Operations Assignment I
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ICFAI UNIVERSITY DEHRADUN
TOPIC OF ASSIGNMENT
: ROBERT KAPLAN & DAVID NORTON’S BALANCE SCORECARD CONCEPT
NAME
: RAJAGOPAL .M
IUD No.
: 0901201790
IBS No.
: 09BS0001790
COURSE CODE
: SLOP501
COURSE NAME
: OPERATIONS MANAGEMENT
FACULTY NAME
: SANJAY H RAO
Date : 06/11/2009
Page | 1
TABLE OF CONTENTS
ORIGIN OF BALANCE SCORECARD------------------------------------------------------------------2
WHAT IS A BALANCE SCORECARD?----------------------------------------------------------------2
STRATEGIC IMPACT OF IMPLEMENTING----------------------------------------------------------3 BALANCE SCORE CARD CONCEPT
LINKAGE OF BALANCE SCORECARD CONCEPT-------------------------------------------------4 TO STRATEGY MAP FRAMEWORK
SAMPLE BALANCE SCORE CARD---------------------------------------------------------------------7
Page | 2
ORIGIN OF BALANCE SCORECARD: The Balanced Scorecard was developed by Robert Kaplan, an accounting professor at Harvard University, and David Norton, a consultant from the Boston area. In 1990, Kaplan and Norton led a research study of a dozen companies with the purpose of exploring new methods of performance measurement. The reason for the study was a growing belief that financial measures of performance were ineffective for the modern business enterprise.The group discussed a number of possible alternatives but settled on the idea of a scorecard, featuring performance measures capturing activities from throughout the organization—customer issues, internal business processes, employee activities, and of course shareholder concerns. Kaplan and Norton labeled the new tool as the Balanced Scorecard.
WHAT IS A BALANCE SCORECARD? We can describe the Balanced Scorecard as a carefully selected set of quantifiable measures derived from an organization’s strategy. The measures selected for the Scorecard represent a tool for leaders to use in communicating to employees and external stakeholders the outcomes and performance drivers by which the organization will achieve its mission and strategic objectives.
The logic of Balance Scorecard is that learning and people management help organizations improve their internal processes (product development, service etc.) which are critical for creating customer satisfaction and loyalty. Customer value creation in turn drives financial performance and profitability. Balance Scorecard enables to translate broad corporate goals into divisional, departmental and team goals in a cascading fashion which helps an individual to see clearly how his performance ties with overall performance of the firm.
The Balanced Scorecard allows an organization to translate its vision and strategies by providing a new framework, one that tells the story of the organization’s strategy through the objectives and measures chosen. Rather than focusing on financial control devices that provide little in the way of guidance for long-term employee decision-making, the Scorecard uses measurement as a new language to describe the key elements in the achievement of the strategy.
Page | 3
BALANCE SCORECARD
STRATEGIC IMPACT OF IMPLEMENTING BALANCE SCORECARD CONCEPT: •
It translates vision and strategy into action.
•
It defines the strategic linkages to integrate performance across organizations.
•
It communicates the objectives and measures to a business unit.
•
It aligns the strategic initiatives in order to attain the long-term goals.
•
It aligns everyone within an organization so that all employees understand how they support the strategy.
•
It provides a basis for compensation for performance.
•
The scorecard provides a feedback to the senior management if the strategy is working.
•
Focusing the whole organization on the few key things needed to create breakthrough performance.
•
Helps to integrate various corporate programs. Such as: quality, re-engineering, and customer service initiatives.
•
Breaking down strategic measures towards lower levels, so that unit managers, operators, and employees can see what's required at their level to achieve excellent overall performance.
Page | 4
LINKAGE OF BALANCE SCORECARD TO STRATEGY MAP FRAMEWORK: This framework describes the types of strategic target that should be presented in each perspective, namely the financial perspective, customers, internal business process, and learning & growth perspective.
Financial perspective: •
In private companies, the financial perspective is the main objective.
•
In the financial perspective, the strategic goal is the long-term shareholder value. This goal is driven by two factors - revenue growth and cost efficiency.
Strategic objectives in Financial perspective:
Page | 5
Customer perspective: Customer perspective covers the following elements: •
Customer acquisition
•
Customer retention
•
Customer profitability
•
Market share
•
Customer satisfaction
Strategic objectives in Customer perspective:
Internal Process perspective: •
This perspective reflects the processes in key business that should be optimized in order to meet the needs of the customers.
•
There are four main themes in this perspective, namely: •
Operations Management Process
•
Customer Management Process
•
Innovation Process
•
Regulatory and Social Process
Page | 6
Strategic objectives in Internal Process perspective:
Learning & Growth Perspective: •
•
This perspective reflects the capability that a company should have: •
Human Capital
•
Organization Capital
•
Information Capital
This perspective shows us that good human resource development system, organizational system and information system forms a solid foundation for improving company performance.
Strategic Objectives in Learning & Growth perspective:
Page | 7
SAMPLE BUSINESS SCORECARD
GE LIGHTING BUSINESS GROUP:
Level of Organization Corporate Scorecard
Financial Increase profit margin
Customer Improve customer satisfaction level
Internal Process Increase inventory turns Improve internal process
Learning & Growth Increase level of employee competency
Division Scorecard
Optimize cost of production Reduce inventory levels
Improve customer satisfaction level
Increase inventory turns Improve internal process
Increase level of employee competency
Plant Scorecard
Optimize cost of production Increase yields ratio Increase labor productivity Reduce inventory levels
Increase percent of on time delivery Reduce customer complaints per million
Increase inventory turns Reduce number of defects per million Improve quality incoming materials Maintain optimum equipment speed
Number of "on the job training" delivered Number of performance coaching session
Frontline Employee Scorecard
Reduce waste Reduce overtime Increase production rates
Reduce equipment downtime Reduce number of poor solders Reduce number of cracked bulbs
Number of "on the job training" attended Number of performance coaching session attended
The above Balance scorecard of GE Lighting Business group shows the four different perspectives at corporate level cascaded to Division level and further Plant level cascaded to Employee level. i
References http://en.wikipedia.org/wiki/Balanced_scorecard http://balancedscorecard.org http://www.isixsigma.com http://www.valuebasedmanagement.net
ICFAI UNIVERSITY DEHRADUN
TOPIC OF ASSIGNMENT
: ROBERT KAPLAN & DAVID NORTON’S BALANCE SCORECARD CONCEPT
NAME
: RAJAGOPAL .M
IUD No.
: 0901201790
IBS No.
: 09BS0001790
COURSE CODE
: SLOP501
COURSE NAME
: OPERATIONS MANAGEMENT
FACULTY NAME
: SANJAY H RAO
Date : 06/11/2009
Page | 1
TABLE OF CONTENTS
ORIGIN OF BALANCE SCORECARD------------------------------------------------------------------2
WHAT IS A BALANCE SCORECARD?----------------------------------------------------------------2
STRATEGIC IMPACT OF IMPLEMENTING----------------------------------------------------------3 BALANCE SCORE CARD CONCEPT
LINKAGE OF BALANCE SCORECARD CONCEPT-------------------------------------------------4 TO STRATEGY MAP FRAMEWORK
SAMPLE BALANCE SCORE CARD---------------------------------------------------------------------7
Page | 2
ORIGIN OF BALANCE SCORECARD: The Balanced Scorecard was developed by Robert Kaplan, an accounting professor at Harvard University, and David Norton, a consultant from the Boston area. In 1990, Kaplan and Norton led a research study of a dozen companies with the purpose of exploring new methods of performance measurement. The reason for the study was a growing belief that financial measures of performance were ineffective for the modern business enterprise.The group discussed a number of possible alternatives but settled on the idea of a scorecard, featuring performance measures capturing activities from throughout the organization—customer issues, internal business processes, employee activities, and of course shareholder concerns. Kaplan and Norton labeled the new tool as the Balanced Scorecard.
WHAT IS A BALANCE SCORECARD? We can describe the Balanced Scorecard as a carefully selected set of quantifiable measures derived from an organization’s strategy. The measures selected for the Scorecard represent a tool for leaders to use in communicating to employees and external stakeholders the outcomes and performance drivers by which the organization will achieve its mission and strategic objectives.
The logic of Balance Scorecard is that learning and people management help organizations improve their internal processes (product development, service etc.) which are critical for creating customer satisfaction and loyalty. Customer value creation in turn drives financial performance and profitability. Balance Scorecard enables to translate broad corporate goals into divisional, departmental and team goals in a cascading fashion which helps an individual to see clearly how his performance ties with overall performance of the firm.
The Balanced Scorecard allows an organization to translate its vision and strategies by providing a new framework, one that tells the story of the organization’s strategy through the objectives and measures chosen. Rather than focusing on financial control devices that provide little in the way of guidance for long-term employee decision-making, the Scorecard uses measurement as a new language to describe the key elements in the achievement of the strategy.
Page | 3
BALANCE SCORECARD
STRATEGIC IMPACT OF IMPLEMENTING BALANCE SCORECARD CONCEPT: •
It translates vision and strategy into action.
•
It defines the strategic linkages to integrate performance across organizations.
•
It communicates the objectives and measures to a business unit.
•
It aligns the strategic initiatives in order to attain the long-term goals.
•
It aligns everyone within an organization so that all employees understand how they support the strategy.
•
It provides a basis for compensation for performance.
•
The scorecard provides a feedback to the senior management if the strategy is working.
•
Focusing the whole organization on the few key things needed to create breakthrough performance.
•
Helps to integrate various corporate programs. Such as: quality, re-engineering, and customer service initiatives.
•
Breaking down strategic measures towards lower levels, so that unit managers, operators, and employees can see what's required at their level to achieve excellent overall performance.
Page | 4
LINKAGE OF BALANCE SCORECARD TO STRATEGY MAP FRAMEWORK: This framework describes the types of strategic target that should be presented in each perspective, namely the financial perspective, customers, internal business process, and learning & growth perspective.
Financial perspective: •
In private companies, the financial perspective is the main objective.
•
In the financial perspective, the strategic goal is the long-term shareholder value. This goal is driven by two factors - revenue growth and cost efficiency.
Strategic objectives in Financial perspective:
Page | 5
Customer perspective: Customer perspective covers the following elements: •
Customer acquisition
•
Customer retention
•
Customer profitability
•
Market share
•
Customer satisfaction
Strategic objectives in Customer perspective:
Internal Process perspective: •
This perspective reflects the processes in key business that should be optimized in order to meet the needs of the customers.
•
There are four main themes in this perspective, namely: •
Operations Management Process
•
Customer Management Process
•
Innovation Process
•
Regulatory and Social Process
Page | 6
Strategic objectives in Internal Process perspective:
Learning & Growth Perspective: •
•
This perspective reflects the capability that a company should have: •
Human Capital
•
Organization Capital
•
Information Capital
This perspective shows us that good human resource development system, organizational system and information system forms a solid foundation for improving company performance.
Strategic Objectives in Learning & Growth perspective:
Page | 7
SAMPLE BUSINESS SCORECARD
GE LIGHTING BUSINESS GROUP:
Level of Organization Corporate Scorecard
Financial Increase profit margin
Customer Improve customer satisfaction level
Internal Process Increase inventory turns Improve internal process
Learning & Growth Increase level of employee competency
Division Scorecard
Optimize cost of production Reduce inventory levels
Improve customer satisfaction level
Increase inventory turns Improve internal process
Increase level of employee competency
Plant Scorecard
Optimize cost of production Increase yields ratio Increase labor productivity Reduce inventory levels
Increase percent of on time delivery Reduce customer complaints per million
Increase inventory turns Reduce number of defects per million Improve quality incoming materials Maintain optimum equipment speed
Number of "on the job training" delivered Number of performance coaching session
Frontline Employee Scorecard
Reduce waste Reduce overtime Increase production rates
Reduce equipment downtime Reduce number of poor solders Reduce number of cracked bulbs
Number of "on the job training" attended Number of performance coaching session attended
The above Balance scorecard of GE Lighting Business group shows the four different perspectives at corporate level cascaded to Division level and further Plant level cascaded to Employee level. i
References http://en.wikipedia.org/wiki/Balanced_scorecard http://balancedscorecard.org http://www.isixsigma.com http://www.valuebasedmanagement.net
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