Balanced Scorecard

Concepts & Practice

By Sanjay Bhattacharya
Defining BSC
• A mixture of financial and non-financial measures (Kaplan and Norton 1992,
1993, 1996a, 1996b);
• A limited number of measures (Kaplan and Norton 1992), numbering between
15-20 (Kaplan and Norton 1993) and 20-25 (Kaplan and Norton 1996b).
• Measures clustered into four groups called perspectives (Kaplan and Norton,
1992, 1993, 1996a, 1996b), originally called ‘Financial’, ‘Customer’, ‘Internal
Process’ and ‘Innovation and Learning’,
Last two were later changed to – ‘internal business process’ and ‘learning and
growth’ (1996).
 What’s BSC?

First Generation
Four Quadrant balanced
measurement (1997) –
Performance Management
01
focused on metrics and targets

Second generation
Strategy Map with Causal Linkage
– Identify the strategic linkages
between goals and metrics.
02 BSC

Third Generation

Destination Statement & Strategic

Linkage Model – Invert the design
03
process by starting with the
destination statement, followed
by objectives, measures and
targets.
 95% of a typical
workforce don’t
understand its’
organisational
Why BSC???
strategy

90% of organisations
failed to execute their
strategies successfully

60% of organisations did

not link strategy to
budgeting.

86% of executive teams

spent less than one hour
per month discussing
strategy
70% of organisations
did not link middle
management
incentive to strategy Glen Alleman, 2003
 Strategy Influences on BSC Adoption
1. Prospector

Prospectors
4. Reactor Continually search for innovative market
2. Analyser
opportunities.

Analyser
Operate routinely and efficiently through formal
structures.

Defenders
3. Defenders
Do little to seek out new opportunities outside their
primary domains.

Reactors
Unable to respond effectively to known change.
Other Influencing Factors
FIRM SIZE
Communication becomes an issue with the growth in size
of the firm.

ENVIRONMENTAL UNCERTAINTY
Core issue for any firm. Integrated control system for
financial and non-financial integration helps address
uncertainty.
INCREASED INVESTMENT IN INTANGIBLE

Acquisition & Management of

Knowledge Assets Expensive
ASSETS

Diminishing ‘Balance Sheet’

Environmental Uncertainty

Increased Investment in From 30%/70% in 1930s to 63%/37% in 1990.

Approach to firm Value

DIMINISHING BALANCE SHEET….
Intangible Assets
Only 10 to 15% of the value of the firm is represented on
the balance sheet assets.

EXPENSIVE TANGIBLE ASSETS

Firm Size

Start reality of today’s business paradigm.

1 st Generation BSC

Objectives - specific actions to execute the strategy.

Measurements - monitoring and tracking the progress of

strategic objectives. Measures include both lagging indicators
and leading indicators.

Target - expected level of performance or improvement.

Initiatives - projects to meet one or more strategic objectives.

 Short-comings in Gen-1
Filtering of measures to be used to populate the BSC and
deciding which measures should appear in which perspective.

The causal relationship between the measures across

A perspectives was required for practically implementing the
BSC at a functional level.

B Largely vague as it could not fix pointers clearly on the

strategy aspect.

C
Enhancements Made in Gen 2 BSC
Measures are chosen to
relate to specific strategic
objectives, the design aim
being to identify about 20-
25 strategic objectives each
associated with one or
more measures and
assigned to one of four
perspectives
An attempt is made to
visually document the
major causal relationships
between strategic
objectives, laying out the
results in a ‘strategic
linkage model’ or ‘strategy
map’ diagram
For Example – Upward Airlines…
For Example – First Charter Bank
 Strategy Map

Achieve Sustainable Building Engaged and Ready-to-deploy Talent Build Customer-

Living ADANI Values, ADANI as Employer Design novel
Business Profitability and Market High Performance Pipeline (Current, centricity (Internal &
Culture Brand Organisation Design
Cap Organisations, Teams Future, New Businesses External)

Create mindset of Build and

Nurture Corporate
One Team Build ADANI as Demonstrate Create Learning & Institutionalise ADANI Creating world-class
Customer Sustainibility (People,
One Experience aspiration brand Execution Excellence Knowledge Organisation Business Excellence Technical capability
Profits, Planet)
One ADANI Model

Institutionalise career Build Competitive

Build Culture of Develop Workforce
Build Excellence in Evolve Framework for planning (HiPots Mgt, Build R&R based on Advantage Through
Process Excellence through PMS, Manning Norms and
Leadership Hiring Internationalization Rotations, Fast track Goodness, Wellness Engineering, Functional
OD, etc. Productivity
framework, etc.) Capability

Create Enterprise
Institutionalize ADANI Build Build Goodness, Build AI, Analytics
Learning Build Future Ready HR Business Processes Ensure Processes &
Behavioural Thought-Leadership Wellness, Safety, through Digitisation of
(HR) Team (EPMs) aligned with Legal Compliance
Competency Framework in HR Practices Quality as Way of Life HR Processes
LTSP

Legend: Defend Consolidate Grow

 3 rd Gen BSC
Destination statement: A description, ideally
including quantitative detail, of what the
Destination Statement organisation (or part of organisation managed by
the Balanced Scorecard users) is likely to look
like at an agreed future date45 . Typically the
destination statement is sub-divided into
descriptive categories that serve a similar
purpose (but may have different labels) to the
‘perspectives’ in 1st and 2nd Generation
Balanced Scorecards.

Strategic Linkage Model with ‘Activity’ and

Strategic Linkage Model with
Activity & Outcome Perspective
‘Outcome’ Perspectives: A simplification
of a 2nd Generation Balanced Scorecard
strategic linkage model – with a single ‘outcome’
perspective replacing the Financial and
Customer perspectives, and a single ‘activity’
perspective replacing the Learning and Growth
and Internal Business Process
perspectives
For Example…
MDS International, USA
 Integrating BSC into Hoshin Kanri X-Matrix

Source: i-nexus 2012.

Steps in Hoshin planning

• Identify the key business issues facing the organization.

• Establish measurable business objectives that address these issues.
• Define the overall vision and goals.
• Develop supporting strategies for pursuing the goals. In the Lean organization,
this strategy includes the use of Lean methods and techniques.
• Determine the tactics and objectives that facilitate each strategy.
• Implement performance measures for every business process.
• Measure business fundamentals.
 When is it needed?
Year-to-year plans never seem to
connect.
Too many bad projects in
process

Employees mostly don’t feel like

they are the part of a team.
Very long lead times for
improvements.

Little connection between

Constantly missed budgets strategy and continuous
and forecasts. development.
How does it help?

• Focus on a shared goal.

• Communicate that goal to all leaders.
• Involve all leaders in planning to achieve the goal.
• Hold participants accountable for achieving their part
of the plan.
 4 Key Cultural Challenges to Overcome for Hoshin Planning

The
‘Bureaucracy’
Challenge 04
The ‘Shoot the
Messenger’
Challenge
03
The ‘Stretch
Goal’ Challenge

02
The
Commitment
Challenge

01
1) The “Commitment” Challenge – How to
ensure leadership stay the course...
2) The “Stretch Goal” Challenge – How to stretch
whilst keeping the plan realistic and achievable...
3) The “Shoot the Messenger” Challenge – How
to ensure the process remains constructive...
4) The “Bureaucracy” Challenge – Avoiding the
administration getting in the way of the process...
THANK YOU