The Balanced Scorecard Introduction to Gainsharing MBA 231

The Balanced Scorecard & Introduction to Gainsharing MBA 231 November 2007

What is the “Balanced Scorecard? ” • Kaplan & Norton 1992 Harvard Business Review • Considered a “classic” in performance management • It introduced a new set of metrics to assess progress towards company strategy • Recently, Huselid, Becker, and Beatty (2005) wrote a book called “The Workforce Scorecard” and extended the concepts

What You Measure is What You Get • ROI and EPS can give misleading signals for improvement and innovation • No single measure can be a clear performance target or focus the attention of employees/top management • Consider a pilot in flying a plane - a lot of data is available, but what is key? • Of these key areas, how can I easily see how well we are doing?

Comprehensive View • First, understand that these metrics complement financial measures, not replace them • These often focus on operational activities that impact financial performance • A balanced scorecard show “how” results are achieved • It puts strategy at the center of attention • So, what is a balanced scorecard? ….

The Four Perspectives 1) Financial perspective (“How do we look to shareholders? ”) 2) Customer perspective (“How do customers see us? ”) 3) Internal business perspective (“What must we excel at? ”) 4) Innovation and learning perspective (“Can we continue to improve and create value? ”)

What is Gainsharing? • Gainsharing allows an organization to provide $$ rewards to employees based on achieving goals (not necessarily making “profits” per se)� • Thus, productivity gains can be shared with employees • Monetary allocation amounts and a productivity goals are predetermined for a given period • If they are achieved, employees and the organization share in the “gains” made

Gainsharing • Approximately 45% of Fortune 1000 firms have used this approach to improve performance and focus on productivity • Evidence suggest that these plans generally work • In addition, these plans tend to have a positive impact on employee attitudes • These incentive plans can be used at virtually every level within an organization