balanced score card.ppt
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Balanced ScorecardBalanced ScorecardIntroductionIntroduction
What is the Balanced What is the Balanced Scorecard?Scorecard?
The balanced scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action.
IntroductionIntroduction
The balanced scorecard, a concept for measuring a company's activities in terms of its vision and strategies, to give managers a comprehensive view of the performance of a business.
The strategic management system forces managers to focus on the important performance metrics that drive success.
ImplementationImplementation
Translating the vision into operational goals; Communicate the vision and link it to
individual performance; Business planning; Feedback and learning and adjusting the
strategy accordingly.
Implementing the scorecard typically includes four processes:
Business PlanningBusiness Planning
1. Sales Revenue
2. Demand
3. Supply
4. Profit based Supply/Demand Balancing
5. Management Review
Elements of an Integrated Business Planning Process
A Comprehensive View of A Comprehensive View of Business Performance Business Performance
a strategy map where strategic objectives are placed over four perspectives in order to clarify the strategy and the cause and effect relationships that exists among them.
strategic objectives which are smaller parts of the strategy interlinked by cause and effect relationships in the strategy map.
Balanced Scorecard is a method and a tool which includes:
A Comprehensive View of A Comprehensive View of Business PerformanceBusiness Performance Measures directly reflecting strategy.
Their prime purpose is to measure that the desired change or development defined by strategic objectives actually takes place.
Strategic initiatives that constitute the actual change as described by strategic objectives.
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BSC: Four PerspectivesBSC: Four Perspectives Financial perspective Customer perspective
Internal Business perspective Learning & Growth perspective
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BSC strategic focusBSC strategic focus
A Comprehensive View of Business PerformanceA Comprehensive View of Business PerformanceThe scorecard drives implementation of strategy using The scorecard drives implementation of strategy using perspectives which generally include: perspectives which generally include:
A Comprehensive View of A Comprehensive View of Business PerformanceBusiness Performance
Financial Perspective - measures reflecting financial performance, for example number of debtors, cash flow or return on investment.
The financial performance of an organization is fundamental to its success.
Even non-profit organizations must make the books balance.
A Comprehensive View of A Comprehensive View of Business PerformanceBusiness Performance
They are historical. Whilst they tell us what has happened to the organization they may not tell us what is currently happening, or be a good indicator of future performance.
It is common for the current market value of an organization to exceed the market value of its assets.
Financial figures suffer from two major drawbacks:
A Comprehensive View of A Comprehensive View of Business PerformanceBusiness Performance Customer Perspective - measures having a
direct impact on customers and their satisfaction, for example time taken to process a phone call, time to deliver the products, results of customer surveys, number of complaints or competitive rankings.
A Comprehensive View of A Comprehensive View of Business PerformanceBusiness Performance Business Process Perspective - measures
reflecting the performance of key business processes, for example the time spent prospecting, number of units that required rework or process cost.
Learning and Growth Perspective - measures describing the company's learning curve - for example, number of employee suggestions or total hours spent on staff training.
A Comprehensive View of A Comprehensive View of Business PerformanceBusiness Performance
A Comprehensive View of A Comprehensive View of Business PerformanceBusiness PerformanceSpecific measures are chosen based upon the organization's goals.
Typically organizations "get what they measure" so care in creating measures and revisiting the measures regularly is recommended by most practitioners.
A Comprehensive View of A Comprehensive View of Business PerformanceBusiness Performance
The method helps separate creation of strategy from strategy implementation, which can push power downwards while making the leaders' jobs easier.
It can also help detect correlation between activities.
A Comprehensive View of A Comprehensive View of Business PerformanceBusiness PerformanceFor example, the process objective of implementing a new telephone system can help the customer objective of reducing response time to telephone calls, leading to increased sales from repeat business.
Actual Usage of the Balanced Actual Usage of the Balanced Scorecard Scorecard
Clarify and update budgets Identify and align strategic initiatives Conduct periodic performance reviews to
learn about and improve strategy.
companies are using the scorecard to:
.
The Balanced Scorecard The Balanced Scorecard Focuses on Factors that Focuses on Factors that Create Long-Term ValueCreate Long-Term Value Traditional financial reports look backward
Reflect only the past: spending incurred and revenues earned Do not measure creation or destruction of future economic value
The Balanced Scorecard identifies the factors that create long-term economic value in an organization, for example: Customer Focus: satisfy, retain and acquire customers in targeted segments Business Processes: deliver the value proposition to targeted customers
innovative products and services high-quality, flexible, and responsive operating processes excellent post-sales support
Organizational Learning & Growth: develop skilled, motivated employees; provide access to strategic information align individuals and teams to business unit objectives Processes
Customers
People
The Four Perspectives The Four Perspectives Apply to Mission Driven As Apply to Mission Driven As Well As Profit Driven Well As Profit Driven OrganizationsOrganizations • What must we do to satisfy our financial
contributors?• What are our fiscal obligations?
• Who is our customer?• What do our customers expect from
us?
• What internal processes must we excel at to satisfy our fiscal obligations, our customers and the requirements of our mission?
• How must our people learn and develop skills to respond to these and future challenges?
Profit Driven Mission Driven
• What must we do to satisfy our shareholders?
• What do our customers expect from us?
• What internal processes must we excel at to satisfy our shareholder and customer?
• How must our people learn and develop skills to respond to these and future challenges?
Financial Perspective
Customer Perspective
Internal Perspective
Learning & Growth Perspective
Answering these questions is the first step to develop a Balanced Scorecard
The Balanced Scorecard Framework Is Readily Adapted The Balanced Scorecard Framework Is Readily Adapted to Non-Profit and Government Organizationsto Non-Profit and Government Organizations
The Mission, rather than the financial / shareholder objectives, drives the organization’s strategy
"If we succeed, how will we look to our financial donors?”
“To achieve our vision, how must our people learn,
communicate, and work together?”
The Mission
“To satisfy our customers, financial donors and mission,
what business processes must we excel at?"
”To achieve our vision, how must we look to
our customers?”
Why are Companies Adopting Why are Companies Adopting a Balanced Scorecard?a Balanced Scorecard?• ChangeFormulate and communicate a new strategy for a more competitive environment
•GrowthIncrease revenues, not just cut costs and enhance productivity
• ImplementFrom the 10 to the 10,000. Every employee implements the new growth strategy in their day-to-day operations
The Revenue Growth Strategy
“Improve stability by broadening the sources of revenue from current customers”
The Productivity Strategy
“Improve operating efficiency by shifting customers to more cost-effective channels of distribution”
Improve Returns
Improve Operating Efficiency
Broaden Revenue Mix
Increase Customer Confidence in Our Financial Advice
IncreaseCustomer Satisfaction Through Superior Execution
IncreaseEmployee Productivity
Access to Strategic Information
Develop Strategic Skills
Align Personal Goals
FinancialPerspective
CustomerPerspective
InternalPerspective
Learning Perspective
Cross-Sell the Product Line
Shift to Appropriate Channel
Provide Rapid Response
Develop New Products Minimize
Problems
Understand Customer Segments
Why Do We Need a Balanced Why Do We Need a Balanced Scorecard? Scorecard? To Implement Business To Implement Business Strategy!Strategy!
“Less than 10% of strategies effectively formulated are effectively executed”
Fortune
“Business Strategy is now the single most important issue… and will remain so for the next five years”
Business Week
Our Research Has Our Research Has Identified Four Barriers to Identified Four Barriers to Strategic ImplementationStrategic Implementation
Today’s Management Systems Were Designed to Meet The Needs of Stable Industrial Organizations That We’re Changing Incrementally
You Can’t Manage Strategy With a System Designed for Tactics
Only 5% of the work force understands the strategy
60% of organizations don’t link budgets to strategy
Only 25% of managers have incentives linked to strategy
85% of executive teams spend less than one hour per month
discussing strategy
9 of 10 companies fail to execute
strategy
The People Barrier
The Vision Barrier
The Management Barrier
The Resource Barrier
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10 Golden Rules for Implementing a 10 Golden Rules for Implementing a BSCBSC
Roest, Pim, Information Management and Computer Security, V 5 No 5, 1997
1. There are no standard solutions: all business differ
2. Top management support is essential
3. Strategy is the starting point
4. Limited and balanced number of objectives and measures
5. No in-depth analyses up front, but refine and learn by doing
6. Take a bottom-up and top-down approach
7. It is not a systems issue, but systems are an issue
8. Consider delivery systems at the start
9. Consider the effect of performance indicators on behavior
10.Not all measures can be quantified