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The Balanced Scorecard-

a performance measurement system.

10/17/08 hmahesh45@yahoo.com; VIM Pune 1


Architects of Balance Scorecard - Robert Kaplan & David Norton
The Balanced Scorecard- the
example –
Concept
Cockpit / An aeroplane has many
Car Controls such as -
dashboard 1. the elevator- to raise the
height
2. the rudder- to make the
plane swing
3. the ailerons- to make the
plane turn
4. the throttle- to control the
engine's speed and power.

Imagine the AEROPLANE’S


fate if any of these
control is not working
at all or not
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The Balanced Scorecard- Corporate Concept
M/s SEM III Flights Co, Pune

Customer Internal
Innovation & Indicator Business
Learning Process
Indicator Indicator

Financial
Indicator
10/17/08 hmahesh45@yahoo.com; VIM Pune 3
The Balanced Scorecard –
Indicators/Measures/Controls
Balanced Scorecard measure the company’s
performance on following four grounds/aspects
SIMULTENEOUSLY
1. Innovation & Learning Aspect– Skill
Enhancement, Process
improvement
2. Internal Business Aspect– New Processes,
New Products, Cycle time
3. Customer Aspect – Customer Retention,
Customer satisfaction index.
4. Financial Aspect – Profit margins, ROA, Cash
Flow
BS incorporates all significant controls in one frame.
That’s why this control tool is called BALANCED.
10/17/08 hmahesh45@yahoo.com; VIM Pune 4
The Balanced Scorecard - Indicators

1. The Learning and Innovation


This perspective includes
employee training and
corporate cultural attitudes
related to both individual and
corporate self-improvement.
2. The Internal Business
Process
Metrics based on this perspective
allow the managers to know
how well their business is
running, and whether its
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The Balanced Scorecard - Indicators

3. The Customer Perspective


This perspective emphasises
customer focus and customer
satisfaction.

4. The Financial Perspective


Kaplan and Norton do not
disregard the traditional need
for financial data. Timely and
accurate financial data will
always be a priority
10/17/08 hmahesh45@yahoo.com; VIM Pune 6
Every Measure in BS culminates in
to financial outcome -

FINANCIAL
STRENGTH
Product Profitability,
EBIT

CUSTOMER SATISFACTION
Market Share, Survey Scores, Complaints

BUSINESS PROCESS IMPROVEMENT


Cycle Time, Defects, Activity Costs

ORGANIZATIONAL LEARNING
Training Time, Turnover, Staff Satisfaction Score
10/17/08 hmahesh45@yahoo.com; VIM Pune 7
The Balanced Scorecard –
Measures/Indicators categorized as

 1. Driver Measures - Leading Indicators e.g.


cycle time
- Show progress in key areas,
- How well the goal is being achieved,
- Encourages the employees to
improve upon, - Applied at lower level &
- Indicate
incremental
2. Outcome changes.
Measures - Lagging Indicators e.g.
ROA
- They tell what has happened..
- They show final result of the strategy.

Both are linked together. OM takes care of strategy


tself where as DM takes care of implementation of strategy
10/17/08 hmahesh45@yahoo.com; VIM Pune 8
Balance Scorecard – Role of Strategy
Better ROI
Customer  DPS
Satisfactio
n

New
Skill Processes
Enhanceme
10/17/08 hmahesh45@yahoo.com; VIM Pune 9
The Balanced Scorecard –
Why Called balanced?

 BS brings about a balance among


different strategic/ key measures Leads to
making Company’s SCORECARD BALANCED

 Tool which improves Company’s Focus,


Communication & provides feedback on
strategy
 A balanced scorecard is a performance
measurement and reporting system that
strikes a balance between financial and
operating measures.
 Ensures the GOAL Congruence

10/17/08 hmahesh45@yahoo.com; VIM Pune 10


*Appeared as a question in previous question papers
Balanced Scorecard –
Cause Effect Relationship Among Indicators
Indicators -
Innovative Internal Customer Financial
and Business
Learning Process

Examples-

Employee Productivity Cost Growth in


training effective revenue.
product

Test Better Assured Growth in


marketing production acceptance market
planning

Customer
R& D New product retention Assured
Achieveme line (gets market share
nt hooked to
10/17/08 hmahesh45@yahoo.com; VIM Pune 11
the Co).
The Balanced Scorecard –
Essential Factors -
 It should includes all critical factors of organization’s
strategy.
 Show relationships among measures in cause- effect
manner.
 Provide a broad base view of the Company.
 It should address different stakeholders of the
Co.
 Clearly specify Driver and Outcome measures and
relationship between them.
 Give due consideration to balance of Internal and
External measures
 BSC must be strategy specific i.e. organization
specific.
 Measures must be linked from top to bottom and
must
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Balanced Scorecard – to sum up……..

“ Balance Scorecard is
a management system
rather than mere
a measurement system
which enables organization
to clarify its vision and strategy
and translate it into action.”

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Thanks………

10/17/08 hmahesh45@yahoo.com; VIM Pune 14

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