Chapter 2: Balanced Scorecard

Two components of strategy

1. Clear statement of company's advantage in the competitive marketplace. Different, better, unique 2. Strategy's scope: Where to compete most aggressively (targeted customers, technologies employed, geographic locations served, product line breadth)

Financial Perspective: Two basic approaches

1. Generate revenue growth. Enhance existing customer value (deepen relationship with existing customers), expand revenue opportunities 2. Achieve productivity improvements. Improve cost structure, increase asset utilization

Process Perspective: Four major groups of processes

1. Operations management: Product products and services and deliver them to customers 2. Customer management: Select, expand, and deepen relationships with targeted customers 3. Innovation: Develop new products, processes, and services, often enabling the company to penetrate new markets and customer segments; achieve excellence in R&D 4. Regulatory and social: Community investment; meet or exceed regulations on business practices related to environment, health and safety, and employment practices

Balanced Scorecard (BSC) measures _______ outcomes, but supplement these with _______ measures derived from the company's strategy

Balanced Scorecard (BSC) measures financial outcomes, but supplement these with nonfinancial measures derived from the company's strategy

Balanced Scorecard: Four perspectives

Balanced scorecard shows four linked perspectives derived from the organization's mission, vision, and strategy: 1. Financial: How is success measured by our shareholders? 2. Customers: How do we create and deliver value for our customers? 3. Process: At which processes must we excel to meet our customer and shareholder's expectations? 4. Learning and growth: How do we align and enhance our intangible assets to improve critical processes?

BSC: Objectives

Concise statements in each of the four BSC perspectives that articulate what the organization hopes to accomplish

Vision statement

Concise, externally focused statement that defines an organization's mid- to long-term (3 - 10-year) goals and states how the organization wants to be perceived by the world. External. How you want external parties to view the company.

Mission statement

Concise, internally-focused statement of how the organization expects to compete and deliver value to customers (stakeholders). Internal. Gives people in the company more of a guide as to how the company expects to move forward.

Process Perspective

Create and deliver the value proposition Achieve the productivity improvements

BSC: Measures

Descriptions of how success in achieving BSC objectives will be determined. Provide specificity and clear focus for improvement efforts. Reduce ambiguity.

BSC barriers to effective use: Design

Design Too few measures in the scorecard to provide a complete picture of the company's strategy, and a balance between desired outcomes and the performance drivers of those outcomes Too many measures (more than 100): where should attention be directed Missing linkages between process or learning and growth perspectives to desired outcomes in the financial and customer perspectives Did not start with strategy Solutions Effective communication Executive compensation tied to BSC Continually learn and improve strategy

BSC: Targets

Establish the level of performance or rate of improvement required for a BSC measure. Should be set to represent excellent performance ("par"); if achieved, company is one of the best performers in its industry. Creates distinctive value for customers and shareholders

Learning and Growth Perspective: Three Parts

Human Resources: Strategic competency availability; employee skills, knowledge, and talent; training Informational Technology: Strategic information availability: systems, databases, networks Organizational Culture and Alignment: Organization, culture and climate, goal/incentive alignment, and knowledge sharing

Learning and Growth Perspective

Identifies objectives for the people, information technology (IT), and organizational alignment that will improve the process objectives

Leading indicators

Improvements in these indicators lead to future benefits.

Customer Perspective: Three types of value proposition

Low-Total-Cost: Offering customers lowest total cost buying experience Product Leadership: Higher prices due to superior performance of products Customer solutions: One-stop shop buying experience

Applying the BSC to Non-Profit & Gov't Orgs

NPGOs generally place an objective related to their social impact and mission at the top of their scorecard and strategy map NPGOs expand the definition of customer to include both providers of resources (donors, taxpayers) and those receiving the service (beneficiaries, citizens)

BSC barriers to effective use: Organizational Process

Senior management is not committed BSC responsibilities don't filter down The BSC is treated as a one-time event or over-designed The BSC is treated as a systems or consulting project rather than as a management project Solutions Effective communication Executive compensation tied to BSC Continually learn and improve strategy

Lagging indicators

Report the impact of past decisions Financial measures are often lagging indicators

BSC: Initiatives

Short-term programs and action plans that will help the organization achieve the targets established for its BSC measure

Strategy

The choices an organization makes about what it will do, and equally important, about what it will not do to provide the best fit between the organization's environment and its internal resources to achieve the organization's objectives.