The Balanced Scorecard Approach

What is a Balanced Scorecard?

The Balanced Scorecard is a strategic planning and management system used to align business activities to the vision and strategy of the organization by monitoring performance against strategic goals.

Balanced Scorecard Concept

Was first published in 1992 by Kaplan and Norton, a book followed in 1996. Traditional performance measurement that only focus on external accounting data are obsolete. The approach is to provide 'balance' to the financial perspective.

Why Use a Balanced Scorecard?

Improve organizational performance by measuring what matters Increase focus on strategy and results Align organization strategy with workers on a day-to-day basis Focus on the drivers key to future performance Improve communication of the organizations Vision and Strategy Prioritize Projects / Initiatives

4 Original Business Perspectives

The Balanced Scorecard model suggests that we view the organization from 4 perspectives. Then Develop metrics, collect data and analyze it relative to each of these perspectives
Adapted from The Balanced Scorecard by Kaplan & Norton

4 Business Perspectives Questions

Financial

What must we do to create sustainable economic value? To satisfy our stakeholders, what must be our levels of productivity, efficiency, and quality? How does our employee performance management system, including feedback to employees, support high performance? What do our customers require from us and how are we doing according to those requirements?

Internal Business Process

Learning and Growth

Customer

Balanced Scorecard Measurements

Key Implementation Success Factors

Obtaining executive sponsorship and commitment Involving a broad base of leaders, managers and employees in scorecard development Choose the right Scorecard Champion Beginning interactive (two-way) communication first Viewing the scorecard as a long-term journey rather than a short-term project Getting outside help if needed

Balanced Scorecard Example

STRATEGY MAP
PROCESS: MANUFACTURING EXCELLENCE THEME: ROCE > xx%, VOLUME = xx,xxx units
FINANCIAL PERSPECTIVE Long-Term Shareholder Value ROCE > xx%

BALANCED SCORECARD
OBJECTIVES MEASUREMENT TARGET

ACTION PLAN
INITIATIVE BUDGET

Operating Cost & Efficiency Capacity Utilization Capability Utilization Brand / Image

Cost/Unit, Efficiency % Utilization

Monthly Monitoring Weekly/Monthly Monitoring Monthly Monitoring t Weekly/Monthly Monitoring Weekly Monitoring Daily Monitoring

Improve Productivity
CUSTOMER PERSPECTIVE

Grow Revenue

Trial Prod. Spare Parts Prod

Warranty Cost

Low Cost Manufacturing World-Class Quality Standards

Man-hour per Unit Defect per Unit

OFFER PRODUCTS & SERVCIES THAT ARE CONSISTENT, TIMELY and LOW-COST

World-Class Delivery Timing

Knowledgeable & Skilled Partner High Customer Satisfaction Reinforce Brand Image

Sales Delivery
Direct Pass Rate Market Feedback Sales Volume

Daily Monitoring
Daily Monitoring Weekly Monitoring Monthly Monitoring Prod. & Sales Mtg. Hourly Monitoring Daily Monitoring Daily Monitoring Monthly follow-up Specific Programmed Weekly Follow-up Cross Audits Defensive Driving Facility Readiness Certification Training and Skill Build-up Set-up, Test and Validation Communication Programmed

Low Cost Customer Satisfaction

World Class Enhance Brand

OPEX RM XX M
CAPEX RM xx M

INTERNAL PERSPECTIVE ENSURE OPERATIONAL EXCELLENCE WITH INNOVATION AS WELL BEING SOCIALLY RESPONSIBLE

Productivity Delivery Continuous Improvement NPI Safety & Health Environment

Cycle Time Meet Daily Plan WIP KAIZEN ICC Timely Introduction Industrial Accident Commuting Accident Toxic Waste Disposal ISO 9002

Operational Excellence Alliances with SBUs

Process Innovation Socially Responsible

LEARNING & GROWTH PERSPECTIVE STRATEGIC JOB & SYSTEMS

Develop the Necessary Skills Information Systems Availability Strategic Awareness

R&D & Development ALC, Procurement, Financial Alignment

Skills

Info. System

Balanced Scorecard Strategy Map

Department Level Scorecard Example

Scorecard Potential Pitfalls & Criticisms

Scorecard Potential Pitfalls & Criticisms

Lack of a well Defined Strategy The balanced scorecard relies on a well defined strategy and understanding of linkages between strategic objections and metrics. Without this foundation the implementation could fail. Too much focus on the lagging measures Focusing on only the lagging measures may cause a lack of priority or opportunity for the leading measures. Use of Generic Metrics Dont just copy metrics from another firm. Identify the measures that apply to your strategy and competitive position . Self-serving managers Managers whose goal is to achieve a desired result in order to obtain a bonus or other self reward.

Balanced Scorecard Benefit Re-Cap

Helps align key performance measures with strategy at all levels of an organization The methodology facilitates communication and understanding of business goals and strategies at all levels of an organization Strategic initiatives that follow "best practices" methodologies that cascade through the entire organization Transforms an organizations mission statement and strategic plan from a passive document into the "marching orders" for the organization on a daily basis. It enables executives to truly execute their strategies by identifying what should be done and measured.

To date, some form of a Balanced Scorecard is used by nearly 60% of Fortune 500 companies

Thank You for Your Time

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