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BALANCED SCORECARD
Robert S. Kaplan
Harvard Business School
1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved.
A Measurement System?
1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved.
CUSTOMER Objectives To achieve our vision, how should we appear to our customers? Measures Targets Initiatives
To satisfy our shareholders and customers, what business processes must we excel at?
Objectives
Measures
Targets
Initiatives
LEARNING AND GROWTH To achieve our vision, how will we sustain our ability to change and improve? Objectives Measures Targets Initiatives
1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved.
Customers
People
.
1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved. 4
The Four Perspectives Apply to Mission Driven As Well As Profit Driven Organizations
Profit Driven Profit Driven
What must we do to satisfy our shareholders? What do our customers expect from us? What internal processes must we excel at to satisfy our shareholder and customer? How must our people learn and develop skills to respond to these and future challenges? Financial Perspective Customer Perspective
Internal Perspective
1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved.
The Balanced Scorecard Framework Is Readily Adapted to Non-Profit and Government Organizations
The Mission
"If we succeed, how will we look to our financial donors? To achieve our vision, how must we look to our customers?
To satisfy our customers, financial donors and mission, what business processes must we excel at?" To achieve our vision, how must our people learn, communicate, and work together? The Mission, rather than the financial / shareholder objectives, drives the organizations strategy
1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved. 6
1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved.
The Revenue Growth Strategy Im prove stability by broadening the sources of revenue from current custom ers
The Productivity Strategy Improve operating efficiency by shifting custom ers to m ore costeffective channels of distribution
Financial Perspective
Customer Perspective
Internal Perspective Understand Customer Segments Dev elop New Products Cross-Sell the Product Line Shift to Appropriate Channel Provide Rapid Response
Minimize Problems
Learning Perspective
Growth
Increase revenues, not just cut costs and enhance productivity
Implement
From the 10 to the 10,000. Every employee implements the new growth strategy in their day-to-day operations
1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved. 8
85% of executive teams spend less than one hour per month discussing strategy
Todays Management Systems Were Designed to Meet The Needs of Stable Industrial Organizations That Were Changing Incrementally You Cant Manage Strategy With a System Designed for Tactics
1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved. 10
Balanced Scorecard Early Adaptors Have Executed Their Strategies Reliably and Rapidly
Mobil
(USM&R)
1993
#6 in profitability
1993
Property & Casualty
1993
Losing money
1996
Retail Bank
1993
Profits = $x
1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved.
11
The BSC Early Adaptors Have Executed Their Strategies Reliably and Rapidly
The BSC helped create focus and alignment to unlock the organizations hidden assets
1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved. 12
How can complex How can complex organizations achieve organizations achieve results like this in such results like this in such short periods of time? short periods of time?
Question: Question:
Answer: Answer:
Alignment! Alignment!
The Balanced Scorecard process allows an organization to align and focus all its resources on its strategy
BUSINESS UNITS
STRATEGY
EXECUTIVE TEAM
HUMAN RESOURCES
INFORMATION TECHNOLOGY
1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved.
14
Formulate
Strategic Feedback That Encourages Learning Executive Teams Manage Strategic Themes Testing Hypotheses, Adapting, and Learning
Communicate
STRATEGY
Navigate
Execute
1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved.
15
Every measure is part of a chain of cause and effect linkages Every measure is part of a chain of cause and effect linkages A balance exists between outcome measures and the A balance exists between outcome measures and the performance drivers or desired outcomes performance drivers or desired outcomes
1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved.
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1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved.
17
Strategic Objectives t t t t Financially Strong Delight the Consumer Win-Win Relationship Safe & Reliable
Strategic Measures Return on Capital Employed Mystery Shopper Rating Dealer / Pioneer Gross Profit Split Manufacturing Reliability Index Days Away from Work Rate Laid Down Cost vs. Best Competitive Ratable Supply t Environmental Index t Quality Index t Strategic Competency Availability t t t t t t
INTERNAL
CUST
corrections
result
L&G
1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved.
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Financial Perspective
Customer Perspective
FOLLOW-UP ACTION
Closing the loop
Internal Perspective
Understand Customer Segments Develop New Products Cross-Sell the Product Line Shift to Appropriate Channel Minimize Problems Provide Rapid Response
Learning Perspective
Strategic Objectives t t t t Financially Strong Delight the Consumer Win-Win Relationship Safe & Reliable
Strategic Measures Return on Capital Employed Mystery Shopper Rating Dealer / Pioneer Gross Profit Split Manufacturing Reliability Index Days Away from Work Rate Laid Down Cost vs. Best Competitive Ratable Supply t Environmental Index t Quality Index t Strategic Competency Availability t t t t t t
CUST
INTERNAL
results
L&G
INSIGHT HARVESTING
Testing hypotheses and capturing learning
reallocate priorities
1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved.
19
Executive Team Takes Responsibility for Managing the Strategic Cross-Functional Themes
Case Study: Telecomm
Board of Directors
CEO
Strategic
Themes
Commercial Services
Retail Services
COO
CFO
Strategic Planning
Human Resources
1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved.
20
Formulate
Strategic Feedback That Encourages Learning Executive Teams Manage Strategic Themes Testing Hypotheses, Adapting, and Learning
Communicate
STRATEGY
Navigate
Execute
1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved.
21
CEO/COO as sponsor Executive leadership team commitment Drive change Clarify and gain consensus about strategy Build a senior executive team Focus the organization: align programs and investments Integrate cross-functionally Educate and empower the organization
The dynamics of the senior executive team will determine whether the Balanced Scorecard becomes a strategic management system
1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved.
22
Middle management task force Not driven by senior executive team Only one or a few individuals involved Too long a development process (allowing the best to be the enemy of the good) Delay introduction because of missing measurements Static not dynamic process Treating the BSC as an EIS
Measurement to control; not to communicate Management dictating actions vs. employee improvisation to achieve desired outcomes For management only, not shared with all employees
1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved.
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STRATEGY
Implement a framework to align and focus the organization from top to bottom on its strategy Identify the related key change initiatives required to realize the strategy and mobilize the organization
ALIGNMENT
KNOWLEDGE BASE
INSIGHTS
PERFORMANCE PERFORMANCE
LEVERAGE
The Strategy
Teams
Balanced Scorecard
Strategic Objectives
CUST FINANCIAL
Outcomes
Strategic Measures t Return on Capital Employed t My stery Shopper Rating t Dealer / Pioneer Gros s Profit Split t Manufacturing Reliability Index t Days Away from Work Rate t Laid Down Cost vs. Best Competitive Ratable Supply t Env ironmental Index t Quality Index t Strategic Competency Availability
t Financially Strong t Delight the Consumer t Win-Win Relationship t Safe & Reliable t Competitive Supplier t Good Neighbor t Quality t Motivated & Prepared
INTERNAL
Processes
Insights
LEARNING
Create feedback processes at all levels to evaluate progress against strategy, monitor and manage issues and priorities, and measure performance and contribution to the business.
24
1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved.
L &G
1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved.
1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved.