Balanced Scorecard

Kaplan & Norton: HBR July-August 2005: repeat of 1992 seminal article Feb 2004: Strategy Map Oct 2005: Examples March 2006: Implementation examples

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Perspectives
GOALS & PERFORMANCE MEASURES
Financial perspective
How do we look to shareholders?

Customer perspective
How do customers see us?

Internal Business perspective (BPR)

What must we excel at?

Innovation & Learning perspective

Can we continue to improve & create value?
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Example:
anonymous semiconductor company
FINANCIAL perspective GOALS Survive Succeed MEASURES Cash flow Quarterly sales Growth Operating income by division Increase in market share Increase in Return on Equity
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Prosper

CUSTOMER perspective
GOALS MEASURES

New products
Responsive supply Preferred suppliers Customer partnerships

% sales from new products % sales from proprietary products On-time delivery (customer definition) Share of key accounts purchases Ranking by key accounts # of cooperative engineering efforts
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INTERNAL BUSINESS perspective

GOALS Technology capability Manufacturing excellence Design productivity MEASURES Benchmark vs. competition

New product innovation

Cycle time Unit cost Yield Silicon efficiency Engineering efficiency Schedule: Actual vs. Planned
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INNOVATION & LEARNING perspective

GOALS Technology leadership Manufacturing learning Product focus MEASURES Time to develop next generation Process time to maturity

% products equalling 80% of sales Time to market New product introduction vs. competition
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2004 article: Strategic Readiness

Strategy map: framework to link intangible assets to shareholder value creation
Through the 4 perspectives

3 Intangible Asset categories essential to implement strategy (Learning & Growth)

Human Capital
Skills, training, knowledge

Information Capital
Databases, information systems, networks, infrastructure

Organizational Capital
Culture, leadership, alignment with goals, knowledge sharing
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Strategy Map: Intangible assets link to Internal Process

Intangible assets make up Learning & Growth perspective Map to Internal Process perspective

Operations Management
Produce & deliver products & services Enhance customer value Create new products & services Improve communities & the environment

Customer Management Innovation Regulatory & Social

Customer perspective
Price, quality, availability, selection, functionality, service, partnership, brand Productivity strategy
Improve cost structure Increase asset utilization Enhance customer value Expand revenue opportunities

Financial perspective

Revenue growth strategy

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Consumer Bank (anonymous) example: Human Capital

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Information Capital Readiness

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Organization Capital Readiness

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SCM & BSC

Beasley, Chen, Nunez & Wright, Strategic Finance 87:9 [2006]
CATEGORY Learning & Growth for Employees Internal Business Processes Customer Satisfaction Financial Performance Purpose To achieve our vision Aim How will we sustain our ability to change & improve? Where must we excel in our business processes? How should we appear to our customers? How should we appear to our stakeholders?

To satisfy our stakeholders & customers To achieve our vision To succeed financially

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Learning & Growth for Employees

GOALS Improve information flows MEASURES Changes in information reports Frequencies across supply chain partners Compare actual disruptions with reports of potential disruption drivers Number of employees attending risk management training Supplier contract provisions on risk Number of departments participating in supply chain risk identification & assessment workshops Increase employee process ownership Employee survey scores

Increase employee identification of potential supply chain disruptions RISK-RELATED GOALS Increase employee awareness Increase supplier accountability Increase employee awareness of supply chain risks & other enterprise risks

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Internal Business Processes

GOALS Reduce waste across supply chain Shorten time from start to finish Achieve unit cost reductions MEASURES Pounds of scrap Time from raw material purchase to product/service delivery to customer Unit costs per product/service delivered % of target costs achieved

RISK-RELATED GOALS

Reduce probability & impact of threats

Identify specific tolerances for key processes

Number of employees attending risk management training

Number of process variances exceeding specified acceptable risk tolerances

Reduce number of exchanges of supply chain risks to other enterprise processes

Extent of risks realized in other functions from supply chain process risk drivers

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Customer Satisfaction
GOALS Improve product/service quality Improve timeliness of product/service delivery Improve customer perception of value RISK-RELATED GOALS MEASURES Number of customer contact points Time from customer order to delivery Customer scores of value

Reduce customer defections

Monitor threats to product/service reputation Increase customer feedback

Number of customers retained

Extent of negative coverage of quality in press Number of completed customer surveys about delivery comparisons to other providers

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Financial Performance
GOALS Higher profit margins Improved cash flows Revenue growth MEASURES Profit margin by supply chain partner Net cash generated over supply chain Increase in customers & sales per customer % annual return on supply chain assets Number of customer defections due to price Surcharges paid Holding costs incurred Overtime charges applied

RISK-RELATED GOALS Reduce threats from price competition Reduce cost overruns

Reduce costs outside the supply chain Warranty claims incurred from supply chain processes Legal costs paid Sales returns processed
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Gaudenzi & Borghesi

The International Journal of Logistics Management 17:1 [2006]

AHP in balanced scorecard style

Develop formula to evaluate risk within departments

Focus on top level criteria

On-time delivery Completeness Correctness Damage/defect free products
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Gaudenzi & Borghesi Weights

Criteria On-time delivery Completeness Correctness Damage-defect free Mean 100 90 75 50 315 weights Extreme1 weights Extreme2 Weights 0.317 100 0.402 50 0.215 0.286 0.238 0.159 66 50 33 249 0.265 0.201 0.133 100 50 33 233 0.429 0.215 0.142

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Weights: Contingent upon On-time first vs. Completeness first Criteria On-time first Completeness first
On-time delivery Completeness Correctness Damage-defect free 0.36 0.29 0.21 0.14 0.22 0.43 0.21 0.14

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On-time delivery evaluation Manager subjective scores

Procurement On-time delivery Completeness Correctness Defect free Value scores 0.36 0.29 0.21 0.14 0 0 1 0.5 0.28 Warehouse 0.5 0.5 1 1 0.675 Order Cycle 1 1 1 1 1 Mfg 0.5 1 1 1 0.82 Trans. 0 1 0.5 0 0.395

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Completeness evaluation Managerial subjective scores

Procurement On-time delivery Completeness Correctness Defect free Value scores 0.22 0.43 0.21 0.14 0 0 1 0.5 0.28 Warehouse 0.5 0.5 1 1 0.675 Order Mfg Trans Cycle 1 0.5 0 1 1 1 1 1 1 1 0.5 1 0 0.89 0.535

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Other Business Scorecards in Broader Perspectives

Internal auditing in accounting
Campbell, Adams, Campbell & Rose
Financial Executive 22:1 [2006]

Mental health governance

Sugarman & Kakabadse
The International Journal of Clinical Leadership 16 [2008]

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Marketing natural gas vehicles

Janssen, Lienin, Gassmann & Wokaun, Transportation Research Part A 40 [2006]

INDICATORS
1. Ratio of natural gas vehicles per compress natural gas fueling stations 2. Type coverages (how many different natural gas vehicle types were available) 3. Natural gas vehicle investment pay-back time 4. Sales per type 5. Subsidies par automobile
Finland 2010