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Balanced Scorecard © Rajiv D. Banker Do not reproduce without permission MBA.
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Transcript of Balanced Scorecard © Rajiv D. Banker Do not reproduce without permission MBA.
Balanced Scorecard
© Rajiv D. BankerDo not reproduce without permission MBA
11
• Only 29% of all chief financial officers are satisfied with their performance measures.
• 55% of balanced scorecard users are satisfied with their performance measures.
Balanced Scorecard: Linking Strategy to Performance
© Rajiv D. Banker
Financial Executives Research Foundation
12
Chicken Efficiency
© Rajiv D. Banker
What behavior is induced when store performance is measured as the ratio of chicken sold to chicken used?
What Makes an Outcome aGood Performance Measure • SENSITIVITY: If the outcome changes a lot
depending on the employee’s actions, then that outcome is a sensitive performance measure
• PRECISION: If factors beyond the control of the employee do not much impact the outcome, then that outcome is a precise performance measure
• CONGRUENCE: If the outcome accurately reflects relative priorities of the organization’s multiple objectives, then that outcome is a congruent performance measure.
© Rajiv D. Banker
14
Congruence SensitivityPrecision
Performance Measure for a City Police Department
© Rajiv D. Banker
The Balanced Scorecard…..
• Provides a method for the organization to systematically develop a comprehensive system of planning and control.
Kaplan and Norton, Harvard Business Review, 1992
© Rajiv D. Banker
The Balanced Scorecard
How do we look to ourowners and investors?
How do we look to our customers?
Internal Processes Perspective
How efficient and effective are the critical internal processes?
Organizational Learning Perspective
Are we able to sustain innovation and improvement?
Customer Perspective
© Rajiv D. Banker
?
Financial Perspective
Balance in the Scorecard• Balance between the four different
perspectives of the scorecard• Balance between financial and non-financial
measures• Balance between short-term and long-term
objectives
© Rajiv D. Banker
•Balance between stakeholders (Investors, Customers, Employees, Society)
Drivers of Satisfaction with Performance Measures
Our performance measures help understand levers for successful implementation of strategy
In our organization, linkages between internal processes, customer satisfactionand financial performance are made explicit
Our mission and strategy are translated into measurable objectives at the operating level
Satisfied Dissatisfied
82%
74%
46%
17%
82%
40%
© Rajiv D. Banker
The Balanced Scorecard…
• Is a performance measurement system that translates an organization’s strategy into clear objectives, measures, targets, and initiatives.
Kaplan and Norton, Harvard Business Review, 1996
© Rajiv D. Banker
Strategic Linkages
How do we look to ourowners and investors?
How do we look to our customers?
Internal Processes Perspective
How efficient and effective are the critical internal processes?
Organizational Learning Perspective
Are we able to sustain innovation and improvement?
StrategicVision
Customer Perspective
© Rajiv D. Banker
Financial Perspective
The Vertical ScorecardFinancial Perspective
Customer Perspective
Internal ProcessesPerspective
Organizational LearningPerspective© Rajiv D. Banker
Linking the Balanced Scorecard to Strategy
Customer Loyalty
On-time Delivery
Financial
Customer
Internal Processes
Organizational Learning
Return on Investment
Employee Skills
© Rajiv D. Banker
Process Quality Process Cycle Time
Lag Indicators Lead Indicators F
ina
nci
al Return on Investment
Revenue Growth
Cu
sto
mer Customer Retention
Share of Wallet
Customer Satisfaction Survey
Customer Complaints and Returns
Inte
rna
l On-time Delivery Cycle Time Yield, Variability
Lea
rnin
g
Employee Satisfaction Employee Skills
Employee Teams Employee Training
Cause and Effect Relationships
© Rajiv D. Banker
•Return on Investment
•Revenue growth
•Customer Retention
•Share of Wallet
•On-time delivery
•Employee Satisfaction
•Employee Skills
•Customer Satisfaction Survey
•Customer Complaints and Returns
•Cycle Time
•Yield, Variability
•Employee Teams
•Employee Training
24
Performance Measurement System
Data Information Knowledge Wisdom
Collect Organize Analyze Manage
“OK, I think I’ve got all the data I need.”
“Oops, looks like something bad has happened.”
© Rajiv D. Banker
Kaizen (Continuous Improvement)
Kaizen (Continuous Improvement)
• Japanese concept – not made redundant by the decline of the Japanese economy which may be due to other institutional factors!
• Focus on gradual and continuous improvement• A whole business philosophy• Importance of EVERYONE buying into the concept
and the vision
Kaizen• Great attention paid to
customer requirements and needs
•Punctuality in all aspects – delivery, supply, manufacture, etc.
Kaizen
•Efficient stock control methods help reduce costs and improve cash-flow
•Leadership seen as vital. Ability to communicate a clear vision, take people along with the vision and to think about where the company needs to be in 5, 10, 15 and 20 years time
Kaizen
•Flexible working practices and empowerment – help increase efficiency, reduce costs and improve motivation
Kaizen
•Fundamental principles – often characterised as ‘lean production’ – reducing waste, zero defects, high quality control measures at all stages