atkinson6e ppt ch02 revised

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The Balanced ScorecardThe Balanced Scorecardand Strategy Mapand Strategy Map

Chapter 2


Performance Measurement Performance Measurement SystemsSystems

Measurement must support the company’s strategy and operation

Must be designed so companies get better at managing and improving the value created from their intangible assets

Need to move from reliance on financial measures to a mix of financial and nonfinancial measures


Balanced ScorecardBalanced Scorecard The Balanced Scorecard (BSC) provides a system

for measuring and managing all aspects of a company’s performance

The scorecard balances traditional financial measures of success, such as profits and return on capital, with nonfinancial measures of the drivers of future financial performance

The Balanced Scorecard measures organizational performance across different perspectives


PerspectivesPerspectives Four different but linked perspectives are derived

from the organization’s mission, vision and strategy:

– Financial– Customer– Process– Learning and growth


Balanced MeasurementsBalanced Measurements The BSC enables companies to:

– Track financial results– Monitor how they are building the capabilities for

future growth and profitability With customers With their internal processes With their employees and systems


StrategyStrategy A strategy accomplishes two principal functions:

– Creating a competitive advantage by positioning the company in its external environment with resources to support customers better than its competitors

– Having a clear strategy provides clear guidance for how internal resources should be allocated to gain a competitive advantage in the marketplace


ObjectivesObjectives Concise statements that articulate what the

organization hopes to accomplish

Action phrases

Tell the story of the strategy through the cause-and-effect relationships


Objectives Objectives Typical objectives found in each of the four BSC

perspectives include:– Increase revenues through expanded sales to

existing customers (Financial perspective)– Offer complete solutions to our targeted customers

(Customer perspective)– Achieve excellence in order fulfillment through

continuous improvements (Process perspective)– Align employee incentives and rewards with the

strategy (Learning and growth perspective)


MeasuresMeasures Provide specificity and reduce the ambiguity that

is inherent in word statements Specifying exactly how an objective is measured

will give employees a clear focus for their improvement efforts

Once the objectives have been translated into measures, managers select targets for each measure


TargetsTargets Targets establish the level of performance or rate

of improvement required for a measure– Should be set to represent excellent performance– Should, if achieved, place the company as one of

the best performers in its industry– Should create distinctive value for customers and

shareholders


Strategy MapStrategy Map Illustrates the causal relationship among the strategic

objectives across the four perspectives

Financial Perspective Return on Investment

Customer Perspective Customer Loyalty

On-Time Delivery

Process Perspective

Learning and Growth Perspective

Process Quality Cycle Time

Employees’ Process Improvement Skills


Financial Perspective Financial Perspective The ultimate objective for profit-seeking

companies Financial performance measures indicate whether

the company’s strategy, implementation, and execution are contributing to bottom-line improvement

A company’s financial performance can be improved in two ways: productivity improvements and revenue growth


Financial PerspectiveFinancial Perspective Increased productivity occurs by:

– Lowering direct and indirect expenses– Utilizing their financial and physical assets more

efficiently Companies generate revenue growth by:

– Selling additional products or services to existing customers

– Selling new products, selling to new customers, and expanding into new markets


Customer Perspective Customer Perspective Identify the targeted customer segments in which

the business unit competes and the measures of the business unit’s performance in these targeted segments

This perspective typically includes several common measures of the successful outcomes from a well-formulated and implemented strategy:– Achieve customer satisfaction and loyalty– Acquire new customers– Increase market share– Enhance customer profitability


Customer Perspective Customer Perspective A strategy identifies specific segments targeted for

growth and profitability

Companies must also identify the objectives and measures for the value proposition it offers customers


Customer PerspectiveCustomer Perspective The value proposition is the unique mix of product

performance, price, quality, availability, ease of purchase, service, relationship, and image offered to the targeted customers– Defines the company’s strategy– Communicates what the company expects to do for its

customers better or differently from its competitors Value propositions used successfully by different

companies include:– “Best buy” or lowest total cost– Product leadership– Complete customer solutions


Process Perspective Process Perspective Means by which the organization will:

– Create and deliver the value proposition for customers

– Achieve the productivity improvements for the financial objectives

The Process perspective identifies the critical processes in which the organization must excel to achieve its customer, revenue growth, and profitability objectives


Process Perspective Process Perspective Organizations perform many different processes,

which may be classified into four groupings:– Operating processes

Day-to-day processes by which companies produce their existing products and services and deliver them to customers

– Customer management processes Processes by which companies expand and deepen

relationships with targeted customers


Process Perspective Process Perspective – Innovation processes

Processes by which companies develop new products, processes, and services

– Regulatory and social processes Processes by which companies ensure that they

meet or exceed regulations on business practices


Learning and Growth Learning and Growth Perspective Perspective

Identifies objectives that drive improvement in the process objectives– Human Resources– Information Technology– Organization Culture and Alignment



Human Resources– Strategic competency availability

Employees have the appropriate mix of skills, talent, and know-how

Information Technology– Strategic information availability

Systems and applications contribute to effective strategy execution



Organization Culture and Alignment– Culture and climate

Employees have an awareness and understanding of the shared vision, strategy, and cultural values

– Goal Alignment Employee goals and incentives are aligned with the

strategy– Knowledge sharing

Employees and teams share best practices and other knowledge relevant to strategy execution


BSC in Nonprofit and BSC in Nonprofit and Government OrganizationsGovernment Organizations

The BSC is especially well-suited for nonprofit and government organizations (NPGOs)

Their success has to be measured by their effectiveness in providing benefits to constituents

Because nonfinancial measures can assess performance with constituents, the BSC provides the natural performance management system for NPGOs


NPGOs and StrategyNPGOs and Strategy Many NPGOs encountered difficulties in

developing their initial BSC, finding that they didn’t have a clear strategy

Many NPGOs place their mission objective at the top of their scorecard and strategy map– Cannot use the standard BSC architecture where

financial objectives are the ultimate, high-level outcomes to be achieved


Managing with the BSCManaging with the BSC The benefits from BSC are realized as the

organization integrates its new measurement system into management processes that:– Communicate the strategy to all employees and

organizational units– Align employees’ individual objectives and

incentives to successful strategy implementation– Integrate the strategy with ongoing management

processes

Barriers to Effective UseBarriers to Effective Use Senior management is not committed

Scorecard responsibilities do not filter down

The solution is overdesigned, or the scorecard is a one-time event

The scorecard is treated as a systems or consulting project


atkinson6e ppt ch02 revised

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