BALANCE SCORECARD

TOOL FOR PERFORMANCE MANAGEMENT

Traditional Methods of Performance Management

Why was it developed ?

The concept of Balanced Scorecard was developed in the early 1990s by Robert S. Kaplan and David P. Norton. They describe this innovation as follows:
"The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation."

Leading and Lagging Indicators

What Is Balance Scorecard

Developed in the early 1990's by Drs. Robert Kaplan and David Norton. The balanced scorecard is a management system that enables organizations to clarify their vision and strategy and translate them into action .

Financial Perspective
What financial steps are necessary to ensure the execution of our strategy/goals? Are the programs/ departments goals, implementation, and execution contributing to the bottom line? Are we meeting operational and financial targets? Dimensions of Quality:
Efficiency

Internal Service Process Perspective

What critical processes must we excel at to satisfy our customers/stakeholders? What must be done internally to meet patient/customer expectations? Dimension of Quality:
Effectiveness Appropriateness Safety

Customer Relations Perspective

Who are our target customers? How do our patients/customers see us? How do patients/customers rate our performance? Dimension of Quality:
Accessibility Acceptability Continuity

Learning, Innovation and Growth Perspective

How can we continue to improve? What capabilities and tools do our employees need to execute our strategy/goals? Dimension of Quality:
Competence Participation

Strategy Maps

What is a Strategy Map?

A strategy map is a visual representation of the strategy of an organization. It illustrates how the organization plans to achieve its mission and vision by means of a linked chain of continuous improvements. For a commercial business, the strategy map illustrates the long-term game plan or competitive strategy to achieve increased profitability. For a nonprofit or governmental organization, it illustrates the plan by which the organization intends to improve performance of its mission. In either case it illustrates the cause-and-effect relationships between different strategic objectives and their measures, or key performance indicators (KPIs) that are included in a balanced scorecard.

DESIGNING STRATEGY MAPS

SAMPLE STRATEGY MAPS

HOW FINANCIAL AND NON FINANCIAL MEASURES ARE CONNECTED

Understand how value is created for customers and shareholders. Link strategic objectives in cause and effect relationship to create a strategic map.

BUILDING A SCORECARD
STEP-1
STEP-2
Assessment of the organizations foundation and its core beliefs. Core balanced scorecard team. Development of overall Business Strategy.

STEP-3
STEP-4

Decomposition of business strategy into smaller component called strategy. A strategic map of the organizations overall business strategy is created.

STEP-5
STEP-6

Performance Measure are developed to track both strategic and operational progress. Initiatives are identified that needed to be funded and implemented.

IMPLEMENTING BUSINESS SCORECARD

1. Make the strategy explicit

2. Choose the measure

3. Define and Refine

3. Deal with people

BALANCE SCORECARD MANAGING CHANGE

BALANCE SCORECARD AS A STRATEGIC MANAGEMENT SYSTEM

1. Overcoming the vision barrier through the Translation of Strategy

2. Cascading the scorecard overcomes the people barrier.

3. Strategic resource allocation the resource barrier.

4. strategic learning overcomes the management barrier.

ADVANTAGES
Focusing the whole organization on the key few things needed to create a breakthrough. Helps to integrate various corporate programs like quality ,re-engineering and customer service initiatives Breaking down the strategic measures towards lower level, so that unit managers ,operators and employees can see what's required at their level to achieve excellent overall performance Periodic reviews are conducted which helps in reviewing the strategy. Alignment of strategic activities to the strategic plan-real deployment and
implementation of strategy DOUBLE LOOP FEEDBACK Employee motivation. Assigning weight age to KRAs enables the employees to prioritize their work. The weight age assignment also gives the employees a clear picture of issues critical to the organization and individual contribution in the achievement of organizational objectives.

What is a Balanced Score Card?

1) A measurement system 2) A strategic management system 3) A communication tool

BSC as a Measurement System

Translates mission, vision and strategy through objectives and measures Provides a framework to describe the key elements in the achievement of the strategy Measures four perspectives - Customer Relations - Financial - Internal Service Process - Learning, Innovation and Growth

BSC as a Strategic Management System

Translates strategy into: Objectives Measures Targets Initiatives

Translating with the BSC

Mission

Desired state Differentiating activities What must be done well to implement strategies

Vision Strategy/Goals Objectives

In each perspective

How strategic success is measured

Measures
In each perspective

Continue
Executives now need newer ways to assess how well their organization is functioning, how to predict future performance, and how to align the organization toward new strategies. Hence the Balanced Scorecard.

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The balanced scorecard suggests that we view the organization from four perspectives, and to develop metrics, collect data and analyze it relative to each of these perspectives:

The Learning and Growth Perspective The Business Process Perspective The Customer Perspective The Financial Perspective
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Map Sub-goals to Balanced Scorecard

Financial Perspective revenue growth and mix cost reduction/ productivity improvement asset utilization/ investment strategy Internal Business Process Perspective innovations operations after sales service Customer Perspective market share customer acquisition customer satisfaction customer profitability

Learning & Growth Perspective employee satisfaction employee retention employee productivity
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Financial Perspective
Long-term Shareholder Value

Cost Efficiency Improve Cost Structure Increase Asset Utilization

Revenue Growth Expand Revenue Opportunities Enhance Customer Value

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Strategic Objectives in Customer

Customer Retention Customer Satisfaction Customer Profitability Market Share

Customer Acquisition

Price

Quality

Service

Availability

Brand

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Strategic Objectives in Internal Process

Operations Management Processes
Processes that produce and deliver products and services

Customer Management Processes

Processes that enhance customer value

Innovation Processes

Regulatory and Social Processes

Processes that improve communities and the environment

Processes that create new products and services

Supply Production

Selection Acquisition

New Ideas R&D Portfolio

Environment Safety & Health Employment Community

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Distribution

Retention
Growth

Design/ Develop
Launch

Strategic Objectives in Learning & Growth

Human Capital Organization Capital Information Capital

Skills Knowledge Attitude

Culture Leadership Organization Development

Systems Database Networks

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ADVANTAGES OF BALANCE SCORECARD

Focusing the whole organisation on the key few things needed to create a breakthrough. Helps to integrate various corporate programs like quality ,reengineering and customer service initiatives Breaking down the strategic measures towards lower level, so that unit managers ,operators and employees can see what's required at their level to achieve excellent overall performance Periodic reviews are conducted which helps in reviewing the strategy.
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Continue.
Alignment of strategic activities to the strategic plan-real deployment and implementation of strategy DOUBLE LOOP FEEDBACK Employee motivation. Assigning weightage to KRAs enables the employees to prioritize their work. The weightage assignment also gives the employees a clear picture of issues critical to the organisation and individual contribution in the achievement of organisational objectives.

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Effective implementation issues

Ill-defined strategy Management style(MBO) Paper chase Centralized measures Lack of ignorance-parameters of organisation as a whole Ignoring conceptual issues Excluding stakeholders
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Issues for enabled users

Strategy process Inflexibility Failure to evolve Reification

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Problems with the balanced scorecard?

It is somewhat difficult and time-consuming to implement a comprehensive balanced scorecard system in a large organization. It will require sustained top-level support and commitment to ramp-up and put the system in place. A sustained effort at change management and education is needed

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