Balanced Scorecard

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• Only 29% of all chief financial officers are satisfied with their performance measures.

• 55% of balanced scorecard users are satisfied with their performance measures.

Balanced Scorecard: Linking Strategy to Performance

© Rajiv D. Banker

Financial Executives Research Foundation

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Chicken Efficiency

© Rajiv D. Banker

What behavior is induced when store performance is measured as the ratio of chicken sold to chicken used?

What Makes an Outcome aGood Performance Measure • SENSITIVITY: If the outcome changes a lot

depending on the employee’s actions, then that outcome is a sensitive performance measure

• PRECISION: If factors beyond the control of the employee do not much impact the outcome, then that outcome is a precise performance measure

• CONGRUENCE: If the outcome accurately reflects relative priorities of the organization’s multiple objectives, then that outcome is a congruent performance measure.

© Rajiv D. Banker

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Congruence SensitivityPrecision

Performance Measure for a City Police Department

© Rajiv D. Banker

The Balanced Scorecard…..

• Provides a method for the organization to systematically develop a comprehensive system of planning and control.

Kaplan and Norton, Harvard Business Review, 1992

© Rajiv D. Banker

The Balanced Scorecard

How do we look to ourowners and investors?

How do we look to our customers?

Internal Processes Perspective

How efficient and effective are the critical internal processes?

Organizational Learning Perspective

Are we able to sustain innovation and improvement?

Customer Perspective

© Rajiv D. Banker

?

Financial Perspective

Balance in the Scorecard• Balance between the four different

perspectives of the scorecard• Balance between financial and non-financial

measures• Balance between short-term and long-term

objectives

© Rajiv D. Banker

•Balance between stakeholders (Investors, Customers, Employees, Society)

Drivers of Satisfaction with Performance Measures

Our performance measures help understand levers for successful implementation of strategy

In our organization, linkages between internal processes, customer satisfactionand financial performance are made explicit

Our mission and strategy are translated into measurable objectives at the operating level

Satisfied Dissatisfied

82%

74%

46%

17%

82%

40%

© Rajiv D. Banker

The Balanced Scorecard…

• Is a performance measurement system that translates an organization’s strategy into clear objectives, measures, targets, and initiatives.

Kaplan and Norton, Harvard Business Review, 1996

© Rajiv D. Banker

Strategic Linkages

How do we look to ourowners and investors?

How do we look to our customers?

Internal Processes Perspective

How efficient and effective are the critical internal processes?

Organizational Learning Perspective

Are we able to sustain innovation and improvement?

StrategicVision

Customer Perspective

© Rajiv D. Banker

Financial Perspective

The Vertical ScorecardFinancial Perspective

Customer Perspective

Internal ProcessesPerspective

Organizational LearningPerspective© Rajiv D. Banker

Linking the Balanced Scorecard to Strategy

Customer Loyalty

On-time Delivery

Financial

Customer

Internal Processes

Organizational Learning

Return on Investment

Employee Skills

© Rajiv D. Banker

Process Quality Process Cycle Time

Lag Indicators Lead Indicators F

ina

nci

al Return on Investment

Revenue Growth

Cu

sto

mer Customer Retention

Share of Wallet

Customer Satisfaction Survey

Customer Complaints and Returns

Inte

rna

l On-time Delivery Cycle Time Yield, Variability

Lea

rnin

g

Employee Satisfaction Employee Skills

Employee Teams Employee Training

Cause and Effect Relationships

© Rajiv D. Banker

•Return on Investment

•Revenue growth

•Customer Retention

•Share of Wallet

•On-time delivery

•Employee Satisfaction

•Employee Skills

•Customer Satisfaction Survey

•Customer Complaints and Returns

•Cycle Time

•Yield, Variability

•Employee Teams

•Employee Training

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Performance Measurement System

Data Information Knowledge Wisdom

Collect Organize Analyze Manage

“OK, I think I’ve got all the data I need.”

“Oops, looks like something bad has happened.”

© Rajiv D. Banker

Kaizen (Continuous Improvement)

Kaizen (Continuous Improvement)

• Japanese concept – not made redundant by the decline of the Japanese economy which may be due to other institutional factors!

• Focus on gradual and continuous improvement• A whole business philosophy• Importance of EVERYONE buying into the concept

and the vision

Kaizen• Great attention paid to

customer requirements and needs

•Punctuality in all aspects – delivery, supply, manufacture, etc.

Kaizen

•Efficient stock control methods help reduce costs and improve cash-flow

•Leadership seen as vital. Ability to communicate a clear vision, take people along with the vision and to think about where the company needs to be in 5, 10, 15 and 20 years time

Kaizen

•Flexible working practices and empowerment – help increase efficiency, reduce costs and improve motivation

Kaizen

•Fundamental principles – often characterised as ‘lean production’ – reducing waste, zero defects, high quality control measures at all stages