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Engineered Balanced Scorecard
Consolidated & Prepared By: Fadi N. Al-Abbadi 2008
“People and their managers are
working so hard to be sure things are done right, that they hardly have time to decide if they are doing the right things” Stephen Covey
2
The Evolution Of Measurement Balanced Scorecard Six Sigma
Late 20th Century
Shareholder Value
Competencies/ Capabilities
Business Process Reengineering Customer Satisfaction
Competitive Advantage
19th Century
Management Accounting
15th Century
Double-entry Bookkeeping
Financi
Comparative Benchmarking
Strategic
Operational Improvement
3 Operational
What is BSC? • The balanced scorecard (BSC) is a
Performance Management System that enables organizations to clarify their vision and strategy and translate them into action. • It also provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic 4 performance and results.
BSC Perspectives
5
Examples of Measurements by Perspective Financial
• • • • •
ROI Revenue Earnings Capital Cash Flow
Internal Processes • • • • •
Production Delivery Operations Quality Control R&D
Learning and Growth
Customer
• • • • •
• • • • •
Employee HR Capital Knowledge Technology Best Practices
Quality Service Pricing Time Image 6
Benefits of Implementing a BSC • Accelerates behavioral and cultural changes
• Shortens implementation cycle for strategy
• Facilitates communication among managers, employees, and
7
BSC History and Evolution 1st Generation
• The original BSC concepts were
developed in the late 1980s and published by Kaplan and Norton in 1992
• Focused on strategy and vision, but
said little about how to design or use effectively
• Said little about how measure
selection activity could be done.
8
BSC History and Evolution 2nd Generation
• Measures are chosen to relate to
specific strategic objectives, the design aim being to identify about 2025 strategic objectives each associated with one or more measures and assigned to one of four perspectives • Visually document the major causal relationships between strategic 9
BSC History and Evolution 3rd Generation
• Destination statement: A description,
ideally including quantitative detail, of what the organization (or part of organization managed by the Balanced Scorecard users)
10
BSC History and Evolution 3rd Generation
• Strategic Linkage Model with ‘Activity’ and ‘Outcome’ Perspectives: A simplification of a 2nd Generation Balanced Scorecard strategic linkage model - with a single ‘outcome’ perspective replacing the Financial and Customer perspectives, and a single ‘activity’ perspective replacing the Learning and Growth and Internal Business Process perspectives.
11
Meeting the Challenge with the Balanced Scorecard
The balanced scorecard is a performance management system that
• enables an organization to establish,
accomplish, and measure the success of its strategies • is used to evaluate an organization’s impact from several perspectives, such as customers, employees, internal business processes, and financial results • allows effective communication of
12
Balanced Scorecard Terms Vision Customers
Mission Goals
Perspectives STRATEG
Themes
YObjectives
Performance Drivers Critical Success Factors KPI
Measures Targets
Thresholds
Initiatives 13
Advantages of the BSC • Emphasizes achieving results and implementing strategy
• Focuses on high-impact performance measures
• Is easy to use and economical to maintain 14
Advantages of the BSC • Empowers process owners to make improvements
• Allows comparisons to best-in-class performance (benchmarking)
• Bridges the gap among strategy, development, formulation, and implementation 15
Why Use a BSC? • Losing competitive position • New technological advances • Changing labor markets • Employee shifts/Downsizing • Government management reforms 16
BSC Methodology—Nine Steps to Building & Implementing a BSC Phase One: Building a Balanced Scorecard Performance System • Conducting an Organizational Assessment • Defining Strategic Themes • Choosing Perspectives and Developing Objectives • Developing a Strategic Map of the Organization • Defining Performance Measures • Developing Initiatives Phase Two: Implementing the Balanced Scorecard
• Computerizing and Communicating Performance Information • Cascading the Scorecard throughout the Organization • Using Scorecard Information to Evaluate and Improve Performance 17
Meeting the Challenge with the Balanced Scorecard Assessment Evaluate Strategic Themes
& Improve
Cascade Perspectives & Objectives Computerize & Communicate Strategic Map Performance Measures
Initiatives 18
Example: Strategic Mapping Broaden Revenue Mix
Increase Customer Confidence in Our Advice
Understand Customer Segments
Develop New Products
Improve Returns
Financial
Improve Operating Efficiency Increase Customer Satisfaction Through Superior Execution
Customer
Cross-Sell the Product Line
Internal Processes
Shift to Appropriate Channel
Minimize Problems
Provide Rapid Response
Increase Employee Productivity
Develop Strategic Skills
Provide Access to Strategic Information
Employees
Align Personal Goals
19
Typical Performance Measures Financial
Objective
Measure
Target
Initiative
Internal Business Process
Customer
Objective
Measure
Target
•Value proposition •Retention •Service quality •Satisfaction
•Shareholder value •Investment •Asset utilization •Resource allocation •Profitability
Initiative
Objective
Strategy
Learning & Growth Objective
Measure
Target
Initiative
Measure
Target
Initiative
•Production efficiency •Cost •Bottlenecks
•Skills coverage •Innovation •Employee development •Capacity building •Knowledge transfer 20
Example: Linking Objectives, Measures, Targets, and Initiatives Measure
Broaden revenue mix
Revenue mix
Increase customer satisfaction
Customer retention
Develop new products
% Revenue from new products
Learning & Growth
Internal
Objective Financial
How success will be measured and tracked
Customer
What strategy must be achieved and what is critical to its success
Develop Skill coverage strategic skills
Performance expectation
Key action programs required to achieve objectives
Target
Initiatives
10% Product A 40% Product B 50% Product C
• Sales Promotions • New Channel Marketing
95%
• Frequent Buyers’ Club
1999 -- 15% 2000 -- 50% 2001 -- 60%
• R & D Program • Customer Mailing
90%
• Custom Training • Knowledge Library 21
Cascading Scorecards Corporate Support Strategy Financial Customer Goal Measure Target Initiative Customer Goal Measure Target Initiative Goal
Measure Target
Business Units Support Units
Initiative
Team/ Individual Customer Customer Goal Measure Target Initiative Customer Goal Measure Target Initiative Goal
Measure Target Initiative
Vision Mission Strategy
Internal Business Process Internal Business Goal Measure Target Process Initiative Internal Business Goal Measure TargetProcess Initiative Goal
Measure Target
Initiative
Learning and Growth
Growth Goal Learning Measure and Target Initiative Learning and Growth Goal Measure Target Initiative Goal Measure Target Initiative
22
BSC Templates The generated sheets are as following:
• Goals Establishment sheet • Themes Checklist sheet • Strategic map sheet • Measurement definition sheet • Measurement summary sheet • Lag/Lead comparison sheet • Summary sheet 23
References
Available upon request
24
Thank you [email protected]
25
Consolidated & Prepared By: Fadi N. Al-Abbadi 2008
“People and their managers are
working so hard to be sure things are done right, that they hardly have time to decide if they are doing the right things” Stephen Covey
2
The Evolution Of Measurement Balanced Scorecard Six Sigma
Late 20th Century
Shareholder Value
Competencies/ Capabilities
Business Process Reengineering Customer Satisfaction
Competitive Advantage
19th Century
Management Accounting
15th Century
Double-entry Bookkeeping
Financi
Comparative Benchmarking
Strategic
Operational Improvement
3 Operational
What is BSC? • The balanced scorecard (BSC) is a
Performance Management System that enables organizations to clarify their vision and strategy and translate them into action. • It also provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic 4 performance and results.
BSC Perspectives
5
Examples of Measurements by Perspective Financial
• • • • •
ROI Revenue Earnings Capital Cash Flow
Internal Processes • • • • •
Production Delivery Operations Quality Control R&D
Learning and Growth
Customer
• • • • •
• • • • •
Employee HR Capital Knowledge Technology Best Practices
Quality Service Pricing Time Image 6
Benefits of Implementing a BSC • Accelerates behavioral and cultural changes
• Shortens implementation cycle for strategy
• Facilitates communication among managers, employees, and
7
BSC History and Evolution 1st Generation
• The original BSC concepts were
developed in the late 1980s and published by Kaplan and Norton in 1992
• Focused on strategy and vision, but
said little about how to design or use effectively
• Said little about how measure
selection activity could be done.
8
BSC History and Evolution 2nd Generation
• Measures are chosen to relate to
specific strategic objectives, the design aim being to identify about 2025 strategic objectives each associated with one or more measures and assigned to one of four perspectives • Visually document the major causal relationships between strategic 9
BSC History and Evolution 3rd Generation
• Destination statement: A description,
ideally including quantitative detail, of what the organization (or part of organization managed by the Balanced Scorecard users)
10
BSC History and Evolution 3rd Generation
• Strategic Linkage Model with ‘Activity’ and ‘Outcome’ Perspectives: A simplification of a 2nd Generation Balanced Scorecard strategic linkage model - with a single ‘outcome’ perspective replacing the Financial and Customer perspectives, and a single ‘activity’ perspective replacing the Learning and Growth and Internal Business Process perspectives.
11
Meeting the Challenge with the Balanced Scorecard
The balanced scorecard is a performance management system that
• enables an organization to establish,
accomplish, and measure the success of its strategies • is used to evaluate an organization’s impact from several perspectives, such as customers, employees, internal business processes, and financial results • allows effective communication of
12
Balanced Scorecard Terms Vision Customers
Mission Goals
Perspectives STRATEG
Themes
YObjectives
Performance Drivers Critical Success Factors KPI
Measures Targets
Thresholds
Initiatives 13
Advantages of the BSC • Emphasizes achieving results and implementing strategy
• Focuses on high-impact performance measures
• Is easy to use and economical to maintain 14
Advantages of the BSC • Empowers process owners to make improvements
• Allows comparisons to best-in-class performance (benchmarking)
• Bridges the gap among strategy, development, formulation, and implementation 15
Why Use a BSC? • Losing competitive position • New technological advances • Changing labor markets • Employee shifts/Downsizing • Government management reforms 16
BSC Methodology—Nine Steps to Building & Implementing a BSC Phase One: Building a Balanced Scorecard Performance System • Conducting an Organizational Assessment • Defining Strategic Themes • Choosing Perspectives and Developing Objectives • Developing a Strategic Map of the Organization • Defining Performance Measures • Developing Initiatives Phase Two: Implementing the Balanced Scorecard
• Computerizing and Communicating Performance Information • Cascading the Scorecard throughout the Organization • Using Scorecard Information to Evaluate and Improve Performance 17
Meeting the Challenge with the Balanced Scorecard Assessment Evaluate Strategic Themes
& Improve
Cascade Perspectives & Objectives Computerize & Communicate Strategic Map Performance Measures
Initiatives 18
Example: Strategic Mapping Broaden Revenue Mix
Increase Customer Confidence in Our Advice
Understand Customer Segments
Develop New Products
Improve Returns
Financial
Improve Operating Efficiency Increase Customer Satisfaction Through Superior Execution
Customer
Cross-Sell the Product Line
Internal Processes
Shift to Appropriate Channel
Minimize Problems
Provide Rapid Response
Increase Employee Productivity
Develop Strategic Skills
Provide Access to Strategic Information
Employees
Align Personal Goals
19
Typical Performance Measures Financial
Objective
Measure
Target
Initiative
Internal Business Process
Customer
Objective
Measure
Target
•Value proposition •Retention •Service quality •Satisfaction
•Shareholder value •Investment •Asset utilization •Resource allocation •Profitability
Initiative
Objective
Strategy
Learning & Growth Objective
Measure
Target
Initiative
Measure
Target
Initiative
•Production efficiency •Cost •Bottlenecks
•Skills coverage •Innovation •Employee development •Capacity building •Knowledge transfer 20
Example: Linking Objectives, Measures, Targets, and Initiatives Measure
Broaden revenue mix
Revenue mix
Increase customer satisfaction
Customer retention
Develop new products
% Revenue from new products
Learning & Growth
Internal
Objective Financial
How success will be measured and tracked
Customer
What strategy must be achieved and what is critical to its success
Develop Skill coverage strategic skills
Performance expectation
Key action programs required to achieve objectives
Target
Initiatives
10% Product A 40% Product B 50% Product C
• Sales Promotions • New Channel Marketing
95%
• Frequent Buyers’ Club
1999 -- 15% 2000 -- 50% 2001 -- 60%
• R & D Program • Customer Mailing
90%
• Custom Training • Knowledge Library 21
Cascading Scorecards Corporate Support Strategy Financial Customer Goal Measure Target Initiative Customer Goal Measure Target Initiative Goal
Measure Target
Business Units Support Units
Initiative
Team/ Individual Customer Customer Goal Measure Target Initiative Customer Goal Measure Target Initiative Goal
Measure Target Initiative
Vision Mission Strategy
Internal Business Process Internal Business Goal Measure Target Process Initiative Internal Business Goal Measure TargetProcess Initiative Goal
Measure Target
Initiative
Learning and Growth
Growth Goal Learning Measure and Target Initiative Learning and Growth Goal Measure Target Initiative Goal Measure Target Initiative
22
BSC Templates The generated sheets are as following:
• Goals Establishment sheet • Themes Checklist sheet • Strategic map sheet • Measurement definition sheet • Measurement summary sheet • Lag/Lead comparison sheet • Summary sheet 23
References
Available upon request
24
Thank you [email protected]
25
