Balanced Scorecard Like Dashboard Instruments We Need Several

Balanced Scorecard Like Dashboard Instruments, We Need Several Indicators of Strategy Success: n Financial n Customer n Employee / Learning and Growth n Internal Business Process

Balanced Score Card Features Emphasizes what is important Focuses on Business Drivers Stresses Cause & Effect Relationships Unites the Company Uses Leading & Lagging Indicators Implements Business Strategy Uses metrics for Targets & Performance Evaluation

Financial Perspective Link to Strategy Time Horizon: Short, Medium and Long Can Include: Cash Flow Reported Earnings Risk Management Cost Control and Revenue Growth Pricing: Discounts vs. Value / Convenience

Financial Perspective Find drivers for revenues, costs, cash flows & net income Can tie to an incentive system Can use any type of incentive Problem: valuable, but focuses on the past rather than the future – it is a lagging indicator.

Leading Indicators In order to predict financial results the BSC uses 3 leading indicators. These are: n The Customer Perspective n The Employee / Learning and Growth Perspective n The Internal Business Process Perspective

Customer Perspective n Value to Customers n Customer Satisfaction is not enough. n Not all customers are keepers: n 80 / 20 “rule” n Retain Old vs. Attract new Customers n Growth, Market Share, Segmentation

More on Customer n Time n Convenience n Ease of Use n Quality n After Sale Service n Cost n Performance

The Box Profitable Customers Not Attracted to products Profitable Customers Attracted to products Unprofitable Customers Not Attracted to products Unprofitable Customers Attracted to products

Employee / Internal Business n Ease of tasks n Innovation n Productivity n Where must we be EXCELLENT? n Where can we be good enough? n The Operations Process n Customer Life Cycle

More Internal Processes n Cycle Time n Quality n Employee Training and Skills n Productivity n Customer Perspective

Innovation and Learning n Pace of Industry Change n Continuous Improvement n Percent of income from New Products n Dot Com Bomb n Think outside the Box vs. inside n Think Critically n LISTEN

Listen and Learn n No one of us is as smart as all of us. n Welcome diverse views and people. n Get honest feedback from present customers, potential customers, employees, suppliers, others n Use benchmarking n Get connected with industry information

Balance for the Score Card n Financial n Customer n Learning and Growth n Internal Business Processes

Balanced Scorecard n n n Most organizations devise good strategies But the real problem is successful implementation of strategy Experts will say a B strategy with A implementation easily beats an A strategy with B implementation The BSC is the most successful method for dependable implementation of strategy But success will only be achieved with careful and thorough attention to installation of BSC

Balanced Scorecard n n n Why is the BSC so effective in strategy implementation? Because it involves every organization unit in the design and implementation of strategy It does so by finding the right drivers of performance for each organization unit Then it determines the right metrics for the right drivers Next it selects the right target values for the right metrics Finally it links everyday activities of each unit with the metrics representing the drivers of performance

Balanced Scorecard n Performance of each organization unit is regularly measured by comparing actual metrics with target metrics n Deviations from target metrics are early warnings to get strategy back on track n That requires correct metrics for the right drivers of performance

Balanced Scorecard n Making sure that metrics are right means that leading indicators are valid predictors of the lagging finance measure n So regular testing of the predictive power of leading indicators is required n So the BSC is effective, but only to the extent that it is kept tuned and accurate

Balanced Score Card Summary n Emphasizes what is important n Focuses on Business Drivers n Stresses Cause & Effect Relationships n Unites the Company n Uses Leading & Lagging Indicators n Implements Business Strategy n Uses valid metrics for Targets & Performance Evaluation

The Balanced Scorecard for Successful Strategy Implementation