Topic 1 Balanced Scorecard

Originated by Dr. Robert Kaplan and David Norton A Performance Measurement Framework which added non-financial measures to counter balance the effects of Financial performance Aligns Business Activities to the Vision and Strategy of the Organization

Unclear Vision & Strategy

NonAvailability of Feedback

NonAlignment of Long Term & Short Term Goals

Problems that can be solved

Excessive Focus on Financial Performance Communicati on Gaps Measurement Issues

Providing a way to see if the strategy is working

Focus employees' attention on what matters most to success

Allow measurement of accomplishments, not just of the work that is performed

Provide a common language for communication

Explicitly defined terms of owner, unit of measure, collection frequency, data quality, expected value(targets), and thresholds Ensuring Valid Measurement of the right things Verifiable Measures to Ensure Data Collection Accuracy

Who are our profitable customers? Do we pay the most attention to those customers? Do we know what these customers expect from us now and in the (near) future? Do we develop the products and services that will keep us in the running? Do our employees develop the knowledge and skills that the markets (will) ask? Do we recruit the right people?

Phase 1: Phase 2: Phase 3:

The Strategic Foundation Three Critical Components Deployment

Consists of three steps: - Communicate the Strategy across all Levels - Determine Major Strategic Areas for focussed efforts - Build a Strategic Grid for each Major Strategic Area Step 1: Strategic Alignment and Communication Three examples of strategic objectives Over the next six months, delivery times will decrease by 15% through more localized distribution centers. By the year 2003, customer turnover will decline by 30% through newly created customer service representatives and pro-active customer maintenance procedures Operating downtimes will get cut in half by cross training front line personnel and combining all four operating departments into one single Service center

After Clearly formulating the Strategy it needs to be effectively Communicated Stakeholder Group Shareholders Division Managers District Managers Operating Staff Forms of Communication Press Conference Management Retreat / Presentation Site to Site Visits / handouts Site to Site Visits / handouts

Administrative Staff
Suppliers Distributors

Site to Site Visits / handouts

Personal Contact / Mailing Personal Contact / Mailing

Strategic Success Through Fence-Lined Strategic Areas is required for Clear Success Demarcations Shareholder Value Financial Customer Processes Learning Revenue Growth More Customers Customer marketing & Service Programmes Support Systems & Personnel

Linking Strategic Goal to a Strategic Area Strategic Goal By the Year 2014, the company will have most innovative product line of hand held Computers Product Innovation

Strategic Area

Structuring the Balanced Scorecard on Four Layers i.e. Financial, Customer, Internal Processes and Learning. Flowing Strategic Objectives within the Financial Perspective Shareholder Value Grow Revenues New Sources of Revenues Increase Customer Profitability Operating Revenues Lower Costs High Utilization of Assets

Linking Customer Objectives to Financial Objectives Financial Customer Share Value Growing More Revenues Acquire More Customers Aggressive Pricing (Value Addition)

Structuring the Balanced Scorecard on Four Layers i.e. Financial, Customer, Internal Processes and Learning.

Linking Objectives down to Internal processes

Financial
Customer

Share Value Growing More Revenues

Acquire More Customers Aggressive Pricing (Value Addition)

Improve Operational Efficiency Reduction in Non-Core Activities

Internal processes

Cost Reduction Programme

Knowledge based System

Structuring the Balanced Scorecard on Four Layers i.e. Financial, Customer, Internal Processes and Learning. Strategic objectives defined for all four perspectives Financial Customer Share Value Growing More Revenues Acquire More Customers Aggressive Pricing (Value Addition) Improve Operational Efficiency Internal processes Cost Reduction Programme Training Best Practices in Cost Management Knowledge based System Database Network on Operational Performance Reduction in Non-Core Activities Re-Alignment with focus on CoreCompetencies

Learning & Growth

 Every Strategic Objective Should be measurable Not all can be quantified and measured but it makes evaluation of such objectives difficult Some Basic Guidelines: Linked Repeatable
Measurements Communicate what is strategically important by linking back to strategic Objectives
Measurements are continuous over time, allowing comparisons Measurements can be used for establishing targets, leading to future performance

Leading
Accountable Available

Measurements are Reliable, verifiable and accurate

Measurements can be derived when needed

 Cause Effect Relationship between Leading and Lagging Indicators Customer perspective

Customer Perspective

Lagging Indicators are Desired Results Customer Satisfaction Customer Retention Market Share

Leading Indicators Value Attributes to Customers Quality Time Price Image Reputation

 Internal Process Perspective

Pre-Delivery Results
Leading Indicator: No. of New Products Introduced

Delivery Results
Leading indicator: Delivery Response Time to Customers

Post delivery Results

Leading Indicator: Cycle Time for Resolving Customer Complaint

 Learning and Growth Perspective

Results for Employees

Leading Indicator: Attrition Rate

System Results
Leading Indicator: Centralized database of Employees

Results for the Organization

Leading Indicator: Number of Employee Suggestions

 Setting Targets Based on Strategic Goals

Current Year Sales Revenues Rs. 1,00,000

Goal: A 40% Sales growth in a Span of 3 years Year 2009 Rs. 1,10,000 Year 2010 Rs. 1,22,000 Year 2011 Rs. 1,40,000

 Adding Measurements & Targets to the Balanced Scorecard

Perspectives
Financial

Objectives
Maximum Returns Utilization of Assets Revenue Growth Customer Retention Customer Service Customer relations Fast delivery Effective Service Optimal Cost Resource Utilization High Skill Levels Employee Satisfaction Outstanding Leaders

Measurements
Return on Equity Utilization Rates % change in Revenues % Retention Survey Rating % of self Initiated Calls Turnaround Time 1st Time Resolvement % Cost of Sales Productivity Indicator Skill Set Ratio Survey index 5 Point Ranking

Targets 2009 12% 7% 11% 75% 85% 35% 15m 68% 66% 77% 65% 75% 4.5 2010 13% 8% 11% 75% 88% 40% 14m 69% 64% 80% 68% 77% 4.8

Customer

Internal Processes Learning & Growth

Sponsored by Upper level Management Utilizes Designated Leaders and Cross Functional Teams Consists of Deliverables, Milestones and a Timeline Requires Resources: Man / Machine / Money / material / Market etc. Structured Programmes have greater impact on Strategic goals

Review and Re-alignment Integration of Other Business Areas with the Strategically improved Areas

Finally linking compensation with the scorecards

Building the Scorecards for the Entire Value Chain i.e. Customers, Production, sales, Innovation and all such elements

Easy to Achieve but difficult to maintain because of Perfectionist Goals Successful companies have developed more tolerance levels

Consumer Electronics Public Ltd. Company

Quality Customer Price Delivery Shipments New products Support Efficiency in Manufacturing Internal Number of Defects Aggressive Pricing Number of On-Time Deliveries Sales Growth Number of New Products to Support Customer Satisfaction Survey Cycle Time

New Product Introductions

New Product Success Sales Penetration New Businesses

Rate of New Introductions

Number of Orders Actual Vs. Planned Volume of Investment in Diversification

Consumer Electronics Public Ltd. Company Innovation Technology Leadership Cost leadership Market Leadership Research & Development Sales Product Performance Benchmarking Quarterly Manufacturing Overheads Market Share (Across All Markets) Number of new products Annual Growth Rate

Financial

Cost of Sales Profitability

Prosperity Competitive Salaries Opportunity Citizenship

Annual Trend Line Return on capital Employed

Cash Flows Local Area Comparisons Satisfaction Rating Contributions to Community

Employe e