An Introduction to the

BALANCED
SCORECARD
Problems of Strategy The Balanced
Implementation Scorecard is:

You can’t measure A Measurement

MEASUREMENT what you cannot System
describe
+
Alignment
You can’t manage A Strategic
MANAGEMENT what you cannot Management System
measure
Focus
+
You can’t A Communication
COMMUNICATION communicate what Tool
you cannot describe

“Measurement is the foundation of management.”

 What is the Balanced Scorecard?
PROFITABLE The BSC Retains
GROWTH the traditional
Financial financial
Perspective measures
New Revenue Current Business Productivity Use of Assets

Customer Value Proposition

Customer Best in Best Total Best Total
Perspective Product/Service Solution Cost

The BSC links

the financial
Internal Product Customer Operational measures with the
Perspective Innovation Intimacy Excellence drivers of future
performance

Learning and Skills Technology Environment

Growth
 Vision-Mission Barrier
Only 5% of the work force
understands the strategy

People Barrier
One of 4 managers have
BARRIERS incentives linked to strategy
STRATEGY TO
EXECUTION
Management Barrier
Strategy is not regularly discussed
and prioritized

Resource Barrier
Budgets not linked to strategy

Source: Kaplan & Norton

 Vision-Mission Barrier
Only 5% of the work force
understands the strategy

People Barrier
One of 4 managers have
BARRIERS incentives linked to strategy
STRATEGY TO
EXECUTION
Management Barrier
Strategy is not regularly discussed
and prioritized

Resource Barrier
Budgets not linked to strategy

Source: Kaplan & Norton

 Vision-Mission Barrier
Only 5% of the work force
understands the strategy

People Barrier
One of 4 managers have
BARRIERS incentives linked to strategy
STRATEGY TO
EXECUTION
Management Barrier
Strategy is not regularly discussed
and prioritized

Resource Barrier
Budgets not linked to strategy

Source: Kaplan & Norton

Vision-Mission Barrier
The BSC overcomes Vision-Mission
Only 5% of the work force Barrier through the translation of
understands the strategy strategy

The BSC is a shared understanding of the Vision-Mission strategy

translated into:

n s
es s es l a es
tiv re ts iv P rc
c s u e at o n u
b je ea arg niti c ti e so
O M T I A R
Financial
Customer
Internal
Learning&Growth
 Vision-Mission Barrier
Only 5% of the work force
understands the strategy

People Barrier
One of 4 managers have
BARRIERS incentives linked to strategy
STRATEGY TO
EXECUTION
Management Barrier
Strategy is not regularly discussed
and prioritized

Resource Barrier
Budgets not linked to strategy

Source: Kaplan & Norton

 People Barrier
‘cascading’ the scorecard overcomes
One of 4 managers have the People Barrier
incentives linked to strategy

STRATEGY TOP-DOWN BOTTOM-UP

Profitable Growth

employee sees
New Expand
Current
Increase in
Productivit
Efficient
Financial his/her
driving the
Sources of Use of
Revenue Business y Assets

strategy to all contribution to

Customer Value Proposition
customer employees at the strategy
Product
Service
Image
Customer scorecard all levels
Understand Total Solutions
“line of sight”
New
Products the Customers Homebuilder CRM.
Productivity . Efficient Use of
Assets process
Internal scorecard
Increase Employee
Competence
• Employee • Revenue per
Satisfaction Employee personal
Learning& scorecard
alignment and focus
Systems Align Personal Goals
Skills
Growth
 Vision-Mission Barrier
Only 5% of the work force
understands the strategy

People Barrier
One of 4 managers have
BARRIERS incentives linked to strategy
STRATEGY TO
EXECUTION
Management Barrier
Strategy is not regularly
discussed and prioritized

Resource Barrier
Budgets not linked to strategy

Source: Kaplan & Norton

 Management Barrier
strategic learning overcomes the
Strategy is not regularly Management Barrier
discussed and prioritized

The Balanced Scorecard translates the vision and strategy into a

coherent set of measures in four balanced perspectives

Strategy Map Objective Measure Target Initiative

• Grow • Annual • Marketing
Financial Revenue Revenue Gross +30% program
Growth from new Sales
products The Balanced
Customer New Products
• Satisfy • Customer • CRM Scorecard
Customer Profitability +20% Program
Needs describes how the
Internal World-Class • Fast Time to • Time to from 9 • Cycle Time strategy will be
Product Market Market down to Reengineering
Development 6 months executed
Learning &
• Acquire, • Staff • Skills
Growth Highly Skilled
Develop Competence Development
Workforce 90%
Skills Program
 Vision-Mission Barrier
Only 5% of the work force
understands the strategy

People Barrier
One of 4 managers have
BARRIERS incentives linked to strategy
STRATEGY TO
EXECUTION
Management Barrier
Strategy is not regularly discussed
and prioritized

Resource Barrier
Budgets not linked to strategy

Source: Kaplan & Norton

 Resource Barrier
Strategic Resource Allocation
Budgets not linked to strategy overcomes the Resource Barrier

n s
es s es la es
tiv r e ts iv n P rc
c su e at o u
b je ea arg niti c ti e so
O M T I A R
Financial
Customer
Internal
Learning&Growth
Budget
linked to the
strategy
 Resource Barrier
Strategic Resource Allocation
Budgets not linked to strategy overcomes the Resource Barrier

Selecting and Managing Initiatives

1 Other CRM SCM

projects
On-going & proposed strategic SRM
CSR
initiatives re-examined TQM
JIT,QDP
Marketing
Projects
2
Screen, assess, and identify
“Linked and Strategic”
CRITERIA:
initiatives
Balanced Scorecard strategies should be
linked to the overall
3 strategic goals
Select strategic initiative that
will grow the enterprise List of Priorities
Cause and Effect Relationships and the Balanced Scorecard

STRATEGY MAPS – a chain of cause-and-effect logic that connects

the desired outcomes with the drivers

Revenue
WHAT?
Financial Growth

Loyal Customers WHAT?

HOW?
Customer
Quality Product WHAT?
HOW?

Quality Quality HOW?

WHAT?
Internal Production Materials

Learning Skilled Workforce +

HOW?
& Growth Technology
Cause and Effect Relationships and the Balanced Scorecard

A strategy is a set of hypothesis about CAUSE and EFFECT.

Revenue
EFFECT
Financial Growth
• A chain of cause and effect
Loyal Customers CAUSE
EFFECT relationships can be established
Customer as a vertical dimension through
Quality Product CAUSE
EFFECT
the four BSC perspectives.

Quality Quality • The BSC tells the story of the

Internal CAUSE
EFFECT
Production Materials strategy

Learning Skilled Workforce + CAUSE

& Growth Technology
Cause and Effect Relationships and the Balanced Scorecard

A strategy is a set of hypothesis about CAUSE and EFFECT.

Revenue
EFFECT
Financial Growth CAUSE AND EFFECT ANALOGIES:

Loyal Customers CAUSE

cause  effect
Customer EFFECT
Quality Product
driver  outcome

Quality Quality if  then

Internal Production Materials EFFECT
CAUSE

how  what

Learning Skilled Workforce + CAUSE

& Growth Technology
The ‘Balance’ in the Balanced Scorecard
BALANCE BETWEEN …
… TANGIBLE and INTANGIBLE Assets
… FINANCIAL and NON-FINANCIAL Measures
… EXTERNAL and INTERNAL Constituents
… LAG and LEAD Indicators of Performance

FINANCIAL Measures NON-FINANCIAL Measures

EXTERNAL Constituents
•Financial Perspective
INTERNAL Constituents
•Customer Perspective
•Financial
LAG Perspective
Indicators •Internal
LEAD Perspective
Indicators
•Internal Perspective
TANGIBLE
of Performance Assets
•Customer Perspective •INTANGIBLE
Learning
of
and Growth
Performance
•Learning and GrowthAssets
Perspective
Perspective
The ‘Balance’ in the Balanced Scorecard
1r – Balance between the tangible assets and intangible assets

Revenue
Financial Growth

Loyal Customers
Customer
Quality Product

Quality Quality
Internal Production Materials
tangible assets

Learning Skilled Workforce +

Technology
intangible assets
& Growth

In order to extract value from the intangible assets, these

must be transformed.
The ‘Balance’ in the Balanced Scorecard
2r – Balance between the financial measures and non-
financial measures
Objectives Measures Targets Initiatives

Revenue
Financial Growth
Financial

Loyal Customers
Customer
Quality Product

Quality Quality Non-Financial

Internal Production Materials

Learning Skilled Workforce +

& Growth Technology
The ‘Balance’ in the Balanced Scorecard
3r – Balance between the internal and external constituents

Revenue
Financial Growth

Loyal Customers External – where we (effect)

Customer want to go
Quality Product

Quality Quality
Internal Production Materials

Internal – what we (cause)

Learning Skilled Workforce + have to do
& Growth Technology
The ‘Balance’ in the Balanced Scorecard
4r – Balance between lag and lead indicators of performance
Objectives Measures Targets Initiatives

Revenue
Financial Growth

lag lead
horizontal
Loyal Customers dimension of the
Customer BSC
Quality Product

Quality Quality
Internal Production Materials

Learning Skilled Workforce +

& Growth Technology

vertical dimension
of the BSC
Performance Measures in the BALANCED SCORECARD

Performance Measures
Objectives lag lead
measures the ‘lead’ or driver to the lag
measures the results of an action
Financial measures, can measure intermediate
after a time period processes & activities

• sales • number of sales calls

Customer • hours spent with customers

Internal historical predictive

Learning
&Growth
after the fact 1 can make adjustments
 The VMO KRA PI SPAT RES Model
FUTURE Vision
The Balanced Scorecard translates the
TOP-DOWN Planning

Mission strategy into the four perspectives

Strategy
Objectives Financial
Customer The ‘VERTICAL’ cause
Key Result Areas and effect dimension of
Internal
the strategy
Learning
Performance Indicators & Growth

PRESENT Strategies Action Program Activities Tasks Resources

BOTTOM-UP
Planning

S W
O
SWOT Analysis
T
PAST
 The Balanced Scorecard Model and the
VMO KRA PI SPAT RES Model

Vision – Mission – O KRA PI SPATRES

horizontal
ns CAUSE AND
v es es v es Pl
a
c es
ct i r t s i n r
je su rg
e ti a
t
tio ou EFFECT
b ea a i c e s
O M T In A R dimension
Revenue Growth Financial Finance
Vision - Innovative Products
Customer Marketing
Mission World-Class Internal
Product Dev’t Internal Operations
Stable High-Talent Learning
Workforce HumanResources
&Growth

vertical
vertical CAUSE ALIGNMENT
AND EFFECT
dimension