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BALANCE SCORE CARD

ROSHITH CP
2017MBARG151
Introduction

The balanced scorecard is a strategic planning and management system


that is used extensively in business and industry, government, and
nonprofit organizations worldwide to align business activities to the
vision and strategy of the organization, improve internal and external
communications and monitor organization performance against strategic
goals.

It was originated by Dr. Robert Kaplan (Harvard Business School) and


David Norton as a performance measurement framework that added
strategic non-financial performance measures to traditional financial
metrics to give managers and executives a more 'balanced' view of
organizational performance.
Traditional
measures

The traditional measures are mainly developed to meet the enterprises


who are operating in a selling market. In a seller’s market, the customers
are forced to take what the enterprises produces to their own
specifications.

The traditional performance measures are criticized for the following


reasons:

(i) The measures are too financial.

(ii) The measures are not customer driven

(iii) It is not clear how departmental measures are linked to the


company’s strategic objectives.

(iv) The measures are irrelevant.


Customer
expectations
The present business enterprises are operating in a buyer’s market with
rapid growth, high technology and intense competitive business
environment.
The customers expectations about the product in a buyer’s market are as
follows:

(i) Must meet or exceed explicit customer expectations

(ii) Are delivered on time

(iii) Must be defect free

(iv) Have short lead times

(v) Have low prices and low cost of ownership.

Companies must develop performance measures that track these


customers demands.
Performance
Measurement
Attributes of a good performance measurement system are:

(i) A conceptual framework for the performance measurement and


management system

(ii) Effective external and internal communications

(iii) Clearly assigned and well understood accountability for results

(iv) It must provide intelligence for decision makers, not just compiling
data

(v) There should be linkage of compensation, rewards and recognition to


performance measurement

(vi) They should be positive not punitive

(vii)Disclosure of results and progress toward programme commitments


with employees, customers and stakeholders.
Balance score card

The balanced scorecard has evolved from its early use as a simple
performance measurement framework to a full strategic planning and
management system.

The “new” balanced scorecard transforms an organization’s strategic


plan from an attractive but passive document into the "marching orders"
for the organization on a daily basis. It provides a framework that not
only provides performance measurements, but helps planners identify
what should be done and measured. It enables executives to truly
execute their strategies.
Concept of Balance
score card

 BSC shows how to link the organizational vision to critical success factors or
outcomes and key performance indicators , representing all perspectives of the
business. This compels the senior management team to operate as a unified
team, balancing competing objectives to achieve the optimum result for the
organization as a whole.

 BSC expands the set of business unit objectives beyond summary financial
measures. Corporate executives can now measure how their business units
create value for customers and how they must enhance internal capabilities to
improve future performance.

 BSC clearly reveals the value drivers for superior long term financial and
competitive performance created by skilled, motivated organizational
participants, while retaining the financial performance as a short term financial
measure.
Contd…
Contd.

 The objectives and measures for BSC are more than just a somewhat ad hoc
collection of financial and non-financial performance measures, they are derived
from a top down process driven by the mission and strategy of the business unit.

 BSC should translate a business unit’s mission and strategy into tangible
objectives and measures. The measures represent a balance between external
measures for shareholders and customers and internal measures of critical
business processes, innovation and learning ,growth.

 BSC is more than a tactical or an operational measurement system. Innovative


Companies are using the score card as a strategic management system, to
manage their strategy over their long run.
Concept of BSC
Companies are using the measurement focus of the score card to accomplish
critical, management process

 Clarifying strategy - the translation of strategic objectives into


quantifiable measures clarifies the management team's understanding of
the strategy and helps to develop a coherent agreement.
 Communicating strategic objectives - the Balanced Scorecard can serve
to translate high level objectives into operational objectives and
communicate the strategy effectively throughout the organization.
 Planning, setting targets, and aligning strategic initiatives - ambitious but
achievable targets are set for each perspective and initiatives are
developed to align efforts to reach the targets.
 Strategic feedback and learning - executives receive feedback on whether
the strategy implementation is proceeding according to plan and on
whether the strategy itself is successful .

The Balanced Scorecard has been applied successfully to private sector


companies, non-profit organizations, and government agencies.
Perspctives of BSC
The objectives and measures view organizational performance from
four perspectives:
Balance score card
Financial Perspective

The financial perspective addresses the question of how shareholders


view the firm and which financial goals are desired from the shareholder's
perspective. The specific goals depend on the company's stage in the
business life cycle. For example:
Growth stage - goal is growth, such as revenue growth rate
Sustain stage - goal is profitability, such ROE(return of equity),
ROCE(return on capital employed), and EVA(economic value
added)
Harvest stage - goal is cash flow and reduction in capital
requirements
The financial perspective serves as the focus for the objectives and
measures, in the other score card perspectives. This perspective reflects
the concern in for profit enterprises that every action should be part of
network of cause and effect relationships that culminate in improving
short and long run financial performance.
Customer

The customer perspective addresses the question of how the firm is


viewed by its customers and how well the firm is serving its targeted
customers in order to meet the financial objectives.

Generally, customers view the firm in terms of time, quality, performance,


and cost. Most customer objectives consist of providing quality goods
and services, the effectiveness of their delivery and overall customer
service and satisfaction.
Internal Business Process

Internal business process objectives address the question of which


processes are most critical for satisfying customers and shareholders.
These are the processes in which the firm must concentrate its efforts to
excel.

Key processes are monitored to ensure that outcomes will be satisfactory.


Internal business processes are the mechanisms through which
performance expectations are achieved.
Learning & Growth

Learning and growth metrics address the question of how the firm must
learn, improve, and innovate in order to meet its objectives. Much of this
perspective is employee-centered.

Processes will only succeed if adequately skilled and motivated


employees, supplied with accurate and timely information, are driving
them.

In order to meet changing requirements and customer expectations,


employees may be asked to take on dramatically new responsibilities,
and may require skills, capabilities, technologies and organizational
designs that were not available before.
BSC Process
While there are many ways to develop a Balanced Scorecard, Kaplan
and Norton defined a four-step process:

1) Define the measurement architecture - When a company initially


introduces the Balanced Scorecard, it is more manageable to apply it
on the strategic business unit level rather than the corporate level.
However, interactions must be considered in order to avoid optimizing
the results of one business unit at the expense of others.
2) Specify strategic objectives - The top three or four objectives for each
perspective are agreed upon. Potential measures are identified for
each objective.
3) Choose strategic measures - Measures that are closely related to the
actual performance drivers are selected for evaluating the progress
made toward achieving the objectives.
4) Develop the implementation plan - Target values are assigned to the
measures. An information system is developed to link the top level
metrics to lower-level operational measures. The scorecard is
integrated into the management system.
implementation

Commitment at all levels especially at the top level:


Senior Management leadership is vital throughout the performance
measurement and improvement process so that they can realistically
foster cross functional, mission oriented performance improvements
from senior operating or functional managers throughout an organization.
They should also frequently review progress and the results of
improvement efforts.

Develop organizational goals:


Vision Statements and Strategic / Tactical Plan are important for
performance improvements. To be meaningful they must include
measurable objectives along with realistic timetables for their
achievement.

Contd…
Break down organizational barriers:
To overcome unfounded fears about the perceived adverse effects of
performance measurement and improvement, the official uses of the BSC
need to be spelled out to employees and managers.

Coordinate headquarters and branch responsibilities:


Implementation should be a collaborative effort between organization’s
corporate office (Headquarters) and its Branch offices. The offices should
jointly decide on their respective roles and responsibilities relative to the
BSC.

Contd…
Other Key Steps:
• Demonstrate a clear need for improvement
• Make realistic initial attempts at implementation
• Integrate scorecard into the organization
• Change the corporate culture
• Institutionalize the process.

Performance Management:
It is the use of performance measurement information to effect positive
changes in organizational culture, system and processes, by helping to
set agreed upon performance goals, allocating and prioritizing resources,
informing managers to either confirm or change current policy or
programme directions to meet those goals, and sharing results of
performance in pursuing those goals.
Advantages

 Translation of strategy into measurable parameters.

 Communication of the strategy to everybody in the firm.

 Alignment of individual goals with the firm's strategic objectives - the


BSC recognizes that the selected measures influence the behavior of
employees.

 Feedback of implementation results to the strategic planning process.

Since its beginnings as a performance measurement system, the


Balanced Scorecard has evolved into a strategy implementation
system that not only measures performance but also describes,
communicates, and aligns the strategy throughout the organization.
Disadvantages

 Lack of a well-defined strategy: The Balanced Scorecard relies


on a well-defined strategy and an understanding of the linkages
between strategic objectives and the metrics. Without this
foundation, the implementation of the Balanced Scorecard is
unlikely to be successful.

 Using only lagging measures: Many managers believe that they


will reap the benefits of the Balanced Scorecard by using a wide
range of non-financial measures. However, care should be taken
to identify not only lagging measures that describe past
performance, but also leading measures that can be used to plan
for future performance.

 Use of generic metrics: It usually is not sufficient simply to adopt


the metrics used by other successful firms. Each firm should put
forth the effort to identify the measures that are appropriate for
its own strategy and competitive position.
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