Balanced Scorecard

Finals

balanced scorecard translates

an organizations mission and strategy into a set of performance measaures that provides the framework for implementing the strategy

balanced scorecard does NOT

focus solely on achieving financial objectives

balanced scorecard highlights

the non-financial objectives that an organization must achieve to meet its financial objectives

balanced scorecard measures

an organization performance from 4 perspective:

• financial

• customer satisfaction

• internal business processes

• innovation and learning

Strategic information (Critical success Factors):

• growth in sales and earnings

• cash flow

• stock price

• market share

• product quality

• customer satisfaction

• growth opportunities

provide a road map for a firm to chart its competitive course and serves as a benchmark for competitive success

Finacial Performance measures

summarize the result of past actions and are important to a firm’s owners, creditors, employee

Non-financial performance measures

concentrate on current activities, which will be the drivers of future financial performance

Balanced scorecard

consist of an integrated system of performance measures derived from and supports the company’s strategy

Financial Perspective

• this includes measures of profitability and market value

• as indicators of how well the firm satisfies its owners and shareholders

• these financial measures shows the impact of the firm’s policies and procedures on the firm’s current financial position and, therefore, its current return to the shareholders.

Revenue Growth: Increase the number of new products

Percentage of revenue from new products

Revenue Growth: Create new applications

Percentage of revenue from new applications

Revenue Growth: Develop new customers and markets

Percentage of revenue from new sources

Revenue Growth: Adopt a new pricing strategy

Product and customer profitability

Cost Reduction: Reduce unit product cost

Unit product cost

Cost Reduction: Reduce unit customer cost

Unit customer cost

Cost Reduction: Reduce distribution channel cost

Cost per distribution channel

Asset Utilization: Improve asset utilization

Return on investment

Financial Perspective Objectives:

• Revenue Growth

• Cost Reduction

• Asset Utilization

Customer satisfaction

• this includes measures of quality service and low cost

• as indicators of how well the firm meets consumers’ expectations

Core: Increase market share

Market share

Core: Increase customer retention

• Percentage growth of the business from existing customers

• Percentage of repeating customers

Core: Increase customer acquisition

Number of new customers

Core: Increase customer satisfaction

Ratings from customer surveys

Performance Value: Decrease price

Price

Performance Value: Decrease post-purchase costs

Post-purchase costs

Performance Value: Improve product functionality

Ratings from customer surveys

Performance Value: Improve product quality

Percentage of returns

Performance Value: Increase delivery reliability

On-time delivery percentage

Performance Value: Improve product image and reputation

Ratings from customer surveys

Customer satisfaction Objectives:

• Core

• Performance Value

Internal business processes

These include measures of the efficiency and effectiveness with which the firm produces the product or service.

Innovation: Increase the number of new products

Number of new products vs. planned

Innovation: Increase proprietary products

Percentage revenue from proprietary products

Innovation: Decrease new product development time

Time to market (from start to finish)

Operations: Increase process quality

Quality costs, output yields, percentage of defective units

Operations: Increase process efficiency

Unit cost trends

Operations: Decrease process time

Cycle time

Post-sales Services: Increase service quality

First-pass yields

Post-sales Services: Increase service efficiency

Cost trends

Post-sales Services: Decrease service time

Cycle time (service)

Internal business Process Objectives:

• Innovation

• Operations

• Post-sales Services

Innovation and learning

This includes measures of the firm’s ability to develop and utilize human resources to meet present and future strategic goals.

Increase employee capabilities

• Employee satisfaction ratings

• Employee turnover percentages

• Employee productivity

• Hours of training

• Strategic job coverage ratio

Increase motivation and alignment

• Suggestions per employee

• Suggestions implemented per employee

Increase information systems capabilities

• Percentage of processes with real-time feedback

• Percentage of employees with online access to customer and product information

Innovation and Learning Objectives:

• Increase employee capabilities

• Increase motivation and alignment

• Increase information systems and capabilities

Features of good balanced scorecard (1)

• balanced scorecard should tell the story of a company’s strategy by articulating a sequence of cause-and-effect relationships.

Features of good balanced scorecard (2)

• It helps communicate the strategy to all members of the organization by translating the strategy into a coherent and linked set to understandable and measurable operational targets.

Features of good balanced scorecard (3)

• balanced scorecard should focus only on critical key measures

Features of good balanced scorecard (4)

• scorecard should highlight suboptimal tradeoffs that managers may make when they fail to consider operational and financial measures together.