Balanced Scorecard
Balanced Scorecard
Key Features of Performance Management
Is an essential part of organisation strategy:
– derived from the mission and vision statements
– links the mission and vision, strategy, goals and processes of the organisation
Provides quantitative and qualitative information:
– assesses non-financial as well as financial criteria
– is a decision making tool
– provides a standardised and consistent approach
Provides a multidimensional focus on people and processes:
– is a process not a system
– measures processes not functions
– needs top-down and bottom-up communication and understanding
– enables delegation and empowerment
– enhances employee satisfaction
Provides both external and internal perspectives:
– focuses on customer satisfaction
– can be used to benchmark against competitors
Continuous Improvement
– emphasises causes, promotes self-diagnosis and identifies areas for improvement
– promotes effective planning
Why Balanced Scorecard?
Financial performance measurements no longer adequate
Financial evaluations are reactive
Financial measures not able to reflect contemporary value creating actions
A Holistic measurement tool formulating an integral part of strategy (cross functional integration)
Bridges financial measurements and strategy
Lever to streamline and focus strategy
Translate company strategy into specific measurable objectives
Put strategy not control at the centre
Pulls people to the overall vision
It is a framework for creating a set of measures that gives managers a fast and comprehensive view of the business.
It is a tool providing all of the critical indicators of a businesses current and future performance.
It supplements traditional financial measures with three additional perspectives:
Balanced Scorecard – Principles
Performance measures are balanced to reflect key areas of corporate activity which will create long term shareholder value
Performance measurement are designed to monitor value drivers – quality, cycle time and service are key determinants of customer satisfaction which is the ultimate driver
Financial measures are used to explicitly include shareholder value calculations
Organisation learning is specifically measured – ability to change, rate of change and continuous improvements
A top-down process is used to directly link vision and strategy – both senior management sponsorship, involvement and commitment, and lower level participation and agreement are all necessary
Measures must link individual worker performance to overall organisation vision and strategy
Balanced Scorecard Value’s
Translate business plan into a set of clear measures and targets
As a reporting tool, will give managers regular feedback on their performance, allowing them to assess their situation and improve
Provide a fair, data based, systematic mechanism for setting performance targets and rewarding achievement
Allow each business unit to focus on a few high value opportunities
Be able to pinpoint issues and identify performance improvement opportunities
Provide a checks and balances system to manage short term performance and strategic implications
Ensure a comprehensive measurement system, measuring all perspectives of the business
What does the Balanced Scorecard measure?
Product
Internal Processes
Customer
Innovation and improvements
Customer Perspective
Demands that managers translate their general mission statements on customers into specific measures that reflect what really matters to the customer eg.
– Lead time
– Quality
– performance
– Service
Internal Processes
Internal measures should stem from the business processes that have the greatest impact on customer satisfaction, e.g.
– Factors that effect cycle time
– Quality
– employee skills
– productivity
Innovation and learning perspective
A company’s ability to innovate, improve and learn, ties directly to the company’s value. Only through the ability to launch new products, create more value for customers and improve operating efficiencies continually can a company penetrate new markets and increase revenue and margins.
Financial Perspective
Financial performance measures indicates whether the company’s strategy, implementation and execution are contributing to bottom-line improvement e.g.
– profitability
– growth
– shareholder value
How does these measures differ from traditional measurements?
Grounded in Organisations Strategic Objectives
Focus strategic vision
Provide balance
Ensure a focus beyond the current year
Barriers to effective Balanced Scorecard Implementation
Measurements are non quantifiable
Measurements are input rather than output driven
No buy-in from employees/management
Balanced Scorecard perceived as latest fad.
No migration planning
No system to support measurements
No follow-up on operational improvements with another round of actions
Strategies not effectively executed
Lack or no clear understanding on Balanced Scorecard mechanism
Preoccuaption of measurements instead of outputs
Balanced Scorecard Benefits
Synergy between efforts
Focus
Cross functional integration
Create customer and supplier partnership
Continuous improvement
Team rather than individual accountability
Assist managers in understanding interrelationships
Tool to measure individual as well as group performance
Scientific approach to quantifying strategic objectives
Practical application of the Balanced Scorecard
A point in case:
Corporate Initiative
MPT Vision
To be a self sustaining business unit offering world class cargo handling service
MPT Mission
MPT is in the business of inter-modal transfer of diverse cargo as well as offering related services
We will continually pursue sales growth and provide sustainable returns for the benefit of all stakeholders, whilst competitively positioning ourselves in the local and world markets
Challenges the Balanced Scorecard needed to address
Profitability
– Loss making
– High labour cost
– High maintenance cost
Organisational
– Poor staff morale
– Poor planning
– Lack of accountability
Operational
– New business generation
– Competition
External
– Competition
– Service delivery
“If you can’t measure it you can’t manage it’’
MPT Strategic Objectives
Balanced Scorecard Quadrants linked to MPT Strategic Objectives
MPT Strategic Objective to Key Performance Indicators
The lessons learned
Must work the plan
Balanced Score card must be integrated and add up to the “master Balanced Scorecard”
Balanced Scorecard as a performance measurement tool must be flexible enough to change as the environment changes
As a performance measurement tool should ensure realistic and stretched targets
Balanced Scorecard should be a living document for everyone to see and share
Measures must compliment and not conflict one another
References
R.S.Kaplan and D.P.Norton 1996. The Balanced Scorecard. HBS Press
Robins, Stephen P. 1998. Organizational Behaviour. Concepts, controversies and application. Prentice Hall
Denton, 1999. Case studies in people and Change management
R.S.Kaplan and D.P.Norton. “The Balanced Scorecard – Measures that drive performance’’ Harvard Business Review (January – February 1992) 71-79
R.S.Kaplan and D.P.Norton. “Putting the Balanced Scorecard to work’’ Harvard Business Review (September – October 1993) 134-147
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