The Balanced Scorecard Translating Strategy Into Action

Robert S. Kaplan David P. Norton

Learning Objectives

After successfully completing this lesson, you will be able to:

1. Explain the concept of balanced scorecard

2. Explain the concept of strategic map

3. Understand the concept of alignment in an organization

4. Design a set of metric for a given company goal

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 Example STRATEGY MAP BALANCED SCORECARD

MEASUREMENT PROCESS: MANUFACTURING EXCELLENCE

THEME: ROCE > xx%, VOLUME = xx,xxx units OBJECTIVES TARGET

ACTION PLAN

INITIATIVE BUDGET

FINANCIAL

PERSPECTIVE

Improve

Productivity

OFFER PRODUCTS & SERVCIES

THAT ARE CONSISTENT, TIMELY

and LOW-COST

Long-Term Shareholder

Value ROCE > xx%

Grow

Revenue

CUSTOMER

PERSPECTIVE

•Operating Cost & Efficiency

•Capacity Utilization

•Capability Utilization

•Brand / Image

• Cost/Unit, Efficiency

•% Utilization

• Monthly Monitoring

• Weekly/Monthly

Monitoring

• Monthly Monitoring

• Weekly/Monthly

Monitoring

•Low Cost Manufacturing

•World-Class Quality

Standards

•World-Class Delivery Timing

•Knowledgeable & Skilled

Partner

•High Customer Satisfaction

•Reinforce Brand Image

• Man-hour per Unit

• Defect per Unit

• Sales Delivery

• Direct Pass Rate

• Market Feedback

• Sales Volume

• Weekly Monitoring

• Daily Monitoring

• Daily Monitoring

• Daily Monitoring

• Weekly Monitoring

• Monthly Monitoring

Prod. & Sales Mtg.

Low

Cost

World

Class

ENSURE OPERATIONAL EXCELLENCE WITH

INNOVATION AS WELL BEING SOCIALLY

RESPONSIBLE

INTERNAL

PERSPECTIVE

Customer

Satisfaction

Enhance

Brand

Operational

Excellence

Process

Innovation

Alliances with

SBUs

Socially

Responsible

•Productivity

•Delivery

•Continuous Improvement

•NPI

•Safety & Health

•Environment

• Cycle Time

• Meet Daily Plan

• WIP

• KAIZEN

• ICC

• Timely Introduction

• Industrial Accident

• Commuting Accident

• Toxic Waste Disposal

• ISO 9002

• Hourly Monitoring

• Daily Monitoring

• Daily Monitoring

• Monthly follow-up

• Specific Programmed

• Weekly Follow-up

• Cross Audits

• Defensive Driving

• Facility Readiness

• Certification

STRATEGIC JOB & SYSTEMS

LEARNING & GROWTH

PERSPECTIVE

Skills Info. System

•Develop the Necessary Skills

•Information Systems

Availability

•Strategic Awareness

• R&D & Development

• ALC, Procurement,

Financial

• Alignment

• Training and Skill

Build-up

• Set-up, Test and

Validation

• Communication

Programmed

• Trial Prod.

• Spare Parts Prod

•Warranty Cost t

OPEX

RM XX M

CAPEX

RM 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