ObjectiveExplain What is the Balanced Scorecard

Describe the Three Generations of Balanced Scorecards

Explain the Importance of Balanced Scorecard

Describe the Various Perspectives of Balanced Scorecard

Describe the Various Parameters of Balanced Scorecard

Explain What is Performance Management

Explain the Steps in Building a Balanced Scorecard

Describe the Balanced Scorecard System Elements

Explain the Steps for Implementation of BSC

Explain What is the BSC Designer

List the Tips for Implementing Balanced Card

List the Pitfalls of Balanced Scorecard

Introduction

David Pelham is a major stakeholder in Globus Inc., an MNC.

Introduction

He is greatly interested in the performance of Globus Inc.

Introduction

So, what gives an overall picture about the performance of a company?

Introduction

The answer is a ‘Balanced Scorecard’.

What is the Balanced Scorecard

The Balanced Scorecard is a management tool that provides stakeholders with a comprehensive measure of how the organization is progressing towards the achievement of its strategic goals.

The Balanced Scorecard:• Balances financial and non-financial measures• Balances short and long-term measures• Balances performance drivers (leading indicators)

with outcome measures (lagging indicators)• Should contain just enough data to give a complete

picture of organizational performance and no more!• Leads to strategic focus and organizational

alignment

What is the Balanced Scorecard?The Balanced Scorecard framework is shown in the given diagram.

Vision and

Mission

Financial Perspective

Internal Process

Perspective

Learning & Growth

Perspective

Customer Perspective

The balanced scorecard translates the organization's strategy into four perspectives, with a balance between the following:• between internal and

external measures • between objective

measures and subjective measures

• between performance results and the drivers of future results

History of Balanced Scorecard

•

In essence the Balanced Scorecard has remained unchanged since these early papers, having at its core a limited number of measures clustered into groups and an underlying strategic focus.

•

But modern Balanced Scorecard designs also have a number of features that clearly differentiate them from earlier examples.

•

The changes in the balanced scorecard have been an evolution through three distinct generations’ of Balanced Scorecard design.

Balanced Scorecard Goes Beyond the Financial Perspective

Let us look at each perspective in detail.

Learning & Growth Perspective

Business Process Perspective

Customer Perspective

Financial Perspective

Customer Perspective - includes measures such as customer satisfaction, customer retention, and market share in target segments.

Measures

Parameters

Measures –

the observable parameters that will be

used to measure progress toward

reaching the objective. For example, the

objective of profitable growth might be

measured by growth in net margin.

Parameters: Objectives, Measures, Targets, and Initiatives

These can be organized for each perspective in a table as shown below.

Objectives Measures Targets Initiatives

Financial

Customer

Process

Learning

Performance Criteria

Performance Criteria helps to translate job requirements into levels of acceptable or unacceptable employee behaviour.

Hence, ‘performance criteria’ is an important determinant of performance.

It is essential to define ‘Performance Criteria’ for conducting a performance appraisal.

Principles of a Strategy Focused Organization

Strategy Focused

Organization

Translate Strategy

Continual Process

Everyone’s JOB

Organization Alignment

Organization Alignment• Corporate Role• Corporate-strategic

Business Unit (SBU)• Strategic Business Unit

(SBU) - Shared Services• External Partners

Organization Alignment

Executive Leadership

Characteristics of Balanced Scorecard• The core characteristic of the Balanced

Scorecard and its derivatives are the presentation of a mixture of financial and operational measures each compared to a 'target' value within a single concise report.• The report is not meant to be a replacement for traditional financial or operational reports but a succinct summary that captures the information most relevant to those reading it. • There are various versions of the tool in circulation which differ due to the methods by which this 'most relevant' information is determined, that is, the design processes used to select the content.

Design of Balanced ScorecardThere are four steps required to design a Balanced Scorecard which are included in Kaplan & Norton's writing on the subject in the late 1990s, where they assert four steps as being part of the Balanced Scorecard design process:

Step #1

Translating the vision into

operational goals

Step #2Communicating the vision and link it to individual performance

Step #3Business planning; index setting

Step #4

Feedback and learning,

and adjusting the

strategy accordingly

Steps in Building a Balanced Scorecard

21

3

• Process 1: o Strategy formulation. Prepare vision and mission statements

• Process 2: o Identify the Objectives of the organization

• Process 3: o Deciding for the measurements and Targets. Creating

performance indicators.

Balanced Scorecard System ElementsEngaged Leadership, Interactive Communications and Change

ManagementDeveloping a scorecard system is transformational for an organization, as it is about changing hearts and minds. Leaders who are engaged in the discovery process, communication via two-way dialogue, and planning and managing change are important first steps in the process.

Organization Mission, Vision, and Values

Critical to an aligned organization are a well defined mission, a shared vision, and organization values that are built on strong personal values. Most organizations have these components, but often there is no connecting tissue among the components that allow employees to “get it” easily. A compelling and clear “picture of the future” (the shared vision) is where the scorecard development process starts. The employee buy-in follows as hearts and minds are engaged in creating and executing the organization’s strategies.

Performance Information Reporting

Automated data collection and reporting processes are used to visualize performance information and better inform decision making throughout the organization.

Steps for Implementation of Balanced Scorecard

Step 2: Collaboration:The next step requires teamwork and collaboration where the

different perspectives of different people and their expertise are required. The implementation of a balanced scorecard is not a one-

person job and won’t produce buy-in.

Step 8: Selection of

metrics

Step 10: Periodic reviews

Step 7: Finishing touches

Step 9: Roll-out

Step 11: Evolution

Step 2: Collaboration

Step 4: Gain

consensus

Step 6: Expand

consensus

Step 1: Initiation

Step 3: Gain

Inputs

Step 5: Individual reactions

Adaptation of the Balanced Scorecard Framework to Non-Profit and Government Organizations

Typical Balanced Scorecard Project Schedule