The Balanced Scorecard: Customer Perspective, Internal Processes, Learning and Growth

PREPARED BY GROUP 4: ANDREW MOLLOY AMY MILLER MIKE ELICKER

What is the balanced scorecard?

Developed in the early 1990s by Dr. Robert Kaplan

and David Norton

"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."

What is the balanced scorecard?

The Balanced scorecard is a management system

that enables organizations to clarify their vision and strategy and translate them into action. Provides an organization with feedback of both the internal business processes and external outcomes, which allows for continuous improvement of strategic performance and results. Nerve center of an enterprise

What is the balanced scorecard?

The balanced scorecard is centered on four performance

metrics or perspectives:

Customers Internal processes Financial Learning and growth

When implemented properly, each one of these

perspectives contains four subparts consisting of

Objectives Measures Targets Initiatives

What is the balanced scorecard?

Objectives - what the strategy is to achieve in that perspective

Measures - how progress for that particular objective will be measured

Targets - refer to the target value that the company seeks to obtain for each measure Initiatives - what will be done to facilitate the reaching of the target

What is the balanced scorecard?

The term scorecard signifies quantified

performance measures and balanced signifies the system is balanced between:

Short-term and long term objectives

Financial and non-financial measures

Lagging and leading indicators

Internal and external performance perspectives

What is the balanced scorecard?

What is the balanced scorecard?

Kaplan and Norton defined a four-step process that has

been used across a wide range of organizations

Defining the measurement architecture

For example will the system be used at the strategic business unit level rather than the corporate level. These should be carefully decided upon and selected as those deemed critical in achieving breakthrough competitive performance and limited in number to 15 to 20, or 3 to 4 in each perspective to avoid information overload. These measures should be closely related to the actual performance drivers and will later be used for evaluating the progress made toward achieving the objectives

Specify strategy objectives.

Choose strategic measures

Develop an implementation plan to integrate the scorecard into management.

Customer Needs
Who is your customer?

What age, gender, group does our product appeal to? Do we provide personal services, do your products serve as advertised? Do we provide feedback calls or emails? Do we use new advertisement and how do we advertise? Do we provide help lines and how can we provide help to customers? Do we use surveys to find out how customers feel about us?

What services or products do they expect from you?

How do you listen to and learn from your customers?

How do you retain and acquire new customers?

How do you meet customers needs?

How do you measure customer satisfaction and dis-satisfaction?

Customer Concerns
There are four major categories that managers need to address when

concerning their customers.

Quality

Are there often recalls or problems with defects with our products.

Time

Do we save time by limiting defects and do we provide fast on time delivery.

Performance and service

Do we perform up to customers standards and do we provide fast and adequate services.

Cost

Do we try to minimize cost when dealing with ordering, scheduling delivery, and paying for materials in order to lower cost of our products to our consumers.

Customer Perspective
With customer perspective managers and companies have to be careful

and make sure they are setting up their balance scorecard to help customers.
Examples of things that dont concern customers are profit per

customer, revenue per customer, and improve profit per customer.

These objectives dont necessarily protean to the customer perspective

but rather the companies perspective of the customer.

Managers need to take a step back and look at how customers perceive

your company and what they want to get out of your company.

Examples of Customers Perspective

Two main questions that a company should ask itself to

protean to their customers are:

How should we appear to our customers

Do we show a promising future Do we show a strong sense of concern

What is our differentiating value proposition to our targeted customers

How are we different from our competitors What makes us better than our competitors

Perspectives of Kaplan and Norton

There are four broad categories that Kaplan and Norton base the

customer perspective around.

Best buy

Companies that supply services and products at low prices and fast service.

Product leadership and innovation

Companies that focus on customer that buy the newest and most advanced cutting edge technology.

Customer complete solutions

Companies that try to sell things like computers where customers customize them to their liking.

Lock in

Companies that will make a product then to buy accessories for that product you have to buy the same brand name because other brands out work with that product.

Successful balanced Scorecards

When using critical thinking of strategy, objectives, and

measures companies can get a feel for who their customers are and what they can offer them.
Strategy gurus, like Michael Porter stress the fact that it is

more important to accomplish more with less.

Dont try to please everyone when setting up your balanced

scorecard because you cant.

Internal Processes
Internal business process objectives address the

question of which processes are the most critical for satisfying customers and shareholders

A firm must concentrate its efforts to excel in these areas

Metrics based on this prospective allow the

managers to know how well their business is running and whether its products and services conform to customer requirements

Internal Process Examples

Cost Throughput Quality
Objective Manufacturing excellence Increase design productivity Reduce product launch delays Specific Measure Cycle time, yield Engineering efficiency Actual launch date vs. plan

Internal Processes
In addition to the strategic management process two

kinds of business processes may be identified, these include:

Mission-oriented processes - special functions of government offices which often involve many unique problems in their processes

Support processes - more repetitive in nature.

Financial Performance

The financial performance perspective of the

balanced scorecard addresses the question of how shareholders view the firm and which financial goals are desired from the shareholders perspective.
These financial goals are dependent on the

companys stage in the business life cycle.

Financial Performance: Business Life Cycle

There are three main stages to this cycle which

include:

Growth stage -goal of the company is growth

An example of a growth goal would be revenue growth.

Sustain stage - the goal of the firm is profitability

Measures in this stage may include ROE, ROCE, and EVA.

Harvest stage - the goal of the firm is cash flow and reduction in capital requirements.

Financial Performance

The table below outlines possible financial performance objectives and their metrics.

Objective Growth Profitability Cost Leadership

Specific Measure Revenue Growth Return on equity Unit Cost

Learning & Growth

How much a company

must learn, improve, and innovate to meet objectives.

Use of the scorecard:

To set objectives
To determine measures To predict outcomes

To determine initiatives
To gain the big picture

Key performance indicators include:

Illness rate/days of absence

Employee turnover Gender/racial ratios

Internal promotion %

A learning & growth example:

Objective: increase internal promotions
Measure: bigger % of in house promotions Target: +10% in 2 years

Additional classes and training

 A balanced scorecard system

provides a basis for executing good strategy well and managing change.
-Howard Rohm

Learning & growth must

focus on measurable outcomes to move the company forward.

Scorecard allows for

actionable terms derived from company strategy.

Balanced Scorecard

Makes it easier for

management to carry out strategy.

4 step process

Define measurement architecture

Specify strategic objectives Choose strategic measures

Develop implementation plan

Potential Benefits
Translation of strategy into measurable parameters

Communication of strategy
Alignment of individual goals with strategic

objectives Feedback of implementation results

Potential Disadvantages

Lack of a well defined strategy Use of only lagging measures

Use of generic metrics

Conclusion
Balanced scorecard is a performance management

system that can be used in any size organization. Allows management to measure financial and customer results, operations, and organization potential.