bsc workshop
TRANSCRIPT
Welcome to the workshop onBalanced Scorecard
Understand – Practice - Guide
STEEL AUTHORITY OF INDIA LIMITED
BSC - Fundamentals
What is this tool?
Why do we need?
Where it all started?
CEO/Sep 2010 3
= Organization
SuccessVisionVision ValuesValues StrategyStrategy
Resources &
Processes
Resources &
ProcessesCapabilityCapability
Motivation &
Feedback
Motivation &
FeedbackMoneyMoney
= ConfusionLACK OF Vision
= CorruptionNO Values
= DiffusionLACK OF Strategy
= FrustrationLACK OF Process
= FatigueLACK OF Capability
= LossLACK OF Money
= CrawlLACK OF Motivation
Strategy – Key to Organizational Success
CEO/Sep 2010 4
Strategies help to enhance stakeholder values
How Can We Enhance Stakeholder Value?How Can We Enhance Stakeholder Value?
Customer ValueCustomer Value
Societal ValueSocietal Value
Shareholder ValueShareholder Value Employee ValueEmployee Value
Partner ValuePartner Value
CEO/Sep 2010 5
Changing shareholders views
5. Attract Talented People5. Attract Talented People
4. Innovation (New Products / Services)4. Innovation (New Products / Services)
3. Quality of Strategy3. Quality of Strategy
2. Management Credibility2. Management Credibility
1. Strategy Execution1. Strategy Execution
35% of Shareholder Valuation Decision Is Based on Non-
Financial Data
“Measures That Matter” Ernst & Young LLP, 1998
CEO/Sep 2010 7
The source of value has shifted
62%62%
38%38%
85%85%
15%15%
In-Tangible
Tangible
The 80s The 90s Now
Brookings Institute & Baruch Lev Analysis of S&P 500Source: The Balanced Scorecard Collaborative Inc.
38%38%
62%62%
CEO/Sep 2010 8
Unlocking Intangible Assets
RevenuesRevenues
Contemporary Technology including IT
Contemporary Technology including IT
Product / ServiceQuality
Product / ServiceQuality
CustomerConfidence
CustomerConfidence
CustomerRetention
CustomerRetention
Operating Processes
Operating Processes
Trained & Motivated
Staff
Trained & Motivated
Staff
Raw Material Quality
Raw Material Quality
Value creation in indirect: Improvements in intangible assets affect financial outcomes through chains of cause and effect relationships.
9CEO/Sep 2010
The Value Creation ContinuumCourtesy: BSC CollaborativeMission
Why We Exist
ValuesWhat’s Important to Us
VisionWhat We Want to Be
StrategyOur Game Plan
Strategy MapTranslate the Strategy
Balanced ScorecardMeasure and Focus
Targets & InitiativesWhat We Need to Do
Personal ObjectivesWhat I Need to Do
Strategic Outcomes
Satisfied SHAREHOLDERS / COMMUNITY
Delighted CUSTOMERS
Efficient & Effective
PROCESSES
Motivated & Prepared
WORKFORCE
The Balanced Scorecard is a step in a continuum that describes what value is and how it is created.
10CEO/Sep 2010
Balanced Scorecard in Strategic Planning Process
• Environmental Scan
Assessment
• Background Information
• Situational Analysis
• SWOT
• Situation – Past, Present and Future
(3 Ring Approach)
• Significant Issues
• Align / Fit with Capabilities
• Mission & Vision
• Values / Guiding Principles
• Major Goals
• Specific Objectives
• Construct BSC
• Targets / Standards of Performance
• Initiatives and Projects
Baseline Components
• Performance Management
• Review Progress – Balanced Scorecard
• Take Corrective Actions
Down to Specifics Evaluate
Where we are Where we want to be How we will do it How are we doing
• Gaps • Action Plans • Feedback upstream – revise plans
CEO/Sep 2010 11
Balanced Score Card
A strategic communication and performance management tool.
It is designed to help management teams articulate and communicate their strategy in the form of strategic objectives, measures and initiatives as part of an ongoing strategy dialogue.
It helps to translate the vision of the company into actionable operating plans, which can be measured over time.
CEO/Sep 2010 12
Why Balanced Score Card – Connecting Strategic Planning & Management Control
Strategic Planning Loop
Initiatives & Programs
test the hypotheses
Output(Results)
reportingManagement Control
Loopfunding
Input(Resources)
update the strategy
PERFORMANCE
85% of management teams spend less than one hour per month on strategy
issues
92% of organizations do not report on lead
indicators
60% of organizations don’t
link strategy & budgets
78% of organizations lock budgets to an
annual cycle
20% of organizations take more than 16 weeks
to prepare a budget
STRATEGY
BALANCED SCORECARD
BUDGET
Courtesy: BSC Collaborative
CEO/Sep 2010 13
Introduced in 1992, by Robert Kaplan and David Norton, the Balanced Scorecard is the most commonly used framework for ensuring that organizations execute their strategies.
Balanced Scorecards are used as the roadmap for creating the “Strategic Management System”.
Where it started . . .
Multi-company research from 1990’s undertaken by R.Kaplan &
D.Norton aimed at developing alternatives to purely financially based performance management
tools (e.g. budgets).
CEO/Sep 2010 14
Balanced Scorecards tell you
the knowledge, skills and systems that your employees will need (learning and growth) to
innovate and build the right strategic capabilities and efficiencies (internal processes) that
deliver specific value to the market (customer) which will eventually
lead to higher shareholder value (financial). – “Having Trouble with Your Strategy? Then Map It” by Robert S. Kaplan and David P.
Norton - Harvard Business Review
This is how the author defines…
CEO/Sep 2010 15
The overriding benefits of BSC over PMS
Connect to organization strategy.
Focus on strategic objectives and not tasks.
Balanced focus on tangible and in-tangible values.
Balanced focus on lead and lag indicators.
Understand
Measurement Metrics
Targets
Initiatives
BSC Framework
Perspectives
Strategy Map
Balanced Score Card
Balanced Score Card is an approach to Strategic Management developed in the early 1990’s by Robert Kaplan and David Norton
The Balanced Score Card approach provides a clear prescription as to what companies should measure in order to ‘balance’ the financial perspective.
The Balanced Score Card is a Management System ( not only a measurement system) that enables organisations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced score card transforms strategic planning from an academic exercise into the nerve center of an enterprise.
Balanced Score Card
Balanced Scorecard retains traditional financial measures. These financial measures are inadequate, however, for guiding and evaluating the journey, information age companies must create future value through investment in customers, suppliers, employees, processes, technology and innovation.
Balanced Score Card
Balanced Scorecard suggests that we view the organisation from four perspectives, and to develop metrics, collect data and analyse it relative to each of these perspectives
• Learning & Growth Perspective
• Internal Process Perspective
• Customer Perspective
• Financial Perspective
CEO/Sep 2010 20
The Balanced Scorecard Framework
CEO/Sep 2010 21
In the context of SAIL .. Vision: To be a respected world class corporation and the leader
in Indian steel business in quality, productivity, profitability and customer satisfaction.
Strategy / Thrust Areas: Becoming a global player, Becoming cost competitive etc. (7 thrust areas).
Themes : Wealth maximization, cost optimization, innovation, benchmarking, technological advancement etc.
Strategy is about selecting the set of activities in which an organization will excel to create a sustainable difference in the market place.
- Michael Porter, Founder & Outstanding Leader in the Strategy Field
CEO/Sep 2010 22
The Perspectives
Internal Process
To satisfy our customers, in which internal business processes must we excel?
Customer
To satisfy our shareholders, what financial objectives must we accomplish?
The Vision & StrategyThe Vision & Strategy
Financial
To achieve our financial goals, what customer needs must we satisfy?
Learning & GrowthTo achieve and maintain a competitive position, how must the organization learn and improve?
Cause
Results
Actions
Effect
1. Return on Investment2. Profitability3. Revenue / Sales4. Cost per Unit
1. Market Share2. Service Quality Rating3. Customer Satisfaction
1. Product Re-Engineering2. Technology Collaboration3. Enterprise Resource
Planning
1. Capability / Skill Level2. Knowledge Management3. Organization Climate
Score
CEO/Sep 2010 23
Strategy Map: Visual framework that captures cause & effect relationship from the bottom-up
CEO/Sep 2010 24
Detailed statement of
what is critical to successfully achieving the
strategy
How success in achieving the
strategy will be measured and
tracked
Key action programs
required to achieve
objectives
The level of performance
or rate of improvement
needed
Objective Description
Target
2 per setup per month each Outlet Office
InitiativeMeasure
Number of Reworks
Strategy Map
Sta
ke
ho
lde
rIn
tern
al
Pro
ce
ss
L&
G
Faster Service Access
Self Service Applications
Web Enable Technologies
Process and ValueMap Analysis
Lean Processes
Inv
es
tme
nts
Invest in IT
Extend the Map into Measurements, Targets and Initiatives
Lean / Six Sigma
Eliminate waste, reworks, and other errors in our processes
CEO/Sep 2010 25
Measurement Metrics
Outcome (Lagging)
Measurements
Driver (Leading)
Measurements
Percent Growth in Revenues Revenue Mix
Return on Capital Competitive pricing variance
Customer Satisfaction Rating Training hours completed
Product Contribution Margin No.of Kaizen initiatives
Lagging measurements are usually final outcomes that look back, such as customer satisfaction or return on investment
Leading measurements are drivers behind performance and provide some predictability (forward looking)
Balanced scorecards should include both leading and lagging type measurements
CEO/Sep 2010 26
Leading
Definition
Lagging
Input
Output
Outcome
Objective / Quantitative
Example
Intermediate outcomes that predicts or drive bottom-line performance results
Measure Type
Bottom-line performance results resulting from actions taken
Amount of Investments, assets, equipment, labor hours, or budget dollars used
Units of a product or service rendered - a measure of yield
Resulting effect (benefit) of the use or application of an output
Empirical indicators of performance
Subjective / Qualitative
Perceptions and evaluations of major customers and stakeholders
Employee turnover rate
Employee satisfaction rating
Number of Value Meal orders fulfilled
Customer satisfaction rating
Wait time
Customer complaints received as a % of total customers served
Number of cashiers
Types of Measurements
CEO/Sep 2010 27
Measurement Form & its AdvantagesMeasurement
FormAdvantage Disadvantage
Numbers Simple and easy to understand Only as good as the strategic objective
Index Allows combining several measurements Hard to understand what is happening
Percentages Good measure for time span May be not be used correctly
Ratings Good measure for qualitative information Can be subjective on how it was derived
Ratios Measures critical relationshipsMay require additional analysis to reach conclusion
Rankings Close gaps for top ranked companies Not appropriate for lower ranked companies
Measurement Type
Advantage Disadvantage
Outcomes Objective and easy to capture Focused on past, not current
Drivers Predictive and leading the organization Difficult to derive and support
CEO/Sep 2010 28
Make sure the components of your scorecard fit together. Create a tight model for driving execution of strategy.
Goal Objective Measurement Target Initiative
Achieve organization operational efficiencies with best practices in the private sector
Reduce Operational Service Costs by 50% over the next 5 years
Cost per Outlet Office, Cost per Region, Cost per FTE
5% - Year 110% - Year 215% - Year 3
Activity Based Costing / Management (ABC/M)
Reduce identified re-activities within primary processes by 80% over the next 3 years
Waste Volume, Rework, Cycle Time End to End in S-LX (5 of 7 Regions)
Waste stream reductions of 5% each year, Reworks cut in half for next 3 years, cycle time cut by 75%
Lean / Six Sigma
Alignment of Scorecard Components
CEO/Sep 2010 29
Initiatives ObjectivesValue Mapping Project Improve identification and delivery of all
organization services across the full stakeholder spectrum
Employee Rotation Program Improve the employee turnover and satisfaction scores
Web Self Service Portal Reduce organization costs and streamline our services for more direct service delivery
Common Knowledge Center Expand the overall knowledge base so that inter-functions can learn from one another
Customer Survey and Analysis Tool Program
Develop a more systematic process across the entire organization to better connect to customers
Shared Service Center Tracking System
Reduce reworks and overlaps between seven shared service centers
Initiatives should enable achieve strategic objectives
CEO/Sep 2010 30
When you first launch your Initiative, you probably want to use an Output Measurement. Once the Initiative is up and running, change your measurement to an Outcome to see if the Initiative is really having strategic impact.
Initiative Output Measurement
Outcome Measurement
Lean Process / Six Sigma
Number of Projects – Region wise
Overall reductions in errors, reworks, and cycle times
Activity Based Costing / Management (ABC/M)
% of Service Center Outlets with ABC Models in place for Allocation Costs
Reductions in identified re-activities per process study
Employee Competency Models
% of Employees who have a Competency Model in place
Higher skill levels of employees using the models
Going from Output to Outcome
CEO/Sep 2010 31
Scorecard
CEO/Sep 2010 33
Return on Investment
Cost StrategyRevenue Strategy
Asset Management Strategy
Financial Perspective
Sources of Growth Sources of Productivity
Sales Growth Rate Gross Margins Cash Value Added
Early Stage Company (High Growth)
Sustainable Stage Company (Modest Growth)
Mature Stage Company (Slow Growth)
Revenue Growth Operating Income Cash Flows
Economic Value AddedPositive Earnings Return on Capital
CEO/Sep 2010 34
Financial Perspective
Strategy 1 – Growth Focus
Amazon.com - now sells CDs and electronic equipments in addition to
books.
Mobil - encourages its customers to buy from its stations’ convenience
stores in addition to filling their cars with gasoline.
Staples - now sells to small businesses as well as to retail customers.
Strategy 2 – Productivity Focus
Reduce cost by lowering direct & indirect expenses.
Utilize financial & physical assets more efficiently to reduce working and
fixed capital needs.
Introduce just-in-time approach to lower the inventory levels.
Reduce unscheduled downtime to produce more without investment in
P&M.
CEO/Sep 2010 35
Robust & Profitable Revenue Growth
Success at Market Place
Most Popular Brand
Most preferred Business Partner
Best Quality Product & Best Service Provider
Brand Image
Long Term Customer & Dealer Relationship
Product & Service Attributes
Customer Perspective
CEO/Sep 2010 36
Defining customer objectives
Functionality Quality Price Time Image Relationship
Customer PerspectiveValue Proposition
Steps:
1. Identify target customer segments
2. Identify segment needs
3. Define value proposition
4. Assess organization's competitive position for each segment
Generic Customer Framework:
Value = (Product/Service Attributes) + Image + Relationship
Functionality Quality Price Time
CEO/Sep 2010 37
Customer Perspective
Market ShareHow can I grow my market share? What's my competition doing w hich is better than me?
Customer Acquisition
What makes a customer come to me? What is it that w e need to do tomake us his f irst choice?
Customer Retention
Having experienced us, w hat makes him come back to me / refer me to another customer? Can I give him / her something unique that my competitors are not giving?
Customer Satisfaction
How satisf ied are my customers? Do I know the reasons for satisfaction /dissatisfaction? Can I make them more happy? In short can I delight them?
Customer Profitability
How profitable is the customer to me? Would it make sense to continue dealing w ith him? Can I make him do more business w ith me?
CEO/Sep 2010 38
Customer Perspective
Strategy 1 – Best Buy or Lowest Total Cost
Attractive prices, excellent and consistent quality, short lead times, ease of
purchase, and good selection.
E.g – Southwest Airlines, Dell, Wal-Mart, McDonald’s, and Toyota.
Strategy 2 – Product Innovation & Leadership
Command high prices, offer products with superior functionality (cutting
edge), and first to market.
E.g – Sony, Mercedes, and Intel.
Strategy 3 – Complete Customer Solutions
Understand and capable of providing customized products and services
tailored to the customer needs.
E.g – IBM, and Goldman Sachs.
CEO/Sep 2010 39
Customer Perspective
Strategy 4 – Lock In
Create high switching cost for the customers. Ideally, a proprietary
product.
E.g – E-bay, and Yellow Pages.
CEO/Sep 2010 40
Identify the
Market/ Service offering
Develop, produce
Products/ Service
Market & Sell the
Products/ Services
Deliver Products/ Services
“Innovation” “ Operational Excellence”
“ Service Quality”
Generic Value Chain Model
Servicethe
Customer
CustomerNeed
satisfied
Customer need
identified
Innovation Process Operating Process Service Process
- New products and services - Efficient production - Service after the sale
- New features existing products
- Timely delivery - Resolve problems first time
- Unique solutions - Quality products - Proactive & Timely
Followup
- Fast turnaround to market - Cost management - Flexibility / Personal Touch
Internal Process Perspective
Strategies
CEO/Sep 2010 41
Learning & Growth Perspective
Results
Employee Productivity
Employee Retention
Employee Satisfaction
Staff Competencies
Technology Infrastructure
Climate for Action
Enablers
CEO/Sep 2010 42
Learning & Growth Perspective
Employee Competencies Knowledge & Technology Company Culture
- Improve employee satisfaction
- Leverage technologies - Empower the workforce
- Retain key personnel - Implement best practices- Set accountability standards
- High employee productivity - Protect critical assets- Align employees to objectives
- Continuous training - Easy access to information - High morale & motivation
- Leverage core competencies
- Cross functional teams
Human Capital Information Capital Organization Capital
CEO/Sep 2010 43
Executive consensus and Executive consensus and accountability:accountability:
Building the map eliminates ambiguity and clarifies
responsibility.
Educate and Communicate:Educate and Communicate:
Build awareness and understanding of organization
strategy across the workforce.
Ensure Alignment:Ensure Alignment:
Each sub-unit and individual link their objectives
to the map.
Source: "Using Balanced Scorecard Technology to Create Strategy-Focused Public Sector Organizations", Robert S. Kaplan.
Promote Transparency:Promote Transparency:
Communicate with and employees, partners,
and the share holders.
Strategy Maps – A Better Way to Communicate Strategy
CEO/Sep 2010 44
Two Techniquesfor Building Strategy Maps
The 4 to 5 Rule
Splitting the Perspective
General Thumb Rule to ensure strategy map is developed both vertically and horizontally
Way of pulling out both drivers and outcomes that match up against the core competencies of the business model
Customer Growth Customer SatisfactionRetention Rate
Timely Delivery Pricing Quality Service Reputation
Customer Perspective
Outcomes
Drivers
Weak Strong
CEO/Sep 2010 45
Strategy Map - Sample
CEO/Sep 2010 46
Strategy Map - Sample
CEO/Sep 2010 47
` ` ``
`
` `
` ``
`
`
`` ` `
`
``
Le
arn
ing
&
Gro
wth
Fin
an
cia
lIn
tern
al
Pro
ce
ss
es
Cu
sto
me
r
Improve cost efficiency
with specific focus on
power & fuel, RMC,
inventory, rework &
payroll & reduce
throughput time
Aggressively
increase volume
growth for higher
revenues & better
capacity utilisation
Drive Revenue Growth
through value added
products for existing
industry segments
Optimising
capacity
utilisation for
new products &
new markets
from select
machines
We will delight the
customer by ontime
delivery & providing
value for money
We will understand
customer needs &
deliver products to
meet them
We are
transparent &
customer friendly
company which
is easy to do
business with
We use modern
technology to
deliver reliable
products with
consistent quality
Process to evolve a long term strategy for
product development &
pricing
Implement systematic project / process planning
structure
Streamline & improve ontime delivery process
Raw material procurement /
storing & consumption processes to
improve
Define & implement a
more scientific manufacturing process with
strict compliance
A planned exit for poor performers
Recognise & reward key talents &
provide growth opportunity
including opportunity for self
learning & job rotation
Need based attitudes & skills
training - including process knowledge
Cross function teams / process
improvement teams to implement key projects through
employee involvement
Effective performance management
system with KRAs defined from
business goals
Implement simplified
MIS
F1
F2F3
F4
C1C2 C3
C4
I1I2
I3 I4 I5
L1L3
L5L2L4
L6
Strategy Map - Sample
CEO/Sep 2010 48
Strategy Map - Sample
48
Cost and expense reduction
Timelypayables
Improve Tamashi Business
To Improve Top line and Bottom line
F1
F2 F3 F4
To strengthen CAC / Art Cool
Product Positioning
To improve dealer / distributor
network
Focus on Govt / Corporate Sectors
Undisputed leader in Service
Leverage Service to Sales
C1 C2 C3 C4 C5
Improve control
on branch operations
Process to ensure no stock outs
Improve flow of MIS from branches
Reduce clearingtimes
Obtain SGS Clearance
Approval for Ref Kits
I1I2 I3 I4
I5
Empower and train Locals for key
positions
Adopt bestPractices followed
By industry
L1 L3
Involve employeesFor all rounddevelopment
Evolve comprehensiveTraining policy
L2 L4
Learn
ing
&
Gro
wth
Fina
ncia
lIn
tern
al P
roce
sses
Cus
tom
er
Prepare Comprehensive
Plan forTamashi
I5 I6
Roll out of a BSC initiative
CEO/Sep 2010 50
We have already set the foundation
• Environmental Scan
Assessment
• Background Information
• Situational Analysis
• SWOT • Systems thinking
approach
• Situation – Past, Present and Future
• Significant Issues
• Align / Fit with Capabilities
• Mission & Vision
• Values / Guiding Principles
• Major Goals
• Specific Objectives
• Construct BSC
• Targets / Standards of Performance
• Initiatives and Projects
Baseline Components
• Performance Management
• Review Progress – Balanced Scorecard
• Take Corrective Actions
Down to Specifics
Evaluate
Where we are Where we want to be How we will do it How are we doing
• Gaps • Action Plans • Feedback upstream – revise plans
We need to start from here
CEO/Sep 2010 51
Macro Plan : Corporate wide Implementation
< >
< >
< >
< >
Phase I Phase 2 Phase 3 Phase 4
Strategize Plan Integrate Implement
Corporate Scorecard
Business Unit Scorecard
Shared Service / Dept Scorecard
Team / Individual Scorecard
Strategic Plan, Vision, etc. provide guidelines to build Scorecard (Objectives, Map, Measurements, Programs, etc.)
Corporate Targets
B U Scorecard
Revise & Approve
Establish priorities, focus on critical issues, etc.
Con
tinuo
us R
evie
w &
Cha
nge
Revise & Approve
Corporate Strategic Plan interfaces with lower levels - integration
Major programs, initiatives, projects, lead change, etc.
Establish budgets, allocate resources, manage programs, etc.
Establish budgets, allocate resources, manage programs, etc.
Dept Scorecard
Revise & Approve
Indvidual Scorecard
CEO/Sep 2010 52
Strategy
organizationorganization
DepartmentDepartment
Team/IndividualTeam/Individual
Measures Objectives
Complete Framework
The Importance of Alignment
CEO/Sep 2010 53
You are the differentiator- and the Benefits you can reap if your
Source : Robert Kaplan, BSC Collaborative 2002
Mail inputs for improvement s to [email protected]
CEO/Sep 2010 54
FAQ’S ON BSC
What are the benefits of the balanced scorecard approach?
The benefits of the balanced scorecard have been identified by many organizations:
Improved organization alignment Improved communications, both internally and externally
Linked strategy and operations
More emphasis on strategy and organizational results
Integrated strategic planning and management
CEO/Sep 2010 55
What challenges will I encounter trying to develop and deploy a balanced scorecard system?
There are several major challenges to developing and sustaining the balanced scorecard:
Engaged leadership
Maintaining momentum
Measuring what matters
Not using a disciplined framework to build the system
Mistakenly thinking a scorecard system is a short-term project (it’s not….it’s a journey)
Not involving a cross-section of the organization in developing the system
Not thinking strategically enough
Not incentivizing desired behavior changes
FAQ’S ON BSC
CEO/Sep 2010 56
Isn't the balanced scorecard just the latest management fad that will soon pass away?
The "buzz word" may change, but not the underlying concepts, which are here to stay for a long time -- thinking strategically, measuring performance, evaluating results, feedback -- these are fundamental concepts in management that have been around a long time and will be here in the future.
So managers who learn the methods of the balanced scorecard will be in a better position to lead in the future. They will have the right skills to think, plan and assess the success of their organizations -- these skills will be valuable for the foreseeable future.
FAQ’S ON BSC
CEO/Sep 2010 57
I am a program manager. What's in it for me?
The balanced scorecard is intended as a strategic system for planning and managing a whole portfolio of programs within an organization. However, as a manager of one or more such programs, the balanced scorecard can help you.
It raises the visibility of program performance -- not only in traditional on-time, on-budget terms, but also in terms of its strategic significance to the desired outcomes of the whole organization. The balanced scorecard and its measurements can help you to defend your program.
Also, since strategy is everyone's job, you can use the balanced scorecard's strategic map to guide the direction of your program to maximize outcome performance. You have the right to define what metrics will be used to measure your program's performance -- You also have the authority and responsibility to measure your own program's performance.
FAQ’S ON BSC
CEO/Sep 2010 58
What organizations are using the balanced scorecard?
By 2004, the balanced scorecard has been at least partially implemented in about 57% of global corporations, according to a survey by Bain. This site contains some examples of companies and government organizations that have reported their use of the balanced scorecard.
But in India, it is still in Hodge podgy stage. Very few companies are successfully driving it - Sterlite (Vedanta) is a good case study. BHEL IS another
FAQ’S ON BSC
CEO/Sep 2010 59
How long does a balanced scorecard system take to develop and implement?
Typically, building and implementing the enterprise-level
1. (Tier 1) balanced scorecard takes two to three months.
2.Developing aligned scorecards for business and support units
(Tier 2), and teams and individuals
3. (Tier 3) takes an additional three to six months.
These estimates are for a complete strategic planning and management system and includes, the change management, leadership development, and communications strategy and planning activities that make the scorecard system sustainable. The development process needs to be undertaken by a cross-functional team guided by an experienced balanced scorecard facilitator.
FAQ’S ON BSC
CEO/Sep 2010 60
How does the balanced scorecard compare to the Six Sigma management approach?
While the balanced scorecard is almost always described as a strategic management system, Six Sigma is usually defined in terms of quality improvement related to internal business processes. Six Sigma is defined in Quality America as: "… a Quality Improvement methodology structured to reduce product or service failure rates to a negligible level (six sigma is equivalent to approximately 3.4 failures per million events).
To achieve these levels of quality, Six Sigma encompasses all aspects of a business, including management, service delivery, design, production and customer satisfaction." Six Sigma was developed at Motorola, GE and Allied Signal, and is widely used in many businesses.
FAQ’S ON BSC
CEO/Sep 2010 61
How does the balanced scorecard compare to the Six Sigma management approach? ( continued)
While the original concept has expanded over the years to become more strategic, most balanced scorecard organizations will use Six Sigma as project initiatives to improve the efficiency of internal business processes.
Both Six Sigma and balanced scorecard practitioners use similar best practices in management to design and deploy these systems. They both require dedicated top-level management support, a dedicated team of change agents, strategic alignment, implementation of improvement initiatives as projects, cultural change management, and a combination of top-down and bottom-up development. Also, Six Sigma practitioners often adopt the balanced scorecard as a way of deriving appropriate performance metrics.
FAQ’S ON BSC
CEO/Sep 2010 62
How does the balanced scorecard compare to the Baldrige Award?
The Baldrige Award, are examples of organizational assessment tools. Usually, these assessment frameworks are used as “snapshots” of the current organizational situation at a particular point in time.
The assessment uses a point scale to compare the actual situation against a 1000 points (perfect score) scale. Annual awards are given to a few organizations each year that demonstrate exemplary performance against the 1000 point scale.
The balanced scorecard uses assessment data to determine what improvements and breakthroughs in performance are most needed, so that strategies can be crafted to meet these needs.
The balanced scorecard includes much more than assessment, and is a dynamic strategic planning and management system.
FAQ’S ON BSC
CEO/Sep 2010 63
Can you please give a list of metrics or KPI's (key performance indicators) for my balanced scorecard?
No. The balanced scorecard is not a cookbook of performance measures.
It requires creative strategic thinking and decisions by various people throughout an organization to develop an effective balanced scorecard system.
No two organizations are alike. "Some assembly is required."
FAQ’S ON BSC
CEO/Sep 2010 64
What are the implications of balanced scorecard on
A) budgetary systems? B) And what happens to our PMS?
A) The balanced scorecard, being a strategic management system, can serve as the "front end" for a performance-based budget. Its performance measures and strategic plans can provide rational guidance for budget formulation and resource allocation. In fact, some organizations have gone so far as to develop flexible strategic organizations and financial management systems that allow continuous reallocation of funds, without the need for major cyclical efforts in budgeting.
B) PMS is definitely a good system that dives depth on the functionality. BSC enhances the integration and connects to the Bigger picture – and facilitates flexibility, integration and compliments and enhances the robustness of PMS as well as ownership
FAQ’S ON BSC