EI ToolkitDocument version 2.0, June 2004Last validated: June 2004

EITK0604

Balanced Scorecard

Approach to Design, Development and Roll Out

2

3

• Profitability• Growth • Shareholder Value

The Organization's Vision

• Price• Service• Quality

• Market Innovation• Continuous Learning• Intellectual Assets

“If we succeed, how will we look to our shareholders?”

“To achieve our vision, how must we look to our customers?”

“To satisfy our customers, what management processes must we excel at?”

“To achieve our vision, how must our organization learn and improve?”

• Cycle Time• Productivity• Cost

Financial Perspective

Customer Perspective

Internal Perspective

Organization Learning

4

Mission

/Strategy

In each perspective

MeasuresIn each perspective

Vision

Goals

Objectives

Desired state

Differentiating activities

What must be done well to implement

strategies

How strategicsuccess is measured

5

Develop key business objectives that will help you to attain your strategy.

The diagram illustrates an example of a client’s organizational objectives. In the balanced scorecard development process, the organizational objectives should provide a balance across the four dimensions of performance.

—Objectives—

1. Drive rapid revenue growth2. Manage operating costs and profitability3. Achieve profitability4. Effectively utilize assets5. Manage risk6. Improved Shareholder Value

Vision and

Strategy

1. Rapidly penetrate market segments2 Sustain significant customer growth3. Retain customers4. Achieve high customer satisfaction5. Provide extremely positive customer on-line

experience6. Achieve customer satisfaction

1. Develop provocative offers2. Build brand awareness3. Expand distribution4. Drive incremental revenues5. Offer leading high-speed Internet service6. Provide compelling internet experience7. Maintain technological leadership

1. Sustain employee satisfaction2. Maintain employee productivity3. Retain employees4. Innovate operationally5. Measure training quantities6. Measure training effectiveness7. Measure and evaluate innovations

Financial Perspective

Customer Perspective Internal Business Process Perspective

Innovation & Learning Perspective

6

The traditional balanced scorecard model translates an organization’s vision and strategy into a set of measures built around four perspectives: financial, customer, internal business processes, and innovation & learning.

• The balanced scorecard is one of several tools for performance measurement and management.

• The Kaplan and Norton model provides a more holistic approach by supplementing the traditional financial measures with three additional perspectives: customer, internal business process, innovation and learning:

Financial Perspective - Is the company creating value for its shareholders?

Customer Perspective - How is the company performing from the perspective of those who purchase the company’s products or services?

Internal Business Process - How is the company managing its internal business processes to meet its client’s expectations? Is throughput improving? Other processes include fulfillment, customer retention, and financial planning.

Innovation & Learning Perspective - Is the company improving its ability to innovate, improve, and learn?

• It incorporates both leading and lagging indicators.

• The emphasis is on balance across multiple dimensions of performance; ensuring that good performance in one area is not offset by poor performance elsewhere.

• The strategy drives the choice of performance measures. A failure to meet targets could be because the strategy is wrong

Robert S. Kaplan and David P. Norton have developed what is considered to be the standard Balanced Scorecard template

Customer Perspective

How do customers see

us?

Internal Business Process

Perspective

What must we excel at?

FinancialPerspective

How do we look to

shareholders?

Innovation & Learning

Perspective

Can we continue to improve our

employees’ skills and create value for our

clients?

Visionand

Strategy

Visionand

Strategy

Source: Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a Strategic Management System,” Harvard Business Review (January-February 1996)

7

A Balanced Scorecard...Measures the progress of an organization toward its strategic

goals by translating their vision and objectives into tactics and measures across a balanced set of perspectives

Captures the expectations of customers and measures the company’s ability to meet them

Translates Strategy, Mission and Vision into tangible measures for use by decision makers through to line workers

Is the culmination of a sophisticated data gathering and analysis process and system

Can and will drive the process of change, so it must be right!Components of the Balanced ScorecardPerspectives: Four top-down perspectives on enterprise

performance (Financial, Internal Business Process, Innovation & Learning, Customer)

Objectives: What the company needs to do to accomplish its strategy; one guideline is to have up to sixteen measurable objectives.

Metrics: Actionable and tangible measurements which support achieving objectives; this is what makes it real.

Targets: Performance level expectations set against the strategic plan. For each metric, set a goal or plan so progress against the objective can be evaluated.

What is a Balanced Scorecard?

A balanced scorecard is a strategic measurement and management system that can motivate breakthrough performance.

Source: Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a Strategic Management System,” Harvard Business Review (January-February 1996)

To satisfy our shareholders and customers, what business processes must we excel at?

Objectives Measures

Internal Business Process Perspective

TargetsTo achieve our strategy, how should we appear to our customers?

Customer Perspective

Objectives TargetsMeasures

To achieve our strategy, how will we sustain our ability to change and improve?

Innovation & Learning Perspective

Objectives TargetsMeasures

To succeed financially, how should we appear to our shareholders?

Financial Perspective

Objectives TargetsMeasures

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• % Ground crew

trained

• % Ground crew

stockholders

Objectives Measurement

• Market Value

• Seat Revenue

• Plane Lease

Cost

• FAA On Time

Arrival Rating

• Customer

Ranking (Market

Survey)

• On Ground Time

• On-Time

Departure

Strategic Theme:

Operating EfficiencyInitiative

• Cycle time

optimization

program

• ESOP

• Ground crew

training

• Quality

management

• Customer

loyalty

program

Target

• 30% CAGR

• 20% CAGR

• 5% CAGR

• #1

• #1

• 30 Minutes

• 90%

• yr. 1 70%

yr. 3 90%

yr. 5 100%

Profitability

Financial

Learning

More

Customers

Ground Crew

Alignment

Lowest

Prices

Fewer Planes

Customer

Internal

Fast Ground

Turnaround

Flight

Is on Time

• Profitability

• More

Customers

• Fewer planes

• Flight is on -

time

• Lowest prices

• Fast ground

turnaround

• Ground crew

alignment

9

Increased Productivity

Every measure on the balanced scorecard should be an element in a chain of cause and effect relationships that will achieve the strategic objectives.

An example of a cause and effect relationship can be outlined as follows:

• IF we improve Leadership Capability AND give employees the Skills and Training they need to perform their jobs, THEN we will improve Employee Satisfaction & Motivation

• Consequently, IF we improve Employee Satisfaction & Motivation, THEN Productivity will increase since Employee Satisfaction & Motivation is a driver of Productivity

• IF we increase Productivity, THEN Cost will Decrease which will ultimately result in an Increased Return on Investment

Identify Linkages and Cause & Effect Relationships

Skills and Training Leadership Capability

Employee Satisfaction& Motivation

ImprovedCycle Time

ReducedRework

Progress Towards CMM Level 2

Process Maturity/Assessment

Satisfied ClientsSatisfied End- Users/

Customers

Increase Sales Cost DecreaseIncreased Margin

Reduce IS Cost/% Sales Increased Return on Investment Meet/ Exceed Targets

Innovation and Learning Perspective

Internal Business ProcessPerspective

CustomerPerspective

Financial Perspective

SPR CapabilityTool Usage

An example of a cause and effect linkages between measures. The goal here is to ensure that all measures are consistent, coherent, and related to each other. This hypothesis can be tested upon implementation.

10

Lead the industry in the optimization of promotional claims

Promotional Affairs Managers add significant value to the effectiveness of claim statements

Promotional Affairs Managers demonstrate appropriate risk management in the optimization of promotional messages from available data

Complaints are effectively managed in both directions to maintain competitive advantage

Mean satisfaction rating

Evaluation of quality of Promotional Guides

Satisfaction rating from individuals’ input to general promotional activities

Interpretation of # complaints received/ successfully defended/business significance of outcome

Interpretation of # complaints made/ successfully concluded/business significance of outcome

Business Strategy

Business Objectives Measures and Metrics

The following inputs need to be defined in the process of developing a Balanced Scorecard.

VALUE DELIVERY AND COST MANAGEMENT

CUSTOMER SATISFACTION RATINGS FOR CAPABILITY

BEHAVIOURS AND VALUES COMPLIANCE

TCS TacticalPlans

GeneralComms

Pharmas

GeneralCommsOthers

Rat

ing

EFFICIENCY AND EFFECTIVENESS Process gains

% d

ecre

ase

P1 P2 P3 P4

- Time

- Cost

PEOPLE AND PERFORMANCE

PERFORMANCE MANAGEMENT RATINGS

PAG HE/OR MW CEx MM/PV

%

MInfo

- People with Personal Performance Targets- People with Development objectives

SUPPLY OF SKILLS TO PROJECTS

TO TIME

%

QUALITY HoC INTERVENTIONS

CORE AND ROLE SPECIFIC COMPETENCIES

RO

CFISDO

Head of CapabilityAverage of Skills Managers

Core Competencies

ST

GCSI

DO

DO

EffGC

Role Specific Competencies

Head of Capability

Average of Skills Managers

COMPLIANCE GENERALLY

No incidences ofnon-compliance

Incidences of Serious non-compliance

Core* Financial

* - major legal issuerelating to exhibition piece

SAFETY, HEALTH AND ENVIRONMENT

StaffTrained

Staff Scoring Level 3on awareness

Percentageof Capability

Staff

The above diagram is an example that shows the business strategy, objectives, measures and metrics and the final scorecard developed for a Company

Business Strategy

• Set a bold and aggressive strategy for your organization

• Use your measures to track progress towards your strategy

• Evaluate your strategy by looking at your balanced set of measures

• Measures should depict a consistent trend if the strategy is correct

Business Objectives

• Business objectives are tangible goals set to meet the corporate strategy

• Business objectives determine the key measures and metrics

• This helps to ensure that each metric selected has a valid purpose

Measures & Metrics

• All measures and metrics used to create the balanced scorecard must be tied to the objectives

• Good metrics will measure progress towards objectives

• To get a balanced set of measures you need metrics from each of the four perspectives

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Gather measures, create the balanced scorecard, and use it to make decisions. Incorporate a continuous improvement philosophy in the process.

• A successful balanced scorecard implementation will enable employees at all levels of the organization to understand what they can do to help the organization meet its strategic objectives.

• Once implemented, the balanced scorecard allows the organization to test linkages and correlations between the various measures and consequently use this information to manage the organization.

• A successful balanced scorecard implementation takes into account :

• Change management principles and issues

• Effective communication throughout the organization

• Implementing and utilizing the proper technology to gather and produce the measures

• Implications of operating in the new economy

• The balanced scorecard process also needs to incorporate the philosophy of continuous improvement. This will help ensure that measures are always correct, timely, and relevant.

• Some examples of continuous improvement process activities can include revising measures periodically, ensuring there is a timely feedback, and that there is an effective feedback mechanism in place.The final outcome of the balanced scorecard development process is a high level and

summarized view of the firm’s performance measurements. The above example of a balanced scorecard shows that balanced scorecards can be as simple as management chooses them to be