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Balanced Scorecards

What is a Balanced Scorecard?

Measurement system
Communication Tool Strategic management system

Organizations Often Have A Gap Between Strategy and Action


Strategy Is a Step In a Continuum
MISSION Why we exist VALUES Whats important to us VISION What we want to be STRATEGY Our game plan

STRATEGIC OUTCOMES
Satisfied SHAREHOLDERS Delighted CUSTOMERS Efficient and Effective PROCESSES Motivated & Prepared WORKFORCE

The Balanced Scorecard Is A Bridge To Close That Gap


Strategy Is a Step In a Continuum
MISSION Why we exist VALUES Whats important to us VISION What we want to be

STRATEGY Our game plan


BALANCED SCORECARD Implementation & Focus STRATEGIC INITIATIVES What we need to do PERSONAL OBJECTIVES What I need to do

STRATEGIC OUTCOMES
Satisfied SHAREHOLDERS Delighted CUSTOMERS Efficient and Effective PROCESSES Motivated & Prepared WORKFORCE

Balanced Scorecard - Definition

At the highest level, the Balanced Scorecard is a framework that helps organizations put strategy at the center of the organization by translating strategy into operational objectives that drive both behavior and performance.

The Balanced Scorecard Provides a Four Perspective Framework to Translate Strategy Into Operational Terms
The Vision

Financial Perspective If we succeed, how will we look to our shareholders?


Profitability Growth Shareholder Value

Measurement is the language that gives clarity to vague concepts Measurement is used to communicate, not simply to control

Customer Perspective To achieve our vision, what customer needs must we serve?
Price Service Quality

Internal Perspective
To satisfy our Cycle Time customers and shareholders, at which Productivity Cost business processes must we excel?

Learning and Growth To excel in our processes, what must our organization learn?
New Skills Continuous Improvement Intellectual Assets

A Good Balanced Scorecard Strategy Map Tells the Story of Your Strategy
The Revenue Growth Strategy Improve stability by broadening the sources of revenue from current customers The Productivity Strategy Improve operating efficiency by shifting customers to more cost-effective channels of distribution
Improve Returns Broaden Revenue Mix Improve Operating Efficiency

Financial Perspective

Increase Customer Confidence in Our Financial Advice

Increase Customer Satisfaction Through Superior Execution

Customer Perspective

Internal Perspective
Understand Customer Segments Develop New Products Cross-Sell the Product Line Shift to Appropriate Channel Provide Rapid Response

Minimize Problems

Increase Employee Productivity

Learning Perspective

Develop Strategic Skills

Access to Strategic Information

Align Personal Goals

A Good Balanced Scorecard Tells the Story of Your Strategy Through A Set of Linked Cause and Effect Hypotheses
Strategic Objectives
Financial
F1 - Improve Returns F2 - Broaden Revenue Mix F3 - Reduce Cost Structure

Strategic Measurements
(Lag Indicators) Return on Investment Revenue Growth Deposit Service Cost Change (Lead Indicators) Revenue Mix

Customer

C1 - Increase Customer Satisfaction With Our Products & People C2 - Increase Satisfaction After the Sale

Share of Segment

Depth of Relation

Customer Retention

Satisfaction Survey

I1 - Understand Our Customers I2 - Create Innovative Products

New Product Revenue

Product Development Cycle

Internal

I3 - Cross-Sell Products
I4 - Shift Customers to CostEffective Channels I5 - Minimize Operational Problems I6 - Responsive Service

Cross-Sell Ratio
Channel Mix Change Service Error Rate Request Fulfillment Time

Hours with Customers

Learning

L1 - Develop Strategic Skills L2 - Provide Strategic Info L3 - Align Personal Goals

Employee Satisfaction Revenue per Employee

Strategic Job Coverage Ratio Strategic Info Availability Ratio Personal Goals Alignment (%)

Theme Example from Southwest Airlines Balanced Scorecard


Strategy Map: Diagram of the cause-and-effect relationships between strategic objectives

Strategic Theme: Operating Efficiency


Financial Profitability Lower Costs Customer Flight is on time Lowest prices Increase Revenue

Statement of what strategy must achieve and whats critical to its success

How success in achieving the strategy will be measured and tracked

The level of performance or rate of improvement needed

Key action programs required to achieve objectives

Objectives
Internal
Fast ground turnaround

Measurement

Target

Initiative

Fast ground
turnaround

On Ground Time On-Time


Departure

30 Minutes 90%

Cycle time
optimization

Learning Ground crew alignment

The Balanced Scorecard Supports a Complete Strategic Management System by Linking Long Term Strategy and Measures to More Tactical Planning & Budgeting
Longer Term (3-5 year) View
Mission Vision Themes/ Goals Objectives

Shorter Term (Annual) View


Measures
% patient care revenue growth Targets 02 xx% 03 xx% 04 xx% Initiatives Milestones Accountable Resource Alloc.

ABC Hospital System will provide excellent care in our selected specialty areas while maintaining margin and growing share

Serve the needs of patients excellently

Customer Financial

Grow revenue from patient care

1. Strengthen innovation 2. Improve customer satisfaction 3. Assure consistent high quality 4. Provide operational excellence

Meet access expectations

3rd available appointment (% met)

02 xx% 03 xx% 04 xx%

Access project

Meet monthly target

Mkg. Team

$ xxxx

Internal

Assure optimum patient mix

% patient mix

02 = 39% 03 = 40% 04 = 41%


02 xx% 03 xx% 04 xx%

Mix Margins Project

Complete by 2003

Dept. Chairs

$ xxxx

Learning

Promote ABC Culture Model

Employee Satisfaction Survey

Evaluate survey response

Deadline met

HR Committee

$ xxxx

Strategic

Tactical

Balanced Scorecard for Mobil N. American Marketing & Refining


Strategic Objectives Financially Strong
F I N A N C I A L F1 Return on Capital Employed F2 Cash Flow F3 Profitability F4 Lowest Cost F5 Profitable Growth F6 Manage risk * * * * * *

Strategic Measures
ROCE Cash Flow Net Margin Full cost per gallon delivered to customer Volume growth rate Vs. industry Risk index

Delight the Consumer Win-Win Relationship

CO UM SE TR -

C1 Continually delight the targeted consumer

* Share of segment in key markets * Mystery shopper rating

C2 Improve dealer/distributor profitability

* Dealer/distributor margin on gasoline * Dealer/distributor survey

Safe and Reliable

I1 Marketing 1. Innovative products and services 2. Dealer/distributor quality

* Non-gasoline revenue and margin per square foot * Dealer/distributor acceptance rate of new programs * Dealer/distributor quality ratings * * * * ROCE on refinery Total expenses (per gallon) Vs. competition Profitability index Yield index

Competitive Supplier

Good Neighbor
On Spec On time

I N T E R N A L

I2 Manufacturing 1. Lower manufacturing costs 2. Improve hardware and performance I3 Supply, Trading, Logistics 1. Reducing delivered cost 2. Trading organization 3. Inventory management I4 Improve health, safety, and environmental performance

Delivered cost per gallon .Vs. competitors * Trading margin * Inventory level compared to plan & to output rate
* Number of incidents * Days away from work

I5 Quality

* Quality index

Motivated and Prepared

L E & A G R R N O I W N T G H

L1 Organization Involvement L2 Core competencies and skills L3 Access to strategic information

* Employee survey * Strategic competing (?) availability * Strategic information availability

The Mobil Story (US Marketing & Refining): 1993-1998


Growth Strategy Improve quality of revenue by understanding customer needs and differentiating ourselves accordingly.
Financial Perspective

Productivity Strategy Maximize utilization of existing assets and integrate the business to reduce total delivered cost.

Return on Capital
Increased from 6% to 16%

Competitive Position
(profitability) From last (1993) to first (95, 96, 97, 98)

Volume Growth
Exceeds industry by 2-2.5% annually Customer Perspective

Reduce Cash Expenses


Down by 20%

Improve Cash Flow


From -$500 M/Yr to +$700 M/Yr

Customer Satisfaction
Continuous improvement for 3 consecutive years Product Innovation Customer Management

Internal Perspective

Speedpass Active
Increasing at rate of 1M per year

Dealer Quality
Continuous improvement for 4 consecutive years

Perfect Orders
Continuous improvement for 4 consecutive years Good Neighbor

Operational Excellence

Quality
Continuous improvement for 4 consecutive years Learning & Growth Perspective

Capacity Utilization
Annual value of lost yield reduced from $175m to $50m

Safety
Lost work incidents down from 150 to 30 per year

Environmental
Number of incidents reduced by 63%

Motivated & Prepared Workforce

Strategic Awareness
Annual employee survey shows awareness of strategy increased from 20% to 80%