BALANCED SCORECARD Balanced Scorecard BALANCED SCORECARD How would

BALANCED SCORECARD Balanced Scorecard

BALANCED SCORECARD How would you feel about boarding the plane after the following conversation with the pilot?

BALANCED SCORECARD Q: I am surprised to see you operating the plane with only a single instrument. What does it measure ? A: Airspeed. I am really working on airspeed of this flight.

BALANCED SCORECARD Q: That is Good. Airspeed certainly seems important. But what about altitude. Would not an altimeter be helpful? A: I have worked on altitude for the last few flights and I have gotten pretty good on it. Now I have to concentrate on proper air speed.

BALANCED SCORECARD Q: But I notice you don’t have a fuel gauge. Would not that be useful ? A: You are right; fuel is significant, but I cannot concentrate on doing too many things at the same time. So on flight I am focusing on air speed. Once I get to be excellent at Air speed, as well as altitude, I intend to concentrate on Fuel consumption on the next set of flights.

BALANCED SCORECARD Q: to the participants Would you like to board this plane after having this discussion ? A: Perhaps not. What could be the reasons?

BALANCED SCORECARD Navigating an organization is as complex as an Aero plane

BALANCED SCORECARD They also require instrumentation to guide their organizations ………. like pilots have to guide an aeroplane

BALANCED SCORECARD Would you be satisfied as manager getting one dimensional Information about your organization ?

BALANCED SCORECARD Perhaps not, therefore You need instrumentations/ information to navigate in this competitive world

BALANCED SCORECARD BSC provides managers with the instrumentations they need to Navigate future competitive success.

BALANCED SCORECARD BSC translates an organizational mission and strategy into comprehensive set of performance measures that provides the frame work for strategic measurement and Management system 4 Balanced Perspectives Financial Customers Internal Business Processes Learning & Growth

BALANCED SCORECARD Measures are balanced Between the outcome measures—the results from Past efforts---and the measures that drive future performance

BALANCED SCORECARD 4 Perspectives permit a balance between Short term and long term objectives Outcomes and performance drivers Hard objectives measures and Soft objective measures

BALANCED SCORECARD Competing in the Information Age

BALANCED SCORECARD Industrial Age Financial Control ROCE Prod Control Profitability Physical Capital

BALANCED SCORECARD Made Many Such Measures Obsolete Information Age Financial Control ROCE Prod Control Profitability Physical Capital

BALANCED SCORECARD Required New Capabilities Information Age Develop Customer Relationship Introduce innovative products/services Quality products at low cost Employee development and motivation Deploy information technology

BALANCED SCORECARD Information Age New Operating Environment Cross Functional Links to customers and Suppliers Customer Segmentation Global Scale Innovation Knowledge Workers

BALANCED SCORECARD Information Age Improvement initiatives Total Quality Management JIT-Production and Distribution Time based Competition Lean Production/Lean Enterprise Building Customer-focused Org Activity Based Cost Management Employee Empowerment Reengineering

BALANCED SCORECARD Capital You don’t see on the Balance Sheet Human Capital The collective skill, knowledge attitudes and behavoiur of the People in the Organization Information Capital The resources and processes in place that ensure effective use of The human capital Organizational Capital The values, working relationship And cultural norms at work in The organisation

BALANCED SCORECARD balanced scorecard

BALANCED SCORECARD History Measurement & Reporting-1992 Alignment & Communication 1996 Articles in HB Review §The BSC-Measures that Drive performance---1992 §Putting BSC to work-1993 §Using BSC as a Strategic Management System-1996 Enterprise Strategic Management-2000 Acceptance and Acclaim §BSC Translated in 18 languages §Selected by HBR as most Important management Practice in 75 years

BALANCED SCORECARD Financial Measures are Inadequate For Guiding Information age Organizations Must Create future Value Through Investment in Customers Suppliers Employees Processes Technology & Innovation

BALANCED SCORECARD A balance scorecard translate a organization’s mission and strategy into set of performance measures that provide the framework for implementing its strategy

BALANCED SCORECARD Strategy specify how an organization matches its own capabilities with the opportunities in the marketplace to accomplish its objectives

BALANCED SCORECARD A strategy is a set of goals and specific action plans that, if achieved, provide the desired competitive advantage Strategic Management involves identifying and implementing these goals and action plans

BALANCED SCORECARD strategic thinking • Anticipating changes • Product/service and production designed to accommodate expected changes • Flexibility • Ability to make quick changes • Speed to market • Agile manufacturing/ service • Driving firm by using windshield not the rear view mirror • Creative and integrative thinking………

BALANCED SCORECARD Do we need to be clear about……? Goal Objective Mission Vision

BALANCED SCORECARD A goal or objective consist of a projected state of affairs which a person or a system plans or intends to achieve or bring about A personal or organizational desired endpoint in some sort of assumed development.

BALANCED SCORECARD Vision: Defines where the organization wants to be in future.

BALANCED SCORECARD Mission: Defines where the organization is going now, describing why this organization exists

BALANCED SCORECARD Targets: defines goals and objectives

BALANCED SCORECARD Goal 2008 5000 Cr Objective 2013 Mission 2028 12, 000 Cr 50, 000 Cr

BALANCED SCORECARD Goal 2009 7000 Cr Objective 2014 Mission 2029 15, 000 Cr 55, 000 Cr

BALANCED SCORECARD Balance Scorecard as a Management System

BALANCED SCORECARD Balance Scorecard Emphasizes Financial and Non Financial measures must be Part of Information System

BALANCED SCORECARD 4 Perspectives Financial Perspective Customer Perspective Internal Business Process Perspective Learning & Growth Perspective

Mission Clarify mission & Vision statement Develop Strategic Goals Sub-Goals Strategic Goals Derive Sub-Goals Balanced Scorecard Map Sub-Goals to each quadrant of the Balanced Score Card For each BSC Quadrant - identify measurement areas - develop measurement goals - postulate indicators - identify data elements Indicators Trouble Reports Methodology Overview Vision Module Data Elements

A Balanced Scorecard Perspective on Performance

BALANCED SCORECARD 4 Perspectives Financial Perspective Evaluate the Profitability of the Strategy

BALANCED SCORECARD 4 Perspectives Customer Perspective identifies Targeted Customer and market Segments and Measures the Organization’s success in these Segments

BALANCED SCORECARD Internal Business Process Perspective 4 Perspectives This perspective focuses on internal operations that create value for customers that , in turn, furthers the financial perspective by increasing the shareholder value

BALANCED SCORECARD Internal Business Process Perspective 4 Perspectives 3 sub Processes Innovation Process Operations Process Creating Products Services &Processes To meet the demand Of Customers Producing & delivering Existing products that Will meet the needs Of Customers Postsales-Service Process Providing service and Support to the customer After the sale of a product or service

BALANCED SCORECARD 4 Perspectives Learning & Growth Perspective This perspective identifies the capabilities the organization must excel at to achieve superior internal processes that create value for Customers and shareholders

BALANCED SCORECARD FINANCIAL PERSPECTIVE Objective Financial Perspective Increase Shareholder value Measures Operating income From Productivity Gain Operating Income From Growth Revenue Growth Initiatives Manage Cost And Unused Capacity Build Strong Customer Relationship Target Perform Actual Perform Rs 20 Cr Rs 20. 12 Cr Rs 30 Cr Rs 34. 20 Cr 6% 6. 48%

BALANCED SCORECARD Customer Perspective Objective Customer Perspective Measures Market Share in Communication Network Segment Number of New Customers Increase Customer Satisfaction Rating Initiatives Identify future Needs of Customers Identify new Target Customer Seg Increase Cust Focus of Sales Target Perform Actual Perform 6% 7% 1% 2% 90% give Top two Ratings 87%Gave top two Rating

BALANCED SCORECARD Objective Reduce Delivery Time Target INTERNAL BUSINESS PROCESS PERSPECTIVE Measures Initiatives Perform Reduce Setup time Re-engineer order Automation of Orders Delivery process Meet Specified Delivery dates on time delivery Re-engineer order Delivery process Actual Perform 30 days 92% 90% Improve post Sales Service Response Time Improve Customer Service process Within 4 hrs Within 3 hrs Improve Processes Number of Impv. In Business Processes Organize teams from Sales & Manuf 5 5 Improve Manufacturing Capability % of processes With Advanced Controls Organize R&D/Mfg Teams to implement Adv. control 75%

BALANCED SCORECARD Objective Learning and Growth Perspective Measures Initiatives Align Employee Satisfac. And tion Rating Organizational Goals Employee Participation to Build Team Work Develop Process Skill % Employees Trained in Process & Quality Mgt Employees Training Programme Empower Work Force % Workers Empowered to Manage Processes Supervisors as Coaches rather Decision Makers Target Perform Actual Perform 80% Employees Give top Two Ratings 88% 90% 92% 80%

BALANCED SCORECARD BSC as Strategic Management System

BALANCED SCORECARD Balanced Scorecard as a Strategic Management System 1 Clarify and Translate vision & Strategy 2 Communicate and link strategic objectives and Measures 3 Plan, Set Targets and align Strategic Initiatives 4 Enhance Strategic Feedback and Learning

BALANCED SCORECARD Clarifying and Translating the Vision & Strategy Clarifying the Vision Gaining Consensus Communicating & Linking Comm and Educating Setting Goals Linking Rewards to Performance Strategic Feedback & Learning Balance Scorecard Planning & Target Setting Targets Aligning Strategic Initiatives Allocating Resources Establishing Milestones Articulating the shared Vision Supplying Strategic Feedback Facilitating Strategy review and Learning

BALANCED SCORECARD Clarifying and Translating the Vision & Strategy Clarifying the Vision Formulation by Sr Executives Reaching Consensus Sorting Out Differences Joint Accountability

BALANCED SCORECARD Communicating & Linking Communicating and Educating Newsletter Bulletin board Brochure Videos Intranet meetings Setting Goals Linking Rewards to Performance Every one Understand Strategy for achievement Outcome Measures Efforts and Initiatives required On time Delivery Reduce setup time Buy new machines Improve delivery time Improve packing Communicating to Directors Executives Employees

BALANCED SCORECARD Planning & Target Setting Plan to Change Set target for 3 -5 years Stretch targets Benchmarking Alignment of Targets Alignment of Strategic Planning with operational Budgets

BALANCED SCORECARD Strategic Feedback & Learning Periodic Review and Change Targets-achieved or not Past and future Review Information from all Double loop learning Cause and effect Relationship Validity and Viability Strategy replacement according to outcomes/performance drivers

BALANCED SCORECARD Features of Balance Score Card v Indicate company’s strategy and its link with perspectives v. Strategy is communicated to all v. Strategy translated into measurable targets v. Motivates Managers to achieve targets v. BSC limits the measures to only four v. Highlights effect of one perspective on another

BALANCED SCORECARD Pitfalls in Implementing Balanced Score Card v. Difficult to establish Fin-Non financial Linkages v. Improvements at all levels may not be possible v. Both subjective-objective measures Consideration v. Considering Cost & benefits of initiatives v. Non-financial Achievements are ignored

BALANCED SCORECARD Barriers to effective Implementation of BSC Vision & Strategies not actionable Strategies not linked to departmental and Individual Goals Strategies not linked to Long term/short term Resource Allocation Feedback that is tactical not strategic

BALANCED SCORECARD Barriers to effective Implementation of BSC 1 Vision & Strategy not Actionable 2 Strategy not Linked to Dept Team & Individual Goals Personal MBO & Incentives Strategy & Vision Budget Monthly Review 4 feedback that is tactically Financial Plan & Capital Allocation not strategic 3 Strategy not Linked to Resource Allocation

BALANCED SCORECARD Barrier No 1: Vision and strategy not Actionable Cant be translated into action Cant be acted Upon Cant be understood Fragmentation & Sub optimization of efforts Lacking consensus & Clarity Different Agendas No integration Not linked coherently to overall strategy

BALANCED SCORECARD Barrier No 3: Strategy not Linked to Resource Allocation Separate Processes for Long term & Short term Strategic planning Funding to unrelated priorities Poor Monthly Reviews Unfocused New Mgt Techniques Poor Integration

BALANCED SCORECARD Barrier No 4: Feed back not tactically strategic Bulk of feedback is only financial measures Little time on strategy implementation & success No priority to periodic review and meetings Inadequate information Poor tactical review process

BALANCED SCORECARD Different Management System for Strategic Implementation • The strategy is the reference point for the entire management process • The shared vision is the foundation for strategic planning • Goal alignments from top to bottom • Education and open communication about strategy Communicating And Linking • Compensation is linked To Strategy Clarifying & Translating The Strategy & Vision Balance Scorecard • Feedback system used to test The hypothesis on which strategy Is based Strategic Feedback & Learning • Team problem solving Planning & Target Setting • Stretch targets are established and accepted • Strategic initiatives are clearly identified • Investments are determined by strategy • Annual Budgets are linked to long term planning • Strategy development is a Continuous Process

BALANCED SCORECARD Let Us Review

BALANCED SCORECARD 4 Perspectives Financial Perspective Customer Perspective Internal Business Process Perspective Learning & Growth Perspective

SCORECARD Translating the strategy to operational terms BALANCED The Strategy Financial Perspective Measurement is the language that gives clarity To vague concepts If we succeed, how will We look to our Shareholders? Measurement is used to communicate, Not to control Customers Perspective To achieve our vision, How must we look to our Customers ? Internal Perspective To satisfy our customers, Which processes must We excel ? Strategy can be described as a series of Cause and Effect relationship Organizational Learning To achieve our vision, how must our organisation team Improves?

BALANCED SCORECARD Clarifying and Translating the Vision & Strategy Clarifying the Vision Gaining Consensus Communicating & Linking Comm and Educating Setting Goals Linking Rewards to Performance Strategic Feedback & Learning Balance Scorecard Planning & Target Setting Targets Aligning Strategic Initiatives Allocating Resources Establishing Milestones Articulating the shared Vision Supplying Strategic Feedback Facilitating Strategy review and Learning

BALANCED SCORECARD Make Strategy Everyone’s Job CORP SBU Education Personal Goal Alignment Balanced Pay checks The Strategy Focused Workforce

BALANCED SCORECARD Make Strategy a continuous Process Strategy Strategic Learning Loop 60% OF Org Don’t link Strategy & budgets 85% of Mgt teams Spends less than 1 hr per month On strategy issues Balanced Scorecard 78% orgs lock Budgets to an Annual cycle Budget Management Control Loop Input Performance Output 92% of orgs Do not report On lead indicators

BALANCED SCORECARD Questions