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The Balanced Scorecard

and Strategy Map
Chapter 2
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Performance Measurement
Systems
Measurement must support the companys
strategy and operation

Must be designed so companies get better at
managing and improving the value created from
their intangible assets

Need to move from reliance on financial measures
to a mix of financial and nonfinancial measures

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Balanced Scorecard
The Balanced Scorecard (BSC) provides a system
for measuring and managing all aspects of a
companys performance
The scorecard balances traditional financial
measures of success, such as profits and return on
capital, with nonfinancial measures of the drivers
of future financial performance
The Balanced Scorecard measures organizational
performance across different perspectives

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Perspectives
Four different but linked perspectives are derived
from the organizations mission, vision and
strategy:

Financial
Customer
Process
Learning and growth
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Balanced Measurements
The BSC enables companies to:

Track financial results
Monitor how they are building the capabilities for
future growth and profitability
With customers
With their internal processes
With their employees and systems
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Strategy
A strategy accomplishes two principal functions:

Creating a competitive advantage by positioning
the company in its external environment with
resources to support customers better than its
competitors

Having a clear strategy provides clear guidance for
how internal resources should be allocated to gain a
competitive advantage in the marketplace

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Objectives
Concise statements that articulate what the
organization hopes to accomplish

Action phrases

Tell the story of the strategy through the cause-
and-effect relationships
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Objectives
Typical objectives found in each of the four BSC
perspectives include:
Increase revenues through expanded sales to
existing customers (Financial perspective)
Offer complete solutions to our targeted customers
(Customer perspective)
Achieve excellence in order fulfillment through
continuous improvements (Process perspective)
Align employee incentives and rewards with the
strategy (Learning and growth perspective)
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Measures
Provide specificity and reduce the ambiguity that
is inherent in word statements
Specifying exactly how an objective is measured
will give employees a clear focus for their
improvement efforts
Once the objectives have been translated into
measures, managers select targets for each
measure
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Targets
Targets establish the level of performance or rate
of improvement required for a measure
Should be set to represent excellent performance
Should, if achieved, place the company as one of
the best performers in its industry
Should create distinctive value for customers and
shareholders
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Strategy Map
Illustrates the causal relationship among the strategic
objectives across the four perspectives
Financial Perspective Return on Investment
Customer Perspective Customer Loyalty
On-Time Delivery
Process Perspective
Learning and
Growth Perspective
Process Quality Cycle Time
Employees Process Improvement Skills
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Financial Perspective
The ultimate objective for profit-seeking
companies
Financial performance measures indicate whether
the companys strategy, implementation, and
execution are contributing to bottom-line
improvement
A companys financial performance can be
improved in two ways: productivity improvements
and revenue growth
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Financial Perspective
Increased productivity occurs by:
Lowering direct and indirect expenses
Utilizing their financial and physical assets more
efficiently
Companies generate revenue growth by:
Selling additional products or services to existing
customers
Selling new products, selling to new customers,
and expanding into new markets

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Customer Perspective
Identify the targeted customer segments in which
the business unit competes and the measures of the
business units performance in these targeted
segments
This perspective typically includes several
common measures of the successful outcomes
from a well-formulated and implemented strategy:
Achieve customer satisfaction and loyalty
Acquire new customers
Increase market share
Enhance customer profitability
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Customer Perspective
A strategy identifies specific segments targeted for
growth and profitability

Companies must also identify the objectives and
measures for the value proposition it offers
customers
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Customer Perspective
The value proposition is the unique mix of product
performance, price, quality, availability, ease of purchase,
service, relationship, and image offered to the targeted
customers
Defines the companys strategy
Communicates what the company expects to do for its
customers better or differently from its competitors
Value propositions used successfully by different
companies include:
Best buy or lowest total cost
Product leadership
Complete customer solutions
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Process Perspective
Means by which the organization will:
Create and deliver the value proposition for
customers
Achieve the productivity improvements for the
financial objectives
The Process perspective identifies the critical
processes in which the organization must excel to
achieve its customer, revenue growth, and
profitability objectives
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Process Perspective
Organizations perform many different processes,
which may be classified into four groupings:
Operating processes
Day-to-day processes by which companies produce
their existing products and services and deliver them
to customers
Customer management processes
Processes by which companies expand and deepen
relationships with targeted customers
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Process Perspective
Innovation processes
Processes by which companies develop new
products, processes, and services

Regulatory and social processes
Processes by which companies ensure that they meet
or exceed regulations on business practices
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Learning and Growth
Perspective

Identifies objectives that drive improvement in the
process objectives
Human Resources
Information Technology
Organization Culture and Alignment
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Learning and Growth
Perspective
Human Resources
Strategic competency availability
Employees have the appropriate mix of skills, talent,
and know-how
Information Technology
Strategic information availability
Systems and applications contribute to effective
strategy execution

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Learning and Growth
Perspective
Organization Culture and Alignment
Culture and climate
Employees have an awareness and understanding of
the shared vision, strategy, and cultural values
Goal Alignment
Employee goals and incentives are aligned with the
strategy
Knowledge sharing
Employees and teams share best practices and other
knowledge relevant to strategy execution


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BSC in Nonprofit and
Government Organizations
The BSC is especially well-suited for nonprofit
and government organizations (NPGOs)
Their success has to be measured by their
effectiveness in providing benefits to constituents
Because nonfinancial measures can assess
performance with constituents, the BSC provides
the natural performance management system for
NPGOs
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NPGOs and Strategy
Many NPGOs encountered difficulties in
developing their initial BSC, finding that they
didnt have a clear strategy
Many NPGOs place their mission objective at the
top of their scorecard and strategy map
Cannot use the standard BSC architecture where
financial objectives are the ultimate, high-level
outcomes to be achieved

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Managing with the BSC
The benefits from BSC are realized as the
organization integrates its new measurement
system into management processes that:
Communicate the strategy to all employees and
organizational units
Align employees individual objectives and
incentives to successful strategy implementation
Integrate the strategy with ongoing management
processes
Barriers to Effective Use
Senior management is not committed

Scorecard responsibilities do not filter down

The solution is overdesigned, or the scorecard is a
one-time event

The scorecard is treated as a systems or consulting
project
2012 Pearson Prentice Hall. All rights reserved.
2012 Pearson Prentice Hall. All rights reserved.