2 Traditional Performance Measurements Measurements are not in
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ﻟﻤﺎﺫﺍ ﺃﺴﻠﻮﺏ ﺍﻷﺪﺍﺀ ﺍﻟﻤﺘﻮﺍﺯﻥ؟ – ﺃﺴﻠﻮﺏ ﺍﻷﺪﺍﺀ ﺍﻟﻤﺘﻮﺍﺯﻥ 2 - Traditional Performance Measurements · Measurements are not in tune with strategic objectives · Measurements are not customer driven · Financial measures concentrate on shortterm objectives · Many key nonfinancial performance measures are ignored 5
ﺃﺴﻠﻮﺏ ﺍﻷﺪﺍﺀ ﺍﻟﻤﺘﻮﺍﺯﻥ – ﻟﻤﺎﺫﺍ ﺃﺴﻠﻮﺏ 2 - The Emergence of the BSC The Balanced Scorecard was originally proposed to overcome the limitations of managing with only financial measures, which report outcomes but do not communicate the drivers of future performance. The scorecard provides a framework for looking at a strategy from four different perspectives 6
The Balanced Scorecard Management translates its strategy into performance measures that employees understand accept. Customers Financial Performance measures Internal business processes Learning and growth 7
Basics of the BSC 8
The Balanced Scorecard: From Strategy to Performance Measures Exhibit 10 -11 Performance Measures Financial What are our financial goals? Customer What customers do we want to serve and how are we going to win and retain them? Internal Business Processes What internal business processes are critical to providing value to customers? Has our financial performance improved? Do customers recognize that we are delivering more value? Have we improved key business processes so that we can deliver more value to customers? Learning and Growth Are we maintaining our ability to change and improve? 9 Vision and Strategy
The Balanced Scorecard: Non-financial Measures The balanced scorecard relies on non-financial measures in addition to financial measures for two reasons: Financial measures are lag indicators that summarize the results of past actions. Non-financial measures are leading indicators of future financial performance. Top managers are ordinarily responsible for financial performance measures – not lower level managers. Non-financial measures are more likely to be understood and controlled by lower level managers. 14
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The Balanced Scorecard A balanced scorecard should have measures that are linked together on a cause-and-effect basis. If we improve one performance measure. . . Then Another desired performance measure will improve. The balanced scorecard lays out concrete actions to attain desired outcomes. 16
The Balanced Scorecard and Compensation Incentive compensation should be linked to balanced scorecard performance measures. 17
Advantages of the BSC • The BSC is that it puts strategy, structure, and vision at the center of management’s focus • The BSC emphasizes an integrated combination of traditional and nontraditional performance measures, it keeps management focused on the entire business process and helps ensure that actual current operating performance is in line with long-term strategy and customer values. 18
Advantages of the BSC(Cont. ) • The framework of the BSC provides a balance between short and long term objectives, financial and nonfinancial measures, and external and inernal performance indicators. 19
Strengths of the BSC ·Ability to translate an organization’s vision and strategy into tangible objectives and measures. ·Focus on a limited number of critical measures ·Strong focus on customer and market. ·Flexibility and adaptability to fit each organization in particular. ·Easy to use. 20
Weaknesses of the BSC ·It focuses on customers, forgetting other important stakeholders. ·Only focus on results. ·It focuses primarily on top-down performance measurement. 21
ﻧﻤﺎﺫﺝ Value Target F 1. 1 -30 p 150 p F 1. 2 8 18 F 2. 1 200 185 F 2. 2 -6 4 F 3. 1 1, 550 1, 442 F 3. 2 652 488 F 3. 3 93% 90% F 4. 1 17 24 F 4. 2 257 600 Competitive cost of capital via capital structure F 5. 1 7. 65% 7. 44% Shareholders support and back strategies Rsh 1. 1 65% 74 Rsh 1. 2 8 7 Objective Outperform capital markets Cash & asset management Sales & profit growth from existing ES businesses Successful deal doing Status Measure Performance comments for objective Owner Dividend expected kept at 28 p. for whole year, but share price still around 1, 000 pence leading to low P/E compared with sector and results from previous years NG Increasing cash inflow from divisions A and D but levels of investments in B, C and E makes the group cash negative for at least another 12 months NG Division E still far behind budgets. C positive, but below budget. A on budget (flat budgets). L 4 L sales positive in D driven by brands. C index 120 on L 4 L NG No major M&A targets in sight yet. Pipeline cover - 50% due to aggressive growth targets combined with severe scarcity of targets. Profit mix and growth market numbers not available yet NG Cost on average 10% > Category 1 competitors. On level with category 2 competitors – ﺃﺴﻠﻮﺏ ﺍﻷﺪﺍﺀ ﺍﻟﻤﺘﻮﺍﺯﻥ 2 - ﺍﻷﺸﻜﺎﻝ ﺍﻟﺘﺎﻟﻴﺔ ﻫﻲ ﺑﻌﺾ ﺍﻟﻨﻤﺎﺫﺝ NG More shareholders vary about our future earnings potential due to drop in TSR and general negative press. All is down to next big announcement indicating new thrust and direction 23 ﻟﺒﻄﺎﻗﺎﺕ ﺍﻷﺪﺍﺀ ﻭﺍﻟﺘﻘﺎﺭﻳﺮ ﺍﻟﻤﺴﺘﺨﺪﻣﺔ ﻓﻲ . ﺑﻌﺾ ﺍﻟﺸﺮﻛﺎﺕ
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Cause and Effect Relationship 30
BSC Cases 32
Southwest Airlines strategy is to offer an operational excellence customer value proposition that has three key components: • Low ticket prices • Convenience • Reliability 33
Southwest Airlines Low ticket prices • Company operates one type of aircraft, Boeing 737, to reduce maintenance and training costs and simplify scheduling. • Reduce costs by not offering meals, Seat assignments or Baggage transfers. • Booking large portion of its passenger revenue over the Internet. 34
Southwest Airlines Customer Convenient • Uses point-to-point flights rather than the huband-spoke approach of its larger competitors. • Nonstop service to their final destination. 35
Southwest Airlines Reliability • Southwest serves many less congested airports such as Chicago Midway, Manchester, and Oakland. • It offers quicker passenger check-ins. • Reliable departure. 36
Southwest Airlines BSC translates strategy into performance measures that employees can understand influence. For example: The amount of time passengers have to wait in line to have their baggage checked This performance measure is easily understood by the supervisor, and can be improved by the supervisor’s action. 37
Southwest Airlines • Overall the company’s strategy has worked • At a time when Southwest Airlines’ larger competitors are struggling, it continues to earn substantial profits 40
The Balanced Scorecard of Jaguar Profit Financial Contribution per car Number of cars sold Customer satisfaction with options Internal Business Processes Learning and Growth Number of options available Time to install option Employee skills in installing options 41
The Balanced Scorecard of Jaguar Profit Contribution per car Number of cars sold Customer satisfaction with options Strategies Increase Options Increase Skills Number of options available Time to install option Employee skills in installing options 42 Results Satisfaction Increases Time Decreases
The Balanced Scorecard of Jaguar Profit Contribution per car Results Number of cars sold Customer satisfaction with options Number of options available Time to install option Employee skills in installing options 43 Cars sold Increase Satisfaction Increases
The Balanced Scorecard of Jaguar Profit Results Contribution per car Contribution Increases Number of cars sold Customer satisfaction with options Number of options available Time to install option Employee skills in installing options 44 Satisfaction Increases Time Decreases
The Balanced Scorecard of Jaguar Profit If number of cars sold and contribution per car increase, profits increase. Results Profits Increase Contribution per car Contribution Increases Number of cars sold Cars Sold Increases Customer satisfaction with options Number of options available Time to install option Employee skills in installing options 45
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