The Balanced Scorecard Approach What is a Balanced

The Balanced Scorecard Approach

What is a Balanced Scorecard? The Balanced Scorecard is a strategic planning and management system used to align business activities to the vision and strategy of the organization by monitoring performance against strategic goals.

Balanced Scorecard Concept Was first published in 1992 by Kaplan and Norton, a book followed in 1996. Traditional performance measurement that only focus on external accounting data are obsolete. The approach is to provide 'balance' to the financial perspective.

Why Use a Balanced Scorecard? Improve organizational performance by measuring what matters Increase focus on strategy and results Align organization strategy with workers on a day-today basis Focus on the drivers key to future performance Improve communication of the organization’s Vision and Strategy Prioritize Projects / Initiatives

4 Original Business Perspectives n The Balanced Scorecard model suggests that we view the organization from 4 perspectives. n Then Develop metrics, collect data and analyze it relative to each of these perspectives

4 Business Perspectives Questions Financial Internal Business Process To satisfy our stakeholders, what must be our levels of productivity, efficiency, and quality? Learning and Growth What must we do to create sustainable economic value? How does our employee performance management system, including feedback to employees, support high performance? Customer What do our customers require from us and how are we doing according to those requirements?

Balanced Scorecard Measurements

Key Implementation Success Factors Obtaining executive sponsorship and commitment Involving a broad base of leaders, managers and employees in scorecard development Choose the right Scorecard Champion Beginning interactive (two-way) communication first Viewing the scorecard as a long-term journey rather than a short-term project Getting outside help if needed

Balanced Scorecard Example STRATEGY MAP BALANCED SCORECARD PROCESS: MANUFACTURING EXCELLENCE THEME: ROCE > xx%, VOLUME = xx, xxx units FINANCIAL PERSPECTIVE Long-Term Shareholder Value ROCE > xx% Improve Productivity Grow Revenue CUSTOMER PERSPECTIVE OFFER PRODUCTS & SERVCIES THAT ARE CONSISTENT, TIMELY and LOW-COST Low Cost Customer Satisfaction World Class Enhance Brand INTERNAL PERSPECTIVE ENSURE OPERATIONAL EXCELLENCE WITH INNOVATION AS WELL BEING SOCIALLY RESPONSIBLE Operational Excellence Alliances with SBUs Process Innovation Socially Responsible LEARNING & GROWTH PERSPECTIVE STRATEGIC JOB & SYSTEMS Skills Info. System OBJECTIVES MEASUREMENT • Operating Cost & Efficiency • Cost/Unit, Efficiency • Capacity Utilization • % Utilization • Capability Utilization • Trial Prod. • Spare Parts Prod • Brand / Image • Warranty Cost • Low Cost Manufacturing • Man-hour per Unit • Weekly Monitoring • Defect per Unit • Daily Monitoring • Sales Delivery • Daily Monitoring • Direct Pass Rate • Daily Monitoring • High Customer Satisfaction • Market Feedback • Weekly Monitoring • Reinforce Brand Image • Sales Volume • Productivity • Cycle Time • Hourly Monitoring • Meet Daily Plan • WIP • KAIZEN • ICC • Daily Monitoring • Monthly follow-up • Specific Programmed • Timely Introduction • Weekly Follow-up • Industrial Accident • Commuting Accident • Toxic Waste Disposal • ISO 9002 • Cross Audits • Defensive Driving • Facility Readiness • Certification • World-Class Quality Standards • World-Class Delivery Timing • Knowledgeable & Skilled Partner • Delivery • Continuous Improvement • NPI • Safety & Health • Environment • Develop the Necessary Skills • R&D & Development • Information Systems • ALC, Procurement, Availability • Strategic Awareness Financial • Alignment TARGET ACTION PLAN INITIATIVE BUDGET • Monthly Monitoring • Weekly/Monthly Monitoring • Monthly Monitoring t • Weekly/Monthly Monitoring • Monthly Monitoring OPEX RM XX M Prod. & Sales Mtg. • Training and Skill Build-up • Set-up, Test and Validation • Communication Programmed CAPEX RM xx M

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Scorecard Potential Pitfalls & Criticisms

Scorecard Potential Pitfalls & Criticisms Lack of a well Defined Strategy The balanced scorecard relies on a well defined strategy and understanding of linkages between strategic objections and metrics. Without this foundation the implementation could fail. Too much focus on the lagging measures Focusing on only the lagging measures may cause a lack of priority or opportunity for the leading measures. Use of Generic Metrics Don’t just copy metrics from another firm. Identify the measures that apply to your strategy and competitive position. Self-serving managers Managers whose goal is to achieve a desired result in order to obtain a bonus or other self reward.

Balanced Scorecard Benefit Re-Cap Helps align key performance measures with strategy at all levels of an organization The methodology facilitates communication and understanding of business goals and strategies at all levels of an organization Strategic initiatives that follow "best practices" methodologies that cascade through the entire organization Transforms an organization’s mission statement and strategic plan from a passive document into the "marching orders" for the organization on a daily basis. It enables executives to truly execute their strategies by identifying what should be done and measured. To date, some form of a Balanced Scorecard is used by nearly 60% of Fortune 500 companies