Balanced ScorecardLike Dashboard Instruments, We NeedSeveral
Balanced Scorecard
Like Dashboard Instruments, We Need
Several Indicators of Strategy Success:
Financial
Customer
Employee / Learning and Growth
Internal Business Process
Balanced Score Card Features
Emphasizes what is important
Focuses on Business Drivers
Stresses Cause & Effect Relationships
Unites the Company
Uses Leading & Lagging Indicators
Implements Business Strategy
Uses metrics for Targets & Performance Evaluation
Financial Perspective
Link to Strategy
Time Horizon: Short, Medium and Long
Can Include:
Cash Flow
Reported Earnings
Risk Management
Cost Control and Revenue Growth
Pricing: Discounts vs. Value /
Convenience
Financial Perspective
Find drivers for revenues, costs,
cash flows & net income
Can tie to an incentive system
Can use any type of incentive
Problem: valuable, but focuses on
the past rather than the future – it
is a lagging indicator.
Leading Indicators
In order to predict financial results the BSC
uses 3 leading indicators. These are:
The Customer Perspective
The Employee / Learning and Growth
Perspective
The Internal Business Process Perspective
Customer Perspective
Value to Customers
Customer Satisfaction is not enough.
Not all customers are keepers:
80 / 20 “rule”
Retain Old vs. Attract new Customers
Growth, Market Share, Segmentation
More on Customer
Time
Convenience
Ease of Use
Quality
After Sale Service
Cost
Performance
The Box
Unprofitable Customers
Attracted to products
Unprofitable Customers
Not Attracted to
products
Profitable Customers
Attracted to products
Profitable Customers
Not Attracted to
products
Employee / Internal Business
Ease of tasks
Innovation
Productivity
Where must we be EXCELLENT?
Where can we be good enough?
The Operations Process
Customer Life Cycle
More Internal Processes
Cycle Time
Quality
Employee Training and Skills
Productivity
Customer Perspective
Innovation and Learning
Pace of Industry Change
Continuous Improvement
Percent of income from New Products
Dot Com Bomb
Think outside the Box vs. inside
Think Critically
LISTEN
Listen and Learn
No one of us is as smart as all of us.
Welcome diverse views and people.
Get honest feedback from present
customers, potential customers,
employees, suppliers, others
Use benchmarking
Get connected with industry information
Balance for the Score Card
Financial
Customer
Learning and Growth
Internal Business Processes
Balanced Scorecard
Most organizations devise good strategies
But the real problem is successful implementation of
strategy
Experts will say a B strategy with A implementation
easily beats an A strategy with B implementation
The BSC is the most successful method for dependable
implementation of strategy
But success will only be achieved with careful and
thorough attention to installation of BSC
Balanced Scorecard
Why is the BSC so effective in strategy implementation?
Because it involves every organization unit in the design
and implementation of strategy
It does so by finding the right drivers of performance for
each organization unit
Then it determines the right metrics for the right drivers
Next it selects the right target values for the right
metrics
Finally it links everyday activities of each unit with the
metrics representing the drivers of performance
Balanced Scorecard
Performance of each organization unit is
regularly measured by comparing actual
metrics with target metrics
Deviations from target metrics are early
warnings to get strategy back on track
That requires correct metrics for the right
drivers of performance
Balanced Scorecard
Making sure that metrics are right means
that leading indicators are valid predictors
of the lagging finance measure
So regular testing of the predictive power
of leading indicators is required
So the BSC is effective, but only to the
extent that it is kept tuned and accurate
Balanced Score Card Summary
Emphasizes what is important
Focuses on Business Drivers
Stresses Cause & Effect Relationships
Unites the Company
Uses Leading & Lagging Indicators
Implements Business Strategy
Uses valid metrics for Targets &
Performance Evaluation