balanced Scorecard (BSC)
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Financial Perspective
• Objectives• Key Performance Indicators• Targets• Initiatives
STRAEGY
Learning & Growth Perspective• Objectives• Key Performance Indicators• Targets• Initiatives
CustomerPerspective
• Objectives• Key Performance Indicators• Targets• Initiatives
Internal Process Perspective• Objectives• Key Performance Indicators• Targets• Initiatives
Balance Scorecard Perspectives
Kaplan and Norton, 1996
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Four Perspectives of BSC Financial: What are our shareholders
expectations for financial performance? Customer: To each our financial objective,
how create value for our customers? Internal Process: What processes must
we excel at to satisfy our customers and shareholders?
Learning & Growth: How do we align out intangible assets—people, systems, and culture—to improve the critical processes?
Kaplan and Norton, 2006
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What is Financial Strategy? [to satisfy shareholders]Productivity strategy
Improve cost structure/yields Increase asset utilization
Growth strategy Expand revenue opportunities Enhance customer Value
How to reach the financial goals?
Financial Perspective
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Performance Measures in Financial Perspective Return on
investment Economic value
added Sales growth rate
by segment Percentage revenue
from new product, service, or customer
Share targeted customer an account
Cross-selling
Cross-selling Customer and
product line profitability
Revenue/employee Cost reduction rate Unit cost Payback Return on Capital
Employed Working capital
ratios (cash-to-cash cycle)
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Information about market & customer
Customer selection, acquisition, retention & growth
Who are profitable customers? — Target Segmentations
What do they need? [same as the thing we serve them]— Customer Values Propositions (e.g. QSC&V – quality, services, cleanliness, and value)
Customer Perspective
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Best buy or Low total cost: Affordable prices, reliable quality, quick service.
Product leadership and Innovation: The cutting edge products or industry leaders.
Customer complete solutions: Tailor made for the customer's individual needs and preferences.
Lock in or System platform: Lock in strategies exploit high switching costs / industrial standard for the customers making them stick to the organization.
Customer Value Propositions
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Performance Measures in Customer Perspective Market Share: Reflects the proportion of business in a
given market (in term of number of customer, dollar spent, or unit volume sold) that a business unit sells.
Customer Acquisition: Measures, in absolute or relative, the rate at which a business unit attracts wins new customers or business.
Customer Retention: Measures, in absolute or relative, the rate at which a business unit retains or maintains ongoing relationships with its customers.
Customer Satisfaction: Assesses the satisfaction level of customers along specific performance criteria within the value proposition.
Customer Profitability: Measures the net profit of a customer, after allowing for the unique expenses required to support customer.
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Internal Process Perspective In order to serve customers’ need and
satisfy other stakeholders, what process the organization need to be excellent.The nature of the customer value
proposition determines the kind of internal processes
How to build excellent process to serve customer and other stakeholders.
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The Internal-Business-Process Value Chain Process for delivering customer value propositions
Customer need
Customer satisfaction
Process for delivery
customer values
Customer satisfaction
Customer need
Design R&D Production
Marketing
Services
Innovation process Operations process Customer process
Kaplan and Norton, 1996
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~HRM~ ~Procurement ~ ~Finance & Accounting~ ~MIS~
Supply ChainA continuous business process from suppliers to customers
Inboun
d Logisti
cs
Operation
Outbound
Logistics
Marketing & Sales
Services
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Internal Process Perspective Production Management
Processes Customer Management Processes Innovation Processes Regulatory & Social processes
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Operations management processesDeveloping and sustaining
supplier relationshipsProducing products and
servicesDistributing and delivering
products and services to customers
Managing risks
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Customer management processesCustomer selectionCustomer acquisitionCustomer retentionCustomer growth
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Innovation processes Identifying opportunities for new
products and services Managing the research and
development portfolio Design and developing the new
products and services Delivering the new products and
services into the market
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Regulatory & social processes Environment: Issues such as energy
and resource consumption, and emissions into the air, water and soil
Safety and health: Safety hazards to employees
Employment practices: Diversity of employees
Community investment: Community-based organizations
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Internal Process PerspectiveMatching marketing strategies with internal processes Best buy corresponds to the
operations management perspective
Customer complete solutions corresponds to the customer management perspective
Product leadership and innovations corresponds to the innovations perspective
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Performance Measures in Internal Process Perspective
Quality Response time Cost Yields Waste Scrap
Rework New product
introduction Service error rate Product development
cycle Hours with customer Time to market
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Learning & Growth Perspective What competencies the organization need in
order to obtain or sustain competitiveness? Competencies’ Gap Analysis
How to fill the gap between ‘what organization what to be’ and ‘its current position’ Competencies, Employee Satisfaction and
Retention Management Information System Corporate Culture and Motivations
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Learning & Growth Perspective
Human Capital—E mployees' skills, talent, and knowledge.
Organization Capital—C ulture, le adership, employee alignment, teamwo
rk, and knowledge management Information Capital— Databases, i
nformation systems, network, and tech nology infrastructure
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Performance Measures in Learning & Growth Perspective
Employee satisfaction Employee retention/turnover rate Employee productivity Information system availability Organizational Climate Index Personal Goals Alignment Index Staff development
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Key Performance Indicators Derived from strategy Clearly defined/explicit purpose Mixed performance driver and
outcome measures Optimum number of measures (from
15 to 25 measures)
Construct Strategy Map (causal model—cause-and-effect relationships)
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Characteristics of good performance indicatorsRelevantAccurateUnderstandableTo measure things that can be
measured within certain time. Comprehensive VS The main
things
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How to set targets Stretch Target
Benchmarking Stakeholders requirement Capacity
Incremental Target Comparing with baseline/last year
Baseline Target Natural number/Normal rate
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Balance Scorecard: How is it
“balanced”? Financial VS Non-financial
measures Tangible VS Intangible assets Long-term VS Short-term Goals Internal VS External Perspective Performance Drivers VS Outcomes
Cause-and-effect relationships
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Contribution of BSC Provide information to management
and create accountability Influence behaviours Facilitate development (learn and
adapt) Achieve goal congruence and make
a system self-correcting Encourage continuous improvement
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How to use the Balanced Scorecard
Strategic Measurement Systems
Framework for Implementing Strategy
Strategic Management System
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BSC Strategic Measurement Systems
Strategy
Key Performance Indicators
Targets
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BSC Framework for Implementing Strategy
Strategy
KPIs & Targets
Initiatives & Resources
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BSC Strategic Management System
BSC & KPIsBSC & KPIs
ImplementationImplementation
Strategic Learning
Performance Performance ReportReport
QuarterlyQuarterly
YearlYearlyy
Strategic Initiatives Strategic Initiatives & Resources& Resources
StrategyStrategy
Suwit SrimaiFaculty of Technology &
Management Prince of Songkla University,
Thailande-mail : [email protected]
