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:

BSC Framework and Effective BSC Framework and Effective CommunicationCommunication

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 Strategy MapA Strategy Map

Cause and Effect RelationshipCause and Effect Relationship

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.

A Comprehensive View of A Comprehensive View of Business PerformanceBusiness Performance

The scorecard drives implementation of strategy using 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. Tobin's-q measures the ratio of the value of a company's assets to its market value. The excess value can be thought of as intangible assets. These figures are not measured by normal financial reporting.

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

Learning CurveLearning Curve

A Comprehensive View of A Comprehensive View of Business PerformanceBusiness Performance

Specific 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 Performance

For 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.

Kaplan and Norton found that companies are using the scorecard to:

Actual Usage of the Balanced Actual Usage of the Balanced ScorecardScorecard

In 1997, Kurtzman found that 64 percent of the companies questioned were measuring performance from a number of perspectives in a similar way to the balanced scorecard.

Balanced scorecards have been implemented by government agencies, military units, corporate units and corporations as a whole, nonprofits, and schools; many sample scorecards can be found via Web searches, though adapting one organization's scorecard to another is generally not advised by theorists, who believe that much of the benefit of the scorecard comes from the implementation method.

Software tools Software tools

ActiveStrategy CorVu Dialog Software Balanced Scorecard Toolkit LISA (developed by

Research Institute for rationalization (FIR) from the German university RWTH Aachen)

Strategic Software (Spanish) Spider Strategies MATRIX V5 Strategic Marketing Software