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ISI/MBB04/2007
The balanced scorecard is a management system (not only a measurement system). It enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. Fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise.
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A new approach to strategic management was developed in the early 1990's by Drs. Robert Kaplan (Harvard Business School) and David Norton. They named this system the 'balanced scorecard'. The balanced scorecard approach provides a clear prescription as to what companies should measure in order to 'balance' the financial perspective.
ISI/MBB04/2007
The 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.
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Presentation covers
Need for a balanced business scorecard What is a balanced scorecard How to build and implement a balanced scorecard
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Management System
Fundamentals
Projects
Initiatives
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In strategy it is important to see distant things as if they were close and to take a distanced view of close things. Miyamoto Musashi The Book of Five Rings
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Long term strategic plan Short term business plan and budgets
Measurement
Review
Performance
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Bias towards Financial Measures Initiatives not all linkable to financials, hence
Either Or
not undertaken
financial and ... external and ... outcomes and ... quantitative and ...
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Linked to vision and strategy Balances short and long term needs Builds leading and lagging indicators
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2 2.0 67.3 0.4 0.1 65.7 90.7 7.6 17.0 16.0 6.4 1386 1.060 95.3 87.3 89.3 0.0 91.0
3 2.2 67.9 0.3 (0.0) 83.4 89.6 7.2 9.0 24.0 6.7 1400 1.563 95.7 87.2 88.9 0.0 92.0
Results (Month) Q1 4 2.2 61.8 0.3 (0.0) 70.2 90.2 7.2 46.0 55.0 6.6 1417 1.560 95.4 86.5 89.3 0.0 93.0 0.9 84.2 0.3 0.0 83.7 82.9 9.9 16.0 23.0 6.5 1600 1.777 95.5 86.0 89.6 0.0 92.0
5 2.4 61.3 0.4 0.4 86.2 84.7 7.1 9.0 10.0 6.8 1300 1.892 96.1 87.8 91.5 15.0 92.0
6 3.4 63.9 0.7 0.6 91.8 88.6 7.1 9.0 5.0 7.0 1300 2.238 96.3 89.0 92.0 16.0 78.0
Q2 3.4 67.2 0.7 0.6 87.0 85.2 7.3 34.0 12.0 6.9 1400 2.238 96.0 87.6 91.0 16.0 82.0
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You can't improve what you can't measure. Metrics must be developed based on the priorities of the strategic plan, which provides the key business drivers and criteria for metrics that managers most desire to watch. Processes are then designed to collect information relevant to these metrics and reduce it to numerical form for storage, display, and analysis. Decision makers examine the outcomes of various measured processes and strategies and track the results to guide the company and provide feedback.
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The value of metrics is in their ability to provide a factual basis for defining: Strategic feedback to show the present status of the organization from many perspectives for decision makers Diagnostic feedback into various processes to guide improvements on a continuous basis Trends in performance over time as the metrics are tracked Feedback around the measurement methods themselves, and which metrics should be tracked Quantitative inputs to forecasting methods and models for decision support systems
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Conclusion: Innovation means that you must be Business organized to Assessment allow constant change. Breakthrough Planning System Change Management
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CHAIN OF CAUSATION
Our Survival is dependent upon growing the business Our business growth is largely determined by customer satisfaction Customer satisfaction is governed by quality, price and delivery Our process capability is greatly limited by variation Process variation leads to an increase in defects, costs and cycle time To eliminate variation, we must apply the right knowledge In order to apply the right knowledge, we must first acquire it To acquire new knowledge means that we must have the will to survive
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Criteria
Project Selection
Process Measures
Technology Assessment
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Finance
Show economic consequences of actions already taken Show if strategy, implementation have given results
Customer
To achieve our vision, how should we appear to our customers Measures typically can be related to:
Customer satisfaction Customer retention/business expansion with existing New customer acquisition Value delivery - to customer Market and account share in targeted segments
Core Measures
Market Share
Customer Value
Customer Retention
Perceived quality
Customer Satisfaction
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Innovation Process Basic and Applied Research % sales from new products Time to market - vs. competitors Time to develop next generation products Product Development Break even time No of times design modified
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Operations Process Standard Quality Time Cost Asset utilisation Additional Service Performance (accuracy, size, clarity) Flexibility
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Innovation Process Standard Warranty and Repair Activities Treatment of defects and returns Processing of payments QCD Additional Invoicing and Collections Dispute resolution
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To achieve our vision, how will we sustain our ability to change and improve The infrastructure that the organisation must build to create longterm growth and improvement Come from:
Measures include
Enablers
Staff Competencies Technology Infrastructure
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Climate
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Measures
Employee Satisfaction
Employee Productivity
Revenue per employee Value added per employee Output produced to employee compensation
Customer
Internal Processes
Employee Skills
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Profitability Customer Customer Loyalty Retention Satisfaction On-time delivery On-time delivery Internal Processes Process Quality Bugs Process Cycle time CMM Score Estimation Utilisation Learning and Growth Employee Skills Skill Matrix Recruitment
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CSF's
Strategic Goals Key Business Objectives
(Business Plans)
Fin. $$
Cust.
Learning
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Develop vision Establish key objectives and strategies Evaluate current measures for suitability in
reflecting the strategic intent, Critical Success Factors reflecting the four quadrants of the BBS reflecting a combination of leading and lagging indicators
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Establish next-level BBS for key functions, processes Integrate the measures
Inventory Levels Cost Per Unit Hidden Factory Activity Based Costing Cost Of Poor Quality
Customer Overall Project Savings Customer Satisfaction On Time Delivery Final Product Quality Safety Communications
Internal Business Processes Defects, Inspection Data, DPMO, Sigma Level Rolled Throughput Yield Supplier Quality Cycle Time Volume Shipped Rework Hours Employee Learning and Growth Six Sigma Tool Utilization Quality of Training Meeting Effectiveness Lessons Learned Total Trained in Six Sigma Project Schedule Versus Actual Date Number of Projects Completed Total Savings To Date
Most Balanced Scorecard metrics are based on brainstorming, however the approach of brainstorming can have limited success in establishing sound metrics that have a good balance between lagging and leading measures
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Once the strategy map for the project is determined, the team can begin brainstorming appropriate metrics for each of the objectives and, while doing so, maintain a balance in . selection between leading and lagging measures. This kind of an approach ensures that the team selects a set of metrics that are aligned with the strategy used by them on the Six Sigma Project. Metrics selected in this way not only ensure that appropriate metrics are developed but also help the team in the project planning and creates a purpose of direction for the team
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In Conclusion
The Balanced Scorecard is a management system used to focus and prioritize management energy toward achieving both short and long term organizational goals and with the ability to give early warning signals for midcourse correction
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OPS 2006
PHILIPS STRATEGY
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