Objective Explain What is the Balanced Scorecard Describe the Three Generations of Balanced...
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ObjectiveExplain What is the Balanced Scorecard
Describe the Three Generations of Balanced Scorecards
Explain the Importance of Balanced Scorecard
Describe the Various Perspectives of Balanced Scorecard
Describe the Various Parameters of Balanced Scorecard
Explain What is Performance Management
Explain the Steps in Building a Balanced Scorecard
Describe the Balanced Scorecard System Elements
Explain the Steps for Implementation of BSC
Explain What is the BSC Designer
List the Tips for Implementing Balanced Card
List the Pitfalls of Balanced Scorecard
What is the Balanced Scorecard
The Balanced Scorecard is a management tool that provides stakeholders with a comprehensive measure of how the organization is progressing towards the achievement of its strategic goals.
The Balanced Scorecard:• Balances financial and non-financial measures• Balances short and long-term measures• Balances performance drivers (leading indicators)
with outcome measures (lagging indicators)• Should contain just enough data to give a complete
picture of organizational performance and no more!• Leads to strategic focus and organizational
alignment
What is the Balanced Scorecard?The Balanced Scorecard framework is shown in the given diagram.
Vision and
Mission
Financial Perspective
Internal Process
Perspective
Learning & Growth
Perspective
Customer Perspective
The balanced scorecard translates the organization's strategy into four perspectives, with a balance between the following:• between internal and
external measures • between objective
measures and subjective measures
• between performance results and the drivers of future results
History of Balanced Scorecard
•
In essence the Balanced Scorecard has remained unchanged since these early papers, having at its core a limited number of measures clustered into groups and an underlying strategic focus.
•
But modern Balanced Scorecard designs also have a number of features that clearly differentiate them from earlier examples.
•
The changes in the balanced scorecard have been an evolution through three distinct generations’ of Balanced Scorecard design.
Balanced Scorecard Goes Beyond the Financial Perspective
Let us look at each perspective in detail.
Learning & Growth Perspective
Business Process Perspective
Customer Perspective
Financial Perspective
Customer Perspective - includes measures such as customer satisfaction, customer retention, and market share in target segments.
Measures
Parameters
Measures –
the observable parameters that will be
used to measure progress toward
reaching the objective. For example, the
objective of profitable growth might be
measured by growth in net margin.
Parameters: Objectives, Measures, Targets, and Initiatives
These can be organized for each perspective in a table as shown below.
Objectives Measures Targets Initiatives
Financial
Customer
Process
Learning
Performance Criteria
Performance Criteria helps to translate job requirements into levels of acceptable or unacceptable employee behaviour.
Hence, ‘performance criteria’ is an important determinant of performance.
It is essential to define ‘Performance Criteria’ for conducting a performance appraisal.
Principles of a Strategy Focused Organization
Strategy Focused
Organization
Translate Strategy
Continual Process
Everyone’s JOB
Organization Alignment
Organization Alignment• Corporate Role• Corporate-strategic
Business Unit (SBU)• Strategic Business Unit
(SBU) - Shared Services• External Partners
Organization Alignment
Executive Leadership
Characteristics of Balanced Scorecard• The core characteristic of the Balanced
Scorecard and its derivatives are the presentation of a mixture of financial and operational measures each compared to a 'target' value within a single concise report.• The report is not meant to be a replacement for traditional financial or operational reports but a succinct summary that captures the information most relevant to those reading it. • There are various versions of the tool in circulation which differ due to the methods by which this 'most relevant' information is determined, that is, the design processes used to select the content.
Design of Balanced ScorecardThere are four steps required to design a Balanced Scorecard which are included in Kaplan & Norton's writing on the subject in the late 1990s, where they assert four steps as being part of the Balanced Scorecard design process:
Step #1
Translating the vision into
operational goals
Step #2Communicating the vision and link it to individual performance
Step #3Business planning; index setting
Step #4
Feedback and learning,
and adjusting the
strategy accordingly
Steps in Building a Balanced Scorecard
21
3
• Process 1: o Strategy formulation. Prepare vision and mission statements
• Process 2: o Identify the Objectives of the organization
• Process 3: o Deciding for the measurements and Targets. Creating
performance indicators.
Balanced Scorecard System ElementsEngaged Leadership, Interactive Communications and Change
ManagementDeveloping a scorecard system is transformational for an organization, as it is about changing hearts and minds. Leaders who are engaged in the discovery process, communication via two-way dialogue, and planning and managing change are important first steps in the process.
Organization Mission, Vision, and Values
Critical to an aligned organization are a well defined mission, a shared vision, and organization values that are built on strong personal values. Most organizations have these components, but often there is no connecting tissue among the components that allow employees to “get it” easily. A compelling and clear “picture of the future” (the shared vision) is where the scorecard development process starts. The employee buy-in follows as hearts and minds are engaged in creating and executing the organization’s strategies.
Performance Information Reporting
Automated data collection and reporting processes are used to visualize performance information and better inform decision making throughout the organization.
Steps for Implementation of Balanced Scorecard
Step 2: Collaboration:The next step requires teamwork and collaboration where the
different perspectives of different people and their expertise are required. The implementation of a balanced scorecard is not a one-
person job and won’t produce buy-in.
Step 8: Selection of
metrics
Step 10: Periodic reviews
Step 7: Finishing touches
Step 9: Roll-out
Step 11: Evolution
Step 2: Collaboration
Step 4: Gain
consensus
Step 6: Expand
consensus
Step 1: Initiation
Step 3: Gain
Inputs
Step 5: Individual reactions