Balance Scorecard PDF

“The Balanced Scorecard and its
Relationship to Operations Management”

Paul Arveson
Balanced Scorecard Institute
The balanced scorecard (BSC) is now about 20 years old, and it has
continued to grow in popularity among all kinds of organizations
as a better way to do strategic planning and performance
management. This talk will explore its roots in the Quality
movement, its current structure, and possible future
directions. We will show how the BSC complements, but does not
compete with quality systems.
© 2009 by the Balanced Scorecard Institute, a Strategy Management Group company. All rights reserved.
1
Times are Changing in Management
From: To:
Command-and-control Employee empowerment
Stovepipes / Silos Cross-functional teams
Focus on process Focus on results
Standard, repetitive processes Non-repetitive activities
Management by rules Management by facts
Slow change Rapid and continuous change
Hidden accountability Demand for transparency
Tangible assets Intangible assets (knowledge)
2
“Intangible Assets”
Tangible assets:
Facilities, inventory,
Property: 10-15%
Intangible assets:
Knowledge & skills of workers
Information systems & data
Source: Brookings Institution, 1995
Customer relationships:
85-90%
3
Emerging Challenges in
Performance Measurement
 Concepts of performance measurement are being

extended beyond industrial processes to
knowledge worker environments:
 Intangible assets
 Non-repetitive processes
 Network-centric environments
 TQM did not give enough guidance on what to
measure.
 Tendency was to measure everything; but what measures are
strategic?
 For that we need some framework to determine what are the
most important things to measure.
4
What’s Wrong with This Picture?
5
The Key Strategic Issue
“People and their managers are working so

hard to be sure things are done right, that
they hardly have time to decide if they are
doing the right things.”
Stephen R. Covey
6
What Is Strategy?
 Strategy is a hypothesis of the best way for the organization

to achieve its long-term vision and mission.
 Strategy implies options and choices for an organization.
There is always more than one way to achieve a vision or
support a mission.
 Strategy requires selection among alternative options,
focusing on a few things, and deferring or rejecting the rest.
 Strategy is broad and comprehensive, with organization-
wide, cross-cutting impacts.
 Organizational strategies aim at improvements:
 Remedial improvements in existing performance
 Breakthrough improvements to move to the next level of
performance
7
Make Strategy Everyone’s Job
8
What Is The Balanced Scorecard (BSC)?
• An improved strategic planning process for focusing on the

most important things;
• A change initiative for visualizing and communicating an
organization’s long-term strategic intent;
• An effective strategic management system for aligning day-
to-day work to an organization’s vision and strategy using
strategic performance measures and strategic initiatives;
• An integrated framework for informing strategic budgeting,
and allowing the organization to learn what works and to
become more strategy focused.
In other words, a planning and

management system, not just a
measurement system!
9
Balanced Scorecard Perspectives
Perspective Key Metrics Key Questions

For businesses: how do we
Financial • Sales, Margin, Earnings create value for our owners?
or • Value, Cost For government and nonprofits:
Stewardship • Effective Allocation of how do we maximize value and
Resources effectiveness of our mission?
Through the eyes of our

Customer & • Satisfaction customers and stakeholders:
Stakeholder • Retention how well do our products and
services meet their needs?
How can we improve internal

Internal • Process Efficiency processes to deliver
Processes • Speed our products and services
• Quality better, faster, and cheaper?
• Human Capital Learning How can we support our internal

Organization • Tools, Technology processes through improved
Capacity
• Innovation knowledge, skills and abilities,
or
Learning & • Infrastructure tools & technology, and
• Leadership leadership?
Growth
• Culture
10
The Balanced Scorecard Translates Strategy
Into Operational Terms
(Private Sector)
Mission
Vision
Financial Perspective
Which will • Profitability
grow the • Sustainability
• Growth
business.
Customer Perspective
Which will increase • Value
customer • Satisfaction
• Retention
satisfaction…
Internal Process Perspective
Our services will • Productivity
be better and • Cycle Time
more efficient… • Quality
Organization Capacity Perspective

If we improve • Skills & Knowledge
our capacities… • Technology
START HERE
• Culture
• Leadership
Adapted from original work of Kaplan & Norton
11
The Balanced Scorecard Translates Strategy
Into Operational Terms
(Public and Nonprofit Sectors)
Mission
Vision
Customer/Stakeholder Perspective
… and improved • Satisfaction
satisfaction for our • Effectiveness
• Coverage
customers.
Financial/Stewardship Perspective
…leading to • Efficiency
reduced • Cost
• Value
costs…
Internal Process Perspective

…our services • Productivity
will be better and • Cycle Time
more efficient… • Quality
Organization Capacity Perspective

If we improve • Skills & Knowledge
• Technology
our capacities… • Culture
• Leadership
12
A Shipping Company Strategy Map
EXAMPLE
Increase profits
Financial Lower costs Increase revenues
Increase Increase
Customer customer
PERSPECTIVE
customers
satisfaction
Internal Employee
Shorter
Reduce turn-
processes Fewer trucks training
traveltime
around time
Organization Increase
Capacities employee
Improve
route planning
training
13
Regional Airline Balanced Scorecard
Mission: Dedication to the highest quality of Customer Service delivered with a sense of warmth,
friendliness, individual pride, and Company Spirit.
EXAMPLE
Vision: Continue building on our unique position -- the only short haul, low-fare, high-frequency,
point-to-point carrier in America.
Strategic Theme: Objectives Measures Targets Initiatives

Operating Efficiency
Financial • Profitability • Market Value • 25% per year • Optimize

Profitability routes
• Lower costs • Seat Revenue • 20% per year • Standardize
Lower costs
Increase • Increased • Plane Lease • 5% per year planes
Revenue revenue Cost
• FAA On Time • First in • Quality

More • On-time flights
PERSPECTIVE
Arrival Rating industry management

On-time Customers
Customer flights • Lowest prices • Customer • 98% • Customer
Lowest • More Customers Ranking Satisfaction loyalty
Prices • No. Customers • % change/yr
program
Reduce
• On Ground • Cycle time
Turnaround
• Reduce Time • <25 Minutes optimization
Internal Time turnaround • On-Time • 93% by end yr program
Process time Departure
• % Ground crew • Stock

• yr. 1 70% ownership plan
Align • Align stockholders
yr. 4 90%
Org. Ground ground crews • % Ground crew yr. 6 100%
• Ground crew
Crews training
Capacity trained

14
Strategy Is Made Up Of Strategic Objectives
Across the Four Perspectives
EXAMPLE Strategic Theme:
Build The Business
Increase
Revenue
Reduce
Financial Overhead
Costs
Increase Increase Strategic

V A L U E
Customer Customer Customer

Objectives
Confidence Retention
are the ovals
Internal on a strategy
Improve Reduce map
Processes Service
Quality
Cycle Time
Improve
Organization Employee
Upgrade
Information
Capacity Morale Technology
15
School District Strategy Map
IMPROVE
STUDENT
ACHIEVEMENT
EXAMPLE
Ensure Safe, Secure
Improve Quality, Increase
Facilities and an
Standards-based Community
Innovative Learning
Instruction Engagement
Environment
Students Maximize
Utilization Of
Technology
Resource Increase Resource Ensure Fiscal

Alignment With Responsibility
Stewardship Strategic Priorities and Stability
Optimize
Internal Effectiveness &
Increase Access To
and Effective Use Of
Processes Efficiency Of
Technology
Processes & Services
Increase
Employee
Learning and Accountability
Organizational Increase For Results
Increase
Employee
Development Capacity &
Employee
Engagement
Leadership
Improve Increase Interactive

Recruitment & Communications
Retention With Employees
16
Performance Measures
Are Still Important
 Provide a way to see if our strategy is working

 Focus employees’ attention on what matters most to success
 Allow measurement of accomplishments, not just of the work
that is performed
 Provide a common language for communication
“What gets measured gets done.”
“If you don’t measure results, you can’t tell success from failure, you
can’t claim success or reward it, and you may be rewarding failure.”
“If you can’t recognize success, you can’t learn from it; if you can’t
recognize failure, you can’t correct it.”
“If you can’t measure it, you can’t manage it and improve it!”
17
Strategic Performance Measures Are
Derived From Strategic Objectives
EXAMPLE Strategic Theme: Sample
Build The Business Performance Measures
Revenue
Increase
Revenue
Financial Reduce
Overhead
Cash Flow; Overhead rate
Costs
Customer satisfaction
index
Increase Increase
Repeat customers
Customer Customer Customer
Confidence Retention
Service error rate
Internal Improve
Reduce Delivery time
Processes Service
Quality
Cycle Time
Employee morale index

Improve
Capacity Employee
Upgrade
Information Average system age
Building Morale Technology
18
Develop Meaningful
Performance Measures
 Meaningful means Strategic

 Focused on the strategic results we want
 Derived from the Objectives on the Strategy Map
 Meaningful means Refined
 Balanced
 Easy to understand
 Hard to “cheat”
 Unobtrusive to collect
 Appropriate frequency
 Valid (measures the right things)
 Verified (measures things right)
 Meaningful means Relevant to the user
 It tells the user what he or she wants to know
 It provides information that will help make better decisions
19
Strategic Initiatives Support the Vision
STRATEGY
VISION
STRATEGIC RESULTS &
OBJECTIVES THEMES “Picture of the future”
OPERATIONS
CUSTOMER SERVICE
MARKETING INITIATIVE
MISSION
PRODUCTION INITIATIVE
FINANCE
H. R. INITIATIVE
TECHNOLOGY
INITIATIVE
TIME
THE STRATEGY RECOMMENDS SOME STRATEGIC INITIATIVES TO IMPROVE
PERFORMANCE OF SOME OPERATIONS OR CREATE NEW OPERATIONS.
© 2009 Balanced Scorecard Institute, a Strategy Management Group company. All rights reserved. 20
Strategic Initiatives Turn Strategies into Actions
Improvement project using a

tool or best practice
Measures &
Strategic Targets
Objective Strategic
Initiative
“The strategic planning process should use initiatives to help the

organization achieve its strategic objectives, not as ends in
themselves.
Public sector and nonprofit organizations are especially

guilty of often confusing initiative completion as the target
rather than improvements in mission objectives
and agency effectiveness.” -- Kaplan & Norton, 2001
21
How Strategy And Operations Relate
Mission
Vision
Strategic Results
Strategic
Objectives
PLANNING
Performance Strategic Performance

Metrics Feedback Measurements
Strategic
Operational
Initiatives Feedback
Activities Outcomes
Budgets Inputs & Outputs
Intermediate End
Processes
OPERATIONS
Strategic Initiatives
Lean Six Sigma ISO BPR Management Tools
22
Major Management Tools, 2008
Source: Bain & Company, 2009

23
Management Tool Usage 2008
Source: Bain & Company, 2009
24
Tool Usage Error 1
25
Tool Usage Error 2
26
One Function of the Balanced Scorecard:
Selecting the Right Tool for the Right Job
VISION
BSC
27
Summary: Building & Implementing The
Strategic Planning & Management System
Strategic Planning & Management System

Nine-Steps To Success™
Balanced Scorecard Mission
Vision
Program Strategic Results
Strategic
Objectives
Strategic
PLANNING
Performance Feedback
Metrics
Performance
Measures
Strategic
Operational
Initiatives Feedback
Activities
Budgets Inputs & Outputs Outcomes
Processes
OPERATIONS
Lean Six Sigma ISO BPR
Initiatives
28
Past and Future of Management
STRATEGIC PLANNING
BALANCED
SCORECARD
PERFORMANCE STRATEGIC
MEASUREMENT PERFORMANCE-
BASED
MANAGEMENT
BUDGETING
INTEGRATE CHANGE MANAGEMENT

TO SUPPORT TRANSFORMATION.
29
The BSC Strategic Management System Is
A Journey
Strategy + Operations + Change

A cost-effective Efficient Effectively
game plan, processes run by managing the
communicated empowered, complexities of
and executed satisfied people, tools,
well employees innovation and
action
In other words, learning to do the right

things right….
30
About the Balanced Scorecard Institute
The Balanced Scorecard Institute provides training and consulting services

to commercial, government, and non-profit organizations in applying best
practices in balanced scorecard (BSC), strategic performance management
and measurement, and transformation and change management.
Cary, North Carolina Washington, DC

(919) 460-8180 (202) 465-4253
www. balancedscorecard.org
31
Appendix
32
Performance Measures - Examples
(Private Sector)
EXAMPLE OPERATIONAL MEASURES OUTCOME MEASURES
Inputs Activities & Outputs Intermediate End

Processes Outcomes Outcomes
or Results
Financial Project cost, Overhead rate, Audits Budgets aligned ROI, ROA,
IMPROVEMENT PERSPECTIVES
employee total cost of passed, to strategy ROCE,

cost, ownership costs EBITDA, net
subcontract incurred, profit, cash
costs revenues flow
Customer / Customer Marketing Calls New customers Customer and

knowledge, research, received, added; stakeholder
Stakeholder sales data; customer Web site complaints satisfaction;
customer relationships traffic received retention
needs
Business Planning, Cycle time, On-time High quality/low “Fast

process compliance, deliverables, cost; process company”,
Processes documen- process efficiency alignment strategy-
tation maturity focused
Learning & FTE’s, Training, Skill sets, Aligned skills, High-

hardware, technical capabilities, systems, culture, performance,
Growth equipment, capabilities, capacities leadership learning
leadership security organization
33
Performance Measures - Examples
(Public Sector or Nonprofit Organization)
EXAMPLE OPERATIONAL MEASURES OUTCOME MEASURES
Inputs Activities & Outputs Intermediate End

Processes Outcomes Outcomes
or Results
Customer / Recipient or Customer Recipients Customer and Mission
IMPROVEMENT PERSPECTIVES
client surveys served, stakeholder effectiveness;

Stakeholder knowledge; conducted coverage, satisfaction; Best choice
position on visitor retention organization
issues; needs contacts
Financial Budgets, Overhead rate, Audits Budgets aligned Mission

actual costs total cost of passed, to strategy efficiency,
ownership, funding Mission value,
cash flow targets Productivity
reached
Business Planning, Cycle time, On-time Doing the right High Baldrige
process compliance, Deliverables, things right; score;
Processes documen- process efficiency process certifications;
tation maturity alignment recognition
Learning & FTE’s, Training, Skill sets, Aligned skills, High-

Hardware, technical capabilities, systems, performance,
Growth Equipment, capabilities, capacities culture, learning
Leadership security leadership organization
Note: measures shown are suggested examples; they are not intended to be prescriptive.
34
Business & Industrial Clients
Consulting Software
Financial Institute
International Bank
First Bank of Nigeria Of Moscow Spectrum
Partners
LLC
Citizens National
Bank Mortgage Services
Industrial/Commercial
Transportation
Golden Sunlight Mine
Golden Sunlight Mine

EuroControl
AMIRI Flight, UAE
Follett Corporation
LukOil
Entertainment
Croatian Telecom
35
Public Sector & Nonprofit Clients
Austin (TX) City of Newark

(NJ)
Mecklenburg Greenville Utilities Oneida Tribe of Pinellas County
County (NC) Commission (NC) Wisconsin Sheriff's Office (FL)
Workers Compensation Insurance Rating Bureau
Georgia Dept. of Early

Care & Learning
Dalton Public Schools
U.S. Dept. of Health &

Human Services
U.S. House of American
Speech-Language-
U.S. Foreign & Representatives Hearing
Commercial Chief Admin. Association
Service Officer EuroControl Government of
Malaysia
Passport
Canada Society Of Canadian
Artists & Musicians
© 2009 by the Balanced Scorecard Institute, a Strategy Management Group company. All rights reserved. 36
36
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“The Balanced Scorecard and its

Relationship to Operations Management”

 Concepts of performance measurement are being

“People and their managers are working so

 Strategy is a hypothesis of the best way for the organization

• An improved strategic planning process for focusing on the

In other words, a planning and

Perspective Key Metrics Key Questions

Through the eyes of our

How can we improve internal

• Human Capital Learning How can we support our internal

Organization Capacity Perspective

Internal Process Perspective

Organization Capacity Perspective

Financial Lower costs Increase revenues

Strategic Theme: Objectives Measures Targets Initiatives

Financial • Profitability • Market Value • 25% per year • Optimize

• FAA On Time • First in • Quality

Arrival Rating industry management

• % Ground crew • Stock

Adapted from original work of Kaplan & Norton

Increase Increase Strategic

Customer Customer Customer

Resource Increase Resource Ensure Fiscal

Improve Increase Interactive

 Provide a way to see if our strategy is working

“What gets measured gets done.”

Employee morale index

 Meaningful means Strategic

Improvement project using a

“The strategic planning process should use initiatives to help the

Public sector and nonprofit organizations are especially

Performance Strategic Performance

Source: Bain & Company, 2009

Source: Bain & Company, 2009

Strategic Planning & Management System

INTEGRATE CHANGE MANAGEMENT

Strategy + Operations + Change

In other words, learning to do the right

The Balanced Scorecard Institute provides training and consulting services

Cary, North Carolina Washington, DC

EXAMPLE OPERATIONAL MEASURES OUTCOME MEASURES

Inputs Activities & Outputs Intermediate End

employee total cost of passed, to strategy ROCE,

Customer / Customer Marketing Calls New customers Customer and

Business Planning, Cycle time, On-time High quality/low “Fast

Learning & FTE’s, Training, Skill sets, Aligned skills, High-

EXAMPLE OPERATIONAL MEASURES OUTCOME MEASURES

Inputs Activities & Outputs Intermediate End

client surveys served, stakeholder effectiveness;

Financial Budgets, Overhead rate, Audits Budgets aligned Mission

Learning & FTE’s, Training, Skill sets, Aligned skills, High-

Golden Sunlight Mine

Golden Sunlight Mine

Austin (TX) City of Newark

Georgia Dept. of Early

Dalton Public Schools

U.S. Dept. of Health &

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