BALANCED SCORECARD

Balanced Scorecard

BALANCED SCORECARD How would you feel about boarding the plane after the following conversation with the pilot?

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Q: I am surprised to see you operating the plane with only a single instrument. What does it measure ? A: Airspeed .I am really working on airspeed of this flight.

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Q: That is Good. Airspeed certainly seems important. But what about altitude. Would not an altimeter be helpful? A: I have worked on altitude for the last few flights and I have forgotten pretty good on it. Now I have to concentrate on proper air speed.

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Q: But I notice you dont have a fuel gauge. Would not that be useful ? A: You are right; fuel is significant, but I cannot concentrate on doing too many things at the same time. So on flight I am focusing on air speed. Once I get to be excellent at Air speed, as well as altitude, I intend to concentrate on Fuel consumption on the next set of flights.

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Q: to the participants Would you like to board this plane after having this discussion ? A: Perhaps not.

What could be the reasons?

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Navigating an organization is as complex as an Aero plane

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They also require instrumentation to guide their organizations . like pilots have to guide an aero plane

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Would you be satisfied as manager getting one dimensional Information about your organization ?

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Perhaps not, therefore

You need instrumentations/ information to navigate in this competitive world

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BSC provides managers with the instrumentations they need to Navigate future competitive success.

BALANCED SCORECARD BSC translates an organizational mission

and strategy into comprehensive set of performance measures that provides the frame work for strategic measurement and Management system

4 Balanced Perspectives
Financial Customers Internal Business Processes Learning & Growth

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Measures are balanced

Between the outcome measuresthe results from Past efforts---and the measures that drive future performance

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4 Perspectives permit a balance between

Short term and long term objectives Outcomes and performance drivers Hard objectives measures and Soft objective measures

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Competing in the Information Age

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Industrial Age Financial Control ROCE Prod Control Profitability Physical Capital

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Made Many Such Measures Obsolete

Information Age Financial Control ROCE Prod Control Profitability Physical Capital

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Required New Capabilities

Information Age

Develop Customer Relationship Introduce innovative products/services Quality products at low cost Employee development and motivation Deploy information technology

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Information Age New Operating Environment

Cross Functional Links to customers and Suppliers Customer Segmentation Global Scale Innovation Knowledge Workers

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Information Age Total Quality Management JIT-Production and Distribution Time based Competition Lean Production/Lean Enterprise Building Customer-focused Org Activity Based Cost Management Employee Empowerment Reengineering

Improvement initiatives

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Capital You dont see on the Balance Sheet

Human Capital
The collective skill, knowledge attitudes and behavoiur of the People in the Organization

Information Capital
Organizational Capital

The resources and processes in place that ensure effective use of The human capital

The values, working relationship And cultural norms at work in The organisation

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balanced scorecard

BALANCED SCORECARD History

Measurement & Reporting-1992 Articles in HB Review Acceptance and Acclaim The BSC-Measures that Drive performance---1992 Putting BSC to work-1993 Using BSC as a Strategic Management System-1996
BSC Translated in 18 languages
Selected by HBR as most Important management Practice in 75 years

Alignment & Communication 1996

Enterprise Strategic Management-2000

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Financial Measures are Inadequate

For Guiding Information age Organizations

Must Create future Value

Through

Investment in Customers Suppliers Employees Processes Technology & Innovation

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A balance scorecard translate a organizations mission and strategy into set of performance measures that provide the framework for implementing its strategy

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Strategy

Strategy specify how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its objectives

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A strategy is a set of goals and specific action plans that, if achieved, provide the desired competitive advantage

Strategic Management involves identifying and implementing these goals and action plans

BALANCED SCORECARD strategic thinking

Anticipating changes Product/service and production designed to accommodate expected changes Flexibility Ability to make quick changes Speed to market Agile manufacturing/ service Driving firm by using windshield not the rear view mirror Creative and integrative thinking

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Do we need to be clear about?

Goal Objective Mission Vision

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A goal or objective consist of a projected state of affairs which a person or a system plans or intends to achieve or bring about A personal or organizational desired endpoint in some sort of assumed development.

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Vision: Defines where the organization wants to be in future. Vision: Defines where the organization wants to be in future.

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Mission: Defines where the organization is going now, describing why this organization exists

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Targets: defines goals and objectives

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Goal 2008
5000 Cr

Objective 2013
12,000 Cr

Mission 2028
50,000 Cr

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Goal 2009
7000 Cr

Objective 2014
15,000 Cr

Mission 2029
55,000 Cr

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Balance Scorecard as a Management System

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Balance Scorecard

Emphasizes

Financial and Non Financial measures must be Part of Information System

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4 Perspectives Financial Perspective Customer Perspective Internal Business Process Perspective Learning & Growth Perspective

Mission

Clarify mission & Vision statement

Develop Strategic Goals Derive Sub-Goals

Vision

Strategic Goals

Sub-Goals

Balanced Scorecard
Financial Sub-Goals Customer Sub-Goals Internal Business Sub-Goals

Methodology Overview

Map Sub-Goals to each quadrant of the Balanced Score Card

Learning & Growth Sub-Goals

For each BSC Quadrant

- identify measurement areas - develop measurement goals - postulate indicators - identify data elements

Indicators
Trouble Reports

Module

Data Elements

A Balanced Scorecard Perspective on Performance

How do we look to shareholders?
Objective Measures Targets Initiatives

FINANCIAL

Objective Measures Targets Initiatives

How do our customers see us?

Vision and Strategy

What must we excel at?

Can we continue to improve and create value?

Objective Measures Targets Initiatives

LEARNING and GROWTH

Objective Measures Targets Initiatives

CUSTOMER

INTERNAL BUSINESS PROCESS

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4 Perspectives

Financial

Perspective

Financial Perspective Evaluate the Profitability of the Strategy

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4 Perspectives Customer Perspective

Customer Perspective identifies Targeted Customer and market Segments and Measures the Organizations success in these Segments

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Internal Business Process Perspective 4 Perspectives

This perspective focuses on internal operations that create value for customers that ,in turn, furthers the financial perspective by increasing the shareholder value

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Internal Business Process Perspective 4 Perspectives

3 sub Processes

Innovation Process Creating Products Services &Processes To meet the demand Of Customers

Operations Process Producing & delivering Existing products that Will meet the needs Of Customers

Postsales-Service Process Providing service and Support to the customer After the sale of a product or service

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4 Perspectives Learning & Growth Perspective

This perspective identifies the capabilities the organization must excel at to achieve superior internal processes that create value for Customers and shareholders

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FINANCIAL PERSPECTIVE
Target Perform Actual Perform

Objective Financial Perspective

Measures Operating income From Productivity Gain

Initiatives

Manage Cost And Unused Capacity

Rs 20 Cr

Rs 20.12Cr

Increase Shareholder value

Operating Income From Growth

Build Strong Customer Relationship

Rs 30 Cr

Rs 34.20 Cr

Revenue Growth

6%

6.48%

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Customer Perspective
Target Perform Actual Perform

Objective Customer Perspective

Measures Market Share in Communication Network Segment

Initiatives

Identify future Needs of Customers Identify new Target Customer Seg Increase Cust Focus of Sales

6%

7%

Number of New Customers Increase Customer Satisfaction Customer Satisfaction Rating

1% 90% give Top two Ratings

2% 87%Gave top two Rating

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Objective Reduce Delivery Time Target INTERNAL BUSINESS PROCESS PERSPECTIVE Measures Initiatives Perform Reduce Setup time Re-engineer order Automation of Orders Delivery process 30 days Actual Perform 30 days

Meet Specified Delivery dates on time delivery

Re-engineer order Delivery process

92%

90%

Improve post Sales Services

Service Response Time

Improve Customer Service process

Within 4 hrs

Within 3 hrs

Improve Processes

Number of Impv. In Business Processes % of processes With Advanced Controls

Organize teams from Sales & Manuf

5 75%

5 75%

Improve Manufacturing Capability

Organize R&D/Mfg Teams to implement Adv. control

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Objective

Learning and Growth Perspective Measures Initiatives

Target Perform

Actual Perform 88%

Align Employee Employee SatisfacAnd tion Rating Organizational Goals

Employee Participation to Build Team Work

80% Employees Give top Two Ratings

Develop Process Skill

% Employees Trained in Process & Quality Mgt

Employees Training Programme

90%

92%

Empower Work Force

% Workers Empowered to Manage Processes

Supervisors as Coaches rather Decision Makers

80%

80%

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BSC as Strategic Management System

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Balanced Scorecard as a Strategic Management System

1 Clarify and Translate vision & Strategy 2 Communicate and link strategic objectives and Measures 3 Plan, Set Targets and align Strategic Initiatives 4 Enhance Strategic Feedback and Learning

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Clarifying and Translating the Vision & Strategy Clarifying the Vision Gaining Consensus

Communicating & Linking Comm and Educating Setting Goals Linking Rewards to Performance

Strategic Feedback & Learning

Balance Scorecard

Articulating the shared Vision Supplying Strategic Feedback Facilitating Strategy review and Learning

Planning & Target Setting Setting Targets Aligning Strategic Initiatives Allocating Resources Establishing Milestones

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Clarifying and Translating the Vision & Strategy

Clarifying the Vision Formulation by Sr Executives Reaching Consensus Sorting Out Differences Joint Accountability

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Communicating and Educating Newsletter Bulletin board Brochure Videos Intranet meetings Setting Goals Linking Rewards to Performance Every one Understand
Strategy for achievement Outcome Measures Efforts and Initiatives required

Communicating & Linking

On time Delivery
Reduce setup time Buy new machines Improve delivery time Improve packing

Communicating to
Directors Executives Employees

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Planning & Target Setting

Plan to Change Set target for 3-5 years Stretch targets Benchmarking Alignment of Targets Alignment of Strategic Planning with operational Budgets

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Strategic Feedback & Learning

Periodic Review and Change Targets-achieved or not Past and future Review Information from all Double loop learning Cause and effect Relationship Validity and Viability Strategy replacement according to outcomes/performance drivers

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Features of Balance Score Card

Indicate companys strategy and its link with perspectives Strategy is communicated to all Strategy translated into measurable targets Motivates Managers to achieve targets BSC limits the measures to only four Highlights effect of one perspective on another

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Pitfalls in Implementing Balanced Score Card

Difficult to establish Fin-Non financial Linkages

Improvements at all levels may not be possible Both subjective-objective measures Consideration Considering Cost & benefits of initiatives Non-financial Achievements are ignored

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Barriers to effective Implementation of BSC

Vision & Strategies not actionable

Strategies not linked to departmental and Individual Goals

Strategies not linked to Long term/short term Resource Allocation Feedback that is tactical not strategic

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Barriers to effective Implementation of BSC
1 Vision & Strategy not Actionable

2 Strategy not Linked to Dept Team & Individual Goals

Strategy & Vision

Personal MBO & Incentives

Budget

Monthly Review 4 feedback that is tactically

Financial Plan & Capital Allocation

not strategic

3 Strategy not Linked to Resource Allocation

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Barrier No 1: Vision and strategy not Actionable

Cant be translated into action Cant be acted Upon Cant be understood Fragmentation & Sub optimization of efforts Lacking consensus & Clarity Different Agendas No integration Not linked coherently to overall strategy

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Barrier No 3: Strategy not Linked to Resource Allocation

Separate Processes for Long term & Short term Strategic planning Funding to unrelated priorities Poor Monthly Reviews Unfocused New Mgt Techniques Poor Integration

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Barrier No 4: Feed back not tactically strategic

Bulk of feedback is only financial measures Little time on strategy implementation & success No priority to periodic review and meetings Inadequate information Poor tactical review process

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Different Management System for Strategic Implementation
The strategy is the reference point for the entire management process The shared vision is the foundation for strategic planning

Goal alignments from top to bottom Education and open communication about strategy

Clarifying & Translating The Strategy & Vision

Feedback system used to test The hypothesis on which strategy Is based

Communicating And Linking

Compensation is linked To Strategy

Balance Scorecard

Strategic Feedback & Learning

Team problem solving

Planning & Target Setting

Stretch targets are established and accepted Strategic initiatives are clearly identified Investments are determined by strategy Annual Budgets are linked to long term planning

Strategy development is a Continuous Process

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Let Us Review

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4 Perspectives Financial Perspective Customer Perspective Internal Business Process Perspective Learning & Growth Perspective

Translating the strategy to operational terms BALANCED SCORECARD

The Strategy
Financial Perspective
If we succeed, how will We look to our Shareholders?
Measurement is the language that gives clarity To vague concepts

Customers Perspective
To achieve our vision, How must we look to our Customers ?

Measurement is used to communicate, Not to control

Internal Perspective
To satisfy our customers, Which processes must We excel ?

Strategy can be described as a series of Cause and Effect relationship

Organizational Learning
To achieve our vision, how must our organisation team Improves?

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Clarifying and Translating the Vision & Strategy Clarifying the Vision Gaining Consensus

Communicating & Linking Comm and Educating Setting Goals Linking Rewards to Performance

Strategic Feedback & Learning

Balance Scorecard

Articulating the shared Vision Supplying Strategic Feedback Facilitating Strategy review and Learning

Planning & Target Setting Setting Targets Aligning Strategic Initiatives Allocating Resources Establishing Milestones

BALANCED SCORECARD Make Strategy Everyones Job

CORP SBU

Education

Personal Goal Alignment Balanced Pay checks

The Strategy Focused Workforce

BALANCED SCORECARD Make Strategy a continuous Process

Strategy
60% OF Org Dont link Strategy & budgets

Strategic Learning Loop

Balanced Scorecard

85% of Mgt teams Spends less than 1 hr per month On strategy issues

78% orgs lock Budgets to an Annual cycle

Budget

Management Control Loop Performance

92% of orgs Do not report On lead indicators

Input

Output