2 Objective Explain What is the Balanced Scorecard Describe the Three Generations of Balanced ScorecardsExplain the Importance of Balanced ScorecardDescribe the Various Perspectives of Balanced ScorecardDescribe the Various Parameters of Balanced ScorecardExplain What is Performance ManagementExplain the Steps in Building a Balanced ScorecardDescribe the Balanced Scorecard System ElementsExplain the Steps for Implementation of BSCExplain What is the BSC DesignerList the Tips for Implementing Balanced CardList the Pitfalls of Balanced Scorecard
3 IntroductionDavid Pelham is a major stakeholder in Globus Inc., an MNC.
4 IntroductionHe is greatly interested in the performance of Globus Inc.
5 IntroductionSo, what gives an overall picture about the performance of a company?
6 IntroductionThe answer is a ‘Balanced Scorecard’.
7 What is the Balanced Scorecard The Balanced Scorecard is a management tool that provides stakeholders with a comprehensive measure of how the organization is progressing towards the achievement of its strategic goals.The Balanced Scorecard:Balances financial and non-financial measuresBalances short and long-term measuresBalances performance drivers (leading indicators) with outcome measures (lagging indicators)Should contain just enough data to give a complete picture of organizational performance and no more!Leads to strategic focus and organizational alignment
8 What is the Balanced Scorecard? The Balanced Scorecard framework is shown in the given diagram.Vision and MissionFinancial PerspectiveInternal Process PerspectiveLearning & Growth PerspectiveCustomer PerspectiveThe balanced scorecard translates the organization's strategy into four perspectives, with a balance between the following:between internal and external measuresbetween objective measures and subjective measuresbetween performance results and the drivers of future results
9 History of Balanced Scorecard But modern Balanced Scorecard designs also have a number of features that clearly differentiate them from earlier examples.•••In essence the Balanced Scorecard has remained unchanged since these early papers, having at its core a limited number of measures clustered into groups and an underlying strategic focus.The changes in the balanced scorecard have been an evolution through three distinct generations’ of Balanced Scorecard design.
10 Learning & Growth Perspective Balanced Scorecard Goes Beyond the Financial PerspectiveLet us look at each perspective in detail.Learning & Growth PerspectiveCustomer Perspective - includes measures such as customer satisfaction, customer retention, and market share in target segments.Business Process PerspectiveCustomer PerspectiveFinancial Perspective
11 ParametersMeasuresthe observable parameters that will be used to measure progress toward reaching the objective. For example, the objective of profitable growth might be measured by growth in net margin.Measures –
12 Parameters: Objectives, Measures, Targets, and Initiatives These can be organized for each perspective in a table as shown below.ObjectivesMeasuresTargetsInitiativesFinancialCustomerProcessLearning
13 Performance CriteriaPerformance Criteria helps to translate job requirements into levels of acceptable or unacceptable employee behaviour.Hence, ‘performance criteria’ is an important determinant of performance.It is essential to define ‘Performance Criteria’ for conducting a performance appraisal.
14 Principles of a Strategy Focused Organization Translate StrategyOrganization AlignmentCorporate RoleCorporate-strategic Business Unit (SBU)Strategic Business Unit (SBU) - Shared ServicesExternal PartnersEveryone’s JOBOrganization AlignmentOrganization AlignmentStrategy Focused OrganizationContinual ProcessExecutive Leadership
15 Characteristics of Balanced Scorecard The core characteristic of the Balanced Scorecard and its derivatives are the presentation of a mixture of financial and operational measures each compared to a 'target' value within a single concise report.The report is not meant to be a replacement for traditional financial or operational reports but a succinct summary that captures the information most relevant to those reading it.There are various versions of the tool in circulation which differ due to the methods by which this 'most relevant' information is determined, that is, the design processes used to select the content.
16 Design of Balanced Scorecard There are four steps required to design a Balanced Scorecard which are included in Kaplan & Norton's writing on the subject in the late 1990s, where they assert four steps as being part of the Balanced Scorecard design process:Step #1Translating the vision into operational goalsStep #3Business planning; index settingStep #2Communicating the vision and link it to individual performanceStep #4Feedback and learning, and adjusting the strategy accordingly
17 1 2 3 Steps in Building a Balanced Scorecard Process 1: Strategy formulation. Prepare vision and mission statements2Process 2:Identify the Objectives of the organization3Process 3:Deciding for the measurements and Targets. Creating performance indicators.
18 Balanced Scorecard System Elements Engaged Leadership, Interactive Communications and Change ManagementOrganization Mission, Vision, and ValuesBalanced Scorecard System ElementsDeveloping a scorecard system is transformational for an organization, as it is about changing hearts and minds. Leaders who are engaged in the discovery process, communication via two-way dialogue, and planning and managing change are important first steps in the process.Performance Information ReportingCritical to an aligned organization are a well defined mission, a shared vision, and organization values that are built on strong personal values. Most organizations have these components, but often there is no connecting tissue among the components that allow employees to “get it” easily. A compelling and clear “picture of the future” (the shared vision) is where the scorecard development process starts. The employee buy-in follows as hearts and minds are engaged in creating and executing the organization’s strategies.Automated data collection and reporting processes are used to visualize performance information and better inform decision making throughout the organization.
19 Steps for Implementation of Balanced Scorecard Gain consensusStep 6: Expand consensusStep 8: Selection of metricsStep 10: Periodic reviewsStep 2: CollaborationStep 1: InitiationStep 3: Gain InputsStep 5: Individual reactionsStep 7: Finishing touchesStep 9: Roll-outStep 11: EvolutionStep 2: Collaboration:The next step requires teamwork and collaboration where the different perspectives of different people and their expertise are required. The implementation of a balanced scorecard is not a one-person job and won’t produce buy-in.
20 Adaptation of the Balanced Scorecard Framework to Non-Profit and Government Organizations