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The document introduces the Balanced Scorecard as a performance measurement and strategic management tool. It has four perspectives - financial, customer, internal business processes, and learning and growth. The Balanced Scorecard bridges present performance to future strategy by linking long-term strategic objectives with short-term actions and tracking both financial and non-financial metrics. Objectives, measures, targets, and initiatives are set within each perspective to implement organizational strategy throughout the company.
The document introduces the Balanced Scorecard as a performance measurement and strategic management tool. It has four perspectives - financial, customer, internal business processes, and learning and growth. The Balanced Scorecard bridges present performance to future strategy by linking long-term strategic objectives with short-term actions and tracking both financial and non-financial metrics. Objectives, measures, targets, and initiatives are set within each perspective to implement organizational strategy throughout the company.
The document introduces the Balanced Scorecard as a performance measurement and strategic management tool. It has four perspectives - financial, customer, internal business processes, and learning and growth. The Balanced Scorecard bridges present performance to future strategy by linking long-term strategic objectives with short-term actions and tracking both financial and non-financial metrics. Objectives, measures, targets, and initiatives are set within each perspective to implement organizational strategy throughout the company.
Faculty, Strategic Management, XLRI Jamshedpur MBA – NMIMS, Mumbai | FPM (PhD) – IIM Bangalore BALANCED SCORECARD AN INTRODUCTION Balanced Scorecard (BSC) • Performance measurement –> Performance management –> Strategic Management tool • Provides a more comprehensive assessment of the state of the organization • Revolutionized conventional thinking about performance metrics • It is a misnomer that BSC is an HR tool – actually a Strategy tool applicable to entire organization • But HR department is generally the custodian and implementer of this tool • Vision & Strategy is at the core BSC – A bridge between the present and the future (Knowing-Doing gap) • Addresses gap between an organization’s strategies and their implementation by employees • Link a company’s long-term strategies with short- term actions • Not a replacement for financial measures, but their complement • Track financial results • Monitor progress in building the capabilities and acquiring the intangible assets needed for future growth • Ability to exploit intangible assets > Ability to invest in and manage physical assets Cascading nature of balanced scorecard Financial & Strategic Objectives* Financial Objectives Strategic Objectives • ‘x’ % increase in revenues • ‘x’ % market share • ‘x’ % inc. in profits (PAT) • Lower costs than rivals • ‘x’ % inc. in EPS • Better quality & customer • ‘x’ % inc. in dividend payout service • ‘x’ % profit margin • ‘x’ % revenues from sale of • ‘x’ % ROE or ROCE new products • Increased shareholder • Broader or deeper value (upward stock price) technological capabilities • Bond / credit ratings of ‘x’ • Wider product line • Internal cash flow of ‘x’ • Better brand name • Stronger S&D capabilities * Crafting & Executing Strategy (19e) by Thompson et al. • New product introduction BSC Constituents / Perspectives Four constituents or Components (OMTI) perspectives of a BSC within each of the four • Financial constituents • Marketing • Objectives (Customer) • Measures • Internal Business • Targets Process • Initiatives • Learning & Growth (knowledge & innovation) Using the Balanced Scorecard as a Strategic Management System by Kaplan & Norton (HBR, 1996 & 2007) BSC Perspectives – Questions to Ask It is about translating vision & strategy through four perspectives • Financial • How should we appear to our shareholders? • Marketing (Customer) • How do customers view us? • Internal Business Process (IBP) • What processes must we excel at? • (to satisfy shareholders & customers) • Learning & Growth (L&G) • Can we continue to improve and create value? BSC – Criteria for Components.. Perspective / Criteria Component Financial • Cash flow • Return on equity • Return on assets
Customer • Ability to anticipate customers’
(Marketing) needs • Effectiveness of customer service • Percentage of repeat business • Communications with customers BSC – Criteria for Components* Perspective / Criteria Component Internal • Asset utilization improvements Business • Improvement in employee morale Process • Reduced attrition or turnover rates
Learning & • Improvements in innovation ability
Growth • Number of new products compared to competitors • Increase in employees’ skills
Four Characteristics of a BSC* These distinctive features make the BSC more than just a measurement system • It is a top-down reflection of the company’s mission (vision) and strategy • It is forward-looking • It integrates external and internal measures • It helps a company focus Thus, it serves as a means for motivating and implementing breakthrough performance
*Putting the Balanced Scorecard to Work by Kaplan & Norton