The Balanced Scorecard is a
management system with the following objectives:
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Clarify
and gain consensus about strategy;
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Communicate
strategy throughout the organisation;
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Align
departmental and personal goals to the strategy;
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Link
strategic objectives to long-term targets and annual budgets;
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Identify
and align strategic initiatives;
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Perform
periodic and systematic strategic initiatives;
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Obtain
feedback to learn and improve strategy.
The Balanced Scorecard looks at
the business from the four perspectives, finance, customer, learning and
growth & internal business process; and links those four perspectives
to the vision and strategy of the company.
The first step to the development of a Balanced Scorecard is to
answer the following questions:
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Financial
To
succeed financially, how should we appear to our shareholders?
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Customer
To
achieve our vision, how should we appear to our customers?
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Vision
&
Strategy
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Internal
Business Process
To
satisfy our shareholders and customers, what business processes
must we excel at?
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Learning
and Growth
To
achieve our vision, how will we sustain our ability to change
and improve?
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For each of the above aspects,
objectives are derived from the strategy, measures are selected to
illustrate the progress toward the objective, targets are set for each
measure, and initiatives are defined, where necessary to further improve
the possibility of reaching the objective.
CUSTOMER
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Objectives
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Measures
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Targets
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Initiatives
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Translating
the Vision
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Communicating
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Balanced
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Feedback
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and
Linking
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Scorecard
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Learning
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Business
Planning
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Every
measure is part of a chain of cause and effect linkages;
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Every
measure ultimately ties to financial results;
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A
balance exists between outcome measures and performance drivers;
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It
includes performance driver measures which will redefine a process or
change behaviour.
Procedure
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Establish
Vision & Strategy
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Define
Strategic Objectives for each Perspective
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Define
suitable measures for each objective
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Establish
causal links between measures
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Set
Stretch targets for each measure
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Identify
gaps
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Define
initiatives to close gaps and enable achievement of targets
Examples
of measures
Typical
Measures
Financial
Perspective
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Customer
Perspective
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market
share
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customer
acquisition
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customer
retention
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customer
profitability
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customer
satisfaction
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Internal
Perspective
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quality
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response
time
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cost
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new
products
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Learning
& Growth Perspective
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employee
satisfaction
-
employee
retention
-
employee
productivity
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Measuring
strategic Financial themes:
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strategic
theme
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Strategy
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revenue
growth & mix
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cost
reduction/ productivity improvement
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asset
utilisation
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growth
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investment
(% of sales)
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R
& D (% of sales)
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sustain
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share
of targeted customers & accounts
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cross-selling
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percentage
revenue from new applications
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customer
& product line profitability
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working
capital ratios (cash to cash cycle)
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ROCE
by key asset categories
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asset
utilisation rate (AUI)
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harvest
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Customer
Perspective: Core outcome
measures
![](images/Strategy/bsc1.gif)
market share
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reflects
the proportion of business in a given market (in terms of number
of customers, dollars spent, or unit volume sold) that a business
unit sells
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customer
acquisition
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measures in absolute or
relative terms, the rate at which a business unit attracts or wins
new customers or business
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customer retention
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tracks, in absolute or
relative terms, the rate at which a business unit retains or
maintains ongoing relationships with its customers
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customer satisfaction
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assesses the satisfaction
level of customers along specific performance criteria within the
value proposition
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customer profitability
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measures the net profit of
a customer, or a segment, after allowing for the unique expenses
required to support that customer
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Internal
business process perspective - Generic value chain model
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Innovation
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process
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operations
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process
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postsale
service process
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customer
need identified
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identify
the market
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create
the product/ service offering
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build
the products/ services
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deliver
the products/ services
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service
the customer
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customer
need satisfied
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Exampes
of Balanced Scorecards
Rockwater
(Under water building company, projects)
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Strategic
Objectives
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Measurements
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Financial
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Return
on capital
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ROCE
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Cash
Flow
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Cash
Flow
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Project
Profitability
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Project
Profitability
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Reliability
of performance
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Profit
Forecast vs Budget
Backlog
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Customer
- Tier II
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Price
competitive
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Price
competitiveness Index
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Customer
- Tier I
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Value
for money
Hassle
free relationship
High
performance professionals
Innovative
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Customer/marketplace
ranking survey
Customer
satisfaction (project
value index)
Market
share/account share
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Internal
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Shape
customer requirement
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Consulting
hours with customer on new work
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Tender
effeciveness
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Tender
success rate/cost per tender
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Quality
service
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Rework
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Safety/loss
control
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Frequency/cost
of safety incidents
Semi-annual
audit (isrs)
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Superior
project management
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Project
performance effectiveness
Project
closeout cycle
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Learning
& growth
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Continuous
improvement
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Continuous
improvement index
Revenue
per employee
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Product
& service innovation
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%
of revenue from new products/ services
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Empowered
workforce
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Staff
attitude/buy-in survey
Staff
& customer suggestions implemented
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Causal
Model
Metro
Bank
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strategic
measurements
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lag
indicators
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lead
indicators
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Financial
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F1
- improve returns
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Return
on investment (ROI)
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F2
- broaden revenue mix
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revenue
growth
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revenue
mix
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F3
- reduce cost structure
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deposit
service cost change
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Customer
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C1
- increase customer satisfaction with our products and people
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share
of segment
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depth
of relationship
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C2
- increase satisfaction “after the sale”
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customer
retention
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satisfaction
survey
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Internal
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I1
- understand our customers
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I2
- create innovative products
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new
products revenu
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product
development cycle
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I3
- cross-sell-products
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cross
sell ratio
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hours
with customers
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I4
- shift customers to cost-effective channels
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channel
mix change
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I5
- minimise operational problems
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service
error rate
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I6
- responsive service
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request
fulfilment time
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Learning
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L1
- develop strategic skills
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revenue
per employee
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strategic
job coverage ratio
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L2
- provide strategic information
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strategic
information availability ratio
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L3
- align personal goals
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employee
satisfaction
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personal
goals alignment (%)
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