Balance Score Card: Perspectives Measures, Focus Targets and Initiatives Aligning

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What is the Balanced Scorecard?
Note: We request to please review the case study as guided for better
comprehension regards to BSC and HR Scorecard linkage of Measures,
targets & initiatives discussed during sessions!
The balanced scorecard is:
1. a measurement system that provides a comprehensive framework that
translates a companys strategic objectives into a coherent set of
performance measures
2. a management systems that can motivate breakthrough
improvements.
A balanced scorecard is both a general measurement system to incorporate
non-financial measures with traditional financial ones, as well as a central
management system to motivate breakthrough competitive performance in
implementing a companys strategic vision. It is a process of developing
interrelated measures, some leading and some lagging, that uniquely depicts
a firms strategy in attempting to create competitive advantage.
It is the translation of a business strategy into a linked set of measures that
define both the long-term strategic objectives, as well as the mechanisms for
achieving and obtaining feedback on those objectives. A balanced
scorecard:
1. Focuses managers attention on a handful of measures that are critical
for the firms success.
2. Is a way to clarify, simply, and then operationalize the mission and
vision of the organization.

Performance Measurements for Success

The scorecard functions as the cornerstone of a companys current and
future success. Traditional financial measures ROI, net profit, sales growth,
and market share fail to capture the true picture of a firms value
propositions because they focus on the past. They tell the story of what has
happened to the organization. They explain the results of past transactions
and disregard what the future benefits could be. Traditional financial
measures are only part of the information that managers need to successfully
guide their organizations through highly competitive marketplaces.

Get Balanced. Four Critical Areas

During the 1990s, two Harvard professors and consultants Kaplan and
Norton, devised a tool, the Balanced Scorecard, to rectify the deficiencies in
relying primarily on traditional financial measures. A Balanced Scorecard
allows better measurement of a firms capabilities to create long-term value
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by identifying the key drivers of this value. The drivers are then translated into
four categories of measures- financial, customer, internal business processes,
innovation and learning. The financial measures are typically focused on
short-term results; while the other three categories are coupled to future
oriented activities needed to successfully sustain the enterprise. The
information from the four perspectives provides balance between external
measures like operating income and internal measures like new product
development. It provides a balanced picture of current operating
performance as well as the drivers of future performance.

Measure Areas that Lead

Obviously financial health is critical for any business organization- cash in the
bank is necessary to pay the bills. However, many managers become
nearsighted as a result of this requirement and believe that by making
fundamental improvements in their operations, the financial numbers will
resolve themselves. This is an utter fallacy. For example, if a firm has a goal of
increasing net profit from 10% to 13% for the current fiscal year, there are a
number of interrelated factors that must be in place to succeed.
Possibly customer satisfaction must be enhanced to increase the number of
customers or increase the loyalty of existing customers. May be the
product/services defect level must be decreased to boost customer
satisfaction? So if the manager waits until the end of the fiscal year to
determine if he/she was successful, there will be a history lesson on the
events of the past period. However, if the defect rate is currently monitored
or customer returns observed, the manager can make mid-course
corrections to the firms strategy in order to accomplish the goal of increasing
net profit. In other words, the manager should develop and monitor measures
of drivers of that net profit goal.

The Balanced Scorecard at a Glance
Managers should develop financial and non-financial measures that are
specifically tied to their firms unique strategy. There is not a one size fits all
Balanced Scorecard. The Balanced Scorecard provides executives with a
comprehensive framework that can translate a companys vision and
strategy into a coherent and linked set of performance measures. The
measures should include both outcome measures and the performance
drivers of those outcomes.
Rather than using the Balanced Scorecard as a traditional control and
performance measurement system, it is being used as a measurement and
management system to implement a companys strategic vision. It is being
used to articulate and communicate the strategy of the business; to help
align individual, organizational, and cross-departmental initiatives to achieve
a common goal; and as a communication, information, and learning system.
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Thus, the measures must provide a clear representation of the organizations
long-term strategy for competitive success.


Generic Strategic Measures for the Four Perspectives
The Balanced Scorecard should be viewed as the instrumentation for a single
strategy. Strategic measures are those that define a strategy designed for
competitive excellence. Properly constructed scorecards contain a unity of
purpose since all the measures are directed toward achieving an integrated
strategy.
I) Financial Perspective How do we look to investors?
The financial performance measure will vary based upon the long-run
objective and strategy of a business in the growth, sustain, or harvest stage. In
general companies use the following three categories to achieve their
business strategy:
Revenue growth and mix
Cost reduction/ Productivity improvement
Asset utilization/ Investment strategy
Measures that indicate whether the companys strategy, implementation,
and execution are contributing to bottom line improvement are the
following:
Cash flow
Sales growth
Market share
ROE
ROCE return on capital employed
Economic value added
II) Customer Perspective How do customers see us?
In customer perspective, the company measures the business performance in
targeted segments. In general, customer concerns can be grouped into the
following four categories.
1. Time-measures time required for company to meet customers needs.
2. Quality-defect level as sent to customers.
3. Performance-how companys products/services contribute to creating
value for its customers.
4. Cost-not just price of goods/services, but what does it cost the
customer when he finally uses it.
Measures are customized to the targeted customer groups from which the
business expects growth and profitability. The following are customer
measures:
Market share
Account share the account share of those customers business
Customer retention retaining existing customers, customer loyalty,
percentage of growth due to existing customers
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New customer acquisition number of new customers, total sales to
new customers, number of customer responses to solicitations and the
conversion rate, solicitation cost per new customer acquired
Customer satisfaction provides feedback on how well the company is
doing. It customers complete buying experience. It includes
uniqueness, functionality, quality, price, time
Customer profitability measures not only the extent of business they
do with the customers, but the profitability of the business in the
targeted customer segment. This financial measure can help keep
customer-focused organizations from becoming customer-obsessed.

III) Internal Business Perspective What must be excelled at?
The internal business process perspective identifies the most critical internal
processes for the organizations strategy to succeed. The internal perspective
examines the following process categories:
Innovation Cycle
Identify the market
Create the service offering
Operations Cycle
Build the services
Deliver the services
Post-sale Service Cycle
Service the customer
Measures should be focused on
Business processes that have the greatest impact on customer
satisfaction, such as factors that affect process cycle time, process
quality, employee skills, and productivity.
Business processes that achieve the organizations financial objective.
Core competencies and processes that are needed to maintain
market leadership.

IV) Learning and growth perspective Can we continue to improve and
create value?
The learning and growth perspective identifies the infra-structure that the
organization must build to create long-term growth and improvement. Ability
to innovate, improves, and learns ties directly to companys value.
Organizational learning and growth can be categorized into three main
areas:
People
Systems
Organizational procedures
In order to achieve business objectives, companies most like will have to
invest in re-skilling employees, enhancing information technology and
systems, and aligning organizational procedures and routines.

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The following are measures for people, systems and organizational
procedures:

People
Employee satisfaction
Employee retention
Employee training
Employee skills

Systems
Real-time availability of accurate customer and internal process
information to front-line employees
Ability to launch new products
Ability to create more value for customers
Ability to penetrate new markets

Organizational procedures
Alignment of employee incentives with overall organizational success
factors
Rates of improvement in critical customer-based and internal
processes
Examples of Measures Building a Health Care Strategic Balanced Scorecard
Framework (Kaplan & Norton conference promotion materials)
Financial
Patient revenue
Funding and contributions
Cost management
Customer
Patients
Referring physicians
Payers
Community
Academics
Internal Processes
Planning
Innovation
Relationship management
Care delivery
Operations efficiency
Learning & Personal Development
Recruiting, training, retaining
Cultural values
Tools, knowledge, information
Balance Score Card: Perspectives Measures, Focus Targets and Initiatives Aligning
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Balance Score Card: Perspectives Measures, Focus Targets and Initiatives Aligning
to HR Score Card

HR Edge Training and Management Services |www.hredge.in

Relationship between Measures and Performance Drivers

A Balanced Scorecard should have a mix of outcome measures and
performance drivers. Outcome measures without performance drivers do not
communicate how the outcomes are to be achieved. Conversely,
performance drivers without outcome measures may fail to reveal whether
the improvement has resulted in expanded business and enhanced financial
performance.

The chain of cause and effect should pervade all four perspectives of a
Balanced Scorecard. Additionally, all aspects of the measures on a
Scorecard should be linked to specific targets for improving customer, and
eventually, financial performance. For example, the return on capital
employed (ROCE) may be a outcome measure in the financial perspective.
The driver of this could be repeat and expanded sales from existing
customers due to on-time delivery (OTD). Thus, customer loyalty and OTD are
listed under the customer perspective. To achieve OTD, the company may
need to achieve short cycle time in operating processes and high-quality
internal processes. Thus both factors are listed under internal perspective. In
order for processes to improve, employees skills will need to improve, which is
thus listed under learning and growth perspective. For another example: refer
to Exhibit 8 National Insurance: Lag and Lead Indicators (Kaplan and
Norton, Linking the Balanced Scorecard to Strategy, 1996)
You should be able to look at your measures and infer the business strategy
the company is intending to use to get to breakthrough performance. What
are you doing thats unique? Your measures should address which customers
youre going after; which market segments are you attacking; what you
have to do exceptionally well to get penetration and share into those
markets and those segments; and what kind of new product developments
do you need to deliver to achieve long-term value for your customers and
shareholders. You should feel really upset if a competitor gets hold of your
scorecard.
It is important to build a scorecard that accurately reflects the business
strategy. The scorecard: Describes the vision of the future for the entire
organization. It creates shared understanding. It focuses change efforts. It
permits organized learning at the executive level.