balanced scorecard

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Balanced Scorecard : Balanced Scorecard :

Creating Strategy Map Creating Strategy Map

to Drive Corporate to Drive Corporate

PerformancePerformance

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Contents :Contents :

1. Corporate Performance Scorecard

2. Strategy Map Framework

3. Four Perspectives in Balanced Scorecard

4. Identifying Key Performance Indicators

5. Strategy Map in Corporate Functions (HR, IT,

Finance and Marketing)

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Corporate Performance Management

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Performance Management FrameworkPerformance Management Framework

IdentifyingDefining

MeasuringMonitoring Reporting

Key Key Performance Performance

IndicatorsIndicatorsCompany Company strategystrategy

VisionMissionStrategy

Strategy MapStrategy Map

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Three critical components for effective process of

performance management

Performance ManagementInfrastructure

PerformanceManagement

Culture

PerformanceManagement

Process

Performance management cycle is continuous and

consistent

Culture that is based on performance accountability

Logistic support and performance management

administration

Performance Management ComponentPerformance Management Component

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STRATEGY

Plan and Execute

Monitor and Evaluate

Reward and Coach

Set Measures and Target

Performance Management CyclePerformance Management Cycle

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Managing Performance with Managing Performance with

Balanced ScorecardBalanced Scorecard

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.

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• Balances financial and non-financial measures

• Balances short and long-term measures

• Balances performance drivers (leading indicators)

with outcome measures (lagging indicators)

• Leads to strategic focus and organizational

alignment.

Managing Performance with Managing Performance with

Balanced ScorecardBalanced Scorecard

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4 Perspectives in Balanced Scorecard4 Perspectives in Balanced Scorecard

If we succeed, how will we look to our shareholders?

Financial Perspective

To achieve our vision, how must we look to our

customers?

Customer Perspective

To satisfy our customers, which processes must we

excel at?

Internal Perspective

To achieve our vision, how must our organization learn

and improve?

Learning & Growth Perspective

The Strategy

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Strategy and Balanced ScorecardStrategy and Balanced Scorecard

Mission – Why We

Exist

Vision – What We

Want to Be

Values – What’s

Important to Us

Strategy : Our Game

Plan

Strategy Map :

Translate the Strategy

Balanced Scorecard :

Measure and Focus

Strategic Outcomes

Satisfied Shareholders

Delighted Customers

Excellent Processes

Motivated Workforce

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• The strategy map framework is presented in the

following slides.

• This framework describes the types of strategic

target that should be presented in each perspective,

namely the financial perspective, customers, internal

business process, and learning & growth perspective.

Strategy Map FrameworkStrategy Map Framework

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Cost Efficiency

Long-term Shareholder Value

Revenue Growth

Price Availability BrandServiceQuality

Operations Management

Processes

Human Capital

CustomerManagement

Processes

Innovation Processes

Regulatory and Social Processes

Organization Capital Information Capital

Strategy Map FrameworkStrategy Map Framework

Financial

Customer

Internal Process

Learning & Growth

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Financial Perspective Financial Perspective

• In private companies, the financial perspective is the

main objective (ultimate goal) – without having to

sacrifice the interests of other relevant stakeholders

(community, environment, government, etc.)

• In the financial perspective, the strategic goal is the

long-term shareholder valuelong-term shareholder value. This goal is driven by

two factors, namely : revenue growthrevenue growth and cost cost

efficiency.efficiency.

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Long-term Shareholder Value

Revenue Growth

Improve Cost Structure

Increase Asset Utilization

Cost Efficiency

Strategic Objectives in FinancialStrategic Objectives in Financial

Expand Revenue

Opportunities

Enhance Customer Value

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Customer PerspectiveCustomer Perspective

• This perspective is very instrumental, because without

customers, how can a company survive?

• Customer perspective covers the following elements:

• Customer acquisition

• Customer retention

• Customer profitability

• Market share

• Customer satisfaction

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Price Availability BrandServiceQuality

Customer AcquisitionCustomer Acquisition

Customer SatisfactionCustomer Satisfaction

Customer Retention Customer Retention Customer ProfitabilityCustomer Profitability

Market ShareMarket Share

Strategic Objectives in CustomerStrategic Objectives in Customer

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Internal Process PerspectiveInternal Process Perspective

• This perspective reflects the processes in key business

that should be optimized in order to meet the needs of

the customers.

• There are four main themes in this perspective, namely:

• Operations Management Process

• Customer Management Process

• Innovation Process

• Regulatory and Social Process

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Operations Management

Processes

CustomerManagement

Processes

Innovation Processes

Regulatory and Social Processes

Processes that produce and

deliver products and services

Processes that enhance customer

value

Processes that create new

products and services

Processes that improve

communities and the environment

• Supply

• Production

• Distribution

• Selection

• Acquisition

• Retention

• Growth

• New Ideas

• R&D Portfolio

• Design/

Develop

• Launch

• Environment

• Safety &

Health

• Employment

• Community

Strategic Objectives in Internal ProcessStrategic Objectives in Internal Process

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Learning & Growth PerspectiveLearning & Growth Perspective

• This perspective reflects the capability that a company

should have, namely:

• Human Capital

• Organization Capital

• Information Capital

• This perspective shows us that good human resource

development system, organizational system and

information system forms a solid foundation for improving

company performance.

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Human Capital Organization Capital

Information Capital

• Skills• Knowledge• Attitude

• Systems• Database• Networks

• Culture• Leadership• Organization

Development

Strategic Objectives in Strategic Objectives in

Learning & GrowthLearning & Growth

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Strategy Map TemplateStrategy Map Template

• The following slide displays the strategy map template

comprising of four perspectives : financial, customer,

internal business process, and learning & growth.

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Improve Cost Efficiency

Enhance Long-term Shareholder Value

Increase Revenue Growth

Enhance Brand Image

Build High Performance Products

Achieve Operational Excellence

Develop Strategic Competencies

Drive Demand through Customer

Relation Management

Manage Dramatic Growth through

Innovation

Implement GoodEnvironmental

Policy

Build Learning Culture

Expand Capabilities with Technology

Strategy Map TemplateStrategy Map Template

Financial

Customer

Internal Process

Learning & Growth

Expand Market Share

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Identifying Key Performance Indicators (KPI)

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VisionMission

and ValuesStrategy

Finance

Customer

Internal Business Process

HR Development

Key Performance Indicators



Strategic ObjectivesStrategic Objectives

KPI = Measurement or indicator that provides

information on how far we have succeeded in

achieving the strategic objectives

Key Performance Indicators (KPI)Key Performance Indicators (KPI)

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• The measure of success must show clear, specific and

measurable performance indicators.

• The measure of success should be declared explicitly and in

detail so that it is clear what is being measured.

• Costs to identify and monitor the measure of success should

not exceed the value that will be known from the measurement.

Guidelines in Formulating the KPIGuidelines in Formulating the KPI

KPI GuidelinesKPI Guidelines

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Relevant to the Strategic Objective

Does KPI have a linkage with the strategic

objectives?

Controllable Are the KPI achievements still under control?

Actionable Can any action be taken to improve the

performance?

Simple Is the KPI easy to explain?

Credible Is the KPI not easy to manipulate?

KPI GuidelinesKPI Guidelines

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KPI KPI Family DimensionFamily Dimension

Productivity Measures employee output (units/

transactions/ dollars), the uptime levels and

how employees use their time (sales-to-

assets ratio, dollar revenue from new

customers, sales pipeline).

Measures the ability to meet and/or exceed

the requirements and expectations of the

customer (customer complaints, percent

returns, DPMO -- defects per million

opportunities).

Quality

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Profitability Measures the overall effectiveness of the

management organization in generating

profits (profit contribution by

segment/customer, margin spreads).

Measures the point in time (day/week/

month) when management and employee

tasks are completed (on-time delivery,

percent of late orders).

Timeliness

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Process Efficiency

Measures how effectively the management

organization incorporates quality control, Six

Sigma and best practices to streamline

operational processes (yield percentage,

process uptime, capacity utilization).

Measures how effectively the management

organization leverages existing business

resources such as assets, bricks and mortar,

investments (sales per total assets, sales per

channel, win rate).

Resource Utilization

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Cost Savings

Measures how successfully the management

organization achieves economies of scale and

scope of work with its people, staff and

practices to control operational and overhead

costs (cost per unit, inventory turns, cost of

goods).

Measures the ability of the management

organization to maintain competitive economic

position in the growth of the economy and

industry (market share, customer

acquisition/retention, account penetration).

Growth

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KPI Category DimensionKPI Category Dimension

DirectThe actual raw data value as measured (e.g.,

sales volume).

PercentThe comparison of the changes in

performance of one value relative to the

same value at a different time, geography,

etc. (e.g., percentage change in sales vs.

last year).

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Simple Ratio

The comparison of one value relative to another to

provide a benchmark for comparison of

performance (e.g., average sales per day).

IndexA combination of several separate measures

added together that result in an overall indicator

of performance (e.g., (company sales

growth)/(industry sales growth) for a specific

geography).

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Composite Average

The addition of the weighted averages of several

similar measures that result in an overall composite

indicator of performance (e.g., customer satisfaction

composite is mixture of results from surveys, focus

groups and product returns).

StatisticsMultiple measures such as mean, variance,

standard deviation and variance that capture the

spread and distribution of the performance

measures (e.g., sales distribution by demographics,

geography, channel).

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Strategy Map for Corporate Functions (HR, IT, Finance and

Marketing)

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VisionMissionStrategy

Integration between Corporate and Integration between Corporate and

Division/DepartmentDivision/Department

CorporateScorecard

DivisionScorecard

The Division Scorecard is built by referring to the corporate scorecard

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Financial

Customer

Internal Process

Learning & Growth

Corporate Finance

Corporate Marketing

Production

Supply Chain

R & D

Corporate HR

Info Technology

Corporate and Division ScorecardCorporate and Division Scorecard

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• Division Scorecard is formulated by looking at the four

perspectives in Corporate Scorecard.

• As shown in the previous slides, the learning & growth

perspective provides guidelines for developing scorecard at

the Human Resource and IT divisions, while the internal

process perspective provides guidelines for developing

scorecard at the supply chain division or R&D.

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Sample from GE Lighting Business Group

Level of Organization Financial Customer Internal Process Learning & GrowthCorporate Scorecard Increase profit margin Improve customer Increase inventory turns Increase level of

satisfaction level Improve internal process employee competency

Division Scorecard Optimize cost of production Improve customer Increase inventory turns Increase level ofReduce inventory levels satisfaction level Improve internal process employee competency

Plant Scorecard Optimize cost of production Increase percent of Increase inventory turns Number of "on the Increase yields ratio on time delivery Reduce number of defects job training" deliveredIncrease labor productivity Reduce customer per million Number of performanceReduce inventory levels complaints per million Improve quality incoming coaching session

materialsMaintain optimum equipment speed

Frontline Employee Reduce waste Reduce equipment downtime Number of "on the Scorecard Reduce overtime Reduce number of poor job training" attended

Increase production rates solders Number of performanceReduce number of cracked coaching session bulbs attended

The above example shows how the scorecard at corporate level is cascaded to division level, and further to plant level and employee level.

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Division Strategy Map TemplateDivision Strategy Map Template

• The strategy map for HR Division, Information Technology

Division, Finance Division, and Marketing Division are

presented in the following slides.

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Optimize HR Efficiency

Drive Long termShareholder Value

Enhance People & Organizational Effectiveness

Achieve HR Process

Excellence

Develop Strategic & Functional HR Competencies

Build Strategic Employee

Competencies

Drive Organizational

Performance

Enhance Technology for HR

Create Climate for HR Action

HR Strategy Map TemplateHR Strategy Map Template

Financial

Customer

HR Internal Process

Learning & Growth

Create Positive Work Environment

Provide Quality HR Service

Provide High Performance People

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Optimize IT Efficiency


Enhance IT Impact on Enterprise Outcome

Maintain a Reliable IT

Infrastructure

Develop Strategic & Functional IT Competencies

Develop Effective Decision

Support System

Propose and Deliver Transformational

Applications

Enhance IT Tools that Enhance the IT Function

Promote Customer-focused Culture

IT Strategy Map TemplateIT Strategy Map Template

Financial

Customer

IT Internal Process

Learning & Growth

Deliver Consistent, High Quality IT Service

Provide Business Units with Innovative IT Solutions

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Optimize Financial Efficiency


Enhance Finance Effectiveness onEnterprise Outcome

Achieve FinanceProcess

Excellence

Develop Strategic & Functional Finance

Competencies

Develop Financial Information to

Improve Decision Making

Ensure Compliance with Regulatory Requirements

Use Technology to Improve Financial Information

Delivery

Finance Strategy Map TemplateFinance Strategy Map Template

Financial

Customer

Finance Internal Process

Learning & Growth

Deliver Responsive & Efficient Finance Operations

Provide Clear & Reliable Required Disclosure

Promote Customer-focused Culture

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Optimize Marketing Efficiency


Increase Sales Revenue

Develop Innovative Marketing

Communication Program

Develop Strategic & Functional Marketing

Competencies

Develop Marketing Business

Intelligence

Accelerate New Product Development

Ideas

Enhance Technology for Marketing

Foster Creative Thinking & Innovative Solutions

Marketing Strategy Map TemplateMarketing Strategy Map Template

Financial

Customer

Internal Process

Learning & Growth

Create Satisfied and Loyal Customers

Enhance Brand Image

Develop Effective Customer Relation

Management

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Recommended Further Readings:

1. Robert Kaplan and David Norton, Strategy Map : Converting Intangible

Assets into Tangible Outcomes, HBS Press

2. Robert Kaplan and David Norton, Alignment : Using the Balanced

Scorecard to Create Corporate Synergies, HBS Press

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End of Material

balanced scorecard

Documents

customer perspectiveto

learning growth perspective

strategy map framework3

management tool

basedperformance management

strategic objectives

strategic goal

internal business process