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The Balanced Scorecard

and Strategy Map


Chapter 2

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Performance Measurement
Systems

Measurement must support the companys strategy


and operation

Must be designed so companies get better at


managing and improving the value created from
their intangible assets

Need to move from reliance on financial measures


to a mix of financial and nonfinancial measures

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Balanced Scorecard

The Balanced Scorecard (BSC) provides a system


for measuring and managing all aspects of a
companys performance
The scorecard balances traditional financial
measures of success, such as profits and return on
capital, with nonfinancial measures of the drivers
of future financial performance
The Balanced Scorecard measures organizational
performance across different perspectives

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Perspectives

Four different but linked perspectives are derived


from the organizations mission, vision and
strategy:
Financial
Customer
Process
Learning and growth

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Balanced Measurements

The BSC enables companies to:


Track financial results
Monitor how they are building the capabilities for

future growth and profitability

With customers
With their internal processes
With their employees and systems

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Strategy

A strategy accomplishes two principal functions:


Creating a competitive advantage by positioning

the company in its external environment with


resources to support customers better than its
competitors
Having a clear strategy provides clear guidance for

how internal resources should be allocated to gain


a competitive advantage in the marketplace

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Objectives

Concise statements that articulate what the


organization hopes to accomplish

Action phrases

Tell the story of the strategy through the causeand-effect relationships

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Objectives

Typical objectives found in each of the four BSC


perspectives include:
Increase revenues through expanded sales to

existing customers (Financial perspective)


Offer complete solutions to our targeted customers
(Customer perspective)
Achieve excellence in order fulfillment through
continuous improvements (Process perspective)
Align employee incentives and rewards with the
strategy (Learning and growth perspective)
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Measures

Provide specificity and reduce the ambiguity that


is inherent in word statements
Specifying exactly how an objective is measured
will give employees a clear focus for their
improvement efforts
Once the objectives have been translated into
measures, managers select targets for each
measure

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Targets

Targets establish the level of performance or rate


of improvement required for a measure
Should be set to represent excellent performance
Should, if achieved, place the company as one of

the best performers in its industry


Should create distinctive value for customers and
shareholders

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Strategy Map

Illustrates the causal relationship among the strategic


objectives across the four perspectives
Financial Perspective

Return on Investment

Customer Perspective

Customer Loyalty
On-Time Delivery

Process Perspective

Process Quality

Learning and
Growth Perspective

Employees Process Improvement Skills

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Cycle Time

Financial Perspective

The ultimate objective for profit-seeking


companies
Financial performance measures indicate whether
the companys strategy, implementation, and
execution are contributing to bottom-line
improvement
A companys financial performance can be
improved in two ways: productivity improvements
and revenue growth

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Financial Perspective

Increased productivity occurs by:


Lowering direct and indirect expenses
Utilizing their financial and physical assets more

efficiently

Companies generate revenue growth by:


Selling additional products or services to existing

customers
Selling new products, selling to new customers,
and expanding into new markets

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Customer Perspective

Identify the targeted customer segments in which


the business unit competes and the measures of the
business units performance in these targeted
segments
This perspective typically includes several
common measures of the successful outcomes
from a well-formulated and implemented strategy:

Achieve customer satisfaction and loyalty


Acquire new customers
Increase market share
Enhance customer profitability
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Customer Perspective

A strategy identifies specific segments targeted for


growth and profitability

Companies must also identify the objectives and


measures for the value proposition it offers
customers

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Customer Perspective

The value proposition is the unique mix of product


performance, price, quality, availability, ease of purchase,
service, relationship, and image offered to the targeted
customers
Defines the companys strategy
Communicates what the company expects to do for its

customers better or differently from its competitors

Value propositions used successfully by different


companies include:
Best buy or lowest total cost
Product leadership
Complete customer solutions
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Process Perspective

Means by which the organization will:


Create and deliver the value proposition for

customers
Achieve the productivity improvements for the
financial objectives

The Process perspective identifies the critical


processes in which the organization must excel to
achieve its customer, revenue growth, and
profitability objectives

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Process Perspective

Organizations perform many different processes,


which may be classified into four groupings:
Operating processes

Day-to-day processes by which companies produce


their existing products and services and deliver them
to customers

Customer management processes

Processes by which companies expand and deepen


relationships with targeted customers

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Process Perspective
Innovation processes

Processes by which companies develop new


products, processes, and services

Regulatory and social processes

Processes by which companies ensure that they


meet or exceed regulations on business practices

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Learning and Growth


Perspective

Identifies objectives that drive improvement in the


process objectives
Human Resources
Information Technology
Organization Culture and Alignment

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Learning and Growth


Perspective

Human Resources
Strategic competency availability

Employees have the appropriate mix of skills, talent,


and know-how

Information Technology
Strategic information availability

Systems and applications contribute to effective


strategy execution

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Learning and Growth


Perspective

Organization Culture and Alignment


Culture and climate

Employees have an awareness and understanding of


the shared vision, strategy, and cultural values

Goal Alignment

Employee goals and incentives are aligned with the


strategy

Knowledge sharing

Employees and teams share best practices and other


knowledge relevant to strategy execution
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BSC in Nonprofit and


Government Organizations

The BSC is especially well-suited for nonprofit


and government organizations (NPGOs)
Their success has to be measured by their
effectiveness in providing benefits to constituents
Because nonfinancial measures can assess
performance with constituents, the BSC provides
the natural performance management system for
NPGOs

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NPGOs and Strategy

Many NPGOs encountered difficulties in


developing their initial BSC, finding that they
didnt have a clear strategy
Many NPGOs place their mission objective at the
top of their scorecard and strategy map
Cannot use the standard BSC architecture where

financial objectives are the ultimate, high-level


outcomes to be achieved

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Managing with the BSC

The benefits from BSC are realized as the


organization integrates its new measurement
system into management processes that:
Communicate the strategy to all employees and

organizational units
Align employees individual objectives and
incentives to successful strategy implementation
Integrate the strategy with ongoing management
processes

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Barriers to Effective Use

Senior management is not committed

Scorecard responsibilities do not filter down

The solution is overdesigned, or the scorecard is a


one-time event

The scorecard is treated as a systems or consulting


project

2012 Pearson Prentice Hall. All rights reserved.

2012 Pearson Prentice Hall. All rights reserved.