Balanced scorecard presentation rev 0

Jennifer AllenVincent Wedelich

Balanced Scorecard overview

Construction of BSC◦ Financial ◦ Customer◦ Internal-Business Process◦ Learning and Growth

Linking BCS Measures to Your Strategy

Structure and Strategy

• Managers, like pilots, require instrumentation to monitor the journey toward future success

• Balanced Scorecard provides the instrumentation

• Balanced Scorecard - translates mission and strategy into a comprehensive set of performance measures that provides the framework for a strategic measurement and management system.

• Typically organized into four different perspectives• Financial• Customer• Internal Business Processes• Learning and Growth

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Financial

Internal Business Processes

Learning and Growth

Customer

“To succeed financially, how should we appear to our shareholders?”

“To satisfy our shareholders and customers, what business processes must we excel at?”

“To achieve our vision, how will sustain our ability to change and improve?”

“To achieve our vision, how should we appear to our customers?”

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BSC is for strategy implementation, not strategy formulation

Four perspectives are not concrete

BSC is best implemented at SBU level

BCS is built on cause-and-effect relationships

ROCE

On-timeDelivery

CustomerLoyalty

ProcessCycle Time

ProcessQuality

EmployeeSkills

FinancialFinancial

CustomerCustomer

InternalInternalBusiness ProcessBusiness Process

Learning and GrowthLearning and Growth

ROCE: Return-on-Capital-Employed

Is it necessary to have a financial perspective?

Why have any others?

Scorecard should start by CEO and CFO establishing long-run financial objectives

Financial objectives may change due to technology, market, or regulations

Financial objectives for all business units should be reviewed periodically

Financial perspectives may differ at each stage of business’s life cycle

◦ Growth Sales growth

◦ Sustain ROCE, operating income, gross margin

◦ Harvest Cash flow

Strategic Themes for Financial Perspective

– Revenue growth and mix

– Cost reduction/productivity improvement

– Asset utilization/investment strategy

Typical Cash-to-Cash Cycle

Purchase Raw Materials from

SupplierSell Product

Pay Supplier for Materials

Collect Cash from Customer

Days Inventory Days Receivable

Days Payable Cash to Cash Cycle

Sell Product

Pay Supplier for Materials

Collect Cash from Customer

NegativeCash to Cash Cycle

Purchase Raw Materials from

Supplier

Dell Cash-to-Cash Cycle

Internal Business Process Perspective

Identifies specific internal processes that the firm should focus on

Goal: attract & keep customers (customer satisfaction), also satisfy shareholders (meet financial goals)

This approach helps identify new processes the firm may not have implemented or thought to put into place

Slide Developed by Dr. Papadopoulos.


The internal business process perspective model encompasses three principal business process:

Innovation process

Operations process

Postsale service Process

Customer Needs Identified Innovation cycle:

◦ identify the market◦ Create the product/Service Offering

Operations cycle:◦ Build the Product/Services◦ Deliver the Products/Services

Postsale service cycle◦ Service the Customer

Customer Needs Satisfied


Learning and Growth Perspective

Three principal categories for the learning and growth perspective.

◦ Employee capabilities◦ Information systems capabilities◦ Motivation, empowerment, and alignment


Helps to build and maintain the needed infrastructure a firm must have to grow and improve

3 sources:◦ People (skills and training)◦ Systems (technology)◦ Organizational procedures (aligns employee

incentives with the firm’s goals)

Slide Developed by Dr. Papadopoulos.


Core employee measurement group◦ Employee satisfaction◦ Employee retention◦ Employee productivity

Put the graph on page 129 here.


Employee Satisfaction

◦ Involvement with decision.◦ Recognition for doing a good job.◦ Access to sufficient information to do the job well.◦ Active encouragement to be creative and use

initiative◦ Support level from staff functions◦ Overall satisfaction with company


Employee retention captures an objective to retain those employees in whom the organization has a long term interest.

Employee productivity is an outcome measure of the aggregate impact from enhancing:

◦ Employee skills◦ Morale◦ Innovation◦ Improving processes◦ Satisfying customers


Add pictures from book

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Linking Balanced Scorecard Measures to Your Strategy

The scorecard describes the organizations vision of the future to the entire organization.

The scorecard creates a holistic model enabling everyone in the organization to contribute to the success of the company.

The scorecard focuses change efforts. If the right objectives and measures are identified, successful implementation will likely occur.


The BSC should be linked to the strategy.

1) Cause and Effect Relationships.

2) Performance drivers.

3) Linkage to financials.


Cause and Effect

A strategy is a set of hypothesis about cause and effect. Cause and effect relationships can be expressed by a sequence of if-then statements.


Outcomes and Performance Drivers

The generic outcome measures tend to be lag indicators.

◦ Profitability◦ Market-Share◦ Customer satisfaction◦ Customer retention◦ Employee Skills


Outcomes and Performance Drivers

The performance drivers tend to be lead indicators, these are unique for each business.

◦ Financial drivers of profitability◦ The market segment in which the unit chooses to

compete◦ The particular internal processes and learning and

growth objectives that will deliver the value propositions to target customers and market segments.


A good balanced Scorecard should have an appropriate mix of outcomes (lagging indicators) and performance drivers (leading indicators) that have been customized to the business unit’s strategy.


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Structure and Strategy This chapter illustrates the development of

scorecards for organizations that are structurally different than business units:

◦ Corporations that consist of a collection of strategic business units.

◦ Joint Ventures◦ Support departments in corporations and

business units◦ Not-for-profit and governmental enterprises

Structure and Strategy A corporate scorecard requires an explicit

corporate level strategy that articulates the theory of how the corporation adds value to its collection of strategic business units.

Structure and Strategy A balanced scorecard can also provide substantial

focus, motivation, and accountability in government and not-for-profit organizations.

The scorecard provides rationale for their existence (serving customers and constituents, not simply containing spending to within budgetary constraints), and communicating to external constituents and internal employees the outcomes and performance drivers by which the organization will achieve its mission and strategic objectives.

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