bsc presentation
TRANSCRIPT
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Balanced Scorecard
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How would you feel about boarding the plane afterthe following conversation with the pilot?
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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.
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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.
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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 concentrateon doing too many things at the same time. So on flight I am focusing on air speed. Once I get to be excellent atAir speed, as well as altitude, I intend to concentrate onFuel consumption on the next set of flights.
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Q: to the participants Would you like to board this plane after having this discussion ?
A: Perhaps not.
What could be the reasons?
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Navigating an organization is as complex as an Aero plane
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They also require instrumentation to guide their organizations
………. like pilots have to guide an aeroplane
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Would you be satisfied as manager getting one dimensional Information about your organization ?
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Perhaps not, therefore
You need instrumentations/ information to navigate
in this competitive world
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BSC provides managers with the instrumentations they need to Navigate future competitive success.
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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
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Measures are balanced
Between the outcome measures—the results from Past efforts---and the measures that drivefuture performance
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4 Perspectives permit a balance between
Short term and long term objectivesOutcomes and performance driversHard objectives measures andSoft objective measures
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Competing in the Information Age
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Industrial Age
Financial ControlROCEProd ControlProfitabilityPhysical Capital
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Information Age
Financial ControlROCEProd ControlProfitabilityPhysical Capital
Made ManySuch MeasuresObsolete
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Information Age
Develop Customer RelationshipIntroduce innovative products/servicesQuality products at low costEmployee development and motivationDeploy information technology
RequiredNewCapabilities
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Information Age
Cross FunctionalLinks to customers and SuppliersCustomer SegmentationGlobal ScaleInnovationKnowledge Workers
NewOperating
Environment
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Information Age
Total Quality ManagementJIT-Production and DistributionTime based CompetitionLean Production/Lean EnterpriseBuilding Customer-focused OrgActivity Based Cost ManagementEmployee EmpowermentReengineering
Improvementinitiatives
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Capital You don’t see on the Balance Sheet
Human Capital
The collective skill, knowledgeattitudes and behavoiur of thePeople in the Organization Information Capital
The resources and processes in place that ensure effective use ofThe human capital
Organizational Capital
The values, working relationshipAnd cultural norms at work inThe organisation
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balanced scorecard
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Measurement&
Reporting-1992
Alignment &Communication
1996
Enterprise Strategic
Management-2000Articles in HB Review
The BSC-Measures that Drive performance---1992
Putting BSC to work-1993
Using BSC as a Strategic Management System-1996
Acceptance and Acclaim
BSC Translated in 18 languages
Selected by HBR as most Important management Practice in 75 years
History
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FinancialMeasures areInadequate
For GuidingInformation ageOrganizations
Must Create future Value
Through
Investment inCustomersSuppliersEmployeesProcessesTechnology &Innovation
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A balance scorecard translate a organization’s mission and strategy into set of performance measures that provide the framework for
implementing its strategy
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Strategy specify how an organization matches itsown capabilities with the opportunities in the
marketplace to accomplish its objectives
Strategy
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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
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•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………
strategic thinking
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Do we need to be clear about……?
GoalObjectiveMissionVision
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A goal or objective consist of a projected state of affairs whicha person or a system plans or intends to achieve or bring aboutA personal or organizational desired endpoint in some sort of assumed development.
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Vision: Defines where the organization wants to be in future.Vision: Defines where the organization wants to be in future.
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Mission: Defines where the organization is going now, describing why this organization exists
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Targets: defines goals and objectives
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Goal2008
Objective2013
Mission2028
5000 Cr 12,000 Cr 50,000 Cr
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Goal2009
Objective2014
Mission2029
7000 Cr 15,000 Cr 55,000 Cr
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Balance Scorecard as a Management System
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Balance Scorecard Emphasizes
Financial andNon Financialmeasures must bePart of InformationSystem
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4Perspectives
Financial
Perspective Customer
PerspectiveInternal
BusinessProcess
Perspective
Learning &Growth
Perspective
Develop Strategic Goals
Mission VisionClarify mission & Vision statement
Strategic Goals
Derive Sub-Goals
Sub-Goals
Map Sub-Goals to each quadrant of the Balanced Score Card
- identify measurement areas - develop measurement goals - postulate indicators - identify data elements
For each BSC Quadrant
Data Elements
Module
Tro
ub
le R
epo
rts
Indicators
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Internal Business• Sub-Goals
Learning & Growth• Sub-Goals
Customer• Sub-Goals
Financial• Sub-Goals
Internal Business• Sub-Goals
Learning & Growth• Sub-Goals
Customer• Sub-Goals
Financial• Sub-Goals
MethodologyOverview
A Balanced Scorecard Perspective on Performance
Ob
ject
ive
Me
asu
res
Ta
rge
tsIn
itia
tive
sCUSTOMER
How do our customers see us?
Ob
ject
ive
Me
asu
res
Ta
rge
tsIn
itia
tive
s
LEARNING andGROWTH
Can we continue to improve and create value?
Ob
ject
ive
Me
asu
res
Ta
rge
tsIn
itia
tive
sFINANCIAL
How do we look to shareholders?
Ob
ject
ive
Me
asu
res
Ta
rge
tsIn
itia
tive
s
INTERNAL BUSINESSPROCESS
What must we excel at?
Visionand
Strategy
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ject
ive
Me
asu
res
Ta
rge
tsIn
itia
tive
sCUSTOMER
How do our customers see us?
Ob
ject
ive
Me
asu
res
Ta
rge
tsIn
itia
tive
s
LEARNING andGROWTH
Can we continue to improve and create value?
Ob
ject
ive
Me
asu
res
Ta
rge
tsIn
itia
tive
sFINANCIAL
How do we look to shareholders?
Ob
ject
ive
Me
asu
res
Ta
rge
tsIn
itia
tive
s
INTERNAL BUSINESSPROCESS
What must we excel at?
Visionand
Strategy
Visionand
Strategy
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4Perspectives
Financial
Perspective
Financial Perspective Evaluate the Profitability of the Strategy
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4Perspectives
Customer
Perspective
Customer Perspective identifies Targeted Customer and market Segments and Measures the Organization’s success in these Segments
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4PerspectivesInternal
BusinessProcess
Perspective
This perspective focuses on internal operationsthat create value for customers that ,in turn,furthers the financial perspective by increasingthe shareholder value
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4PerspectivesInternal
BusinessProcess
Perspective
3 subProcesses
Innovation Process
Creating ProductsServices &ProcessesTo meet the demandOf Customers
Operations Process
Producing & deliveringExisting products thatWill meet the needs Of Customers
Postsales-ServiceProcessProviding service andSupport to the customerAfter the sale of a product or service
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4Perspectives
Learning &Growth
Perspective
This perspective identifies the capabilities theorganization must excel at to achieve superior internal processes that create value for Customers and shareholders
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Target ActualObjective Measures Initiatives Perform Perform
FinancialPerspective
IncreaseShareholdervalue
Operating incomeFrom ProductivityGain
Operating IncomeFrom Growth
Revenue Growth
Manage CostAnd UnusedCapacity
Build StrongCustomerRelationship
Rs 20 Cr Rs 20.12Cr
Rs 30 Cr Rs 34.20 Cr
6% 6.48%
FINANCIAL PERSPECTIVE
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Target ActualObjective Measures Initiatives Perform Perform
CustomerPerspective
IncreaseCustomerSatisfaction
Market Share inCommunicationNetwork Segment
Number of NewCustomers
CustomerSatisfactionRating
Identify futureNeeds ofCustomers
Identify newTargetCustomer Seg
Increase CustFocus of Sales
6% 7%
1% 2%
90% give 87%Gave Top two top twoRatings Rating
Customer Perspective
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Target ActualObjective Measures Initiatives Perform Perform
ReduceDelivery Time
Meet SpecifiedDelivery dates on time delivery
Improve postSales Services
ImproveProcesses
ImproveManufacturingCapability
Reduce Setup timeAutomation of Orders
Re-engineer orderDelivery process
Re-engineer order 92% 90%Delivery process
Improve CustomerService process
30 days 30 days
Service ResponseTime
Number of Impv.In BusinessProcesses
% of processesWith AdvancedControls
Within4 hrs
Within3 hrs
Organize teams from Sales & Manuf
Organize R&D/MfgTeams to implementAdv. control
5 5
75% 75%
INTERNAL BUSINESS PROCESS PERSPECTIVE
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Target ActualObjective Measures Initiatives Perform Perform
Align EmployeeAndOrganizationalGoals
DevelopProcessSkill
EmpowerWorkForce
Learning and Growth Perspective
Employee Satisfac-tion Rating
% Employees Trained in Process& Quality Mgt
% WorkersEmpowered to ManageProcesses
EmployeeParticipation toBuild Team Work
EmployeesTrainingProgramme
Supervisors asCoaches ratherDecisionMakers
80% 88%EmployeesGive topTwoRatings
90% 92%
80% 80%
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BSC as Strategic Management System
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BalancedScorecard
as a Strategic
ManagementSystem
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
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Clarifying andTranslating the Vision & Strategy
Clarifying the VisionGaining Consensus
Planning & Target Setting
Setting TargetsAligning Strategic
InitiativesAllocating ResourcesEstablishing Milestones
Communicating & Linking
Comm and EducatingSetting GoalsLinking Rewards to Performance
Strategic Feedback & Learning
Articulating the shared VisionSupplying Strategic FeedbackFacilitating Strategy review
and Learning
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Clarifying andTranslating the Vision & Strategy
Clarifying the VisionFormulation by Sr ExecutivesReaching ConsensusSorting Out DifferencesJoint Accountability
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Communicating & Linking
Communicating and Educating Newsletter Bulletin board Brochure Videos Intranet meetings
Setting GoalsLinking Rewards to
PerformanceEvery one Understand
Strategy for achievement Outcome Measures Efforts and Initiatives required
On time Delivery
Reduce setup timeBuy new machinesImprove delivery timeImprove packing
Communicating to
DirectorsExecutivesEmployees
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Planning &Target Setting
Plan to ChangeSet target for 3-5 yearsStretch targetsBenchmarking Alignment of TargetsAlignment of Strategic Planning
with operational Budgets
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Strategic Feedback &
Learning
Periodic Review and ChangeTargets-achieved or notPast and future ReviewInformation from allDouble loop learningCause and effect RelationshipValidity and ViabilityStrategy replacement according
to outcomes/performance drivers
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Features of Balance Score Card
Indicate company’s strategy and its link with perspectives
Strategy is communicated to all
Strategy translated into measurable targets
Motivates Managers to achieve targets
BSC limits the measures to only four
Highlights effect of one perspective on another
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Pitfalls in Implementing Balanced Score Card
Difficult to establish Fin-Non financial Linkages
Improvements at all levels may not be possible
Both subjective-objective measures Consideration
Considering Cost & benefits of initiatives
Non-financial Achievements are ignored
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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
Barriers to effective Implementation of BSC
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Strategy &Vision
Financial Plan& CapitalAllocation
Personal MBO &Incentives
MonthlyReview
Budget
1 Vision & Strategy not Actionable
2 Strategy notLinked to Dept Team& Individual Goals
3 Strategy not Linked to Resource Allocation
4 feedback that is tactically not strategic
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Cant be translated into actionCant be acted UponCant be understoodFragmentation & Sub optimization of effortsLacking consensus & ClarityDifferent AgendasNo integrationNot linked coherently to overall strategy
Barrier No 1: Vision and strategy not Actionable
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Separate Processes for Long term &Short term Strategic planningFunding to unrelated prioritiesPoor Monthly ReviewsUnfocused New Mgt TechniquesPoor Integration
Barrier No 3: Strategy not Linked to Resource Allocation
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Bulk of feedback is only financial measuresLittle time on strategy implementation & successNo priority to periodic review and meetingsInadequate informationPoor tactical review process
Barrier No 4: Feed back not tactically strategic
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Clarifying & TranslatingThe Strategy & Vision
Planning &Target Setting
Communicating And Linking
Strategic Feedback&
LearningBalance
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•Goal alignments from top to bottom•Education and open communication about strategy
•Compensation is linked To Strategy
•Stretch targets are established and accepted•Strategic initiatives are clearly identified•Investments are determined by strategy•Annual Budgets are linked to long term planning
•The strategy is the reference point for the entire management process•The shared vision is the foundation for strategic planning
•Feedback system used to test The hypothesis on which strategy Is based
•Team problem solving
•Strategy development is a Continuous Process
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Let Us Review
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4Perspectives
Financial
Perspective Customer
PerspectiveInternal
BusinessProcess
Perspective
Learning &Growth
Perspective
BALANCED SCORECARDTranslating the strategy to operational terms
If we succeed, how willWe look to ourShareholders?
The Strategy
Financial Perspective
To satisfy our customers,Which processes must
We excel ?
Internal Perspective
To achieve our vision,How must we look to our
Customers ?
Customers Perspective
To achieve our vision, how must our organisation team
Improves?
Organizational Learning
Measurement is the language that gives clarityTo vague concepts
Measurement is used to communicate,Not to control
Strategy can be described as a series of Cause and Effect relationship
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Clarifying andTranslating the Vision & Strategy
Clarifying the VisionGaining Consensus
Planning & Target Setting
Setting TargetsAligning Strategic
InitiativesAllocating ResourcesEstablishing Milestones
Communicating & Linking
Comm and EducatingSetting GoalsLinking Rewards to Performance
Strategic Feedback & Learning
Articulating the shared VisionSupplying Strategic FeedbackFacilitating Strategy review
and Learning
BalanceScorecard
BALANCED SCORECARDMake Strategy Everyone’s Job
CORPSBU
The Strategy Focused Workforce
Education
Personal GoalAlignment
Balanced Pay checks
BALANCED SCORECARDMake Strategy a continuous Process
Strategy
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Budget
PerformanceInput Output
Strategic Learning Loop
Management Control Loop
85% of Mgt teamsSpends less than
1 hr per monthOn strategy
issues
60% OF OrgDon’t linkStrategy &
budgets
78% orgs lockBudgets to anAnnual cycle
92% of orgsDo not report
On leadindicators
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Questions