An Introduction to the

BALANCED SCORECARD

Execution of Strategy has become the Corporate Challenge of our Times!

In the majority of cases the real problem isnt bad strategyits bad execution Less than 10% of strategies effectively formulated are effectively executed
Fortune Magazine

A Gap Exists Between Mission-Vision-Strategy and Employees Everyday Actions

The Balanced Scorecard Describes How the Strategy Will Be Executed

Objectives

Understanding the basic concepts of the Balanced Scorecard Using the BSC to transform the strategic plan into a strategic map that tells the story of the strategy Providing an opportunity for top executives to compare notes with colleagues on the issues of getting started and implementing a BSC system.

What is the Balanced Scorecard?

The balanced scorecard is a management system to help a business unit focus on achieving current financial results and on creating future value through strategic activities

What is the Balanced Scorecard?

The BSC translates mission and strategy into four dimensions:

Financial Customer Internal Process Innovation and Growth

The Four Perspectives

Financial: How do we look to our shareholders? Customer: How do we become our customers most valued supplier?

The Four Perspectives

Internal Process: What processes must we excel at to achieve our financial and customer objectives? Innovation and Growth: How can we continue to improve and create value with employee capabilities, systems, and structure?

Why Use a Balanced Scorecard?

Financial results report past performance but do not adequately drive future performance No single measure is appropriate Strategic objectives must be translated into linked sets of measures so they can be communicated and implemented

What is the Balanced Scorecard?

PROFITA BLE GROWTH New Revenue Current Business Productiv ity Use of Assets The BSC Retains the traditional financial measures

Financia l Perspec tive Custom er Perspec tive Internal Perspec tive

Customer Value Proposition Best in Product/Ser vice Best Total Solution Best Total Cost The BSC links the financial measures with the drivers of future performance

Product Innovation

Customer Intimacy

Operational Excellence

Learnin g and Growth

Skills

Technology

Environmen t

The Balanced Scorecard must tell the story of the strategy

To tell the story of the strategy we begin with the process of Strategy Mapping

A Pet Food Companys Balanced Scorecard Financial Perspective

Improve returns Increase sales turnover Improve assets utilization Capture new Reduce stock levels Internal market Improve stock Process Extend product control Perspecti range Reduce lead times ve Develop new products Modify existing products Ideas from employees Feedback from customers Learning & Growth Market research Perspective

Customer Perspecti ve

Making the strategy more understandable by redrawing the balanced scorecard...

STRATEGY MAP
Improve Returns

Increase Sales Turnover

Improve Asset Utilization

Capture New Market

Reduce Stock Levels

Extend Product Range

Improve Stock Control Reduce Lead Times

Develop New Products Modify Existing Products Feedback From Customers Market Research

Ideas From Employees

Financial

Customer

Internal Processes

Build the Franchise

Increase Customer Value

Strategy Map Architecture

Achieve Operational Excellence

Be a Good Corporate Citizen

Learning and Growth

Value Creating Processes

Cause and Effect Relationships and the Balanced Scorecard

STRATEGY MAPS a chain of cause-and-effect logic that connects the desired outcomes with the drivers

Financial

Revenue Growth

WHAT?

Loyal Customers

WHAT? HOW?

Customer
Quality Product
WHAT? HOW?

Internal

Quality Production

Quality Materials

HOW? WHAT?

Learning & Growth

Skilled Workforce + Technology

HOW?

Cause and Effect Relationships and the Balanced Scorecard

A strategy is a set of hypothesis about CAUSE and EFFECT.

Financial

Revenue Growth

EFFECT

Loyal Customers

CAUSE EFFECT

Customer
Quality Product
CAUSE EFFECT

A chain of cause and effect relationships can be established as a vertical dimension through the four BSC perspectives. The BSC tells the story of the strategy

Internal

Quality Production

Quality Materials

CAUSE EFFECT

Learning & Growth

Skilled Workforce + Technology

CAUSE

Cause and Effect Relationships and the Balanced Scorecard

A strategy is a set of hypothesis about CAUSE and EFFECT.

Financial

Revenue Growth

EFFECT

Loyal Customers

CAUSE EFFECT

Customer
Quality Product

Value Proposition

Internal

Quality Production

Quality Materials

EFFECT CAUSE

Capabilities Enablers Enablers

Learning & Growth

Skilled Workforce + Technology

CAUSE

Cause and Effect Relationships and the Balanced Scorecard

A strategy is a set of hypothesis about CAUSE and EFFECT.

Financial

Revenue Growth

EFFECT

CAUSE AND EFFECT ANALOGIES:

Loyal Customers

CAUSE EFFECT

Customer
Quality Product

cause driver

effect outcome then what

Internal

Quality Production

Quality Materials

EFFECT CAUSE

if how

Learning & Growth

Skilled Workforce + Technology

CAUSE

The Balance in the Balanced Scorecard

BALANCE BETWEEN TANGIBLE and INTANGIBLE Assets FINANCIAL and NON-FINANCIAL Measures EXTERNAL and INTERNAL Constituents LAG and LEAD Indicators of Performance

FINANCIAL Measures NON-FINANCIAL Measure EXTERNAL Perspective Constituents INTERNAL Constituent Financial Customer Perspective TANGIBLE Assets INTANGIBLE Assets Financial Perspective Internal Perspective Internal Perspective LAG Indicators LEAD Indicators Customer Perspective Learning and Growth Learning and Growth of Performance of Performance Perspective Perspective

The Balance in the Balanced Scorecard

r 1 Balance between the tangible assets and intangible
assets
Financial
Revenue Growth

Loyal Customers

Customer
Quality Product

Internal

Quality Production

Quality Materials

tangible assets

Learning & Growth

Skilled Workforce + Technology

intangible assets

In order to extract value from the intangible assets, these must be transformed.

The Balance in the Balanced Scorecard

r 2 Balance between the financial measures and nonfinancial measures
Objectives Measures Targets Initiatives Revenue Growth

Financial

Financial

Loyal Customers

Customer
Quality Product

Internal

Quality Production

Quality Materials

Non-Financial

Learning & Growth

Skilled Workforce + Technology

The Balance in the Balanced Scorecard

r 3 Balance between the internal and external
constituents
Financial
Revenue Growth

Loyal Customers

Customer
Quality Product

External where we (effect) want to go

Internal

Quality Production

Quality Materials

Learning & Growth

Skilled Workforce + Technology

Internal what we (cause) have to do

The Balance in the Balanced Scorecard

r 4 Balance between lag and lead indicators of
performance
Objectives Measures Targets Initiatives Revenue Growth lag Loyal Customers lead

Financial

Customer
Quality Product

horizontal dimension of the BSC

Internal

Quality Production

Quality Materials

Learning & Growth

Skilled Workforce + Technology

vertical dimension of the BSC

Performance Measures in the BALANCED SCORECARD

Performance Measures
Objectives Financial Customer Internal Learning &Growth lag lead
measures the lead or driver to activities

measures the results of an the lag measures, can measure action after a time period intermediate processes & sales historical after the fact number of sales calls hours spent with customers predictive

can make adjustments

Aligning customer value management with BALANCED SCORECARD

Financial Results

Financial Perspective

Value Proposition
Custom er Value

Customer Perspective

Process Capabilities

Capabilities

Internal Process Perspective Learning & Growth Perspective

Enabling Infrastructure Systems/skills/asset s/IT

Enablers