Step By Step Balanced Scorecard System Prepared by : Shaimaa Nabil Diaa-Eldin

Balanced Scorecard System

Introduction The presentation consists of three sections: Section 1 : chapter one (Performance Measurement and the Need for a Balanced Scorecard)last part. Section 2 : summary & quick overview on main points of chapter one. Section 3 : chapter 2 ( Balanced Scorecard as an Enduring Management Tool ) first part only.

Section one: consist of 2 points ** The importance of Cause and Effect: What is make the BSC system unique than other performance measurement systems is the notion of cause and effect, this feature is the most challenging aspect of the BSC implementation . A well- designed BSC should describe the organization`s strategy through a series of cause and effect relationships which inherent in the BSC measures .

The BSC is constructed with a series of " if – then " statements Example: (An organization adapt a (growth strategy IF you increase training THEN the quality of the product will increase & IF the quality increases THEN Loyalty of the customers increase & IF Loyalty increases THEN revenue increase .

** Balance in The balanced scorecard: It is important to use the term balanced when describing the BSC as a management tool. The concept balance is central in three areas: 1- Balance between financial and nonfinancial indicators of success . 2- Balance between internal and external constituents of the organization. 3- Balance between lag and lead indicators of performance.

Section Two : quick overview on chapter 1 Performance measurement and the need for a balanced scorecard 1 - two Fundamental issues : The problem of effective organizational performance measurement. The successful strategy implementation. 1.1 - Measuring organizational performance

*** Financial measurement and its limitations: 1- Not consistent with today`s business realities 2- Driving by rearview mirror. 3- Tend to reinforce functional silos. 4- Sacrifice long- term thinking. 5- Financial measures are not relevant to many levels of the organization.

1.2- the strategy story : *** Implementing strategy : 1- the vision barrier 2- the people barrier 3- the resource barrier 4- the management barrier

2 The balanced Scorecard 2.1 Origins of the balanced Scorecard. 2.2 What is balanced Scorecard? Measurement system. Strategic management system. Communication tool.

The balanced scorecard as a measurement system : 1- Customer perspective 2- Internal process perspective 3- Learning and growth perspective 4- Financial measures

3- The importance of cause and effect 4- Balance in the balanced scorecard: Balance b/w financial & nonfinancial indicators. Balance b/w internal & external parts. Balance b/w lag & and lead indicators.

Chapter 2 Balanced scorecard as an Enduring Management Tool

1- The Rising Prominence of Human Capital The now prevailing notion that an organization`s people or its human capital represent the critical enabler in the new economy. The growth in prominence of human capital make business world gives great emphasis on nonfinancial indicators of performance. One study stated that about 35% of the investor`s decision depend on nonfinancial criteria. But what is human capital ? And why is it important to the BSC ?

At the early 1990s the expression (employee as an asset) was widely used in the business community. Accounting definition of the asset is : an object owned or controlled by the firm that produces future value and possesses a monetary value. DOES IT FIT TO THE EMPLOYEES? Another school developed consider the employee as an human capital than as an asset to be controlled by the organization. Thomas Davenport ( People possess abilities, behaviors, personal energy and time. These elements make up human capital.)

For the first time in business history, workers, not the organization, own the means of production and they decide how, where and when to apply them.

2- creating value in the new Economy: There is a transition of economy, from an economy based on physical assets to one almost fully dependent on human capital. Current research suggest that about 75% of an organization`s value derived from human capital. This transition has major implications for measurement systems.

Financial measurements like balance sheet and income statement are perfectly appropriate for a world controlled by physical assets only. The new economy needs systems of performance measurement which have the capabilities to identify, describe, monitor, and provide feedback on the employees.

3- Using the balanced scorecard to measure value in the new economy : Kaplan and Norton have suggested a number of differences between intangible assets and physical assets : Intellectual assets may not have a direct impact on financial results. The value of intellectuals is largely potential it must be transformed. Intellectual assets require interdependence for success.

The cause and effect: which is the most important feature of the BSC enables it as a measurement system to offer how the transformation of intangibles can lead to the fulfillment of strategy and improve financial results.

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