Developing a Balanced Scorecard

What is a Balanced Scorecard

A strategic and operational tool Owned by the Executive Shared by everyone Balances:

Long and short term Hard and soft measures Leading and trailing indicators Internal/external perspectives

Like writing a novel, not writing a list Measures support change, not monitoring

It is NOT

A new idea An end in itself A playing field for internal politics An initiative of Finance, HR, Marketing etc. Boardroom art A make-work exercise

Its origins

Nolan-Norton Consultants 1990 12 client Organisation of the Future study group Based on premise that financial measures were insufficient for a modern business Principles espoused previously by:

Rensis Likert (The Human Organisation, 1960) TQM gurus (Deming, Crosby, Juran etc.)* European Foundation for Quality Management (1985) Maisel and McNair parallel models

* Original K&N source was part of a TQ programme

The EFQM Excellence Model

9% 9%

10%

8%

14%

20% 15%

9%

6%

(percentages show how each elements is scored for importance)

Kaplan and Norton model (1996)

Customer
Balanced Scorecard

Financials

Business Processes

Learning & growth

A question of balance?
Customer perspective Corrective activity Developmental activity Balancing compliance with added value

Financial Measures Key performance ratios Financial health Balancing leading with trailing indicators

Balanced Scorecard
Learning and growth People measures Knowledge measures Balancing soft and hard indicators

Business Processes Drumbeat Time, cost, quality Balancing inputs and outputs

Building the Balanced Scorecard

How do you create value?

The key question

Where does it fit?

Balanced Scorecard
Vision Mission and CSFs Strategic Objectives Measures Alliances

Building Using

Structure

Culture and values (leadership/style/relationships etc.)

Rewards

Systems

Projects

Targets

A strategic tool

Starts with strategy Continuous process Needs to become culturally embedded

The story of a scorecard

To be successful for our shareholders, we must be (position in market), which means that we must return superior financial results in ....... Our customers are the people who will secure these results for us so we must offer our customers superior value by ......... To deliver this superior value we must excel in the way we manage the processes for ....... These processes are operated by our people. We must provide our people with ....... to achieve excellent performance.

Cause and effect chain

May be reversed Strategic Objective What Financial Measure How Customer Value Measure How

Process Measure How

Employee Measure

Example Retail Strategic themes

Themes Projects Measures Broadening the Pharmacy store Pharmacy store offer expansion sales growth Focus on Health New store Brand Penetration and Beauty opening process (Market Research) Friendly and Fun Living the Mission Mystery Shopper Destination of Category Footfall and basket Choice management size

Sample retail scorecard

Customer perspective Basket Size Mystery Shopper index Footfall Complaints

Financial Measures Sales Revenue growth Return on Turnover Cost of sales Shrinkage

Balanced Scorecard
Learning and growth Absence level Stability index Mission involvement index Starfish.net ideas

Business Processes Stock Outs New store plan vs. actual Strategic Projects delivery Supply chain process time

Joined up thinking?
PEOPLE Blue arrows indicate positive correlation. Red arrows negative. Broken line is a weaker connection CUSTOMER Staff Loyalty Development
0.16

Complaints* Satisfaction * No data available for this element

Morale (absence)
-0.20

Loyalty*
0.16

only in Metro and Extra Stores Recruitment only in smaller store formats - Metro and Express One in Front*

-0.28

0.27

Market share*

Sales Growth*
0.1 0.13 0.17 -0.1 -0.16 0.22 0.11

Productivity

Cost Controls (Sales var)

Stock availability Waste Mgt*

-0.1

Profitability* Stock Mgt Driving extra sales to bottom line*

OPERATIONS

Number at arrow head indicates size of Pearson co-efficient of correlation. Superstores used for consistency of statistic except where indicated.

FINANCE

Using the Balanced Scorecard

Drill-down into HR Systems

The Complete Balanced Scorecard Strategy Map

Improve Shareholder Value Financial Perspective: the drivers of shareholder value
Productivity Strategy
Shareholder Value ROCE

Revenue Growth Strategy

Improve Cost Structure Cost per Unit Market and Account Share

Increase Asset Utilization Asset Turnover

Enhance Customer Value Customer Profitability Customer Retention Customer Satisfaction Product Leader Customer Solutions

Create Value from New Products & Services New Revenue Sources

Customer Acquisition

Customer Perspective: the differentiating value proposition

Customer Value Proposition

Product/Service Attributes Price Quality Time Function Relationship Service Relations

Low Total Cost Image Brand

Internal Perspective: how value is created and sustained

Operations Theme

Customer Management Theme (Processes that Enhance Customer Value)

Innovation Theme (Processes that Create New Products and Services)

(Processes that Produce and Deliver Products & Services)

Regulatory and Society Theme (Processes that Improve the Environment and Communities)

Learning & Growth Perspective: role for intangible assets people, systems, climate and culture

Human, Information, and Organizational Capital

Strategic Competencies Strategic Technologies Climate for Action

Performance management
Age Pre-industrial Age What is valued? Community Loyalty Key process Belonging Compliance Key Output Contribution Output Culture Social Work-ethic Mobility

Industrial Age Obedience Output Information Age Knowledge Innovation

Empowerment New value

Learning and growth

Employee satisfaction Employee capability Information availability Knowledge growth Performance and reward management systems Cultural measures from surveys e.g. leadership, communication, recognition (enablers)

Success factors

Drill-down into Systems

Planning and objective setting Operational targets Budgeting Internal audit Continuous improvement Project management Performance management/appraisal Reporting and meeting regimes Reward and recognition.......

Unfortunately, this years low score on morale in the employee survey means our balanced scorecard index is below the threshold for the bonus award

BSC Implementation Process

Implementation Plan
Creating the preconditions for system introduction (the level of enterprise) Establishing the basic architecture (the level of enterprise) Achievement of consent of strategic goals statement among groups members (pilot level) Defining the key performance indicators and the measure units for each of them (pilot level) Defining the plan of actions in time (pilot level) Assigning responsibilities to monitor the activities (pilot level)

Common Mistakes in BSC Implementation 1. Non involvement or Non Commitment by Top Management 2. Absence of Specialist Teams or Core Teams 3. Delay in Planning and Implementation in search of Perfection 4. Delay in Implementation in developing Measures of Performance 5. Concept of Continuous Improvement is missing 6. Emphasis on M&E instead of Improving Communication 7. Non Availability of Resources

Check List for Evaluating Organization's Readiness for BSC Implementation : Comprehensiveness of BSC

a. How strategic goals are represented in Balanced Scorecard? b. What KPI (Key Performance Indicators) are? What are their key properties? c. What are two key rules about KPI? d. What winning indicator is? How to test your indicator? e. How strategic goals and indicators are connected to the action? f. What level of implementation of BSC in your business structure is necessary to achieve success with Balanced Scorecard ?

Check List for Evaluating Organization's Readiness for BSC Implementation : How Good the Plan is
a. Do you have Balanced Scorecard implementation plan in written from? b. How many top-level employees or investors are involved in the implementation? c. How many line-level managers and employees are involved in the implementation? d. Does the plan include design of Balanced Scorecard for each business unit in your company? e. Does the plan include the design of strategy map? f. What is estimated timeline for Balanced Scorecard design, implementation and usage? g. If you plan to review your Balanced Scorecard? What is timeline for the review? h. If you plan to develop improvement plan for each of indicators and their values?

Does Implemented Balanced Scorecard work for your Organization a. If each indicator in your Balanced Scorecard is associated with employee responsible for the value of the indicator? b. If there are indicators that improved their values in a month? c. If there are some indicators that changed their value significantly in a month? d. If there are indicators that have not changed their values in a month? e. If there are some tasks that your employees do that are not linked to indicators and strategic goals?

When Balanced Score Card Produces Best Results 1. Balanced Scorecard is an internal systems tool. No need to cheat or trick when you are dealing with yourself. Monitoring function, the BSC provides is aimed only to improve the performance, not to show something to someone. Monitoring is needed to manage, not to show 2. One of the features of the BSC is focusing. The aspiration of management for extracting a synergy from cumulative influence of set of factors often leads to system contradictions. Concentrate on High Priorities function/indicators. 3. Indicators of the KEY activities linked with each other by well organized logical structure.

Students Orientation to Practical Examples of BSC

CASE STUDIES