BSC

The Balanced Scorecard - An Overview

What is the Balanced Scorecard?

The Balanced Scorecard is a management system with the following objectives:

Clarify and gain consensus about strategy;
Communicate strategy throughout the organisation;
Align departmental and personal goals to the strategy;
Link strategic objectives to long-term targets and annual budgets;
Identify and align strategic initiatives;
Perform periodic and systematic strategic initiatives;
Obtain feedback to learn and improve strategy.

Linking Vision & Strategy to the Four Main Business Perspectives

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:

ì	Financial To succeed financially, how should we appear to our shareholders?			ë
í		é		î
Customer To achieve our vision, how should we appear to our customers?	ç	Vision & Strategy	è	Internal Business Process To satisfy our shareholders and customers, what business processes must we excel at?
ë		ê		ì
î	Learning and Growth To achieve our vision, how will we sustain our ability to change and improve?			í

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
Objectives	Measures	Targets	Initiatives

The Balanced Scorecard as a Centrepiece of the Management system

		Translating the Vision
	í		ë
Communicating		Balanced		Feedback and
and Linking		Scorecard		Learning
	î		ì
		Business Planning

Translating the Vision
- the strategy is the reference point for the entire management process
- the shared vision is the foundation for strategic learning
Communicating and Linking
- goal alignment exists from top to bottom
- education and open communication about strategy are basis for employee empowerment
- compensation is linked to strategy
Business Planning
- stretch targets are proposed and accepted
- strategic initiatives are aligned with the strategy
- investments are rationalised by the strategy
- annual budget is linked to long-range strategic plan
Feedback and Learning
- feedback system used to test the hypotheses on which the strategy is based
- team problem solving
- strategy development is a continuous process

Summary - a good Balanced Scorecard tells the story of your strategy

Every measure is part of a chain of cause and effect linkages;
Every measure ultimately ties to financial results;
A balance exists between outcome measures and performance drivers;
It includes performance driver measures which will redefine a process or change behaviour.

Procedure

Establish Vision & Strategy
Define Strategic Objectives for each Perspective
Define suitable measures for each objective
Establish causal links between measures
Set Stretch targets for each measure
Identify gaps
Define initiatives to close gaps and enable achievement of targets

Examples of measures

Typical Measures

Financial Perspective	ROCE/EVA profitability revenue growth/mix cost reduction productivity
Customer Perspective	market share customer acquisition customer retention customer profitability customer satisfaction
Internal Perspective	quality response time cost new products
Learning & Growth Perspective	employee satisfaction employee retention employee productivity

Measuring strategic Financial themes:

	strategic theme
Strategy	revenue growth & mix	cost reduction/ productivity improvement	asset utilisation
*growth*	sales growth % - year to year by segment revenue % in new markets products/services customers	revenue/employee	investment (% of sales) R & D (% of sales)
*sustain*	share of targeted customers & accounts cross-selling percentage revenue from new applications customer & product line profitability	cost vs competitors cost reduction rates indirect expenses (% of sales)	working capital ratios (cash to cash cycle) ROCE by key asset categories asset utilisation rate (AUI)
*harvest*	customer & product line profitability percentage unprofitable customers	unit cost (per unit of output, per transaction)	payback throughput

Customer Perspective: Core outcome measures

market share	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
customer acquisition	measures in absolute or relative terms, the rate at which a business unit attracts or wins new customers or business
customer retention	tracks, in absolute or relative terms, the rate at which a business unit retains or maintains ongoing relationships with its customers
customer satisfaction	assesses the satisfaction level of customers along specific performance criteria within the value proposition
customer profitability	measures the net profit of a customer, or a segment, after allowing for the unique expenses required to support that customer

Internal business process perspective - Generic value chain model

		Innovation	process		operations	process		postsale service process
customer need identified	è	identify the market	create the product/ service offering	è	build the products/ services	deliver the products/ services	è	service the customer	è	customer need satisfied

Exampes of Balanced Scorecards

Rockwater (Under water building company, projects)

	Strategic Objectives	Measurements
Financial	Return on capital	ROCE
	Cash Flow	Cash Flow
	Project Profitability	Project Profitability
	Reliability of performance	Profit Forecast vs Budget Backlog
Customer - Tier II	Price competitive	Price competitiveness Index
Customer - Tier I	Value for money Hassle free relationship High performance professionals Innovative	Customer/marketplace ranking survey Customer satisfaction (project value index) Market share/account share
Internal	Shape customer requirement	Consulting hours with customer on new work
	Tender effeciveness	Tender success rate/cost per tender
	Quality service	Rework
	Safety/loss control	Frequency/cost of safety incidents Semi-annual audit (isrs)
	Superior project management	Project performance effectiveness Project closeout cycle
Learning & growth	Continuous improvement	Continuous improvement index Revenue per employee
	Product & service innovation	% of revenue from new products/ services
	Empowered workforce	Staff attitude/buy-in survey Staff & customer suggestions implemented

Causal Model

Metro Bank

	strategic measurements
	lag indicators	lead indicators
Financial
F1 - improve returns	Return on investment (ROI)
F2 - broaden revenue mix	revenue growth	revenue mix
F3 - reduce cost structure	deposit service cost change
Customer
C1 - increase customer satisfaction with our products and people	share of segment	depth of relationship
C2 - increase satisfaction “after the sale”	customer retention	satisfaction survey
Internal
I1 - understand our customers
I2 - create innovative products	new products revenu	product development cycle
I3 - cross-sell-products	cross sell ratio	hours with customers
I4 - shift customers to cost-effective channels	channel mix change
I5 - minimise operational problems	service error rate
I6 - responsive service	request fulfilment time
Learning
L1 - develop strategic skills	revenue per employee	strategic job coverage ratio
L2 - provide strategic information		strategic information availability ratio
L3 - align personal goals	employee satisfaction	personal goals alignment (%)