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The Balanced Scorecard Approach
What is a Balanced Scorecard?
The Balanced Scorecard is a strategic planning and management system used to align business activities to the vision and strategy of the organization by monitoring performance against strategic goals.
Balanced Scorecard Concept
Was first published in 1992 by Kaplan and Norton, a book followed in 1996.
Traditional performance measurement that only focus on external accounting data are obsolete.
The approach is to provide 'balance' to the financial perspective.
Why Use a Balanced Scorecard? Improve organizational performance by
measuring what matters Increase focus on strategy and results Align organization strategy with workers on a
day-to-day basis Focus on the drivers key to future performance Improve communication of the organization’s
Vision and Strategy Prioritize Projects / Initiatives
4 Original Business Perspectives
Adapted from The Balanced Scorecard by Kaplan & Norton
The Balanced Scorecard model suggests that we view the organization from 4 perspectives.
Then Develop metrics, collect data and analyze it relative to each of these perspectives
4 Business Perspectives Questions Financial
What must we do to create sustainable economic value? Internal Business Process
To satisfy our stakeholders, what must be our levels of productivity, efficiency, and quality?
Learning and Growth How does our employee performance management
system, including feedback to employees, support high performance?
Customer What do our customers require from us and how are we
doing according to those requirements?
Balanced Scorecard Measurements
Key Implementation Success Factors Obtaining executive sponsorship and
commitment Involving a broad base of leaders, managers
and employees in scorecard development Choose the right Scorecard Champion Beginning interactive (two-way) communication
first Viewing the scorecard as a long-term journey
rather than a short-term project Getting outside help if needed
Balanced Scorecard ExampleSTRATEGY MAPSTRATEGY MAP BALANCED SCORECARDBALANCED SCORECARD
MEASUREMENTMEASUREMENTPROCESS: MANUFACTURING EXCELLENCE
PROCESS: MANUFACTURING EXCELLENCE
THEME: ROCE > xx%, VOLUME = xx,xxx unitsTHEME: ROCE > xx%, VOLUME = xx,xxx units OBJECTIVES
OBJECTIVESTARGET
TARGET
ACTION PLANACTION PLAN
INITIATIVEINITIATIVE
BUDGETBUDGET
FINANCIALPERSPECTIVE
Improve Productivity
Improve Productivity
OFFER PRODUCTS & SERVCIES THAT ARE CONSISTENT, TIMELY
and LOW-COST
OFFER PRODUCTS & SERVCIES THAT ARE CONSISTENT, TIMELY
and LOW-COST
Long-Term Shareholder Value ROCE > xx%
Long-Term Shareholder Value ROCE > xx%
GrowRevenue
GrowRevenue
CUSTOMERPERSPECTIVE
•Operating Cost & Efficiency•Operating Cost & Efficiency
•Capacity Utilization•Capacity Utilization
•Capability Utilization•Capability Utilization
•Brand / Image•Brand / Image
• Cost/Unit, Efficiency• Cost/Unit, Efficiency
•% Utilization•% Utilization
• Monthly Monitoring• Monthly Monitoring
• Weekly/Monthly Monitoring• Weekly/Monthly Monitoring
• Monthly Monitoring• Monthly Monitoring
• Weekly/Monthly Monitoring• Weekly/Monthly Monitoring
•Low Cost Manufacturing•Low Cost Manufacturing
•World-Class Quality Standards•World-Class Quality Standards
•World-Class Delivery Timing•World-Class Delivery Timing
•Knowledgeable & Skilled Partner•Knowledgeable & Skilled Partner
•High Customer Satisfaction•High Customer Satisfaction
•Reinforce Brand Image•Reinforce Brand Image
• Man-hour per Unit• Man-hour per Unit
• Defect per Unit• Defect per Unit
• Sales Delivery• Sales Delivery
• Direct Pass Rate • Direct Pass Rate
• Market Feedback• Market Feedback
• Sales Volume• Sales Volume
• Weekly Monitoring• Weekly Monitoring
• Daily Monitoring• Daily Monitoring
• Daily Monitoring• Daily Monitoring
• Daily Monitoring• Daily Monitoring
• Weekly Monitoring• Weekly Monitoring
• Monthly Monitoring Prod. & Sales Mtg.• Monthly Monitoring Prod. & Sales Mtg.
LowCost
LowCost World
Class
WorldClass
ENSURE OPERATIONAL EXCELLENCE WITHINNOVATION AS WELL BEING SOCIALLY
RESPONSIBLE
ENSURE OPERATIONAL EXCELLENCE WITHINNOVATION AS WELL BEING SOCIALLY
RESPONSIBLE
INTERNALPERSPECTIVE
CustomerSatisfaction
CustomerSatisfaction Enhance
Brand
EnhanceBrand
OperationalExcellence
OperationalExcellence Process
Innovation
ProcessInnovation
Alliances withSBUs
Alliances withSBUs Socially
Responsible
Socially Responsible
•Productivity•Productivity
•Delivery •Delivery
•Continuous Improvement•Continuous Improvement
•NPI•NPI
•Safety & Health•Safety & Health
•Environment•Environment
• Cycle Time• Cycle Time
• Meet Daily Plan• WIP• Meet Daily Plan• WIP• KAIZEN• ICC• KAIZEN• ICC
• Timely Introduction• Timely Introduction
• Industrial Accident• Commuting Accident• Industrial Accident• Commuting Accident• Toxic Waste Disposal• ISO 9002• Toxic Waste Disposal• ISO 9002
• Hourly Monitoring• Hourly Monitoring
• Daily Monitoring• Daily Monitoring• Daily Monitoring• Daily Monitoring• Monthly follow-up• Specific Programmed• Monthly follow-up• Specific Programmed
• Weekly Follow-up• Weekly Follow-up
• Cross Audits• Defensive Driving• Cross Audits• Defensive Driving• Facility Readiness• Certification• Facility Readiness• Certification
STRATEGIC JOB & SYSTEMSSTRATEGIC JOB & SYSTEMS
LEARNING & GROWTHPERSPECTIVE
SkillsSkills
Info. SystemInfo. System
•Develop the Necessary Skills•Develop the Necessary Skills
•Information Systems Availability •Information Systems Availability
•Strategic Awareness•Strategic Awareness
• R&D & Development• R&D & Development
• ALC, Procurement, Financial• ALC, Procurement, Financial
• Alignment• Alignment
• Training and Skill Build-up• Training and Skill Build-up• Set-up, Test and Validation• Set-up, Test and Validation• Communication Programmed• Communication Programmed
• Trial Prod.• Spare Parts Prod• Trial Prod.• Spare Parts Prod
•Warranty Cost•Warranty Cost tt
OPEXRM XX M
CAPEXRM xx M
OPEXRM XX M
CAPEXRM xx M
Balanced Scorecard Strategy Map
Department Level Scorecard Example
Scorecard Potential Pitfalls & Criticisms
Scorecard Potential Pitfalls & Criticisms Lack of a well Defined Strategy
The balanced scorecard relies on a well defined strategy and understanding of linkages between strategic objections and metrics. Without this foundation the implementation could fail.
Too much focus on the lagging measures Focusing on only the lagging measures may cause a lack of
priority or opportunity for the leading measures. Use of Generic Metrics
Don’t just copy metrics from another firm. Identify the measures that apply to your strategy and competitive position .
Self-serving managers Managers whose goal is to achieve a desired result in order to
obtain a bonus or other self reward.
Balanced Scorecard Benefit Re-Cap Helps align key performance measures with strategy at all levels of
an organization The methodology facilitates communication and understanding of
business goals and strategies at all levels of an organization Strategic initiatives that follow "best practices" methodologies that
cascade through the entire organization Transforms an organization’s mission statement and strategic plan
from a passive document into the "marching orders" for the organization on a daily basis.
It enables executives to truly execute their strategies by identifying
what should be done and measured.
To date, some form of a Balanced Scorecard is used by nearly 60% of Fortune 500 companies
Thank You for Your Time
Questions?