Balanced Scorecard Introduction PDF

Balanced Scorecard Introduction  What is the Balanced Scorecard? The balanced scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action. Introduction The balanced scorecard, a concept...

Balanced Scorecard Introduction  What is the Balanced Scorecard? The balanced scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action. Introduction The balanced scorecard, a concept for measuring a company's activities in terms of its vision and strategies, to give managers a comprehensive view of the performance of a business. The strategic management system forces managers to focus on the important performance metrics that drive success. Implementation Implementing the scorecard typically includes four processes: Translating the vision into operational goals; Communicate the vision and link it to individual performance; Business planning; Feedback and learning and adjusting the strategy accordingly.  Business Planning Elements of an Integrated Business Planning Process 1. Sales Revenue 2. Demand 3. Supply 4. Profit based Supply/Demand Balancing 5. Management Review A Comprehensive View of Business Performance Balanced Scorecard is a method and a tool which includes: a strategy map where strategic objectives are placed over four perspectives in order to clarify the strategy and the cause and effect relationships that exists among them. strategic objectives which are smaller parts of the strategy interlinked by cause and effect relationships in the strategy map. A Comprehensive View of Business Performance Measures directly reflecting strategy. Their prime purpose is to measure that the desired change or development defined by strategic objectives actually takes place. Strategic initiatives that constitute the actual change as described by strategic objectives. BSC: Four Perspectives Financial perspective Customer perspective Internal Business perspective Learning & Growth perspective 10/30/2024 ASQ Vermont Section 8 BSC Strategic Focus 10/30/2024 ASQ Vermont Section 9 A Comprehensive View of Business Performance The scorecard drives implementation of strategy using perspectives which generally include: A Comprehensive View of Business Performance Financial Perspective - measures reflecting financial performance, for example number of debtors, cash flow or return on investment. The financial performance of an organization is fundamental to its success. Even non-profit organizations must make the books balance. A Comprehensive View of Business Performance Financial figures suffer from two major drawbacks: They are historical. Whilst they tell us what has happened to the organization they may not tell us what is currently happening, or be a good indicator of future performance. It is common for the current market value of an organization to exceed the market value of its assets. A Comprehensive View of Business Performance Customer Perspective - measures having a direct impact on customers and their satisfaction, for example time taken to process a phone call, time to deliver the products, results of customer surveys, number of complaints or competitive rankings. A Comprehensive View of Business Performance Business Process Perspective - measures reflecting the performance of key business processes, for example the time spent prospecting, number of units that required rework or process cost. A Comprehensive View of Business Performance Learning and Growth Perspective - measures describing the company's learning curve - for example, number of employee suggestions or total hours spent on staff training. A Comprehensive View of Business Performance Specific measures are chosen based upon the organization's goals. Typically organizations "get what they measure" so care in creating measures and revisiting the measures regularly is recommended by most practitioners. A Comprehensive View of Business Performance The method helps separate creation of strategy from strategy implementation, which can push power downwards while making the leaders' jobs easier. It can also help detect correlation between activities. A Comprehensive View of Business Performance For example, the process objective of implementing a new telephone system can help the customer objective of reducing response time to telephone calls, leading to increased sales from repeat business. Actual Usage of the Balanced Scorecard companies are using the scorecard to: Clarify and update budgets Identify and align strategic initiatives Conduct periodic performance reviews to learn about and improve strategy.  The Balanced Scorecard Focuses on Factors that Create Long-Term Value Traditional financial reports look backward Reflect only the past: spending incurred and revenues earned Do not measure creation or destruction of future economic value The Balanced Scorecard identifies the factors that create long-term economic value in an organization, for example: Customer Focus: satisfy, retain and acquire customers in targeted segments Business Processes: deliver the value proposition to targeted customers innovative products and services high-quality, flexible, and responsive operating processes excellent post-sales support Organizational Learning & Growth: Customers develop skilled, motivated employees; provide access to strategic information align individuals and teams to business unit objectives Processes People. The Four Perspectives Apply to Mission Driven As Well As Profit Driven Organizations Profit Driven Mission Driven What must we do to satisfy our What must we do to satisfy our financial Financial Perspective shareholders? contributors? What are our fiscal obligations? What do our customers expect from Who is our customer? Customer Perspective us? What do our customers expect from us? What internal processes must we What internal processes must we excel Internal Perspective excel at to satisfy our shareholder and at to satisfy our fiscal obligations, our customer? customers and the requirements of our mission? How must our people learn and How must our people learn and develop Learning & Growth develop skills to respond to these and skills to respond to these and future Perspective future challenges? challenges? Answering these questions is the first step to develop a Balanced Scorecard The Balanced Scorecard Framework Is Readily Adapted to Non-Profit and Government Organizations The Mission "If we succeed, how ”To achieve our vision, will we look to our how must we look to financial donors?” our customers?” “To satisfy our customers, financial donors and mission, what business processes must we excel at?" “To achieve our vision, how must our people learn, communicate, and work together?” The Mission, rather than the financial / shareholder objectives, drives the organization’s strategy Why are Companies Adopting a Balanced Scorecard? Change The Revenue Gr owth Str ategy “Imp rove stability by b roadening the sources of revenue fr om current customers” Increase Custome r Confidence Our Advice Broaden Revenue Mix in Finan cia l Impro ve Returns Impro ve Operating Efficiency Increase The Pr oductivity Str ategy “Imp rove oper ating effi ciency by shifti ng custo me rs to more cost - effective channels of distribution” Custome r Satisfaction Throu gh Superio r Execution Financial Per spective Custom er Per spective Inter nal Per spective Understand Develop Cross -Sell Shift to Provide Minim ize Custome r New the Product Appropriate Rapid Problems Formulate and communicate a new strategy Segments Products Line Channel Response Increase Employee Productivity Lear ni ng Per spective Develop Access to Align Strategic Strategic Personal Skills Information Goals for a more competitive environment Growth Increase revenues, not just cut costs and enhance productivity Implement From the 10 to the 10,000. Every employee implements the new growth strategy in their day-to-day operations Why Do We Need a Balanced Scorecard? To Implement Business Strategy! “Business Strategy is now the single most important issue… and will remain so for the next five years” Business Week “Less than 10% of strategies effectively formulated are effectively executed” Fortune Research Has Identified Four Barriers to Strategic Implementation The Vision Barrier Only 5% of the work force understands the strategy The People Barrier The Management Barrier 9 of 10 companies 85% of executive teams spend less Only 25% of managers have incentives linked to strategy fail to execute than one hour per month strategy discussing strategy 60% of organizations don’t link budgets to strategy The Resource Barrier Today’s Management Systems Were Designed to Meet The Needs of Stable Industrial Organizations That We’re Changing Incrementally You Can’t Manage Strategy With a System Designed for Tactics 10 Golden Rules for Implementing a BSC 1. There are no standard solutions: all business differ 2. Top management support is essential 3. Strategy is the starting point 4. Limited and balanced number of objectives and measures 5. No in-depth analyses up front, but refine and learn by doing 6. Take a bottom-up and top-down approach 7. It is not a systems issue, but systems are an issue 8. Consider delivery systems at the start 9. Consider the effect of performance indicators on behavior 10. Not all measures can be quantified Roest, Pim, Information Management and Computer Security, V 5 No 5, 1997 10/30/2024 ASQ Vermont Section 26