Tha Balanced Scorecard

Compiled slides
The Balanced Scorecard
Management translates its strategy into
performance measures that employees understand
and influence.

Financial Customer

Performance
measures
Internal Learning
business and growth
processes
 11-3

The Balanced Scorecard

Management translates its strategy into
performance measures that employees
understand and influence.

Financial Customer

Performance
measures
Internal Learning
business and growth
processes
 11-4

The Balanced Scorecard: From

Strategy to Performance Measures
Performance Measures
Financial What are our
Has our financial financial goals?
performance improved?

Customer What customers do Vision

we want to serve and
Do customers recognize that how are we going to and
we are delivering more value? win and retain them? Strategy

Internal Business Processes What internal busi-

Have we improved key business ness processes are
processes so that we can deliver critical to providing
more value to customers? value to customers?

Learning and Growth

Are we maintaining our ability
to change and improve?
 11-5

The Balanced Scorecard:

Non-financial Measures
The balanced scorecard relies on non-financial measures
in addition to financial measures for two reasons:

 Financial measures are lag indicators that summarize

the results of past actions. Non-financial measures are
leading indicators of future financial performance.

 Top managers are ordinarily responsible for financial

performance measures – not lower level managers.
Non-financial measures are more likely to be
understood and controlled by lower level managers.
 11-6

The Balanced Scorecard for Individuals

The entire organization Each individual should
should have an overall have a personal
balanced scorecard. balanced scorecard.

A personal scorecard should contain measures that can be

influenced by the individual being evaluated and that
support the measures in the overall balanced scorecard.
 11-7

The Balanced Scorecard

A balanced scorecard should have measures
that are linked together on a cause-and-effect basis.

If we improve Another desired

Then
one performance performance measure
measure . . . will improve.

The balanced scorecard lays out concrete

actions to attain desired outcomes.
 11-8

The Balanced Scorecard and Compensation

Incentive compensation should be linked to
balanced scorecard performance
measures.
 11-9

The Balanced Scorecard ─ Jaguar Example

Profit
Financial
Contribution per car

Number of cars sold

Customer
Customer satisfaction
with options

Internal
Business Number of Time to
options available install option
Processes

Learning Employee skills in

and Growth installing options
 11-10

The Balanced Scorecard ─ Jaguar Example

Profit

Contribution per car

Number of cars sold

Customer satisfaction Results

with options Satisfaction
Increases
Strategies
Increase Number of Time to
Options options available install option Time
Decreases

Increase Employee skills in

Skills installing options
 11-11

The Balanced Scorecard ─ Jaguar Example

Profit

Contribution per car

Results
Cars sold
Number of cars sold Increase

Customer satisfaction
with options Satisfaction
Increases

Number of Time to
options available install option

Employee skills in
installing options
 11-12

The Balanced Scorecard ─ Jaguar Example

Profit
Results
Contribution per car Contribution
Increases

Number of cars sold

Customer satisfaction
with options Satisfaction
Increases

Number of Time to
options available install option Time
Decreases

Employee skills in
installing options
 11-13

The Balanced Scorecard ─ Jaguar Example

Results
Profit Profits
Increase
If number
Contribution per car Contribution
of cars sold Increases
and contribution
Cars Sold
per car increase, Number of cars sold Increases
profit should
increase. Customer satisfaction
with options

Number of Time to
options available install option

Employee skills in
installing options
The Balanced Scorecard: From
Strategy to Performance Measures
Performance Measures
Financial What are our
Has our financial financial goals?
performance improved?

Customer What customers do Vision

we want to serve and
Do customers recognize that how are we going to and
we are delivering more value? win and retain them? Strategy

Internal Business Processes What internal busi-

Have we improved key business ness processes are
processes so that we can deliver critical to providing
more value to customers? value to customers?

Learning and Growth

Are we maintaining our ability
to change and improve?
The Balanced Scorecard:
Non-financial Measures
The balanced scorecard relies on non-financial measures
in addition to financial measures for two reasons:

 Financial measures are lag indicators that summarize

the results of past actions. Non-financial measures are
leading indicators of future financial performance.

 Top managers are ordinarily responsible for financial

performance measures – not lower level managers.
Non-financial measures are more likely to be
understood and controlled by lower level managers.
The Balanced Scorecard for Individuals
The entire organization Each individual should
should have an overall have a personal
balanced scorecard. balanced scorecard.

A personal scorecard should contain measures that can be

influenced by the individual being evaluated and that
support the measures in the overall balanced scorecard.
The Balanced Scorecard
A balanced scorecard should have measures
that are linked together on a cause-and-effect basis.

If we improve Another desired

Then
one performance performance measure
measure . . . will improve.

The balanced scorecard lays out concrete

actions to attain desired outcomes.
The Balanced Scorecard and Compensation
Incentive compensation should be linked to
balanced scorecard performance measures.
The Balanced Scorecard ─ Jaguar Example
Profit
Financial
Contribution per car

Number of cars sold

Customer
Customer satisfaction
with options

Internal
Business Number of Time to
options available install option
Processes

Learning Employee skills in

and Growth installing options
The Balanced Scorecard ─ Jaguar Example
Profit

Contribution per car

Number of cars sold

Customer satisfaction Results

with options Satisfaction
Increases
Strategies
Increase Number of Time to
Options options available install option Time
Decreases

Increase Employee skills in

Skills installing options
The Balanced Scorecard ─ Jaguar Example
Profit

Contribution per car

Results
Cars sold
Number of cars sold Increase

Customer satisfaction
with options Satisfaction
Increases

Number of Time to
options available install option

Employee skills in
installing options
The Balanced Scorecard ─ Jaguar Example
Profit
Results
Contribution per car Contribution
Increases

Number of cars sold

Customer satisfaction
with options Satisfaction
Increases

Number of Time to
options available install option Time
Decreases

Employee skills in
installing options
The Balanced Scorecard ─ Jaguar Example
Results
Profit Profits
Increase
If number
Contribution per car Contribution
of cars sold Increases
and contribution
Cars Sold
per car increase, Number of cars sold Increases
profit should
increase. Customer satisfaction
with options

Number of Time to
options available install option

Employee skills in
installing options
BALANCED SCORECARD
STRATEGY MAP
Now let’s do the drill!
Strategic planning is different from operational planning
in that operational planning:

A. involves large sums of money

B. would be involved in determining production levels
for next quarter
C. involves only long range goals
D. operational and strategic planning are the same
The balanced scorecard internal operations
perspective includes

A. customer complaints
B. number of engineering changes
C. market share
D. inventory turnover
The initiative to reduce non-value added activity is meeting
which balanced scorecard objective?

A. internal operations perspective

B. customer perspective
C. financial perspective
D. learning and growth perspective
Now you can do it!
It’s quiz time!
CLASSIFY WHICH OF THE FOUR PERSPECTIVE
DO THESE KPIs BELONG
• Earnings per share
• Number of new customers
• Return on assets
• Percentage of defective units
• Percentage of error-free invoices
• Percentage of processes with real time
feedback
• Net Income
• Employee turnover rate
• Percentage of on-time deliveries by
suppliers
• Percentage of customers retained
• Return on assets
• Return on sales
• Customer profitability
• Number of patents
• Return on equity
• Product cost per unit
• Average job related training per employee
• Customer cost per unit
• Profit per salesperson
• Manufacturing efficiency cycle
• Set up time