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
gotten pretty good on it. Now I have to concentrate on proper
air speed.

BALANCED SCORECARD

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 aeroplane

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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.

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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

Improvement
initiatives

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

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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

The resources and processes in

place that ensure effective use of
The human capital

Organizational Capital

The values, working relationship

And cultural norms at work in
The organisation

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balanced scorecard

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History
Measurement
&
Reporting-1992

Alignment &
Communication
1996

Enterprise
Strategic
Management-2000

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

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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

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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

Mission
2028

12,000 Cr

50,000 Cr

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Goal
2009
7000 Cr

Objective
2014

Mission
2029

15,000 Cr

55,000 Cr

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Balance Scorecard as a Management System

BALANCED SCORECARD

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

Sub-Goals

Strategic Goals

Derive
Sub-Goals

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

Balanced Scorecard
Financial
Sub-Goals
Internal Business
Sub-Goals

Customer
Sub-Goals

Learning & Growth

Sub-Goals

For each BSC Quadrant

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

Indicators
Trouble Reports

Methodology
Overview

Vision

Module

Data Elements

FINANCIAL

Vision
and
Strategy

LEARNING and
GROWTH
Can we
continue to
improve and
create value?

What must
we excel at?

Objective
Measures
Targets
Initiatives

How do our
customers
see us?

INTERNAL BUSINESS
PROCESS

Objective
Measures
Targets
Initiatives

CUSTOMER

Objective
Measures
Targets
Initiatives

How do we
look to
shareholders?

Objective
Measures
Targets
Initiatives

A Balanced Scorecard Perspective

on Performance

BALANCED SCORECARD
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

Operations Process

Creating Products
Services &Processes
To meet the demand
Of Customers

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

Objective
Financial
Perspective

Increase
Shareholder
value

Measures
Operating income
From Productivity
Gain

Operating Income
From Growth

Revenue Growth

Initiatives

Manage Cost
And Unused
Capacity

Build Strong
Customer
Relationship

Target
Perform

Actual
Perform

Rs 20 Cr

Rs 20.12Cr

Rs 30 Cr

Rs 34.20 Cr

6%

6.48%

BALANCED SCORECARD

Customer Perspective

Objective
Customer
Perspective

Measures
Market Share in
Communication
Network Segment

Number of New
Customers
Increase
Customer
Satisfaction

Customer
Satisfaction
Rating

Initiatives

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

Target
Perform

Actual
Perform

6%

7%

1%

2%

90% give
Top two
Ratings

87%Gave
top two
Rating

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Objective
Reduce
Delivery Time

INTERNAL BUSINESS PROCESS PERSPECTIVETarget

Measures
Initiatives
Perform
Reduce Setup time Re-engineer order
Automation of Orders
Delivery process

Meet Specified
Delivery dates on time delivery

Re-engineer order
Delivery process

Actual
Perform

30 days

30 days

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

Organize teams
from Sales & Manuf

Improve
Manufacturing
Capability

% of processes
With Advanced
Controls

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

75%

75%

BALANCED SCORECARD
Objective

Learning and Growth Perspective

Measures
Initiatives

Align Employee Employee SatisfacAnd

tion Rating
Organizational
Goals

Employee
Participation to
Build Team Work

Develop
Process
Skill

% Employees
Trained in Process
& Quality Mgt

Employees
Training
Programme

Empower
Work
Force

% Workers
Empowered to
Manage
Processes

Supervisors as
Coaches rather
Decision
Makers

Target
Perform

Actual
Perform

80%
Employees
Give top
Two
Ratings

88%

90%

92%

80%

80%

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BSC as Strategic Management System

BALANCED SCORECARD

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

BALANCED SCORECARD
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

Planning & Target Setting

Setting Targets
Aligning Strategic
Initiatives
Allocating Resources
Establishing Milestones

Articulating the shared Vision

Supplying Strategic Feedback
Facilitating Strategy review
and Learning

BALANCED SCORECARD

Clarifying and
Translating the
Vision & Strategy

Clarifying the Vision

Formulation by Sr Executives
Reaching Consensus
Sorting Out Differences
Joint Accountability

BALANCED SCORECARD

Communicating
& Linking

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

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

Communicating to
Directors
Executives
Employees

BALANCED SCORECARD

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

BALANCED SCORECARD

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

BALANCED SCORECARD

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

BALANCED SCORECARD

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

BALANCED SCORECARD
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

Personal MBO &

Incentives

Strategy &
Vision

Budget

Monthly
Review
4 feedback that is tactically

Financial Plan
& Capital
Allocation

not strategic

3 Strategy not Linked to Resource Allocation

BALANCED SCORECARD
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

BALANCED SCORECARD
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

BALANCED SCORECARD
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

BALANCED SCORECARD
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

Communicating
And Linking
Compensation is linked
To Strategy

Clarifying & Translating

The Strategy & Vision

Balance
Scorecard

Feedback system used to test

The hypothesis on which strategy
Is based

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

BALANCED SCORECARD

Let Us Review

BALANCED SCORECARD
4
Perspectives
Financial
Perspective

Customer
Perspective

Internal
Business
Process
Perspective
Learning &
Growth
Perspective

Translating
the strategySCORECARD
to operational terms
BALANCED

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

Measurement is used to communicate,

Not to control

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

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?

BALANCED SCORECARD
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

Planning & Target Setting

Setting Targets
Aligning Strategic
Initiatives
Allocating Resources
Establishing Milestones

Articulating the shared Vision

Supplying Strategic Feedback
Facilitating Strategy review
and Learning

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

Strategic Learning
Loop

60% OF Org
Dont link
Strategy &
budgets

85% of Mgt teams

Spends less than
1 hr per month
On strategy
issues

Balanced
Scorecard
78% orgs lock
Budgets to an
Annual cycle

Budget

Management Control
Loop

Input

Performance

Output

92% of orgs
Do not report
On lead
indicators

BALANCED SCORECARD

Questions