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Introduction to Balanced Scorecard

An internal strategic management tool

Introduction to Balanced Scorecard

Developed by
Robert Kaplan (Harvard) and David Norton early 90s

Earlier measurements focused mainly on financial measures The balanced scorecard is a strategic management system (not only a measurement system)
Internal assessment, improvement and reporting system Key is the link to the strategic plan

System to turn strategy into action

The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and Kaplan & Norton innovation.

How does a Balanced Scorecard help?

Comprehensive view of the organization
Covers financial and non-financial perspectives Covers short-term and long-term planning and measurement

Lag and lead indicators Translating the vision

Forces managers to agree on metrics for operationalizing company vision

Communicating and linking

Connects individual and departmental performance measures to corporate vision

Business Planning
Integration of functions so that budgets support long term goals

Feedback and Learning

Helps course correction and rethink measures

The balanced scorecard suggests that we view the organization from four perspectives:
The learning growth perspective The business process perspective The customer perspective The financial perspective

Develop metrics, collect data and analyze relative to each of these perspectives

Learning and Growth Perspective

Development of the human resources
This perspective supports the concept that people are a company's main resource and most valuable asset metrics defined for this perspective must measure various aspects of employee improvement, growth, and satisfaction.
personnel training and improvement cultivation of corporate culture organizational development, including the nurturing of corporate experts, gurus, and mentors setting up of fast and efficient knowledge transfer infrastructure opening up of communication lines among personnel

Business Processes Perspective

Internal business processes
These metrics, which measure various aspects (efficiency, speed, quality, etc.) of how well the company's products, services and internal support systems are produced or delivered

The Customer Perspective

Focus on customer satisfaction.
Rigorous data analysis to understand the customer Difficult to reflect the true sentiment of the customer

Financial Perspective
Indicates if the transformation of strategy leads to economic success Define the financial performance that the strategy is to achieve
Revenue growth Cost reduction
Cost reduction from energy efficiency

Measures the effectiveness of the other perspectives

Characteristics of good metrics

reflect the true present status of the company from many different perspectives provide constructive feedback to various company processes, leading to continuous improvement show trends in company performance over time, facilitating adjustments to changes quantify many things, making analyses more accurate and solutions more effective

Close the loop

Once the metrics have been defined and implemented
scorecard data becomes available follow-through becomes imperative

Movements in the metrics must be analyzed to identify their causes Causes that produce positive (negative) changes must be sustained or enhanced (eliminated)