A new approach to strategic management was developed in the early 1990's by Drs.

Robert Kaplan (Harvard Business School) and David Norton. The balanced scorecard approach provides a clear prescription as to what companies should measure in order to 'balance' the financial perspective. Balanced Scorecard is the Management System that enables organization to clarify their vision and strategy and translate them into action. It provides feedback on both internal process and external outcomes in order to continuously improve strategic performance and results.
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Kaplan and Norton describe Balanced Scorecard as: Balanced

scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation.

Balanced Scorecard History

Measurement and Reporting

1992

Alignment and Communication

1996

Enterprise-wide Strategic Management

2000

Articles in Harvard Business Review:

Acceptance and Acclaim:

The Balanced Scorecard Measures that Drive Performance January - February 1992 Putting the Balanced Scorecard to Work September - October 1993 Using the Balanced Scorecard as a Strategic Management System January - February 1996 1996

The Balanced
Scorecard is translated into 18 languages

Selected by Harvard
Business Review as one of the most important management practices of the past 75 years.

2000

The Balanced Scorecard Why do it?

To achieve strategic objectives. To provide quality with fewer resources. To eliminate non-value added efforts. To align customer priorities and
expectations with the customer.

To track progress.

To evaluate process changes.

To continually improve. To increase accountability.
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The Premise Behind the Balanced Scorecard Is that Measurement Motivates Behavior
The Premise

Measurement Communicates Values, Priorities And Direction

The Conclusion

Measurement Must Be Linked To Strategy

Strategy

Balanced Scorecard

Measurement To Communicate, Not To Control

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Some Goals of the Balanced Scorecard

Provide a generic framework to translate strategy into operational terms Create a systems approach to form an integrated Strategic Management Process Provide a clear line of sight to the vision and strategy of the company Provide a tool for communicating the :
strategy, and processes and systems required for implementing the strategy

Draw a cause and effect roadmap to stakeholder value shareholder, customer, and employee.
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DESIGNING BALANCED SCORE CARD

Balanced Scorecard Six Step Development Process

Step 3 Step 1 Develop a Project Plan Draft a Strategy Map With Linkages And Themes Step 2 Build a Strategic Architecture Step 5 Select Strategic Initiatives

Step 4 Determine Measures and Targets

Step 6 Plan for implementation of the SFO

Typically 8-12 Weeks

Typical Balanced Scorecard Project Schedule

Week Step1: Develop a project plan Step 2: Build a strategic architecture 1 2 3 4 5 6 7 8 9 10 11 12

Step 3: Uncover strategic linkages and key themes

Step 4: Determine Measures and Targets

Step 5: Select Strategic Initiatives

Step 6: Plan for Implementation

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Steps 1 to 3 Are the Basis for the BSC

Steps 1 Develop a Project Plan

Step 3 Uncover Strategic Linkages and Key Themes Step 2 Build a Strategic Architecture Step 4

Step 5 Select Priority Initiatives

Step 6
Plan for SFO Implementation

Determine Measures and Targets

Work/Inputs Strategy Documents Draft themes and linkages based on Strategic Destination

Outputs:

Agree upon stretch targets

Review and refine themes

Refine and rework draft linkages

Discuss next steps

Agreed upon stretch targets Finalized theme(s) Strategy map

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STEP 4: MEASURES DEVELOPMENT

Steps 1 Define Strategic Destination Step 2 Identify Key Themes Driving the Strategy

Step 3 Build the Strategic Linkages

Step 5 Select Priority Initiatives

Step 4 Determine Measures and Targets

Step 6 Plan for SFO Implementation

Work/Inputs Refined strategy Existing measures assigned to objectives Draft measures developed

Outputs: 90% complete linkages Complete measures Measures development plan in place

Refine and validate linkages

Review draft measures

Design new measures

Begin targets discussion

Plan for measures development

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Steps 5 & 6: Initiative Prioritization and Implementation Planning

Steps 1 Define Strategic Destination Step 2 Identify Key Themes Driving the Strategy

Step 3

Step 5 Select Priority Initiatives

Build the Strategic Linkages

Step 4 Determine Measures and Targets

Step 6 Plan for SFO Implementation

Outputs: Work/Inputs: Refined linkages and measures Inventory of existing initiatives Proposed new initiatives

Review and validate linkages and measures

Review existing initiatives

Brainstorm new initiatives

Align/ rationalize initiatives to themes

Locked in on objectives and linkages Measures defined Initiatives defined Plan for initiatives review established Plan for implementation

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The Balanced Scorecard Is Based on an Understanding of the Basic Building Blocks of the Strategy
Financial Perspective
Revenue Strategy Return on Investment Productivity Strategy

1. The economic model of key levers driving financial performance

Sources of Growth

Sources of Productivity

Customer Perspective
Value Proposition
Price Quality Time Function Image Relatioship

2. The value proposition of target customers

Internal Process Perspective

Build the Brand

Make the Sale

Deliver the Product

Service Exceptionally

3. The value chain of core business processes

Learning & Growth Perspective

Staff Competencies

Technology Infrastructure

Climate for Action

4. The critical enablers of performance improvement, change and learning

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BSC TERMINOLOGY
Strategy Map: Diagram of the cause-and-effect relationships between strategic objectives

Strategic Theme: Operating Efficiency

Financial Profitability Fewer planes Customer Flight Is on time Lowest prices More customers

Statement of what strategy must achieve and whats critical to its success

How success in achieving the strategy will be measured and tracked

The level of performance or rate of improvement needed

Key action programs required to achieve objectives

Objectives
Internal Fast ground turnaround

Measurement

Target

Initiative

Fast ground
turnaround

On Ground Time On-Time

Departure

30 Minutes 90%

Cycle time
optimization

Learning Ground crew alignment

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Balanced Scorecard Example

Strategic Theme: Operating Efficiency
Financial Profitability Fewer Planes More Customers

Objectives

Measurement

Target

Initiative

Profitability More
Customers

Customer Flight Is on Time

Fewer planes Flight is on

time Lowest prices

Market Value Seat Revenue Plane Lease

Cost FAA On Time Arrival Rating Customer Ranking (Market Survey)

30% CAGR 20% CAGR 5% CAGR

#1 #1 Quality
management Customer loyalty program

Lowest Prices

Internal Fast Ground Turnaround

Fast ground
turnaround

On Ground Time 30 Minutes Cycle time On-Time 90% optimization

Departure program 70% yr. 3 90% yr. 5 100%

Learning Ground Crew Alignment

Ground crew
alignment

% Ground crew yr. 1

trained

% Ground crew
stockholders

ESOP Ground crew

training

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We Use the Scorecard to Articulate Strategic Hypotheses in Cause-effect Terms

And Realize the Vision

Financial Results

To Drive Financial Success...

Customer Benefits

Needed to Deliver Unique Sets of Benefits to Customers...

Internal Capabilities

To Build the Strategic Capabilities..

Knowledge, Skills, Systems, and Tools

Equip our People...

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BSC .GOAL BASED MEASURES DESIGNING

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Indicators of Good Balanced Scorecard

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Some of the Indicators of Good Balanced Scorecard

1. Executive Involvement:
Strategic decision makers must validate and own the strategy and related measures

2. Cause-and-Effect Relationships:

A good Balanced Scorecard will tell the story of your strategy in actionable terms.

Every objective selected should be part of a chain of cause and effect linkages that represent the strategy

3. Balance between outcome and leading measures: There should be a balance of outcome
measures and leading measures to facilitate anticipatory management

4. Financial Linkage:
Every objective can ultimately be related to financial results

5. Linkage of Initiatives and Measures: Each

initiative should be based on a gap between baseline and target.
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Scorecard Benefit Your Organization

SINGLE MANAGEMENT REPORT

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How Does the Scorecard Benefit Your Organization?

Improves management effectiveness by having a shared and actionable view of the strategy Optimizes and ensures strategic outcomes for a given set of resources

Enables employees to work in a coordinated, collaborative fashion towards organizational goals

Speeds time to value through faster more informed decision-making on time and resource allocation Accelerates the approach, and its accuracy to the strategic destination

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Review/Summary
The Balanced Scorecard is a framework that helps organizations translate strategy into operational objectives that drive both behavior and performance The Balanced Scorecard is based on the premise that measurement motivates The scorecard is broken down into four perspectives that are linked The balanced scorecard has benefits across organizations

A typical balanced scorecard project is 12 weeks, during which time we help organizations translate strategy into operational objectives, determine measures, and provide guidance on setting targets and defining strategic initiatives
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