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Objective Explain What is the Balanced Scorecard

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Presentation on theme: "Objective Explain What is the Balanced Scorecard"— Presentation transcript:


2 Objective Explain What is the Balanced Scorecard
Describe the Three Generations of Balanced Scorecards Explain the Importance of Balanced Scorecard Describe the Various Perspectives of Balanced Scorecard Describe the Various Parameters of Balanced Scorecard Explain What is Performance Management Explain the Steps in Building a Balanced Scorecard Describe the Balanced Scorecard System Elements Explain the Steps for Implementation of BSC Explain What is the BSC Designer List the Tips for Implementing Balanced Card List the Pitfalls of Balanced Scorecard

3 Introduction David Pelham is a major stakeholder in Globus Inc., an MNC.

4 Introduction He is greatly interested in the performance of Globus Inc.

5 Introduction So, what gives an overall picture about the performance of a company?

6 Introduction The 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 measures Balances short and long-term measures Balances 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 Mission Financial Perspective Internal Process Perspective Learning & Growth Perspective Customer Perspective The balanced scorecard translates the organization's strategy into four perspectives, with a balance between the following: between internal and external measures between objective measures and subjective measures between 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 Perspective Let us look at each perspective in detail. Learning & Growth Perspective Customer Perspective - includes measures such as customer satisfaction, customer retention, and market share in target segments. Business Process Perspective Customer Perspective Financial Perspective

11 Parameters Measures the 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. Objectives Measures Targets Initiatives Financial Customer Process Learning

13 Performance Criteria Performance 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 Strategy Organization Alignment Corporate Role Corporate-strategic Business Unit (SBU) Strategic Business Unit (SBU) - Shared Services External Partners Everyone’s JOB Organization Alignment Organization Alignment Strategy Focused Organization Continual Process Executive 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 #1 Translating the vision into operational goals Step #3 Business planning; index setting Step #2 Communicating the vision and link it to individual performance Step #4 Feedback 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 statements 2 Process 2: Identify the Objectives of the organization 3 Process 3: Deciding for the measurements and Targets. Creating performance indicators.

18 Balanced Scorecard System Elements
Engaged Leadership, Interactive Communications and Change Management Organization Mission, Vision, and Values Balanced Scorecard System Elements Developing 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 Reporting Critical 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 consensus Step 6: Expand consensus Step 8: Selection of metrics Step 10: Periodic reviews Step 2: Collaboration Step 1: Initiation Step 3: Gain Inputs Step 5: Individual reactions Step 7: Finishing touches Step 9: Roll-out Step 11: Evolution Step 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

21 Typical Balanced Scorecard Project Schedule

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