balance score card
TRANSCRIPT
OVERVIEW OFOVERVIEW OFBALANCED BALANCED
SCORECARDSCORECARD
ORIGIN OF BALANCED SCORECARD
• In 1990 KPMG sponsored a one year study titled MEASURING PERFORMANCE IN THE ORGANIZATION OF TOMORROW
• Study conducted by Professors Robert Kaplan and David Norton of Harvard University
• Pilot company was Analog Devices• Research revealed that financial measures
were not the only measures to be monitored
ORIGIN OF BALANCED SCORECARD
• Study led to inclusion of non financial measures which impacted financial results
• Instrument which covered both financial and non financial measures was called THE BALANCED SCORECARD by Professors Kaplan and Norton
TODAY’S BUSINESS CHALLENGES
• Managing Top and Bottom lines• Meeting stakeholders expectations• Developing and retaining top talent• Creating a customer responsive organisation• Diminishing time to market• Market agility• Pricing and quality
STAKEHOLDERS EXPECTATIONS
• Delivering stakeholder value is a key driver for corporate success
• Stakeholders are: -Investors Capital Investment -Customers Profitability,loyalty -Employees Productivity,loyalty -Suppliers -part of virtual corpn -upstream integration -Fin Inst Financial health long and short term
BALANCED SCORECARD
• Provides method for organisation to systematically develop a comprehensive system of planning and control
• Performance measurement system that translates organisation strategy into objective measures, targets and initiatives
BALANCED SCORECARD
• Approach to performance measurement that combines financial measures with non-financial to provide a total corporate health
• Used for management and strategic control• Four standard dimensions as defined by
Kaplan & Norton but could be adapted to organisational needs
Balancing act of BSC
• Balanced scorecard provides balance between
-Short and Long term objectives -Financial and non financial measures -Lagging and Leading indicators -External and Internal performance
perspectives -Tangible and Intangible assets
CURRENT PROBLEMS
• Lack of integration between enterprise strategies and operational business processes shows following problems:
-Strategy not translated into operational schema nor broken down into elements
-90% of top management spends less than 1 hour per month on strategy discussions
-60% of employees do not relate directly to strategy -Focus on financial figures is high and past oriented
and stress laid on reactive measures
CURRENT PROBLEMS
• Lack of identification of potential opportunities and risks in terms of long term potential opportunities and risks in terms of of capital investments
• Inability of Operations planning and performance management to focus on current periods and their purpose within bounds of strategy in order to ensure profitability and liquidity
WHY BALANCED SCORECARD
• Operations performance measurement provide impulses for corporate strategy
• Combination of operations and strategic management makes it possible to assess decisions versus long term goals
THE BALANCED SCORECARD WHY DO IT
• Provide quality processes
• Achieve strategic objectives
• Eliminate non value added activities
• Track progress
• Evaluate process change
• Continually improve
• Increase accountability
THE STRATEGY FOCUSSED ORGANIZATION
• Vision -What we aspire to be• Mission -What we want to do• Values -What are our ethics in business• CSF -Critical factors in achievement of goals • Strategies -How we accomplish our goals• Objectives -Desired Outcomes• Measures -Indicators of our progress• Initiatives -Change process for objective achievement
VISION
• Picture of organization future
• Details where organization sees itself few years down the line
• Vision translated into objectives and strategies
VISION STATEMENT BY LEADING COMPANIES
• MICROSOFT -Empower people through great software anytime anyplace on any device
• SUN MICROSYSTEMS -Promote open systems and easy to operate computers and be leaders in emerging technologies(JAVA)
• TOYOTA -Manufacture of affordable reliable cars
VISION STATEMENT BY TATA MOTORS
• INDUSTRY LEADER IN SMALL CAR BY 2009
VISION STATEMENT OF INFOSYS
• TO BE A GLOBALLY RESPECTED CORPORATION THAT PROVIDES BEST OF BREED BUSINESS SOLUTIONS LEVERAGING STATE OF THE ART TECHNOLOGY DELIVERED BY BEST IN CLASS PEOPLE
MISSION
• Identifies a reason for existing
• A set of tangible statements of tangible statement of organizational purpose
• Declares joint purpose between Company and stakeholders
MISSION STATEMENT OF TATA MOTORS
• OUR COMMITMENT IS TO TOTAL CUSTOMER SATISFACTION THROUGH DILIGENT EFFORTS TO DEVELOP INDIGENISED AND LOW COST CARS AND EXPAND OUR CUSTOMER BASE ON AN ON GOING BASIS
MISSION STATEMENT OF INFOSYS
• TO ACHIEVE OUR OBJECTIVE IN ENVIRONMENT OF FAIRNESS HONESTY AND COURTESY TO CLIENTS EMPLOYEES VENDORS AND SOCIETY
VALUES
• Foundation on which company is built
• Vision and values are mirror of business and should stand the test of time
• Values should support vision and reflect in the daily operations of the company
• Value system may be influenced by external factors
• Vision charts future direction while values provide motor to get there
VALUES
• Develop supporting practices for values
• Values provide a guidance system for change management
• Values translated into measurable practices
• Examples are Customer Service:Average purchase and Market share;Employee care:Employee turnover and 360 degree appraisal
VALUES AT TATA MOTORS
• Transparent and honest Management
• Employees form an integrated part of the industrial family
• Customers , Dealers and suppliers form part of the extended family
• Ethical transactions within and externally
VALUES AT INFOSYS
• Integrity and transparency
• Fairness in dealings with stakeholders
• Pursuit of excellence
TRANSLATING VISION INTO DESIRED OUTCOMES
• VALUES-WHAT DO WE BELIEVE IN
• VISION-WHAT DO WE WANT TO BE
• MISSION-WHY DO WE EXIST
• VALUES-WHAT VALUES GUIDE US
• CSF-CRITICAL TO SUCCESS FACTORS
• STRATEGY-WHAT ARE OUR PLAN
• STRATEGIC OBJECTIVES-WHAT DO WE NEED TO ACHIEVE IN EACH KEY ACTIVITY TO SUCCEED
TRANSLATING MISSION INTO DESIRED OUTCOMES
• STRATEGIC OUTCOMES OF PERSPECTIVE -SATISFIED SHAREHOLDERS -DELIGHTED CUSTOMERS -EFFICIENT AND EFFECTIVE PROCESSES -MOTIVATED AND PREPARED WORKFORCE
STRATEGIC FOCUS
• THREE BUSINESS FOCUSSES -COST FOCUS -PRODUCT FOCUS -CUSTOMER FOCUS
COST FOCUSSED STRATEGY
• Directed at minimizing operations cost
• Company must command prices that are lower but close to industry average and render goods/services that are equal to industry standards
• Achievement of strategy through reduction of cycle time,labor cost, manufacturing cost
PRODUCT FOCUSSED STRATEGY
• Provides customer with unique value added services/features at premium price
• Fills niche area not served by cost leaders
• Tactics include better customer service
CUSTOMER FOCUSSED STRATEGY
• Provides customer with high service levels and product functions
• Premium commanded for product/services
MANAGING STRATEGY
• Four Processes -Translating Vision .Clarifying vision .Gaining consensus -Communicating and Linking .Communicating .Educating .Setting goals .Linking rewards to performance measures
MANAGING STRATEGY
• Four Processes -Business planning .Setting targets .Aligning strategic indicators .Establishing milestones -Feedback and learning .Articulating vision .Supplying strategic feedback .Strategic review
STRATEGIC GOALS
• Establishing strategic goals is the first step in building the balanced scorecard
• Strategic Goals establish direction in concrete terms. For Example: “ by the year 2005, we will grow revenues by 45%
• Strategic goals anchor the rest of the process• Strategic goals should fit with the vision and
mission of the organization
STRATEGY FOCUSSED ORGANIZATION
• Strategy is a key element for growth and success• Strategy is communicating in a easy manner• Strategic focus on navigation of activities to align
with strategy• Organizing is mobilization of employees to act
towards achievement of corporate objectives• Balanced scorecard provides framework to look at
strategy from different perspectives
STRATEGY FOCUSSED ORGANIZATION
• Five principles of strategic focussed organization -Translate strategy into operational terms -Align organizational strategy -Make strategy everybody’s everyday job -Make strategy a continual process -Mobilize change through leadership
STRATEGY FOCUSSED ORGANIZATION
• Five principles of strategic focussed organization *Translate strategy into operational terms -Strategy Maps -Balanced scorecards *Align organization to Strategy -Business unit synergies *Make Strategy everybody’s everyday job -Personal scorecards -Balanced pay cheques
STRATEGY FOCUSSED ORGANIZATION
• Five principles of strategic focussed organization *Make strategy a continual process - Link Budgets to strategies *Mobilize change through leadership -Usage of strategic management system
OBJECTIVES
• Objectives are desired outcomes
• Progress towards achievement of objective translated into measures
• Causal relationship between objectives
STRATEGIC OBJECTIVES
• IMPROVE RETURNS
• REDUCE COSTS
• INCREASE CUSTOMER SATISFACTN
• CREATE NEW PRODUCTS
• MAXIMIZE OPERATIONAL EFFCNCY
• RESPONSIVE SERVICE
• ALIGN PERSONAL GOALS
STRATEGIC MEASURES
• RETURN ON CAPITAL EMPLOYED
• MYSTERY SHOPPING RATING
• DEALER PROFITABILITY
• MFG RELIABILITY INDEX
• COST EFFECTIVENESS
• COMPETENCE AVAILABILITY
MEASURES(METRICS)
• Metrics are meaningful quantified measures• Metric should present data that enables action• Metrics should be tied to strategy and should
indicate how well organization objectives and goals are being met through core processes
• Metrics should motivate indivisuals to improve processes
MEASURES(METRICS)
• No one right set of metrics
• Balanced scorecard to be tailored to each specific company
• Resultant scorecard of indicators to be driven by firms strategy
• Typical reasons for misalignment of metrics are: outdated strategy;wrong management policies;over matured process
WHY MEASURE
• Track current actual performance against targets and predictions
• Track performance deficiencies and monitor improvements
• Motivate managers and employees to achieve performance objectives
• Predict future trends• Stimulate creation of new
initiatives,objectives,targets
MEASUREMENT TYPES
• Planning Are we achieving long term objectives like ROI, P/E RATIO etc
• Screening Are functional areas performing as per organizational strategic goals
• Controlling Short to intermediate range performance measured periodically
• Control Are processes performing in alignment with the functional goals.Measures expressed in non monetary terms and focus is on immediate performance issues
STRATEGIC OUTCOME(CURRENT MEASURE)
• Signifies current value of metric measurement of activity
• If objectives have to be met some or all of the following outcomes have to mature: -Satisfied Shareholders
-Delighted Customers -Effective Processes -Motivated and prepared work force
KEY PERFORMANCE MEASURES OF THREE STRATEGY FOCUSES
• COST FOCUSSED
• PRODUCT FOCUSSES
• CUSTOMER FOCUSSED
COST MEASURES
• COST
• CYCLE TIME
• CONFORMANCE TO STANDARDS
• CONFORMANCE TO QUALITY
PRODUCT MEASURES
• NEW PRODUCTS IN PIPELINE
• R&D BUDGET
• TIME TO MARKET
• FIELD SERVICE MEASURES
• EMPLOYEE SATISFACTION
CUSTOMER FOCUSSED
• COMPLAINT HANDLING
• RESPONSIVENESS
• PRICE PERFORMANCE
INITIATIVES
• Change process or activity designed to achieve one or more objectives
• Initiative helps move a measure towards target value
VISION
MISSION
OBJECTIVES (Goals)
BSC PERSPECTIVESSTRATEGIES
MEASURES (KPI)
Strategic Planning
Activity Execution & Control
TARGET Operational planningCURRENT VALUE
INTIATIVES
ALARMS
Tactical Planning
FEEDBACK CONTROL
ROOT CAUSE AND COST OF QUALITY
DRILL DOWN OF PLANNING
ELEMENTS OF A BALANCED SCORECARD
• PERSPECTIVE Various viewpoints from which organization considered.Standard 4 perspectives.• SCORECARD Monitor activities involved in converting strategy to reality. Encompasses current and targeted key figures and initiatives linked to strategies.
ELEMENTS OF A BALANCED SCORECARD
• OBJECTIVES Describes goals to be achieved within a perspective.Objectives linked to a strategy. • MEASURES KPI to be monitored for a target to be achieved.• INITIATIVES Set of activities that share one or more objectives as their purpose.• CURRENT Numeric value metric achieved• ALARM Which range does value fall
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•The Balanced Scorecard Framework
•Customer
•Balanced
•Scorecard•Financials
•Learning& growth
•BusinessProcesses
Kaplan and Norton model (1996)
•Customer perspective
•Corrective activity
•Developmental activity
•Balancing compliancewith added value
•Balanced
•Scorecard
•Financial Measures
•Key performance ratios
•Financial health
•Balancing leading withtrailing indicators
•Learning and growth
•People measures
•Knowledge measures
•Balancing soft and
•hard indicators
•Business Processes
•Drumbeat
•Time, cost, quality
•Balancing inputsand outputs
A question of balance?
BALANCED SCORECARDSTANDARD DIMENSIONS
• FINANCE• How to manage stakeholders to be financially successful•
• CUSTOMERS INTERNAL *Who are internal and external *Metrics to Display performance of
• Customers Key organization process Metrics• *Define levels of • Requirement *Metrics compared with • service to match expectation•
LEARNING/VISION• *How to manage internal customers to realize vision• *Organization development through People improvement
Vision Strategy
Essential Elements of Balanced Scorecard
• Strategic Objectives = Management measures that can be understood by heads of departments
• Key Performance Indicators=Used to determine organizational performance
• Operational measure=Quantification of operational measures understood by all
BALANCED SCORECARD GENERATIONS
• FIRST GENERATION
-System for evaluating performance
.Performance measures
.Drilldown of strategy
.Perspectives
.Strategic objectives
.Performance indicators(KPI)
.Performance linked compensation
BALANCED SCORECARD GENERATIONS
• SECOND GENERATION
-Management Feedback Control Systems
.Organizational learning at end of term
.Root cause analysis and solution of problems
.Feedback for next term plan
BALANCED SCORECARD GENERATIONS
• THIRD GENERATION
-Framework for organizational change
.Change Management steps
.Strategy maps
.Definition of budgets and control of expenditure per initiative
Cause and effect chain
•Strategic Objective
•Financial Measure
•Customer Value Measure
•Process Measure
•Employee Measure
• What
• How
• How
• How
•May be reversed
VERTICAL SCORECARD(LINKAGES OF PERSPECTIVES)
FINANCIAL PERSPECTIVE
CUSTOMER PERSPECTIVE
INTERNAL PERSPECTIVE
LEARNING PERSPECTIVE
Cause and effect chain example
•Become No 2 player• What
• How
• How
• How
•Market share•F
•Service span offer•C
•Services delivered per customer•P
•Availability of data•E
PERSPECTIVE FINANCE
OBJECTIVE MEASURE• IMPROVE FA UTIL - % CAP UTIL -EQPT UPTIME -EQPT THRUPT• EFF W.C. -DYS INV -INV TURNOVER -%STKOUT• FIN RISK -BAD DEBT% -%UNCOLLECT ACR -INV OBSOLESC%
PERSPECTIVE FINANCE
OBJECTIVE MEASURE• OPER RISK -DEBT/EQUITY -ORDER BACKLOG -%ORDER CANCEL• INCR REV/CUST -WALLET SHARE• INCR CUST PROF -CUST PROFITABILITY -%UNPROFITABLE CUST• SALES PRODVITY –SALES EXP/TOTAL REV (COST OF SALES)
PERSPECTIVE FINANCE
OBJECTIVE MEASURE• BECOME IND COST LDR –COST/UNIT• ASSET UTILIZATION -SALES/ASSET
PERSPECTIVE LEARNING &INNOVATION
OBJECTIVES MEASURES• RAPID NEW PROD LNCH -NO NEW PR -DEV CYCLE • PROD OF NEW PROD -MFG COST -PROC YLD -FLD RETRN -FAILURES -WARRANTY CST -COMPLAINTS• SALES NEW PROD -REVENUES
PERSPECTIVE LEARNING &INNOVATION
OBJECTIVES MEASURES
• CONTINUOUS IMPR -NO IMPR PROC
-NO NEW IDEAS
-COST SAVING
-DEFECT REDN
-YIELD INCR
-PROC TIM RDN
PERSPECTIVE CUSTOMER
OBJECTIVES MEASURES• SEGMENTATION -PROF CONTR -MKT SHARE SEG• NONPROF CUST -%NON PROF CST• HIGH VALUE CUST -STATEGIC ACCT• BRAND MGT -BRAND AWARE%• NEW CUST ACQ -%LEADS CONV -COST/NEW CUST ACQ -CUST LIFETIME VAL -%NEW CUST ACQ
PERSPECTIVE CUSTOMER
OBJECTIVES MEASURES• CUST LOYALTY -%CUST ATTRITION -NO REFERRALS• CUST SATISF -%SATISF CUST• CUST RETAINED -%CUST RETAINED• LOW CUST COST -COST OF OWNERSHIP• ZERO DEFECT -PPM DEFECT• COMPLAINTS -NO CUST COMPLAINTS
PERSPECTIVE INTERNAL PROCESSES
OBJECTIVES MEASURES• Cost to serve -Cost of store + delivery• Product Agility -%Flexibility• Responsiveness -Lead time from order to dely -On time delivery % • Quality -%items delvd w/o defect• Cost of quality -cost of insp/prev/apprais/fail• Cost of product -Cost of operating processes• Unit cost -Unit cost per product• Marketing cost -Marketing cost/Total cost %
PERSPECTIVE INTERNAL PROCESSES
OBJECTIVES MEASURES• Continuous Impr -Cycle time/cost reduction
-Agility improvement -Quality improvement
• Cost of quality -cost of insp/prev/apprais/fail • Equipment eff -equipment O.E.E. • Cost of ownershp -%cost of purch as ttl cost
Learning and growth
• Employee satisfaction• Employee capability• Information availability• Knowledge growth• Performance and reward management
systems• Cultural measures from surveys – e.g.
leadership, communication, recognition (enablers)
LINKING SCORECARD COMPONENTS
STRATEGY
OBJECTIVE
Broaden Revenue Mix
Increase Customer Satisfaction
SUCCESS MSR
MEASURE
Revenue
Customer Retention
PERFORMANCE
TARGET
60% Product A40% Product B
95%
KEY ACTIONS
INTIATIVE
Sales Promotions
Loyalty Programs
PERSPECTIVE
FINANCIAL
CUSTOMER
INTERNAL-Improve Product Quality-Decrease Time to Market
-Customer Rejects-Customer Base Increase
5%5%
-TQM
-Agile Process
BALANCED SCORECARD
Factors to consider• Performance measures• Measures of process efficiency
– Time to execute process
– cost of process• levels of wastage, process agility& flexibility
- Outcomes vs. Outputs . Identify measures of process effectiveness
(output ,outcome)
– Leading vs. Lagging Indicators
PERFORMANCE MEASURES
• Design to track whether processes are moving in direction of strategy
• Perspectives performance
Financial capability & performance
Internal capability & performance
Learning capability & performance
Customer demand & satisfaction
SEVEN PRINCIPLES OF PERFORMANCE MSR
• Framework to contain 70-80% standardized measures and 20-30% specific to company
• Each measure should be linked as a leading indicator to one or more financial measurements
• Framework should contain minimum measures as possible for each level
SEVEN PRINCIPLES OF PERFORMANCE MSR
• Comprehensive measures for activity control
• Measures should take into account all side effects triggered by action
• Measures should allow comparison both internally and externally
• Measures chosen should be available in automated business transaction systems
STANDARDISED PERFORMANCE MEASURES
• ECONOMIC VALUE ADD
• SHAREHOLDER VALUE ADD
• SIX SIGMA
• TOTAL QUALITY MANAGEMENT(MALCOM BALDRIGE)
• INTERNATIONAL ORGANIZATION FOR STANDARDISATION(I.S.O)
WHAT TO MEASURE IN BALANCE SCORE CARD
• Stake holder desired outcomes
• Strategies required to fulfil outcomes
• Customer desired matrix
• Product and service matrices
• Process characteristics in terms of criticality and requirement for success
• Capabilities required to operate and enhance processes
OUTPUTS V/S OUTCOMES
• Output measure - recording of activity or effort( process efficiency)
• Outcome measure - assessment of results (process effectiveness – how well?)
LEADING V/S LAGGING INDICATORS
• Leading - What might be– performance drivers - inputs & outputs
• Lagging - What has transpired– outcomes & impacts
• Lagging/Leading indicators have
cause-effect relationship
STRATEGIC LAG MEASUREMENTS
• ROI
• REVENUE GROWTH
• MARKET SHARE
• CUSTOMER RETENTION
• SERVICE ERROR RATE
• ORDER TO CASH CYCLE TIME
• SUPPLY CHAIN COST
• REVENUE PER EMPLOYEE
STRATEGIC LEAD MEASUREMENTS
• REVENUE MIX
• SATISFACTION SURVEY
• PRODUCT DEVELOPMENT CYCLE
• HOURS WITH CUSTOMER
• PERSONAL GOAL ALIGNMENT %
CAUSE & EFFECT RELATIONSHIP
Financial Results
Customer Satisfaction
Business Processes
Learning & Growth
Satisfied & loyal customers lead to increased revenues
Improved processes leads to improved products/services
Skilled employees work to improve business processes
Employee knowledge leading to increased productivity
BALANCED SCORECARD AS A MEASUREMENT TOOL
• Closes gap between overall strategy and operative business
• BSC helps answer following:– Strategic objectives achieved– Our standing against competitors– Processes to be improved, how and why– Profitability of products, services, customer segments– How performance is judged by customers
• Directs attention to critical success indicators
SCORECARD HIERARCHIES
• BSC to be applied at all levels
• Set up hierarchy to communicate strategic objectives to all operating levels
• Cascading Score Card makes strategy transparent to all levels
• Score card broken down to level of individual employee
CASCADING BALANCED SCORECARD
Corporate Balanced Score Card
SBU level Balanced Score Card
Plant wise Balanced Score Card
Process wise Balanced Score Card Product wise Balanced Score Card
Employee Balanced Score Card
•S4•S3•S2•S1
•CEO
•HR
•COO
•PR-4•PR-3•PR-2•PR-1
•L1
•PL-1
•L2
•PL-2 •PL-3
•L3 •L4
•PL-4
•CSF
•HR mission
•HR vision
•CSF
•Corporate mission
•Corporate vision
PERSONAL SCORECARD
• Performance model provides for cascading and aligning personal goals
• Personal scorecard focuses indivisuals on the part of the performance model they can impact
• Personal metrics drilled down as shown in next slide
PERSONAL SCORECARD
• VP OPERATIONS -Operating Financials
• PLANT MGR -Prodn/Inv/Cost metrics
• SHIFT SUPRVSR -O.E.E.,Scrap
TAILORED SCORECARD
• HR Score Card• 6 Sigma Score Card• Malcolm Baldrige Score Card• Project Management Score Card• Distributor Score Card. Vendor Score Card• Outsourced Score Card• Environment mgmt score card• Safety mgmt score card
BALANCED SCORECARD MODEL IN H.R.
• EMPLOYEE RELATED STRATEGIC MEASURES
-Headcount v/s Plan -Recruitment v/s Plan
-Skills inventory v/s Plan
-Actual unplanned attrition v/s Industry
-Actual unplanned attrition v/s planned
BALANCED SCORECARD IN H.R.
• EMPLOYEE RELATED PROCESS MSR -Recruitment cycle time -Employee productivity -Sales per employee• EMPLOYEE RELATED CAPBLTY MSR -Total employee cost v/s Industry trend -Level of training hours per employee -Level of multi skilled employees
BALANCED SCORECARD IN QMS
• QMS measures processes and outcomes• Measures need to work in tandem to produce
higher quality,greater customer satisfaction,lower cost,higher profits
• Without integration of functional areas it is impossible to achieve TQM objectives
• In TQM systems measures are integrated vertically(across levels) and horizontally
across (functions)
SIX SIGMA METRICS
• DPMO• Defect Rate• Yield• Process Capability• Process Performance• Process Cycle Time• Sigma Quality Level• Cost of Poor Quality
BSC ADDS TO TOTAL QUALITY PROGRAMS
• Explicit causal links from operational improvements to a customer based value proposition
• Explicit linkages to productivity enhancements and financial outcomes
• Identify entirely new processes for improvement
• Set priorities among processes to improve
SUPPLY CHAIN MEASUREMENTS
• How well are supply chain operations performing at minimizing inventory and cost while maximizing customer service
• How much inventory is in my entire supply chain and how quickly does it turn
• How quickly can I respond to rapid changes in demand
• Accuracy of forecast
• Utilization of plant and assets
SUPPLY CHAIN MEASUREMENTS
• % on time delivery
• %full delivery
• %quality delivery
MATERIALS MGT METRICS FOR PURCHASING
• % PO delivered in time• % PO line items accepted 1st time• % supplied items found defective• % invoice mismatches• PR to PO conversion time• Average days for ACP• Inventory turns• Order cycle time• Cost per order
MATERIALS MGT SCORECARD FOR
INVENTORY• Inventory turnover ratio
• Average inventory in months
• % inventory unmoved > 12 mths
• Number of stock outs
• % items failed before lifetime
• Year to date cost of failure
SEVEN PERSPECTIVES OF MALCOM BALDRIGE
• Customer satisfaction
• Employee satisfaction
• Financial performance
• Operational performance
• Product/service quality
• Supplier performance
• Safety/Environment
SIX SIGMA BALANCED SCORECARD
• Patented by ALLIED SIGNALS a HONEYWELL GROUP
• Comprises of following scorecards: -voice of customer -lean enterprise -agile enterprise -quality value -total productivity maintenance -activity based management -voice of stakeholders & society
MEASUREOF EXCELLENCE
• Manufacturing - amount of scrap and rework; -equipment uptime and throughput; -cost of non conformity
• Quality assurance - Quality %;-cost of quality• Accounting - % late payments; -billing errors;-
incorrect account entries;payroll errors• Marketing - incorrect order entries;overstocked
field supplies;contract errors
VERTICAL INTEGRATION
• Cascading of senior management strategy down the organization so that at each succeeding level(as activities become more operational and detailed) they are aligned and derived from higher goals
• Vertical integration includes everyone from CEO to the receptionist
• Everybody understands his role in achievement of organizational objectives
HORIZONTAL INTEGRATION
• It is critical to link various targets together
• Requirement for multiple functions to work in unison to achieve objectives
• Metrics will measure cross functional performances
CREATING A BALANCED SCORECARD
Identify vision Identify strategies Identify CSF/ perspectives
Identify measuresEvaluateCreate action plan
Follow-up & manage
CREATING A BALANCED SCORECARD
• STEP1: IDENTIFY VISION-DEFINE VISION• STEP2: IDENTIFY STRATEGIES-WHAT
STRATEGIES SHALLWE FOLLOW? WHAT AREAS TO FOCUS ON?
• STEP3:IDENTIFY CSF AND PERSPECTIVE-WHAT DO WE HAVE TO BE GOOD AT IN EACH PERSPECTIVE
• STEP4:IDENTIFY MEASURES-WHAT SHOULD WE MEASURE IN EACH PERSPECTIVE
CREATING A BALANCED SCORECARD
• STEP 5: EVALUATE – HOW DO WE EVALUATE OUR SCORECARD
• STEP 6: CREATE ACTION PLANS – WHAT ACTIONS SHOULD BE INITIATED TO REACH OUR TARGETS
• STEP 7: FOLLOW UP AND MANAGE-HOW DO WE FOLLOW UP , UPDATE AND MAINTAIN OUR SCORECARDS
PROCESS STEPS TO IMPLEMENT BSC
• FOUR PROCESSES
• -TRANSLATING VISION
• -COMMUNICATING AND LINKING
• -BUSINESS PLANNING
• -FEEDBACK AND LEARNING
PROCESS STEPS TO IMPLEMENT BALANCED
SCORECARD• Translating vision
-vision and strategy need to be expressed in terms that can provide practical guidance for action at local level -definition of standard measures as translation of vision and strategy for middle management
PROCESS STEPS TO IMPLEMENT BALANCED
SCORECARD• Communicating and linking
-executives link strategy with department and indivisual goals and objectives -framework of standard operational measures acting as leading indicators of financial results gives a starting point for aligning strategy with action points
PROCESS STEPS TO IMPLEMENT BALANCED
SCORECARD• Business planning
-connection between strategy and financial planning w.r.t budgets -BSC outlines a logical process for integrating business plans with financial budgeting
PROCESS STEPS TO IMPLEMENT BALANCED
SCORECARD• Feedback and learning
-Process allows managers to monitor short term results from non financial perspectives -By tracking events strategy evaluated and fine tuned -Cause and effect relationship between business strategy and financial performance selected to monitor results
USAGE OF BALANCED SCORECARD
• FIGURES COURTESY SAP. A.G.
• GLOBAL USAGE QUADRANTWISE
• FINANCE 20%
• CUSTOMER 25%
• INTERNAL 35%
• LEARNING/GROWTH 20%
CHALLENGES IN IMPLEMENTATION OF BALANCED SCORECARD• Choosing correct strategies• Choosing correct leading and lagging indicators• Concentration on key indicators• Balancing financial & non- financial indicators• Applying measures consistently across business
units• Using appropriate number of measures• Applying measures consistently across regions
FAQ ABOUT PERFORMANCE MEASUREMENT
• What are key performance measures
• Who is responsible for performance measures
• How many performance measures are required
• How to establish standards and weights for performance measures
• Where do we get data and how relevant is this data for performance measurement
HOW TOP MGRS USE BSC
• Adoption of well defined and communicated business strategy with focus
• Adoption of 25-30 key performance measures over critical processes which affect cash flow, across perspectives
• Communication of strategic direction
• Establish performance categories,baselines and targets
HOW TOP MGRS USE BSC
• Align activities across organization
• Assign ownership of processes and develop process cost,cycle time,standards,quality and target measures
• Develop indivizual performance profiles that align activity with business plan
• Measure employee performance against balanced scorecard as well as implement balanced pay cheque
BENEFITS OF BALANCED SCORECARD• Best practices and strategic initiatives cascade
through the organization• Helps align key performance measures with strategy• Provides comprehensive picture of operations• Provides strategic feedback and learning• Allows performance comparison vis-à-vis industry
and world• Reduces vast information into few controllable KPIs
BSC AT DELPHI MFG SYSTEMS
• Division of GM• Spun off as independent company• Manufacturer of ancillary components• Toyota Production Systems implemented and
Balanced scorecard developed for TPS• In internal perspectives measures such as lean
characteristics,productivity,cost,quality,processing cycle time
• O.E.E• Scrap %
STRATEGY MAPS
STRATEGY MAP
• Tool for translating strategy into specific objectives in operational terms
• Strategy maps along with BSC provide a new framework for describing and implementing strategy
• Strategy map helps establish the cause effect relationship for measures across perspectives as well as linkages to tangible/intangible assets
STRATEGY MAP
• Provides framework to illustrate how strategy links intangible assets to value creating processes
• Financial perspective describes tangible outcomes of strategy in financial terms and are lag indicators showing whether strategy is successful
• Customer perspective defines value proposition for targetted customers
STRATEGY MAP
• Internal perspective identifies critical processes which impact strategy
• Learning and growth perspective identifies intangible assets that are vital to strategy
• Possible to define multiple strategies and map for each strategy
• Common strategy maps: -Improved shareholder value -Maximized operational efficiency
STRATEGY MAP
• What is Strategy Map– Graphical translation of business plan into action– Diagram depicting operational functions and strategy– Map has financial objective as final goal– Strategic objectives from each perspective connected by
arrows– Provides overall strategy overview of business units– Defines relation between objectives– Balanced scorecards constructed from strategy maps by development of cause – effect relationship– Makes vision a reality
BALANCED SCORECARDINTERLINKAGES OF CRITICAL SUCCESS FACTORS THROUGH
STRATEGY MAP
FINANCIAL
CUSTOMER INCREASED BUSINESS & PROFITABILITY
INCREASED REVENUES
INCREASED CUSTOMER SATISFACTION
INTERNAL ONTIME DELY
QUALITY CONTRATED QUANTITY
SERVICE
LEARNING AND GROWTH
EMPLOYEE SATISFACTION
RESKILLING/ MULTISKILLING/ EMPOWERMENT
STRATEGIC LINKAGE MODEL
STRATEGY:IMPROVED SHAREHOLDER VALUE
STRATEGIC LINKAGE MODELFINANCIAL PERSPECTIVEIMPROVED
SHAREHOLDER VALUE (ROCE)
SALES GROWTH
GROSS CONTR
ASSET TURNS
OVERHEARDS AS % OF NSV
RESPOND TO CUST NEED
CRM
CUSTOMER SERVICES
IMPL A/C MGT PROG
DELIVER GOOD
PROPOSALS
DELIVER GOOD INT.
CUST SERVICE
EFFECTIVE ASSET MGT
EFFECTIVE BUSINESS CONDUCT
DEV & RETAIN STAFF
DEV CUST ORIENTED
SALES/FORCE
UNDERSTAND IMPACT OF
MKT LEVELS
DEV BETTER WORK
PRACTICES
LEARNING GROWTH PERSPECTIVE
INTERNAL PERSPECTIVE
CUSTOMER PERSPECTIVE
CASE STUDY TATA MOTORS
CASE STUDY:TATA MOTOR
• Awarded best implementation of Balanced Score Card in Pacific Asia, in 2003 from BSC Collaborative Inc.
• Judged on following parameters:
– Safety– Quality– Delivery– Cost of operations– Morale
–Volume
– Market Share
– Customer satisfaction
– Dealer satisfaction
– Receivables
CASE STUDY:TATA MOTORS
• KOREAN TELECOM was the other awardee
• First Indian company to be awarded prize
• Implementation of BSC has enabled greater focus on different elements of operational performance
• Awarded to commercial vehicle business unit
TATA MOTORS STRATEGY MAP
INTERNAL
INCREASED ROCE
INCREASE PROFITABILITY
INCREASE BUSINESS WITH EXISTING CUST
PROMOTE EXPORT
BUSINESS
MAXIMISE ASSET UTILIZATION
BECOME INDUSTRY COST
LEADER
LOWER COST AND SHORTER LEAD
TIMES
MEETING WORLD CLASS MFG STDS
UPGRADE DELIVERY PROCESS
CAPABILITY
MINIMIZE OPERATING COST
EXCEL IN CRM
IMPROVE DESIGN/TESTING
CAPABILITIES
BUILD COMPETENCY LEARNING GROWTH
CUSTOMER
FINANCIAL
ACHIEVE CUST QUALITY
EXPECTATION
BALANCED SCORECARD AT TATA MOTORS
• FINANCIAL PERSPECTIVE OBJECTIVE -Increase ROCE : ROCE -Increase Customer base : No of new dealer and sales from new dealers -Increase business from existing cust:sales from existing dealers -Build export business:Sales from export business
BALANCED SCORECARD AT TATA MOTORS
• FINANCIAL PERSPECTIVE OBJECTIVE - Maximize asset utilization:Asset turnover -Become industry cost leader:operating cost/sales;cost reduction achieved over standard cost
BALANCED SCORECARD AT TATA MOTORS
• CUSTOMER PERSPECTIVE OBJECTIVE - Provide value for money thru low cost mfg that meets world class quality and delivery expectations:Customer satisfaction index
BALANCED SCORECARD AT TATA MOTORS
• INTERNAL PERSPECTIVE OBJECTIVE - Achieve customer expectations in quality level:Cars defective per 1000 -Meet delivery reqmnts:%redn in wait time and %on time dely -Optimize asset utilization:O.E.E -Minimize operations cost:Actual cost/Std cost and mfg cost/sales
HR STRATEGY MAP
• 3.COGS
•2. Profits
• 6.RETURNS
• 8.QUALITY
• 9.PRODUCTIVITy
• 4.WALLET SHARE
•1. ROE
• 11.INVOLVEMENT
• 13.TRAINING• 12.EMPOWERED
• 7.MFG. PROFIT
• 5.WARRANTY COSTS
• 10.LOYALTY
•FINANCILL•1 Max return on equity
•Max. profitability
•Min. costs of operations
•CUSTOMER•Max. Customer Satisfaction
•Min warranty costs
•Min customer returns•INTERNAL•Max. operational profitability
•Maximize quality %
•Maximize productivity/head count
•Max. Employee retention
•Maximize suggestions/empl
•Maximize decisions taken
•Max training days per employee
•L & Q
QUALITY MGT STRATEGY MAP