Bsc - Balanced Score Card
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Balanced Score Card [email protected] If your friends would like to learn Kaizen (continuous improvement), Toyota Production System/Lean Manufacturing/Just-in-Time, Six Sigma Business Improvement, Balanced Score Card (BSC), Malcolm Baldrige National Quality Award (MBNQA), Project Management, Enterprise Resource Planning (ERP), Supply Chain Management (SCM), ISO Standards, 5S (Workplace Organization), Total Productive Maintenance (TPM), Quality Management, Business Process Reengineering (BPR), Project Management, etc. please ask them to send an email to [email protected]
Balanced Score Card [email protected] z
Acknowledgement: We created this material from several sources on the Internet.
z
If you would like to get more information, please visit
1.
Indonesian Production and Operations Management Society (IPOMS). http://www.ipoms.or.id/mambo and then click “Knowledge Resources.”
2.
Ahmad Syamil’s website http://www.clt.astate.edu/asyamil/
Balanced Scorecard z
The scorecard… z z z
z
Describes the organization’s vision of the future to the entire organization Creates shared understanding Creates a holistic model of the strategy that allows all employees to see how they contribute to organizational success Focuses change efforts on the right objectives
BSC Key Concepts z
“Balanced” because… z z
z
Cause and effect relationships – that link to financials z z z
z
More than financial measures… it looks across the organization Relies on performance drivers and outcomes (leading and lagging indicators) Every measure should be an element in a chain of cause-and-effect relationships It’s a hypothesis of what needs to happen to be able to fulfill the strategy… Think of If/Then statements Ultimately, causal paths from all the measures on a scorecard should be linked to financial objectives
Strategic versus diagnostic: z z
A BSC should contain between 16-25 measures that focus the organization on a single strategy There should be separate diagnostic measures: z
blood pressure and body temp measure health, but not ability for career success
The basics of the Balanced Score Card Financial Perspective Goals closely related to the financial expectations of the investors
Customer Perspective
Internal Perspective
Goals that refer to how our customers see us.
Goals with regard to the exceleration at certain businss processes
Learning Perspective Goals that will sustain the ablitity to change and to improve in the future.
Quadrant 1: Finance Perspective z
z
z
Financial measures are valuable in summarizing the readily measurable economic consequences of actions already taken. Financial performance measures indicate whether a company's strategy, implementation, and execution are contributing to bottom-line improvement. Financial objectives typically relate to profitability for example: z z z
Operating income, Return-on-capital-employed, Economic value-added
Quadrant 2: Customer Perspective z
z
z
Start by identifying: z The customer and market segments in which the business unit will compete and… z The measures of the business unit's performance in these targeted segments. Core outcome measures include: z Customer satisfaction, customer retention, new customer acquisition, customer profitability, and market and account share in targeted segments. Include measures of the value propositions that we will deliver to customers in targeted market segments. z What’s critical for customers to switch to or remain loyal to Intel? z For example, customers could value short lead times and on-time delivery, or a constant stream of innovative products and services.
Quadrant 3: Business Process Perspective z
z z
Identifies the critical internal processes in which the organization must excel, and will enable: z delivery of the value propositions that will attract and retain customers in targeted market segments, and z satisfying shareholder expectations of excellent financial returns. Usually identifies entirely new processes at which an organization must excel. For many companies: z Future financial performance is not driven by short-term operations (make/market/service) z Successful multi-year product development processes (design/develop) may be more critical for future economic performance than managing existing operations efficiently, consistently, and responsively.
Quadrant 4: Learning and Growth Persp. z z
Identifies the infrastructure that the organization must build to create long-term growth and improvement. Come from three principal sources: people, systems, and organizational procedures: z Employee based measures: z
z
Information systems capabilities z
z
Employee satisfaction, retention, training, and skills - along with specific drivers of these generic measures, such as detailed, business specific indexes of the particular skills required for the new competitive environment. Measured by real-time availability of accurate, critical customer and internal process information to employees on the front lines of decision making and actions.
Organizational procedures: z
Examine alignment of employee incentives with overall organizational success factors, and measured rates of improvement in critical customer-based and internal processes.
Financial Perspective Goals closely related to the financial expectations of the investors
Customer Perspective
Goals that refer to how our customers see us.
Internal Perspective Goals regarding the exceleration at businss processes
Learning Perspective Goals that will sustain the ablitity to change and to improve in the future.
Keep costs low
INTERNAL LEARNING
Generate Cash Flows
High market share
CUSTOMERS
FINANCIAL
Achieve Profit
Strong customer relationship
Customer acquisition
High customer satisfaction Network of strat. partnerships
Low down-time-rate
Efficient use of budget
Continuous improvement Motivated employees
Up-to-date technology Use of media
Cause and Effect Hierarchies Simplified BSC BSC Quadrants
Metric Hierarchy
4. Profitability!
Financial Performance
Pre-Tax Profit
Customer
Customer Satisfaction
Internal Biz Processes
Post Sales Support
2. We can provide the support our customers desire…
Key Skills
1. If we have the appropriately skilled people…
Learning and Growth
3. Resulting in their satisfaction…
Barriers to Strategy Fulfillment z
Vision and strategy not actionable z
z
z
A leader with a clear vision lacks the mechanisms to share this vision with the people that make it actionable (Senge) This causes different groups to pursue different agendas (quality, continuous improvement, reengineering) based on their own interpretation of the strategy Their efforts are neither integrated nor cumulative since they are not linked coherently to an overall strategy
Barriers to Strategy Fulfillment z
Strategy not linked to departmental, team and individual goals z
z
Incentive systems are linked to short term financial measures (annual or less) Departments focus on achieving tactical goals rather than building capabilities that will enable longer term strategic goals
Barriers to Strategy Fulfillment z
Strategy not linked to resource allocation z z z
z
Separate processes for long-term strategic planning and for short-term budgeting Discretionary funding and capital allocations are often unrelated to strategic priorities Monthly and quarterly reviews focus on explaining deviations between actual and budget, not on whether progress is being made on strategic objectives Strategic planning and finance efforts not integrated
Barriers to Strategy Fulfillment z
Feedback that is tactical, not strategic z
z
Management systems provide feedback about short-term, operational performance, with the bulk of this feedback on financial measures Little time is spent examining indicators of strategy implementation and success
BSC Implementation Challenges and Opportunities
BSC Implementation Challenges z z z z z
Sponsorship Link to existing programs Strategic versus tactical measures Data access and quality Tools for preparing and presenting the BSC
Sponsorship z
Project manager z
z
Concept champion z z
z
Knows BSC, drives project “Gets it”, has political clout to sell it Actively and aggressively promotes it
GM or CEO buy-in z
Only person with authority to embed a BSC into the fabric of the organization
Link to Existing Programs “The Balanced Scorecard is a mgmt system that can channel the energies, abilities, and specific knowledge held by people throughout the organization toward achieving long-term strategic goals.”
Source: Balanced Scorecard, Kaplan & Norton, 1996
Vision, Strategy, Values
Financial Performance
erm t ng o L Me
on l d
Learning and Growth
“To succeed financially, how should we appear to our shareholders?”
“To achieve our vision, how will we sustain our ability to change and improve?”
Customer Knowledge
Internal Biz Processes
“To achieve our vision, how should we appear to our customers?”
erm t g
“To satisfy our shareholders and customers, what biz processes must we excel at?”
Employee Bonus
erm t ed m rto Sh
Data z
Don’t assume that the required data is: z z
z z
Available Consistent (i.e., time-spans, org coverage, cost allocations, etc.) High quality (error-free) Electronic… MS-Excel is the glue that holds many org’s together
Tools .my limited experience z
We used Excel and PowerPoint z
z z
z
Cheap and “easy” to get going… proof of concept phase Highly manual and time consuming Significant potential to create errors
Investigated specialized BSC packages z z z
Typically cost ~$100,000 for software Add implementation costs, annual maint. Didn’t pursue due to funding constraints
Balanced Score Card [email protected] z
Acknowledgement: We created this material from several sources on the Internet.
z
If you would like to get more information, please visit
1.
Indonesian Production and Operations Management Society (IPOMS). http://www.ipoms.or.id/mambo and then click “Knowledge Resources.”
2.
Ahmad Syamil’s website http://www.clt.astate.edu/asyamil/
Balanced Scorecard z
The scorecard… z z z
z
Describes the organization’s vision of the future to the entire organization Creates shared understanding Creates a holistic model of the strategy that allows all employees to see how they contribute to organizational success Focuses change efforts on the right objectives
BSC Key Concepts z
“Balanced” because… z z
z
Cause and effect relationships – that link to financials z z z
z
More than financial measures… it looks across the organization Relies on performance drivers and outcomes (leading and lagging indicators) Every measure should be an element in a chain of cause-and-effect relationships It’s a hypothesis of what needs to happen to be able to fulfill the strategy… Think of If/Then statements Ultimately, causal paths from all the measures on a scorecard should be linked to financial objectives
Strategic versus diagnostic: z z
A BSC should contain between 16-25 measures that focus the organization on a single strategy There should be separate diagnostic measures: z
blood pressure and body temp measure health, but not ability for career success
The basics of the Balanced Score Card Financial Perspective Goals closely related to the financial expectations of the investors
Customer Perspective
Internal Perspective
Goals that refer to how our customers see us.
Goals with regard to the exceleration at certain businss processes
Learning Perspective Goals that will sustain the ablitity to change and to improve in the future.
Quadrant 1: Finance Perspective z
z
z
Financial measures are valuable in summarizing the readily measurable economic consequences of actions already taken. Financial performance measures indicate whether a company's strategy, implementation, and execution are contributing to bottom-line improvement. Financial objectives typically relate to profitability for example: z z z
Operating income, Return-on-capital-employed, Economic value-added
Quadrant 2: Customer Perspective z
z
z
Start by identifying: z The customer and market segments in which the business unit will compete and… z The measures of the business unit's performance in these targeted segments. Core outcome measures include: z Customer satisfaction, customer retention, new customer acquisition, customer profitability, and market and account share in targeted segments. Include measures of the value propositions that we will deliver to customers in targeted market segments. z What’s critical for customers to switch to or remain loyal to Intel? z For example, customers could value short lead times and on-time delivery, or a constant stream of innovative products and services.
Quadrant 3: Business Process Perspective z
z z
Identifies the critical internal processes in which the organization must excel, and will enable: z delivery of the value propositions that will attract and retain customers in targeted market segments, and z satisfying shareholder expectations of excellent financial returns. Usually identifies entirely new processes at which an organization must excel. For many companies: z Future financial performance is not driven by short-term operations (make/market/service) z Successful multi-year product development processes (design/develop) may be more critical for future economic performance than managing existing operations efficiently, consistently, and responsively.
Quadrant 4: Learning and Growth Persp. z z
Identifies the infrastructure that the organization must build to create long-term growth and improvement. Come from three principal sources: people, systems, and organizational procedures: z Employee based measures: z
z
Information systems capabilities z
z
Employee satisfaction, retention, training, and skills - along with specific drivers of these generic measures, such as detailed, business specific indexes of the particular skills required for the new competitive environment. Measured by real-time availability of accurate, critical customer and internal process information to employees on the front lines of decision making and actions.
Organizational procedures: z
Examine alignment of employee incentives with overall organizational success factors, and measured rates of improvement in critical customer-based and internal processes.
Financial Perspective Goals closely related to the financial expectations of the investors
Customer Perspective
Goals that refer to how our customers see us.
Internal Perspective Goals regarding the exceleration at businss processes
Learning Perspective Goals that will sustain the ablitity to change and to improve in the future.
Keep costs low
INTERNAL LEARNING
Generate Cash Flows
High market share
CUSTOMERS
FINANCIAL
Achieve Profit
Strong customer relationship
Customer acquisition
High customer satisfaction Network of strat. partnerships
Low down-time-rate
Efficient use of budget
Continuous improvement Motivated employees
Up-to-date technology Use of media
Cause and Effect Hierarchies Simplified BSC BSC Quadrants
Metric Hierarchy
4. Profitability!
Financial Performance
Pre-Tax Profit
Customer
Customer Satisfaction
Internal Biz Processes
Post Sales Support
2. We can provide the support our customers desire…
Key Skills
1. If we have the appropriately skilled people…
Learning and Growth
3. Resulting in their satisfaction…
Barriers to Strategy Fulfillment z
Vision and strategy not actionable z
z
z
A leader with a clear vision lacks the mechanisms to share this vision with the people that make it actionable (Senge) This causes different groups to pursue different agendas (quality, continuous improvement, reengineering) based on their own interpretation of the strategy Their efforts are neither integrated nor cumulative since they are not linked coherently to an overall strategy
Barriers to Strategy Fulfillment z
Strategy not linked to departmental, team and individual goals z
z
Incentive systems are linked to short term financial measures (annual or less) Departments focus on achieving tactical goals rather than building capabilities that will enable longer term strategic goals
Barriers to Strategy Fulfillment z
Strategy not linked to resource allocation z z z
z
Separate processes for long-term strategic planning and for short-term budgeting Discretionary funding and capital allocations are often unrelated to strategic priorities Monthly and quarterly reviews focus on explaining deviations between actual and budget, not on whether progress is being made on strategic objectives Strategic planning and finance efforts not integrated
Barriers to Strategy Fulfillment z
Feedback that is tactical, not strategic z
z
Management systems provide feedback about short-term, operational performance, with the bulk of this feedback on financial measures Little time is spent examining indicators of strategy implementation and success
BSC Implementation Challenges and Opportunities
BSC Implementation Challenges z z z z z
Sponsorship Link to existing programs Strategic versus tactical measures Data access and quality Tools for preparing and presenting the BSC
Sponsorship z
Project manager z
z
Concept champion z z
z
Knows BSC, drives project “Gets it”, has political clout to sell it Actively and aggressively promotes it
GM or CEO buy-in z
Only person with authority to embed a BSC into the fabric of the organization
Link to Existing Programs “The Balanced Scorecard is a mgmt system that can channel the energies, abilities, and specific knowledge held by people throughout the organization toward achieving long-term strategic goals.”
Source: Balanced Scorecard, Kaplan & Norton, 1996
Vision, Strategy, Values
Financial Performance
erm t ng o L Me
on l d
Learning and Growth
“To succeed financially, how should we appear to our shareholders?”
“To achieve our vision, how will we sustain our ability to change and improve?”
Customer Knowledge
Internal Biz Processes
“To achieve our vision, how should we appear to our customers?”
erm t g
“To satisfy our shareholders and customers, what biz processes must we excel at?”
Employee Bonus
erm t ed m rto Sh
Data z
Don’t assume that the required data is: z z
z z
Available Consistent (i.e., time-spans, org coverage, cost allocations, etc.) High quality (error-free) Electronic… MS-Excel is the glue that holds many org’s together
Tools .my limited experience z
We used Excel and PowerPoint z
z z
z
Cheap and “easy” to get going… proof of concept phase Highly manual and time consuming Significant potential to create errors
Investigated specialized BSC packages z z z
Typically cost ~$100,000 for software Add implementation costs, annual maint. Didn’t pursue due to funding constraints
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