The Balanced Scorecard: Customer

Perspective, Internal Processes,

Learning and Growth

PREPARED BY GROUP 4:
ANDREW MOLLOY
AMY MILLER
MIKE ELICKER

What is the balanced scorecard?

Developed in the early 1990s by Dr. Robert Kaplan

and David Norton

"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 innovation."

What is the balanced scorecard?

The Balanced scorecard is a management system

that enables organizations to clarify their

vision and strategy and translate them into
action.
Provides an organization with feedback of both the
internal business processes and external outcomes,
which allows for continuous improvement of
strategic performance and results.
Nerve center of an enterprise

What is the balanced scorecard?

The balanced scorecard is centered on four performance

metrics or perspectives:

Customers
Internal processes
Financial
Learning and growth

When implemented properly, each one of these

perspectives contains four subparts consisting of

Objectives
Measures
Targets
Initiatives

What is the balanced scorecard?

Objectives - what the strategy is to achieve in that perspective

Measures - how progress for that particular objective will be

measured

Targets - refer to the target value that the company seeks to

obtain for each measure

Initiatives - what will be done to facilitate the reaching of the

target

What is the balanced scorecard?

The term scorecard signifies quantified

performance measures and balanced signifies the

system is balanced between:

Short-term and long term objectives

Financial and non-financial measures

Lagging and leading indicators

Internal and external performance perspectives

What is the balanced scorecard?

What is the balanced scorecard?

Kaplan and Norton defined a four-step process that has

been used across a wide range of organizations

Defining the measurement architecture

Specify strategy objectives.

These should be carefully decided upon and selected as those deemed

critical in achieving breakthrough competitive performance and
limited in number to 15 to 20, or 3 to 4 in each perspective to avoid
information overload.

Choose strategic measures

For example will the system be used at the strategic business unit level
rather than the corporate level.

These measures should be closely related to the actual performance

drivers and will later be used for evaluating the progress made toward
achieving the objectives

Develop an implementation plan to integrate the scorecard into

management.

Customer Needs
Who is your customer?

What age, gender, group does our product appeal to?

What services or products do they expect from you?

Do we provide personal services, do your products serve as advertised?

How do you listen to and learn from your customers?

Do we provide feedback calls or emails?

How do you retain and acquire new customers?

Do we use new advertisement and how do we advertise?

How do you meet customers needs?

Do we provide help lines and how can we provide help to customers?

How do you measure customer satisfaction and dis-satisfaction?

Do we use surveys to find out how customers feel about us?

Customer Concerns
There are four major categories that managers need to address when

concerning their customers.

Quality

Time

Do we save time by limiting defects and do we provide fast on time delivery.

Performance and service

Are there often recalls or problems with defects with our products.

Do we perform up to customers standards and do we provide fast and adequate

services.

Cost

Do we try to minimize cost when dealing with ordering, scheduling delivery, and
paying for materials in order to lower cost of our products to our consumers.

Customer Perspective
With customer perspective managers and companies have to be careful

and make sure they are setting up their balance scorecard to help
customers.
Examples of things that dont concern customers are profit per

customer, revenue per customer, and improve profit per customer.

These objectives dont necessarily protean to the customer perspective

but rather the companies perspective of the customer.

Managers need to take a step back and look at how customers perceive

your company and what they want to get out of your company.

Examples of Customers Perspective

Two main questions that a company should ask itself to

protean to their customers are:

How should we appear to our customers

Do we show a promising future

Do we show a strong sense of concern

What is our differentiating value proposition to our targeted

customers

How are we different from our competitors

What makes us better than our competitors

Perspectives of Kaplan and Norton

There are four broad categories that Kaplan and Norton base the

customer perspective around.

Best buy

Product leadership and innovation

Companies that focus on customer that buy the newest and most advanced
cutting edge technology.

Customer complete solutions

Companies that supply services and products at low prices and fast service.

Companies that try to sell things like computers where customers customize
them to their liking.

Lock in

Companies that will make a product then to buy accessories for that product you
have to buy the same brand name because other brands out work with that
product.

Successful balanced Scorecards

When using critical thinking of strategy, objectives, and

measures companies can get a feel for who their customers

are and what they can offer them.
Strategy gurus, like Michael Porter stress the fact that it is

more important to accomplish more with less.

Dont try to please everyone when setting up your balanced

scorecard because you cant.

Internal Processes
Internal business process objectives address the

question of which processes are the most

critical for satisfying customers and
shareholders

A firm must concentrate its efforts to excel in these areas

Metrics based on this prospective allow the

managers to know how well their business is running

and whether its products and services conform to
customer requirements

Internal Process Examples

Cost
Throughput
Quality
Objective

Specific Measure

Manufacturing excellence

Cycle time, yield

Increase design productivity

Engineering efficiency

Reduce product launch delays

Actual launch date vs. plan

Internal Processes
In addition to the strategic management process two

kinds of business processes may be identified, these

include:

Mission-oriented processes - special functions of government

offices which often involve many unique problems in their
processes

Support processes - more repetitive in nature.

Financial Performance

The financial performance perspective of the

balanced scorecard addresses the question of how

shareholders view the firm and which
financial goals are desired from the
shareholders perspective.
These financial goals are dependent on the

companys stage in the business life cycle.

Financial Performance: Business Life Cycle

There are three main stages to this cycle which

include:

Growth stage -goal of the company is growth

Sustain stage - the goal of the firm is profitability

An example of a growth goal would be revenue growth.

Measures in this stage may include ROE, ROCE, and EVA.

Harvest stage - the goal of the firm is cash flow and reduction
in capital requirements.

Financial Performance

The table below outlines possible financial performance objectives and

their metrics.

Objective

Specific Measure

Growth

Revenue Growth

Profitability

Return on equity

Cost Leadership

Unit Cost

Learning & Growth

How much a company

must learn, improve, and

innovate to meet
objectives.

Use of the scorecard:

To set objectives
To determine measures
To predict outcomes

To determine initiatives
To gain the big picture

Key performance indicators include:

Illness rate/days of absence

Employee turnover
Gender/racial ratios

Internal promotion %

A learning & growth example:

Objective: increase internal promotions
Measure: bigger % of in house promotions
Target: +10% in 2 years

Additional classes and training

 A balanced scorecard system

provides a basis for executing good

strategy well and managing
change.
-Howard Rohm

Learning & growth must

focus on measurable
outcomes to move the
company forward.

Scorecard allows for

actionable terms derived

from company strategy.

Balanced Scorecard

Makes it easier for

management to carry out

strategy.

4 step process

Define measurement architecture

Specify strategic objectives
Choose strategic measures

Develop implementation plan

Potential Benefits
Translation of strategy into measurable parameters

Communication of strategy
Alignment of individual goals with strategic

objectives
Feedback of implementation results

Potential Disadvantages

Lack of a well defined strategy

Use of only lagging measures

Use of generic metrics

Conclusion
Balanced scorecard is a performance management

system that can be used in any size organization.

Allows management to measure financial and
customer results, operations, and organization
potential.