The Balanced Scorecard

A Performance Measurement Tool

The Balanced ScorecardWhat is it?

• The Balanced Scorecard • Provides stakeholders with a

comprehensive measure of how the organization is progressing towards the achievement of its strategic goals

• Provides a framework for communicating strategy in operating terms (measurements and targets)

• Balances financial and non-financial measures

• Balances short and long-term measures

The Balanced ScorecardWhat is it?

• The Balanced Scorecard• 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

The Balanced Scorecard

Why do it?• To achieve strategic objectives• To provide quality with fewer resources• To eliminate non-value added efforts• To align customer priorities and

expectations with the customer• To track progress• To evaluate process changes• To continually improve• To increase accountability

Mission – What the company does

Vision – What it aspires to be

Strategies – How it accomplishesgoals

Measures – Indicators of progress

The Strategy Focused Organization

The Balanced Scorecard and The Big Picture

•Activity Based Costing•Economic Value Added•Forecasting•Benchmarking•Market Research•Best Practices•Six Sigma•Statistical Process Control•Reengineering•ISO 9000•Total Quality Management•Empowerment•Learning Organization•Self-Directed Work Teams•Change Management

Missionand

Vision

BalancedScorecard

StrategicPlanning

FINANCIAL/REGULATORYTo satisfy our constituents, what financial & regulatory

objectives must we accomplish?

CUSTOMERTo achieve our vision,

what customer needs must we serve?

LEARNING & GROWTHTo achieve our goals, how

must we learn, communicate and grow?

INTERNALTo satisfy our customers and

stakeholders, in which business processes must we excel?

The Four PerspectivesThe Four Perspectives

The Four Perspectives

Financial: Represents financial outcomes (profits, revenues, etc.)

Customer: Enables financial results (service, image, price, quality, etc.)

Internal Processes: The values added to customers, such as delivery, production, distribution, etc.

Learning & Growth: The people, systems, and organization that enable processes

Measurements

For each strategic objective, there is one measurement

Measurement provides feedback on meeting the strategic objective

Most organizations will use many of their existing measurements

Organizations requiring major change should include driver type measurements

Measurement Criteria

Measurements should drive change, providing teeth to the strategy

Measurements define objectives in specific terms – A good measurement should link to the

objective

– Measurements should be repeatable, quantifiable, and verifiable

Customer Perspective

o Customer satisfaction survey scores

o Response time to customer service

o Market share

Possible Performance MeasuresPossible Performance Measures

To achieve our vision, what customer needs must we serve?

Financial / Regulatory Perspective

o Cost per unit

o ROE / ROA

o Percentage increase in revenues

o Budget projections

Possible Performance MeasuresPossible Performance Measures

To satisfy our constituents, what financial and regulatory objectives must we accomplish?

Internal Perspective

o Cycle time

o Down time

o Testing time

o Completion rate

o Government approval

o Transactions per employee

o Errors or rework

Possible Performance MeasuresPossible Performance Measures

To satisfy our customers, in which business processes must we excel?

Learning and Growth

To achieve our goals and accomplish core activities, how must we learn, communicate and work together?

Possible Performance MeasuresPossible Performance Measures

o Employee satisfaction

o Retention and turnover

o Training hours and resources

o Technology investment

Why Measure?

• To determine how effectively and efficiently the process or service satisfies the customer

• To identify improvement opportunities

• To make decisions based on FACTS and DATA

Measurements Should:

• Translate customer expectations into goals

• Evaluate the quality of processes

• Track improvement

• Focus efforts on customers

• Support strategies

Targets

“If you don’t know where you’re going, you may go somewhere else.”

Yogi Berra

Targets

Targets need to be set for all measures

Should have a “solid basis”

Give personnel something for which to aim

If achieved will transform the organization

Must be achievable; be careful not to develop measures/targets in a fragmented approach:– e.g., Asking people to increase customer

satisfaction has to be backed up with the knowledge, tools, and means to achieve that target

Expanded ScorecardExpanded Scorecard

The Balanced Scorecard as a Management System

The BSC is a “Living Document” that requires regular revision of objectives and measures

Assessment of success is based on DATA… not opinions or gut feelings

Benefits of the BSC

Simple to Use and Understand Based on Vision and Strategy Multidimensional

•Quantitative and Qualitative Measures•Current and Future

Provides Measurement of and Method for Improving Products/ServicesServes as a Communication Tool

The Balanced Scorecard

A Performance Measurement Tool