Using the Balanced Scorecard

as a Strategic Management
System
Introducing The Balanced Scorecard
• Intangible assets has become far more important than physical assets
needed for future growth
• Balanced scorecard complements financial measures to measure
performance
– Customers
– Internal Business process
– Learning and growth
• Emphasis of most companies is on short-term financial measures leaves a
gap between the development of a strategy and its implementation
• Balanced scorecard links a company’s long-term strategy with its short-term
actions with four new management processes
• The Processes :
– Translating the vision
– Communicating and linking
– Business planning
– Feedback and learning
Balanced Scorecard

A set of measures that give comprehensive

view of the business. It includes :

Financial Measures that tell the results

of action already taken, lagging parameters

and

complements with operational measures

that are the drivers of future financial
performance, leading parameters.
Balanced Scorecard: Four new management processes
Translating vision and strategy: four perspectives

Lofty vision and

strategy statements
don’t translate easily
into action at the
local level

Statements
must be expressed as
an integrated
set of objectives and
measures which are
long-term drivers of
success

“To provide superior service to targeted customers”

Communicating and Linking

• Managers communicate their strategy up and down the organization and

link it to departmental and individual objectives
• All levels of the organization understand the long-term strategy and that
both departmental and individual objectives are aligned
• Generally engage in three activities:
– Communicating and educating
• Brochures, newsletters, town meetings, electronic bulletin boards
• provide basis for feedback and accountability
– Setting goals
• High level strategy must be translated into objectives and measures for operating units
and individuals
• The personal scorecard helps people to translate communicate corporate into
meaningful tasks and targets
• Linking rewards to performance measures
Business Planning

• Most Organizations have separate strategic planning group and

resource allocation
• Senior management in strategic planning group draws plan for next
3/5/10 years down the line
• Finance group does their budgeting in isolation and set financial
targets for different business unit
• Unfortunately, targets set by finance staff does not get in sync with
long-term strategic objectives set by strategic planning group
• This becomes the base document for monthly/ quarterly/ annually
review of organizational performance
• Balance scorecard helps in integrating strategic planning to financial
objectives of the business organization
 Feedback and Learning

The Balance score card achieves in four

important attributes

•Articulates the company’s shared vision

•Communicates a holistic model that links
individual efforts and accomplishments to
business unit objectives.
•Supplies the essential strategic feedback
system.
•Facilitates the strategy review that is essential
to strategic learning.
 Linking measures on Perspectives

Balanced Scorecard provides a framework to translate strategy into operational terms.

Organisation Vision

• Strategy is ‘described’ using Financial Perspective

four ‘perspectives “If we succeed, • Profitability
how will we • Growth
look to our • Shareholder
shareholders?”
• Cause and effect is a key Value

element Customer Perspective

“To achieve our • Price
vision, how must
• Measures are developed to we look to our • Service
customers?” • Quality

monitor performance
Internal Perspective
“To satisfy our • Cycle Time
customers, what
management • Productivity
processes must we • Cost
excel at?”

Organization Learning
“To achieve our • Market Innovation
vision, how must • Continuous
our organisation
learn and Learning
improve?” • Intellectual Assets
We shall identify balanced set of THRUST AREAS

Financial Yesterday

Customer Today
Business Process

Growth & Learning Tomorrow

The challenge is to identify the operational parameters focussing

on effectiveness and efficiency
 Uses of Balance Scorecards

•Clarify and update strategy

•Communicate strategy throughout the company
•Align unit and individual goals with the strategy
•Link strategic objectives to long-term targets and
annual budgets
•Identify and align strategic initiatives
•Conduct periodic performance reviews to learn
about and improve strategy.
Balanced Scorecard
Year -2003-04
Steps : Challenges
Vision
Vision:
Mission

To be amongst the top 3 flacconage manufacturers in

Strategy Map
the world
Balanced Scorecard

X Matrix Deployment
Mission:

a) To attain a market share of 10% in C&P worldwide

market
b) To be rated as strategic supplier by top 3 C&P
customers
c) To enhance EVA in Pharmaceuticals
d) All Furnaces to be EVA positive by 2010
e) Deming Level 4 by 2011
Balanced Scorecard terminology
Vision

Mission Strategy Map: Diagram of the

cause-and-effect relationships
between strategic objectives How
Strategy Map Statement success in The level
of what achieving of
Balanced Scorecard Strategic Theme: strategy the performan
Operating Efficiency must strategy ce or rate Key action
achieve and will be of programs
X Matrix deployment Financial Delta EVA what’s measured improvem required
Target
critical to and ent to achieve
Increased Asset its success tracked needed objectives
Productivity
Custom
er
Differentiated Capacity for
Select & Mass in India & US

Objectives Measurement Target Initiative

Intern
al • World Class • Faster NPD • 25 Days • Project
Develop World Class Mfg • Select • Revenue for lead
Mfg Processes Processes bottles Mfg from time
Select _
• KAMs
Learning

Hire
experienced
Managers
Balanced Scorecard example
Vision
Category Element Measures Target

Mission Financial Achieve targeted Cost Reduction %  

  (eg Productivity and efficiency; For Low
Mass and NP)
Strategy Map
Optimise Work In Process Inventory Less than 1 Cr  
Customer (Heldware)
Quality Assurance Process for Non No of Customer 60% of
Balanced Scorecard   Select Complaints Existing

Quality Assurance Process for Select No of Customer -

X Matrix deployment Complaints
Internal Reduce NPD Cycle Time NPD Lead Time 45 Days by
Processes End of
Year
 
  Differentiated Manufacturing No of Samples ???
  Capability For Select Approved from
  Customer
 
Enhanse Manufacturing Capability Revenue generated 25% of
from NPD's Total
Business

Energy Management Energy Cost per ???

tonnes
Learning Establish Pillar Excellence
Manufacturing Structure Project No of Pillars
Level Score   
 
  Acquire
ImproveInternational Certifications
Order to Delivery Process % OTIFDates   
Cerification
 
Implementation of SHE % SHE Non  
Conformance
Enhance Quality of people Training Man Days  
* Initiatives Captured only partly
Summarising
• Based on the Vision and Mission of the company, SBU level strategy
maps are formed

• From Strategy maps SBU level score cards are formed

• From SBU level score cards, department level scorecards are formed

• The Balanced Scorecard gives us the framework to describe our strategy

(perspectives)

• The Strategy Map is how we describe the detail of our strategy

• Themes help us focus on specific aspects

Some Goals of the Balanced Scorecard
• Translate a strategy into operational terms
• Ensure that the components of the strategy -- objectives,
measures, and initiatives -- are aligned and linked
• Communicate the strategy throughout the organisation
• Form the basis of an effective and integrated strategic
management process
Thrust area Deployment
Vision
Using ‘X’ matrix concept
Mission

Strategy Map
• Once department level Score cards are formed,
Balanced Scorecard individual level KRA’s within the department has to be
X Matrix deployment formed
• X matrix is a tool that helps in creating KRA for each
individual from the score card
• Structured approach for deployment of goals,
objectives…. With quantification
• Creates focus by designing “what” into “how”, “who” &
“how much”
• Leads to data based management
Identify KFAs

For each KFA

✦ Find out, “what type of result when measured, will give us confidence, that the
unit is creating the desired focus”. Prioritise top 2-3 KRAs for each KFA.
( May use relationship diagram / criteria
matrix / judgement.)

For each KRA

● Determine which all departments will have key roles

● Discuss and arrive at “Measures” & “Targets” for each of the KRA
Key Focus Areas (KFAs)
Vision Brainstorm for creating right focus in the unit to achieve the desired
thrust
Mission

Strategy Map

Balanced Scorecard KFAs selected :

To achieve  Target Receivables cycle for Select Market Reduce
 Receivables cycle for Non Select Market (Non LC)
X Matrix deployment

Target
 Increase Asset productivity
EVA
 Optimise Work In Process Inventory
 Optimise Finished Goods Inventory
 Improve EBITA
 Revenue from Select Customers (Europe/ Non US)
 Revenue from Existing Non-Select Customers
 Revenue from New Non-Select Customers
‘X’ Matrix - Thrust Areas
Vision

Revenue from Select Customers (Europe/ Non US)

Mission

Strategy Map

Receivables cycle for Non Select Market

Balanced Scorecard

X Matrix deployment

Optimise FG Inventory

Thrust Area
   Achieve EVA Target
 



Revenue from Select Customers





Optimise Finished Goods Inventory





Receivables cycle for Non Select Market

KFA

Area
Reduce delays

Thrust
KRA
Finalised ‘X’ Matrix

Linewise inventory

Receivables targets
Customerwise NPDs
Revenue customer wise

Achieve EVA Target

Measures
Sales from inventory target

Tgt..


OTIF 95%


Receivables no of days 60


Inventory value Redn 2 crs

Linewise inventory


2 crs
value
No of NPDs for


14
key customers
Total revenue from


10 crs
select players
WHO
Prodn planning
 

MFG.


Logistics


Marketing



Finance
 