OVERVIEW OF BALANCED SCORECARD

ORIGIN OF BALANCED SCORECARD

In 1990 KPMG sponsored a one year study titled MEASURING PERFORMANCE IN THE ORGANIZATION OF TOMORROW Study conducted by Professors Robert Kaplan and David Norton of Harvard University Pilot company was Analog Devices Research revealed that financial measures were not the only measures to be monitored

ORIGIN OF BALANCED SCORECARD

Study led to inclusion of non financial measures which impacted financial results Instrument which covered both financial and non financial measures was called THE BALANCED SCORECARD by Professors Kaplan and Norton

TODAYS BUSINESS CHALLENGES

Managing Top and Bottom lines Meeting stakeholders expectations Developing and retaining top talent Creating a customer responsive organisation Diminishing time to market Market agility Pricing and quality

STAKEHOLDERS EXPECTATIONS
Delivering stakeholder value is a key driver for corporate success Stakeholders are: -Investors Capital Investment -Customers Profitability,loyalty -Employees Productivity,loyalty -Suppliers -part of virtual corpn -upstream integration -Fin Inst Financial health long and short term

BALANCED SCORECARD
Provides method for organisation to systematically develop a comprehensive system of planning and control Performance measurement system that translates organisation strategy into objective measures, targets and initiatives

BALANCED SCORECARD
Approach to performance measurement that combines financial measures with non-financial to provide a total corporate health Used for management and strategic control Four standard dimensions as defined by Kaplan & Norton but could be adapted to organisational needs

Balancing act of BSC

Balanced scorecard provides balance between -Short and Long term objectives -Financial and non financial measures -Lagging and Leading indicators -External and Internal performance perspectives -Tangible and Intangible assets

CURRENT PROBLEMS
Lack of integration between enterprise strategies and operational business processes shows following problems: -Strategy not translated into operational schema nor broken down into elements -90% of top management spends less than 1 hour per month on strategy discussions -60% of employees do not relate directly to strategy -Focus on financial figures is high and past oriented and stress laid on reactive measures

CURRENT PROBLEMS
Lack of identification of potential opportunities and risks in terms of long term potential opportunities and risks in terms of of capital investments Inability of Operations planning and performance management to focus on current periods and their purpose within bounds of strategy in order to ensure profitability and liquidity

WHY BALANCED SCORECARD

Operations performance measurement provide impulses for corporate strategy Combination of operations and strategic management makes it possible to assess decisions versus long term goals

THE BALANCED SCORECARD WHY DO IT

Provide quality processes Achieve strategic objectives Eliminate non value added activities Track progress Evaluate process change Continually improve Increase accountability

THE STRATEGY FOCUSSED ORGANIZATION

Vision Mission Values CSF Strategies Objectives Measures Initiatives -What we aspire to be -What we want to do -What are our ethics in business -Critical factors in achievement of goals -How we accomplish our goals -Desired Outcomes -Indicators of our progress -Change process for objective achievement

VISION
Picture of organization future Details where organization sees itself few years down the line Vision translated into objectives and strategies

VISION STATEMENT BY LEADING COMPANIES

MICROSOFT -Empower people through great software anytime anyplace on any device SUN MICROSYSTEMS -Promote open systems and easy to operate computers and be leaders in emerging technologies(JAVA) TOYOTA -Manufacture of affordable reliable cars

VISION STATEMENT BY TATA MOTORS

INDUSTRY LEADER IN SMALL CAR BY 2009

VISION STATEMENT OF INFOSYS

TO BE A GLOBALLY RESPECTED CORPORATION THAT PROVIDES BEST OF BREED BUSINESS SOLUTIONS LEVERAGING STATE OF THE ART TECHNOLOGY DELIVERED BY BEST IN CLASS PEOPLE

MISSION
Identifies a reason for existing A set of tangible statements of tangible statement of organizational purpose Declares joint purpose between Company and stakeholders

MISSION STATEMENT OF TATA MOTORS

OUR COMMITMENT IS TO TOTAL CUSTOMER SATISFACTION THROUGH DILIGENT EFFORTS TO DEVELOP INDIGENISED AND LOW COST CARS AND EXPAND OUR CUSTOMER BASE ON AN ON GOING BASIS

MISSION STATEMENT OF INFOSYS

TO ACHIEVE OUR OBJECTIVE IN ENVIRONMENT OF FAIRNESS HONESTY AND COURTESY TO CLIENTS EMPLOYEES VENDORS AND SOCIETY

VALUES
Foundation on which company is built Vision and values are mirror of business and should stand the test of time Values should support vision and reflect in the daily operations of the company Value system may be influenced by external factors Vision charts future direction while values provide motor to get there

VALUES
Develop supporting practices for values Values provide a guidance system for change management Values translated into measurable practices Examples are Customer Service:Average purchase and Market share;Employee care:Employee turnover and 360 degree appraisal

VALUES AT TATA MOTORS

Transparent and honest Management Employees form an integrated part of the industrial family Customers , Dealers and suppliers form part of the extended family Ethical transactions within and externally

VALUES AT INFOSYS
Integrity and transparency Fairness in dealings with stakeholders Pursuit of excellence

TRANSLATING VISION INTO DESIRED OUTCOMES

VALUES-WHAT DO WE BELIEVE IN VISION-WHAT DO WE WANT TO BE MISSION-WHY DO WE EXIST VALUES-WHAT VALUES GUIDE US CSF-CRITICAL TO SUCCESS FACTORS STRATEGY-WHAT ARE OUR PLAN STRATEGIC OBJECTIVES-WHAT DO WE NEED TO ACHIEVE IN EACH KEY ACTIVITY TO SUCCEED

TRANSLATING MISSION INTO DESIRED OUTCOMES

STRATEGIC OUTCOMES OF PERSPECTIVE -SATISFIED SHAREHOLDERS -DELIGHTED CUSTOMERS -EFFICIENT AND EFFECTIVE PROCESSES -MOTIVATED AND PREPARED WORKFORCE

STRATEGIC FOCUS
THREE BUSINESS FOCUSSES -COST FOCUS -PRODUCT FOCUS -CUSTOMER FOCUS

COST FOCUSSED STRATEGY

Directed at minimizing operations cost Company must command prices that are lower but close to industry average and render goods/services that are equal to industry standards Achievement of strategy through reduction of cycle time,labor cost, manufacturing cost

PRODUCT FOCUSSED STRATEGY

Provides customer with unique value added services/features at premium price Fills niche area not served by cost leaders Tactics include better customer service

CUSTOMER FOCUSSED STRATEGY

Provides customer with high service levels and product functions Premium commanded for product/services

MANAGING STRATEGY
Four Processes -Translating Vision .Clarifying vision .Gaining consensus -Communicating and Linking .Communicating .Educating .Setting goals .Linking rewards to performance measures

MANAGING STRATEGY
Four Processes -Business planning .Setting targets .Aligning strategic indicators .Establishing milestones -Feedback and learning .Articulating vision .Supplying strategic feedback .Strategic review

STRATEGIC GOALS
Establishing strategic goals is the first step in building the balanced scorecard Strategic Goals establish direction in concrete terms. For Example: by the year 2005, we will grow revenues by 45% Strategic goals anchor the rest of the process Strategic goals should fit with the vision and mission of the organization

STRATEGY FOCUSSED ORGANIZATION

Strategy is a key element for growth and success Strategy is communicating in a easy manner Strategic focus on navigation of activities to align with strategy Organizing is mobilization of employees to act towards achievement of corporate objectives Balanced scorecard provides framework to look at strategy from different perspectives

STRATEGY FOCUSSED ORGANIZATION

Five principles of strategic focussed organization -Translate strategy into operational terms -Align organizational strategy -Make strategy everybodys everyday job -Make strategy a continual process -Mobilize change through leadership

STRATEGY FOCUSSED ORGANIZATION

Five principles of strategic focussed organization *Translate strategy into operational terms -Strategy Maps -Balanced scorecards *Align organization to Strategy -Business unit synergies *Make Strategy everybodys everyday job -Personal scorecards -Balanced pay cheques

STRATEGY FOCUSSED ORGANIZATION

Five principles of strategic focussed organization *Make strategy a continual process - Link Budgets to strategies *Mobilize change through leadership -Usage of strategic management system

OBJECTIVES
Objectives are desired outcomes Progress towards achievement of objective translated into measures Causal relationship between objectives

STRATEGIC OBJECTIVES
IMPROVE RETURNS REDUCE COSTS INCREASE CUSTOMER SATISFACTN CREATE NEW PRODUCTS MAXIMIZE OPERATIONAL EFFCNCY RESPONSIVE SERVICE ALIGN PERSONAL GOALS

STRATEGIC MEASURES
RETURN ON CAPITAL EMPLOYED MYSTERY SHOPPING RATING DEALER PROFITABILITY MFG RELIABILITY INDEX COST EFFECTIVENESS COMPETENCE AVAILABILITY

MEASURES(METRICS)
Metrics are meaningful quantified measures Metric should present data that enables action Metrics should be tied to strategy and should indicate how well organization objectives and goals are being met through core processes Metrics should motivate indivisuals to improve processes

MEASURES(METRICS)
No one right set of metrics Balanced scorecard to be tailored to each specific company Resultant scorecard of indicators to be driven by firms strategy Typical reasons for misalignment of metrics are: outdated strategy;wrong management policies;over matured process

WHY MEASURE
Track current actual performance against targets and predictions Track performance deficiencies and monitor improvements Motivate managers and employees to achieve performance objectives Predict future trends Stimulate creation of new initiatives,objectives,targets

MEASUREMENT TYPES
Planning Are we achieving long term objectives like ROI, P/E RATIO etc Screening Are functional areas performing as per organizational strategic goals Controlling Short to intermediate range performance measured periodically Control Are processes performing in alignment with the functional goals.Measures expressed in non monetary terms and focus is on immediate performance issues

STRATEGIC OUTCOME (CURRENT MEASURE)

Signifies current value of metric measurement of activity If objectives have to be met some or all of the following outcomes have to mature: -Satisfied Shareholders -Delighted Customers -Effective Processes -Motivated and prepared work force

 COST FOCUSSED PRODUCT FOCUSSES CUSTOMER FOCUSSED

KEY PERFORMANCE MEASURES OF THREE STRATEGY FOCUSES

COST MEASURES
COST CYCLE TIME CONFORMANCE TO STANDARDS CONFORMANCE TO QUALITY

PRODUCT MEASURES
NEW PRODUCTS IN PIPELINE R&D BUDGET TIME TO MARKET FIELD SERVICE MEASURES EMPLOYEE SATISFACTION

CUSTOMER FOCUSSED
COMPLAINT HANDLING RESPONSIVENESS PRICE PERFORMANCE

INITIATIVES
Change process or activity designed to achieve one or more objectives Initiative helps move a measure towards target value

DRILL DOWN OF PLANNING

Strategic Planning Tactical Planning VISION MISSION

STRATEGIES

OBJECTIVES (Goals)

BSC PERSPECTIVES

MEASURES (KPI)

ALARMS

Activity Execution & Control

CURRENT VALUE

TARGET

Operational planning

INTIATIVES

FEEDBACK CONTROL

ROOT CAUSE AND COST OF QUALITY

ELEMENTS OF A BALANCED SCORECARD

PERSPECTIVE Various viewpoints from which organization considered.Standard 4 perspectives. Monitor activities involved in converting strategy to reality. Encompasses current and targeted key figures and initiatives linked to strategies.

SCORECARD

ELEMENTS OF A BALANCED SCORECARD

OBJECTIVES Describes goals to be achieved within a perspective.Objectives linked to a strategy. MEASURES KPI to be monitored for a target to be achieved. INITIATIVES Set of activities that share one or more objectives as their purpose. CURRENT Numeric value metric achieved ALARM Which range does value fall

The Balanced Scorecard Framework

54

Kaplan and Norton model (1996)

Customer
Balanced Scorecard

Financials

Business Processes

Learning & growth

A question of balance?
Customer perspective Corrective activity Developmental activity Balancing compliance with added value Financial Measures Key performance ratios Financial health Balancing leading with trailing indicators

Balanced Scorecard
Learning and growth People measures Knowledge measures Balancing soft and hard indicators

Business Processes Drumbeat Time, cost, quality Balancing inputs and outputs

BALANCED SCORECARD STANDARD DIMENSIONS

FINANCE
How to manage stakeholders to be financially successful

CUSTOMERS
internal and external Customers *Define levels of Requirement service to match expectation

Vision Strategy

INTERNAL
*Metrics compared with

*Who are

*Metrics to Display performance of Key organization process Metrics

LEARNING/VISION

*How to manage internal customers to realize vision

*Organization development through People improvement

Essential Elements of Balanced Scorecard

Strategic Objectives = Management measures that can be understood by heads of departments Key Performance Indicators=Used to determine organizational performance Operational measure=Quantification of operational measures understood by all

BALANCED SCORECARD GENERATIONS

FIRST GENERATION -System for evaluating performance .Performance measures .Drilldown of strategy .Perspectives .Strategic objectives .Performance indicators(KPI) .Performance linked compensation

BALANCED SCORECARD GENERATIONS

SECOND GENERATION -Management Feedback Control Systems .Organizational learning at end of term .Root cause analysis and solution of problems .Feedback for next term plan

BALANCED SCORECARD GENERATIONS

THIRD GENERATION -Framework for organizational change .Change Management steps .Strategy maps .Definition of budgets and control of expenditure per initiative

Cause and effect chain

May be reversed Strategic Objective What Financial Measure How Customer Value Measure How Process Measure How Employee Measure

VERTICAL SCORECARD
(LINKAGES OF PERSPECTIVES) FINANCIAL PERSPECTIVE CUSTOMER PERSPECTIVE INTERNAL PERSPECTIVE LEARNING PERSPECTIVE

Cause and effect chain example

Become No 2 player What F Market share How C Service span offer How PServices delivered per customer How EAvailability of data

PERSPECTIVE FINANCE
OBJECTIVE IMPROVE FA UTIL MEASURE - % CAP UTIL -EQPT UPTIME -EQPT THRUPT -DYS INV -INV TURNOVER -%STKOUT -BAD DEBT% -%UNCOLLECT ACR -INV OBSOLESC%

EFF W.C.

FIN RISK

PERSPECTIVE FINANCE
OBJECTIVE OPER RISK MEASURE -DEBT/EQUITY -ORDER BACKLOG -%ORDER CANCEL INCR REV/CUST -WALLET SHARE INCR CUST PROF -CUST PROFITABILITY -%UNPROFITABLE CUST SALES PRODVITY SALES EXP/TOTAL REV (COST OF SALES)

PERSPECTIVE FINANCE
OBJECTIVE MEASURE BECOME IND COST LDR COST/UNIT ASSET UTILIZATION -SALES/ASSET

PERSPECTIVE LEARNING &INNOVATION

OBJECTIVES MEASURES RAPID NEW PROD LNCH -NO NEW PR -DEV CYCLE PROD OF NEW PROD -MFG COST -PROC YLD -FLD RETRN -FAILURES -WARRANTY CST -COMPLAINTS SALES NEW PROD -REVENUES

PERSPECTIVE LEARNING &INNOVATION

OBJECTIVES CONTINUOUS IMPR MEASURES -NO IMPR PROC -NO NEW IDEAS -COST SAVING -DEFECT REDN -YIELD INCR -PROC TIM RDN

PERSPECTIVE CUSTOMER
OBJECTIVES SEGMENTATION MEASURES -PROF CONTR -MKT SHARE SEG NONPROF CUST -%NON PROF CST HIGH VALUE CUST -STATEGIC ACCT BRAND MGT -BRAND AWARE% NEW CUST ACQ -%LEADS CONV -COST/NEW CUST ACQ -CUST LIFETIME VAL -%NEW CUST ACQ

PERSPECTIVE CUSTOMER
OBJECTIVES MEASURES CUST LOYALTY -%CUST ATTRITION -NO REFERRALS CUST SATISF -%SATISF CUST CUST RETAINED -%CUST RETAINED LOW CUST COST -COST OF OWNERSHIP ZERO DEFECT -PPM DEFECT COMPLAINTS -NO CUST COMPLAINTS

PERSPECTIVE INTERNAL PROCESSES

OBJECTIVES Cost to serve Product Agility Responsiveness Quality Cost of quality Cost of product Unit cost Marketing cost MEASURES -Cost of store + delivery -%Flexibility -Lead time from order to dely -On time delivery % -%items delvd w/o defect -cost of insp/prev/apprais/fail -Cost of operating processes -Unit cost per product -Marketing cost/Total cost %

PERSPECTIVE INTERNAL PROCESSES

OBJECTIVES Continuous Impr MEASURES -Cycle time/cost reduction -Agility improvement -Quality improvement -cost of insp/prev/apprais/fail -equipment O.E.E. -%cost of purch as ttl cost

Cost of quality Equipment eff Cost of ownershp

Learning and growth

Employee satisfaction Employee capability Information availability Knowledge growth Performance and reward management systems Cultural measures from surveys e.g. leadership, communication, recognition (enablers)

LINKING SCORECARD COMPONENTS

PERSPECTIVE STRATEGY SUCCESS MSR PERFORMANCE KEY ACTIONS

OBJECTIVE

MEASURE

TARGET

INTIATIVE

FINANCIAL

Broaden Revenue Mix

Revenue

60% Product A 40% Product B

Sales Promotions

CUSTOMER

Increase Customer Satisfaction

Customer Retention

95%

Loyalty Programs

INTERNAL

-Improve Product Quality -Decrease Time to Market

-Customer Rejects -Customer Base Increase

5% 5%

-TQM

-Agile Process

BALANCED SCORECARD
Factors to consider Performance measures Measures of process efficiency
Time to execute process cost of process
levels of wastage, process agility& flexibility - Outcomes vs. Outputs . Identify measures of process effectiveness (output ,outcome)

Leading vs. Lagging Indicators

PERFORMANCE MEASURES
Design to track whether processes are moving in direction of strategy Perspectives performance Financial capability & performance Internal capability & performance Learning capability & performance Customer demand & satisfaction

SEVEN PRINCIPLES OF PERFORMANCE MSR

Framework to contain 70-80% standardized measures and 20-30% specific to company Each measure should be linked as a leading indicator to one or more financial measurements Framework should contain minimum measures as possible for each level

SEVEN PRINCIPLES OF PERFORMANCE MSR

Comprehensive measures for activity control Measures should take into account all side effects triggered by action Measures should allow comparison both internally and externally Measures chosen should be available in automated business transaction systems

STANDARDISED PERFORMANCE MEASURES

ECONOMIC VALUE ADD SHAREHOLDER VALUE ADD SIX SIGMA TOTAL QUALITY MANAGEMENT(MALCOM BALDRIGE) INTERNATIONAL ORGANIZATION FOR STANDARDISATION(I.S.O)

WHAT TO MEASURE IN BALANCE SCORE CARD

Stake holder desired outcomes Strategies required to fulfil outcomes Customer desired matrix Product and service matrices Process characteristics in terms of criticality and requirement for success Capabilities required to operate and enhance processes

OUTPUTS V/S OUTCOMES

Output measure - recording of activity or effort( process efficiency) Outcome measure - assessment of results (process effectiveness how well?)

LEADING V/S LAGGING INDICATORS

Leading - What might be
performance drivers - inputs & outputs

Lagging - What has transpired

outcomes & impacts

Lagging/Leading indicators have cause-effect relationship

STRATEGIC LAG MEASUREMENTS

ROI REVENUE GROWTH MARKET SHARE CUSTOMER RETENTION SERVICE ERROR RATE ORDER TO CASH CYCLE TIME SUPPLY CHAIN COST REVENUE PER EMPLOYEE

STRATEGIC LEAD MEASUREMENTS

REVENUE MIX SATISFACTION SURVEY PRODUCT DEVELOPMENT CYCLE HOURS WITH CUSTOMER PERSONAL GOAL ALIGNMENT %

CAUSE & EFFECT RELATIONSHIP

Satisfied & loyal customers lead to increased revenues

Financial Results

Improved processes leads to improved products/services

Customer Satisfaction

Skilled employees work to improve business processes

Business Processes

Employee knowledge leading to increased productivity

Learning & Growth

BALANCED SCORECARD AS A MEASUREMENT TOOL

Closes gap between overall strategy and operative business BSC helps answer following:
Strategic objectives achieved Our standing against competitors Processes to be improved, how and why Profitability of products, services, customer segments How performance is judged by customers

Directs attention to critical success indicators

SCORECARD HIERARCHIES
BSC to be applied at all levels Set up hierarchy to communicate strategic objectives to all operating levels Cascading Score Card makes strategy transparent to all levels Score card broken down to level of individual employee

CASCADING BALANCED SCORECARD

Corporate Balanced Score Card
SBU level Balanced Score Card

Plant wise Balanced Score Card

Process wise Balanced Score Card

Product wise Balanced Score Card

Employee Balanced Score Card

CEO COO S1 L1 PL-1 PR-1 S2 L2 PL-2 PR-2 S3 L3 PL-3 PR-3 S4 HR L4 PL-4 PR-4

Corporate vision Corporate mission CSF

HR vision HR mission CSF

PERSONAL SCORECARD
Performance model provides for cascading and aligning personal goals Personal scorecard focuses indivisuals on the part of the performance model they can impact Personal metrics drilled down as shown in next slide

PERSONAL SCORECARD
VP OPERATIONS -Operating Financials PLANT MGR -Prodn/Inv/Cost metrics SHIFT SUPRVSR -O.E.E.,Scrap

TAILORED SCORECARD
. HR Score Card 6 Sigma Score Card Malcolm Baldrige Score Card Project Management Score Card Distributor Score Card Vendor Score Card Outsourced Score Card Environment mgmt score card Safety mgmt score card

BALANCED SCORECARD MODEL IN H.R.

EMPLOYEE RELATED STRATEGIC MEASURES -Headcount v/s Plan -Recruitment v/s Plan -Skills inventory v/s Plan -Actual unplanned attrition v/s Industry -Actual unplanned attrition v/s planned

BALANCED SCORECARD IN H.R.

EMPLOYEE RELATED PROCESS MSR -Recruitment cycle time -Employee productivity -Sales per employee EMPLOYEE RELATED CAPBLTY MSR -Total employee cost v/s Industry trend -Level of training hours per employee -Level of multi skilled employees

BALANCED SCORECARD IN QMS

QMS measures processes and outcomes Measures need to work in tandem to produce higher quality,greater customer satisfaction,lower cost,higher profits Without integration of functional areas it is impossible to achieve TQM objectives In TQM systems measures are integrated vertically(across levels) and horizontally across (functions)

SIX SIGMA METRICS

DPMO Defect Rate Yield Process Capability Process Performance Process Cycle Time Sigma Quality Level Cost of Poor Quality

BSC ADDS TO TOTAL QUALITY PROGRAMS

Explicit causal links from operational improvements to a customer based value proposition Explicit linkages to productivity enhancements and financial outcomes Identify entirely new processes for improvement Set priorities among processes to improve

SUPPLY CHAIN MEASUREMENTS

How well are supply chain operations performing at minimizing inventory and cost while maximizing customer service How much inventory is in my entire supply chain and how quickly does it turn How quickly can I respond to rapid changes in demand Accuracy of forecast Utilization of plant and assets

SUPPLY CHAIN MEASUREMENTS

% on time delivery %full delivery %quality delivery

MATERIALS MGT METRICS FOR PURCHASING

% PO delivered in time % PO line items accepted 1st time % supplied items found defective % invoice mismatches PR to PO conversion time Average days for ACP Inventory turns Order cycle time Cost per order

Inventory turnover ratio Average inventory in months % inventory unmoved > 12 mths Number of stock outs % items failed before lifetime Year to date cost of failure

MATERIALS MGT SCORECARD FOR INVENTORY

SEVEN PERSPECTIVES OF MALCOM BALDRIGE

Customer satisfaction Employee satisfaction Financial performance Operational performance Product/service quality Supplier performance Safety/Environment

SIX SIGMA BALANCED SCORECARD

Patented by ALLIED SIGNALS a HONEYWELL GROUP Comprises of following scorecards: -voice of customer -lean enterprise -agile enterprise -quality value -total productivity maintenance -activity based management -voice of stakeholders & society

MEASUREOF EXCELLENCE
Manufacturing - amount of scrap and rework; equipment uptime and throughput; -cost of non conformity Quality assurance - Quality %;-cost of quality Accounting - % late payments; -billing errors;incorrect account entries;payroll errors Marketing - incorrect order entries;overstocked field supplies;contract errors

VERTICAL INTEGRATION
Cascading of senior management strategy down the organization so that at each succeeding level(as activities become more operational and detailed) they are aligned and derived from higher goals Vertical integration includes everyone from CEO to the receptionist Everybody understands his role in achievement of organizational objectives

HORIZONTAL INTEGRATION
It is critical to link various targets together Requirement for multiple functions to work in unison to achieve objectives Metrics will measure cross functional performances

CREATING A BALANCED SCORECARD

Identify vision Identify strategies Identify CSF/ perspectives

Create action plan

Evaluate

Identify measures

Follow-up & manage

CREATING A BALANCED SCORECARD

STEP1: IDENTIFY VISION-DEFINE VISION STEP2: IDENTIFY STRATEGIES-WHAT STRATEGIES SHALLWE FOLLOW? WHAT AREAS TO FOCUS ON? STEP3:IDENTIFY CSF AND PERSPECTIVEWHAT DO WE HAVE TO BE GOOD AT IN EACH PERSPECTIVE STEP4:IDENTIFY MEASURES-WHAT SHOULD WE MEASURE IN EACH PERSPECTIVE

CREATING A BALANCED SCORECARD

STEP 5: EVALUATE HOW DO WE EVALUATE OUR SCORECARD STEP 6: CREATE ACTION PLANS WHAT ACTIONS SHOULD BE INITIATED TO REACH OUR TARGETS STEP 7: FOLLOW UP AND MANAGEHOW DO WE FOLLOW UP , UPDATE AND MAINTAIN OUR SCORECARDS

PROCESS STEPS TO IMPLEMENT BSC

FOUR PROCESSES -TRANSLATING VISION -COMMUNICATING AND LINKING -BUSINESS PLANNING -FEEDBACK AND LEARNING

 Translating vision -vision and strategy need to be expressed in terms that can provide practical guidance for action at local level -definition of standard measures as translation of vision and strategy for middle management

PROCESS STEPS TO IMPLEMENT BALANCED SCORECARD

 Communicating and linking -executives link strategy with department and indivisual goals and objectives -framework of standard operational measures acting as leading indicators of financial results gives a starting point for aligning strategy with action points

PROCESS STEPS TO IMPLEMENT BALANCED SCORECARD

 Business planning -connection between strategy and financial planning w.r.t budgets -BSC outlines a logical process for integrating business plans with financial budgeting

PROCESS STEPS TO IMPLEMENT BALANCED SCORECARD

 Feedback and learning -Process allows managers to monitor short term results from non financial perspectives -By tracking events strategy evaluated and fine tuned -Cause and effect relationship between business strategy and financial performance selected to monitor results

PROCESS STEPS TO IMPLEMENT BALANCED SCORECARD

USAGE OF BALANCED SCORECARD

FIGURES COURTESY SAP. A.G. GLOBAL USAGE QUADRANTWISE FINANCE 20% CUSTOMER 25% INTERNAL 35% LEARNING/GROWTH 20%

CHALLENGES IN IMPLEMENTATION OF BALANCED SCORECARD

Choosing correct strategies Choosing correct leading and lagging indicators Concentration on key indicators Balancing financial & non- financial indicators Applying measures consistently across business units Using appropriate number of measures Applying measures consistently across regions

FAQ ABOUT PERFORMANCE MEASUREMENT

What are key performance measures Who is responsible for performance measures How many performance measures are required How to establish standards and weights for performance measures Where do we get data and how relevant is this data for performance measurement

HOW TOP MGRS USE BSC

Adoption of well defined and communicated business strategy with focus Adoption of 25-30 key performance measures over critical processes which affect cash flow, across perspectives Communication of strategic direction Establish performance categories,baselines and targets

HOW TOP MGRS USE BSC

Align activities across organization Assign ownership of processes and develop process cost,cycle time,standards,quality and target measures Develop indivizual performance profiles that align activity with business plan Measure employee performance against balanced scorecard as well as implement balanced pay cheque

BENEFITS OF BALANCED SCORECARD

Best practices and strategic initiatives cascade through the organization Helps align key performance measures with strategy Provides comprehensive picture of operations Provides strategic feedback and learning Allows performance comparison vis--vis industry and world Reduces vast information into few controllable KPIs

BSC AT DELPHI MFG SYSTEMS

Division of GM Spun off as independent company Manufacturer of ancillary components Toyota Production Systems implemented and Balanced scorecard developed for TPS In internal perspectives measures such as lean characteristics,productivity,cost,quality,processing cycle time O.E.E Scrap %

STRATEGY MAPS

STRATEGY MAP
Tool for translating strategy into specific objectives in operational terms Strategy maps along with BSC provide a new framework for describing and implementing strategy Strategy map helps establish the cause effect relationship for measures across perspectives as well as linkages to tangible/intangible assets

STRATEGY MAP
Provides framework to illustrate how strategy links intangible assets to value creating processes Financial perspective describes tangible outcomes of strategy in financial terms and are lag indicators showing whether strategy is successful Customer perspective defines value proposition for targetted customers

STRATEGY MAP
Internal perspective identifies critical processes which impact strategy Learning and growth perspective identifies intangible assets that are vital to strategy Possible to define multiple strategies and map for each strategy Common strategy maps: -Improved shareholder value -Maximized operational efficiency

STRATEGY MAP
What is Strategy Map
Graphical translation of business plan into action Diagram depicting operational functions and strategy Map has financial objective as final goal Strategic objectives from each perspective connected by arrows Provides overall strategy overview of business units Defines relation between objectives Balanced scorecards constructed from strategy maps by development of cause effect relationship Makes vision a reality

INTERLINKAGES OF CRITICAL SUCCESS FACTORS THROUGH STRATEGY MAP FINANCIAL CUSTOMER

INCREASED REVENUES INCREASED BUSINESS & PROFITABILITY INCREASED CUSTOMER SATISFACTION

BALANCED SCORECARD

INTERNAL

ONTIME DELY

QUALITY

CONTRATED QUANTITY

SERVICE

LEARNING AND GROWTH

EMPLOYEE SATISFACTION

RESKILLING/ MULTISKILLING/ EMPOWERMENT

STRATEGIC LINKAGE MODEL

STRATEGY:IMPROVED SHAREHOLDER VALUE

STRATEGIC LINKAGE MODEL

IMPROVED SHAREHOLDER VALUE (ROCE) SALES GROWTH RESPOND TO CUST NEED
CUSTOMER IMPL A/C SERVICES MGT PROG

FINANCIAL PERSPECTIVE

GROSS CONTR CRM

ASSET TURNS

OVERHEARDS AS % OF NSV

CUSTOMER PERSPECTIVE
EFFECTIVE BUSINESS CONDUCT

DELIVER DELIVER GOOD GOOD INT. PROPOSALS CUST SERVICE

EFFECTIVE ASSET MGT

INTERNAL PERSPECTIVE

DEV & RETAIN STAFF

DEV CUST ORIENTED SALES/FORCE

UNDERSTAND IMPACT OF MKT LEVELS

DEV BETTER WORK PRACTICES

LEARNING GROWTH PERSPECTIVE

CASE STUDY TATA MOTORS

CASE STUDY:TATA MOTOR

Awarded best implementation of Balanced Score Card in Pacific Asia, in 2003 from BSC Collaborative Inc. Judged on following parameters:
Safety Quality Delivery Cost of operations Morale Volume Market Share Customer satisfaction Dealer satisfaction Receivables

CASE STUDY:TATA MOTORS

KOREAN TELECOM was the other awardee First Indian company to be awarded prize Implementation of BSC has enabled greater focus on different elements of operational performance Awarded to commercial vehicle business unit

TATA MOTORS STRATEGY MAP

INCREASED ROCE
INCREASE PROFITABILITY INCREASE BUSINESS WITH EXISTING CUST PROMOTE EXPORT BUSINESS

FINANCIAL

MAXIMISE ASSET UTILIZATION

BECOME INDUSTRY COST LEADER

LOWER COST AND SHORTER LEAD TIMES ACHIEVE CUST QUALITY EXPECTATION

MEETING WORLD CLASS MFG STDS UPGRADE DELIVERY PROCESS CAPABILITY

CUSTOMER

EXCEL IN CRM

MINIMIZE OPERATING COST

IMPROVE DESIGN/TESTING CAPABILITIES BUILD COMPETENCY

INTERNAL

LEARNING GROWTH

BALANCED SCORECARD AT TATA MOTORS

FINANCIAL PERSPECTIVE OBJECTIVE -Increase ROCE : ROCE -Increase Customer base : No of new dealer and sales from new dealers -Increase business from existing cust:sales from existing dealers -Build export business:Sales from export business

BALANCED SCORECARD AT TATA MOTORS

FINANCIAL PERSPECTIVE OBJECTIVE - Maximize asset utilization:Asset turnover -Become industry cost leader:operating cost/sales;cost reduction achieved over standard cost

BALANCED SCORECARD AT TATA MOTORS

CUSTOMER PERSPECTIVE OBJECTIVE - Provide value for money thru low cost mfg that meets world class quality and delivery expectations:Customer satisfaction index

BALANCED SCORECARD AT TATA MOTORS

INTERNAL PERSPECTIVE OBJECTIVE - Achieve customer expectations in quality level:Cars defective per 1000 -Meet delivery reqmnts:%redn in wait time and %on time dely -Optimize asset utilization:O.E.E -Minimize operations cost:Actual cost/Std cost and mfg cost/sales

HR STRATEGY MAP

1. ROE FINANCIL L 1 Max return on equity

Max. profitability Min. costs of operations

2. Profits

3.COGS CUSTOMER
Max. Customer Satisfaction Min warranty costs Min customer returns

4.WALLET SHARE

6.RETURNS

5.WARRANTY COSTS

INTERNAL
Max. operational profitability Maximize quality % Maximize productivity/head count

7.MFG. PROFIT 8.QUALITY 9.PRODUCTIVITy

L & Q
Max. Employee retention Maximize suggestions/empl Maximize decisions taken

11.INVOLVEMENT 12.EMPOWERED

10.LOYALTY

13.TRAINING

Max training days per employee

QUALITY MGT STRATEGY MAP

Financial
Happy financial health Minimum COGS Maximum profitability

Maximum SVA

Customer
Delight the customer

Minimum warranty costs

Minimum customer returns

Repeat orders

Minimum customer complaints

Internal
Quality excellence

Maximum manufacturing cont Delivery

Minimum operational losses

Maximized quality

Minimised rejects

Maximized thru put

Minimise rework

Maximum plant effectiveness

L & G
Motivated workforce

Promote autonomous
maintenance

Continuous training