The Balanced Scorecard Approach

What is a Balanced Scorecard?

The Balanced Scorecard is a strategic planning and management system used to align business activities to the vision and strategy of the organization by monitoring performance against strategic goals.

Balanced Scorecard Concept

Was first published in 1992 by Kaplan and Norton, a book followed in 1996.

Traditional performance measurement that only focus on external accounting data are obsolete.

The approach is to provide 'balance' to the financial perspective.

Why Use a Balanced Scorecard? Improve organizational performance by

measuring what matters Increase focus on strategy and results Align organization strategy with workers on a

day-to-day basis Focus on the drivers key to future performance Improve communication of the organization’s

Vision and Strategy Prioritize Projects / Initiatives

4 Original Business Perspectives

Adapted from The Balanced Scorecard by Kaplan & Norton

The Balanced Scorecard model suggests that we view the organization from 4 perspectives.

Then Develop metrics, collect data and analyze it relative to each of these perspectives

4 Business Perspectives Questions Financial

What must we do to create sustainable economic value? Internal Business Process

To satisfy our stakeholders, what must be our levels of productivity, efficiency, and quality?

Learning and Growth How does our employee performance management

system, including feedback to employees, support high performance?

Customer What do our customers require from us and how are we

doing according to those requirements?

Balanced Scorecard Measurements

Key Implementation Success Factors Obtaining executive sponsorship and

commitment Involving a broad base of leaders, managers

and employees in scorecard development Choose the right Scorecard Champion Beginning interactive (two-way) communication

first Viewing the scorecard as a long-term journey

rather than a short-term project Getting outside help if needed

Balanced Scorecard ExampleSTRATEGY MAPSTRATEGY MAP BALANCED SCORECARDBALANCED SCORECARD

MEASUREMENTMEASUREMENTPROCESS: MANUFACTURING EXCELLENCE

PROCESS: MANUFACTURING EXCELLENCE

THEME: ROCE > xx%, VOLUME = xx,xxx unitsTHEME: ROCE > xx%, VOLUME = xx,xxx units OBJECTIVES

OBJECTIVESTARGET

TARGET

ACTION PLANACTION PLAN

INITIATIVEINITIATIVE

BUDGETBUDGET

FINANCIALPERSPECTIVE

Improve Productivity

Improve Productivity

OFFER PRODUCTS & SERVCIES THAT ARE CONSISTENT, TIMELY

and LOW-COST

OFFER PRODUCTS & SERVCIES THAT ARE CONSISTENT, TIMELY

and LOW-COST

Long-Term Shareholder Value ROCE > xx%

Long-Term Shareholder Value ROCE > xx%

GrowRevenue

GrowRevenue

CUSTOMERPERSPECTIVE

•Operating Cost & Efficiency•Operating Cost & Efficiency

•Capacity Utilization•Capacity Utilization

•Capability Utilization•Capability Utilization

•Brand / Image•Brand / Image

• Cost/Unit, Efficiency• Cost/Unit, Efficiency

•% Utilization•% Utilization

• Monthly Monitoring• Monthly Monitoring

• Weekly/Monthly Monitoring• Weekly/Monthly Monitoring

• Monthly Monitoring• Monthly Monitoring

• Weekly/Monthly Monitoring• Weekly/Monthly Monitoring

•Low Cost Manufacturing•Low Cost Manufacturing

•World-Class Quality Standards•World-Class Quality Standards

•World-Class Delivery Timing•World-Class Delivery Timing

•Knowledgeable & Skilled Partner•Knowledgeable & Skilled Partner

•High Customer Satisfaction•High Customer Satisfaction

•Reinforce Brand Image•Reinforce Brand Image

• Man-hour per Unit• Man-hour per Unit

• Defect per Unit• Defect per Unit

• Sales Delivery• Sales Delivery

• Direct Pass Rate • Direct Pass Rate

• Market Feedback• Market Feedback

• Sales Volume• Sales Volume

• Weekly Monitoring• Weekly Monitoring

• Daily Monitoring• Daily Monitoring

• Daily Monitoring• Daily Monitoring

• Daily Monitoring• Daily Monitoring

• Weekly Monitoring• Weekly Monitoring

• Monthly Monitoring Prod. & Sales Mtg.• Monthly Monitoring Prod. & Sales Mtg.

LowCost

LowCost World

Class

WorldClass

ENSURE OPERATIONAL EXCELLENCE WITHINNOVATION AS WELL BEING SOCIALLY

RESPONSIBLE

ENSURE OPERATIONAL EXCELLENCE WITHINNOVATION AS WELL BEING SOCIALLY

RESPONSIBLE

INTERNALPERSPECTIVE

CustomerSatisfaction

CustomerSatisfaction Enhance

Brand

EnhanceBrand

OperationalExcellence

OperationalExcellence Process

Innovation

ProcessInnovation

Alliances withSBUs

Alliances withSBUs Socially

Responsible

Socially Responsible

•Productivity•Productivity

•Delivery •Delivery

•Continuous Improvement•Continuous Improvement

•NPI•NPI

•Safety & Health•Safety & Health

•Environment•Environment

• Cycle Time• Cycle Time

• Meet Daily Plan• WIP• Meet Daily Plan• WIP• KAIZEN• ICC• KAIZEN• ICC

• Timely Introduction• Timely Introduction

• Industrial Accident• Commuting Accident• Industrial Accident• Commuting Accident• Toxic Waste Disposal• ISO 9002• Toxic Waste Disposal• ISO 9002

• Hourly Monitoring• Hourly Monitoring

• Daily Monitoring• Daily Monitoring• Daily Monitoring• Daily Monitoring• Monthly follow-up• Specific Programmed• Monthly follow-up• Specific Programmed

• Weekly Follow-up• Weekly Follow-up

• Cross Audits• Defensive Driving• Cross Audits• Defensive Driving• Facility Readiness• Certification• Facility Readiness• Certification

STRATEGIC JOB & SYSTEMSSTRATEGIC JOB & SYSTEMS

LEARNING & GROWTHPERSPECTIVE

SkillsSkills

Info. SystemInfo. System

•Develop the Necessary Skills•Develop the Necessary Skills

•Information Systems Availability •Information Systems Availability

•Strategic Awareness•Strategic Awareness

• R&D & Development• R&D & Development

• ALC, Procurement, Financial• ALC, Procurement, Financial

• Alignment• Alignment

• Training and Skill Build-up• Training and Skill Build-up• Set-up, Test and Validation• Set-up, Test and Validation• Communication Programmed• Communication Programmed

• Trial Prod.• Spare Parts Prod• Trial Prod.• Spare Parts Prod

•Warranty Cost•Warranty Cost tt

OPEXRM XX M

CAPEXRM xx M

OPEXRM XX M

CAPEXRM xx M

Balanced Scorecard Strategy Map

Department Level Scorecard Example

Scorecard Potential Pitfalls & Criticisms

Scorecard Potential Pitfalls & Criticisms Lack of a well Defined Strategy

The balanced scorecard relies on a well defined strategy and understanding of linkages between strategic objections and metrics. Without this foundation the implementation could fail.

Too much focus on the lagging measures Focusing on only the lagging measures may cause a lack of

priority or opportunity for the leading measures. Use of Generic Metrics

Don’t just copy metrics from another firm. Identify the measures that apply to your strategy and competitive position .

Self-serving managers Managers whose goal is to achieve a desired result in order to

obtain a bonus or other self reward.

Balanced Scorecard Benefit Re-Cap Helps align key performance measures with strategy at all levels of

an organization The methodology facilitates communication and understanding of

business goals and strategies at all levels of an organization Strategic initiatives that follow "best practices" methodologies that

cascade through the entire organization Transforms an organization’s mission statement and strategic plan

from a passive document into the "marching orders" for the organization on a daily basis.

It enables executives to truly execute their strategies by identifying

what should be done and measured.

To date, some form of a Balanced Scorecard is used by nearly 60% of Fortune 500 companies

Thank You for Your Time

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