Balanced Scorecard

The Balanced Scorecard:A Good Idea in 1992

Balanced Scorecard in 1992

“The Balanced Scorecard –

Measures that Drive
Performance”
Harvard Business Review,
1992
The Balanced Scorecard:
21 translations
A Great Idea by 2002
Balanced Scorecard by 2002

17
translations

50% usage in Fortune 500

Harvard Business Review “Hall of Fame”
50,000+ BSC on-line members
It is NOT

• A new idea
• An end in itself
• A playing field for internal politics
• An “initiative” of Finance, HR,
Marketing etc.
• Boardroom art
• A make-work exercise
Overview

Scorecard (kartu skor) adalah kartu yang digunakan untuk mencatat skor
performance seseorang.Kartu skor juga dapat digunakan untuk
merencanakan skor yang hendak diwujudkan oleh seseorang di masa
depan.

Balanced Scorecard
Kata balanced (berimbang) berarti adanya keseimbangan
antara performance keuangan dan non-keuangan, antara
performance jangka pendek dan performance jangka panjang,
dan antara performance yang bersifat intern dan performance
yang bersifat ektern.
Sejarah BSC

 Pada awalnya BSC ditujukan untuk

memperbaiki sistem pengukuran
performance eksekutif
 Semula eksekutif hanya dinilai
performancenya dari aspek Financial.
 Performance eksekutif kemudian diperluas
ke aspek non- financial: customer, internal
process, dan learning & growth
A Gap Exists Between Mission-Vision-Strategy
and Employees’ Everyday Actions
MISSION
Why we exist
VALUES
What’s important to us
VISION
What we want to be

STRATEGY
Our game plan

TOTAL QUALITY MANAGEMENT

What we must improve

EMPOWERMENT / PERSONAL OBJECTIVES

What I need to do
The Balanced Scorecard Links Vision and
Strategy to Employees’ Everyday Actions
MISSION
Why we exist
VALUES
What’s important to us

VISION
What we want to be

STRATEGY
Our game plan

BALANCED SCORECARD
Translate, Focus and Align
STRATEGIC INITIATIVES
What are the priorities
TOTAL QUALITY MANAGEMENT
What we must improve
EMPOWERMENT / PERSONAL OBJECTIVES
What I need to do

STRATEGIC OUTCOMES

Satisfied Delighted Efficient and Effective Motivated & Prepared

SHAREHOLDERS CUSTOMERS PROCESSES WORKFORCE
BSC Perspective Model
The Balanced Scorecard Framework Is
Readily Adapted to Non-Profit and
The Mission
Government Organizations
"If we succeed, how will ”To achieve our vision,
we look to our how must we look to
taxpayers (or donors)?” our customers?”

“To satisfy our customers,

financial donors and mission,
what business processes
must we excel at?"

“To achieve our vision, how

must our people learn,
communicate, and work
together?”

The Mission, rather than the financial / shareholder

objectives, drives the organization’s strategy
So... What is BSC ?
BSC can be viewed as management tool, a
measurement system and performance
management system. But today most people
has agreed that “BSC is a …
… proven strategic management
system that helps organizations to
plan, focus, and manage their
strategies”
BSC Benefit

As a strategic Management System, BSC

has to be able to multiply company
financial performance …………. but,
HOW?

 Through a GOOD PLANNING !

What is Good Planning ?
Traditional Good Planning
1. Perencanaan pada dasarnya 1. Perencanaan pada dasarnya
merupakan creating the future merupakan creating the future
from the past from the future
2. Perencanaan bersifat tactical 2. Perencanaan bersifat strategik
3. Leverage diletakkan pada 3. Leverage diletakkan pada
tangible assets intangible assets
4. Perencanaan berupa single 4. Perencanaan berupa multi
scenario planning scenario planning
5. Perencanaan tidak bersistem, 5. Perencanaan dilaksanakan
terutama yang bersifat strategik bersistem, terutama yang bersifat
strategik
BSC Role

The Role of BSC is significant in

Strategic Planning Processes. Even
more, BSC has also a critical role in
Strategy Execution and Performance
Monitoring Processes.
 COMPANY BIG BSC Concept
BSC Role Output
PROCESSES
Memperluas perspektif Mission, Vision, Core
dalam proses identifikasi Values, Core Beliefs,
dan formulasi Goals, Strategy

Menjadikan Strategic Objectives,

Strategic Objectives  Measures, Target,
Comprehensive & Strategic Initiatives
Coherent
Menjadikan Programs (Program Kerja
Program Kerja  - Rencana Jangka
Comprehensive & Panjang)
Coherent
Menjadikan
Anggaran  Budget (Anggaran -
Comprehensive & Rencana Jangka Pendek
Coherent  1 tahun)

Memperluas perspektif
Pelaksanaan Rencana:
yang diukur, memudahkan
Target tercapai atau tidak
komunikasi, pelaksanaan,
..
monitoring, dan lesson
learned Umpan Balik, Lesson
Learned
Recognize which of two generic
strategies a company is using.
What is Strategy?

Strategy describes how an organization matches

its own capabilities with the opportunities in the
marketplace to accomplish its overall objectives.
What is Strategy?

What is the focus of industry analysis?

Competitors
Potential entrants into the market
Equivalent products
Bargaining power of customers
Bargaining power of input suppliers
Basic Strategies

1. Product differentiation
2. Cost leadership
Implementation of Strategy

Management accountants design reports

to help managers track progress in
implementing strategy.
The Balanced Scorecard

The scorecard measures an organization’s

performance from four perspectives:
1. Financial
2. Customer
3. Internal business processes
4. Learning and growth
Financial Perspective
• How do we look to stockholders?

– Survive

– Succeed

– Prosper
Financial Perspective

Objective:
Increase shareholder value

Measures:
Increase in operating income
Financial Perspective
• GOALS • MEASURES
– Succeed – Sales growth /
earnings growth /
return on equity

– Survival – Cash flow

Financial Perspective

Target Actual
Initiatives:
Performance Performance
Manage costs and
$2,000,000 $2,100,000
unused capacity
Build strong customer
$3,000,000 $3,420,000
relationships
Build strong customer
6% 6.48%
relationships
Customer Perspective
• How do our customers see us?

– New products

– Responsiveness

– Quality
Customer Perspective
• GOALS • MEASURES
– Satisfaction – Competitive rank
– Timely delivery – On time
– Timely service – Response to
service calls
Customer Perspective

Objectives:
Increase market share
Increase customer satisfaction

Measures:
Market share in communication
networks segment
Customer satisfaction survey
Customer Perspective

Target Actual
Initiatives:
Performance Performance
Identify future needs
6% 7%
of customer
Identify new target
7 8
customer segments
Increase customer focus 90% give top 87% give top
of sales organization two ratings two ratings
Internal Business Perspective
• At what must we excel currently?

– Manufacturing/service excellence

– New product/service introduction

Internal Business Perspective
• GOALS • MEASURES
– Quality – Reject rates
– Speed – Time to complete
Internal Business Process Perspective

Objectives:
Improve manufacturing
quality and productivity
Meet specified delivery dates

Measures:
Yield
On-time delivery
Internal Business Process Perspective

Target Actual
Initiatives:
Performance Performance
Identify problems and
78% 79.3%
improve quality
Reengineer order
92% 90%
delivery process
Innovation and Learning Perspective

• Can we continue to improve and create value?

– Technological leadership
– Time to market
– Employee training and satisfaction
Innovation Perspective
• GOALS • MEASURES
– New products – % of sales from new
products
– Technology leader – Time to develop new
products
– Time to market – New product
introduction versus
competition
Learning and growth

• Employee satisfaction
• Employee capability
• Information availability
• Knowledge growth
• Performance and reward management
systems
• Cultural measures from surveys – e.g.
leadership, communication, recognition
(enablers)
Learning and Growth Perspective

Objectives:
Align employee and
organization goals
Improve manufacturing processes

Measures:
Employee satisfaction survey
Improvements in process controls
Learning and Growth Perspective

Target Actual
Initiatives:
Performance Performance
Employee 80% of 88% of
participation and employees employees
suggestion program give top give top
to build teamwork two ratings two ratings
Organize R&D/
manufacturing teams 5 5
to modify processes
Perspectives are Interrelated
• Innovation pleases customers which are
necessary for good financial results

• Good financial results make financing

improvements possible
 Kaplan and Norton model (1996)

Customer

Balanced Business
Financials Scorecard Processes

Learning
& growth
 A question of balance?
Customer perspective
Corrective activity
Developmental activity
Balancing compliance
with added value
Financial Measures Business Processes
Key performance ratios Drumbeat
Balanced
Financial health Time, cost, quality
Balancing leading with Scorecard Balancing inputs
trailing indicators and outputs
Learning and growth
People measures
Knowledge measures
Balancing soft and
hard indicators
A strategic tool
• Starts with strategy
• Continuous process
• Needs to become
culturally embedded
The story of a scorecard

To be successful for our shareholders, we must be (position in market),

which means that we must return superior financial results in .......

Our customers are the people who will secure these results for us so we
must offer our customers superior value by .........

To deliver this superior value we must excel in the way we manage the
processes for .......

These processes are operated by our people. We must provide our people
with ....... to achieve excellent performance.
Cause and effect chain

Strategic Objective
May be What
reversed Financial Measure
How
Customer Value Measure
How
Process Measure
How
Employee Measure
Cause and effect chain example
Become No 2 player
What
F Market share
How
C Service span offer
How
P Services delivered per customer
How
E Availability of data
Balanced scorecard includes both
financial and operational measures
• 4 main perspectives
– Financial Perspective (financial)
• “How do we look to shareholders?”
– Customer perspective (operational)
• “How do customers see us?”
– Internal business perspective (operational)
• “Are we improving our current business processes?”
– Innovation perspective (operational)
• “How are we doing at developing new products?”
Aligning the Balanced Scorecard to Strategy

Different strategies call for different scorecards.

What are some of the financial
perspective measures?
Operating income
Revenue growth
Cost reduction is some areas
Return on investment
Aligning the Balanced Scorecard to Strategy

What are some of the customer

perspective measures?
Market share
Customer satisfaction
Customer retention percentage
Time taken to fulfill customers requests
Aligning the Balanced Scorecard to Strategy

What are some of the internal business

perspective measures?
Innovation Process:
Manufacturing capabilities
Number of new products or services
New product development time
Number of new patents
Aligning the Balanced Scorecard to Strategy

Operations Process:
Yield
Defect rates
Time taken to deliver product to customers
Percentage of on-time delivery
Setup time
Manufacturing downtime
Aligning the Balanced Scorecard to Strategy

Post-sales service:
Time taken to replace or repair
defective products
Hours of customer training for
using the product
Aligning the Balanced Scorecard to Strategy

What are some of the learning and growth

perspective measures?
Employee education and skill level
Employee satisfaction scores
Employee turnover rates
Information system availability
Percentage of processes with advanced controls
 The Complete Balanced Scorecard Strategy Map
Improve Shareholder Value
Financial Productivity Strategy Shareholder Value Revenue Growth Strategy
ROCE
Perspective:
the drivers of Improve Cost Create Value from
Increase Asset Enhance Customer
shareholder Structure Utilization Value New Products &
Services
value  Customer
 Cost per Unit  Asset Turnover  New Revenue
Profitability Sources

 Market and Account Share  Customer Acquisition  Customer Retention  Customer Satisfaction
Customer Product Leader
Perspective: Customer Solutions
the
Customer Value Proposition Low Total Cost
differentiating
Product/Service Attributes Relationship Image
value
proposition Price Quality Time Function Service Relations Brand

Internal
Operations Theme Customer Innovation Theme Regulatory and
Perspective: Management Society Theme
how value is Theme (Processes that (Processes that
Create New
created and (Processes that Produce (Processes that
Products and
Improve the
and Deliver Products Enhance Customer Environment
sustained & Services) Value) Services) and
Communities)

Learning & Growth

Human, Information, and Organizational Capital
Perspective: role for
intangible assets – Strategic Strategic Climate for
people, systems, Competencies Technologies Action
climate and culture
Pitfalls When Implementinga Balanced Scorecard

What pitfalls should be avoided when

implementing a balanced scorecard?
1. Don’t assume the cause-and-effect
linkages to be precise.
2. Don’t seek improvements across
all measures all the time.
3. Don’t use only objective measures
on the scorecard.
Pitfalls When Implementing a Balanced Scorecard

4. Don’t fail to consider both costs and benefits

of initiatives such as spending on information
technology and research and development.
5. Don’t ignore nonfinancial measures when
evaluating managers and employees.
6. Don’t use too many measures.
Overall Concepts
• Not just a set of measures

– Measures must relate to strategy

• Critical success factors

– Measures are interrelated

• Must understand how the perspectives influence each other

Overall Concepts
• Not a quick process

– Implementation requires

• Thought
• Analysis
• Data-gathering
• Time
Overall Concepts
• Thought

– What is our strategy?

– What is critical to implementing the strategy?

– How can we measure our progress?

Overall Concepts
• Analysis

– What are the linkages between functions?

– What drives the achievement of goals?

– What measures correlate with the drivers?

Overall Concepts
• Data-gathering

– What data is available? What isn’t?

– How should it be gathered? Reported?

Overall Concepts
• Time

– Cannot be done in an afternoon

– Successful implementation may take several months

– Never-ending process
Implementation Steps
• Initiative must start at the top

– Only senior management has grasp of overall strategy

• And the authority to make strategic decisions

– Doomed without commitment from the top

Implementation Steps
• Requires teamwork, collaboration

– Different perspectives, expertise required

– Not a one-person job

• Won’t produce buy-in

Implementation Steps
• Interview senior managers

– Input on strategic objectives

– Input on critical success factors

– Input on possible measures

Implementation Steps
• Gain consensus

– Senior managers develop tentative scorecard as a group

• Individual reactions

– Suggested refinements
Implementation Steps
• Expand consensus

– Larger group refines tentative scorecard

• Finishing touches

– Consensus on vision, objectives, measures, targets,

implementation program, etc.
Implementation Steps
• Selection of metrics
– Must relate to strategic goals
– Both leading and lagging
– May not be “exact”
– May come from external sources
– Not too many
– Not too few
Implementation Steps
• Roll-out

– Link to data bases and information system

– Communicate to employees

– Develop scorecards for lower levels

Implementation Steps
• Periodic reviews

– Has strategy changed?

– Are the objectives valid?
– Are the activities valid?
– Are the measures valid?

• The scorecard evolves with the organization