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© 2012 Pearson Prentice Hall. All Rights Reserved

This document discusses the balanced scorecard approach to measuring organizational performance. It describes the four perspectives of the balanced scorecard - financial, customer, internal processes, and learning and growth. It also explains how objectives, measures, targets, and initiatives are used within each perspective to monitor performance and progress towards strategic goals.

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108 views

© 2012 Pearson Prentice Hall. All Rights Reserved

This document discusses the balanced scorecard approach to measuring organizational performance. It describes the four perspectives of the balanced scorecard - financial, customer, internal processes, and learning and growth. It also explains how objectives, measures, targets, and initiatives are used within each perspective to monitor performance and progress towards strategic goals.

Uploaded by

Raktim
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Chapter 2

2012 Pearson Prentice Hall. All rights reserved.

A strategy accomplishes two principal functions:


Creating a competitive advantage by positioning

the company in its external environment with


resources to support customers better than its
competitors
Having a clear strategy provides clear guidance for

how internal resources should be used to gain a


competitive advantage in the marketplace

2012 Pearson Prentice Hall. All rights reserved.

The Balanced Scorecard (BSC) provides a system


for measuring and managing all aspects of a
companys performance
The scorecard balances traditional financial
measures of success, such as profits and return on
capital, with nonfinancial measures of the drivers
of future financial performance
The Balanced Scorecard measures organizational
performance across different perspectives

2012 Pearson Prentice Hall. All rights reserved.

Four different but linked perspectives are derived


from the organizations strategy:
Financial
Customer
Process
Learning and Growth

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The BSC enables companies to:


Track financial results
Monitor how they are building the capabilities for

future growth and profitability

With customers
With their internal processes
With their employees and systems

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A strategy map provides a visual representation of the


linkages in the four perspectives of the BSC
Financial Perspective

Return on Investment

Customer Perspective

Customer Loyalty
On-Time Delivery

Process Perspective

Process Quality

Learning and
Growth Perspective

Employees Process Improvement Skills

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Cycle Time

A BSC tells the story of the business units


strategy
A BSC identifies and makes explicit the
hypotheses about the cause-and-effect
relationships between:
Outcome measures in the Financial and Customer

perspectives
Performance drivers of those outcomes in the
Internal and Learning and Growth perspectives

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Concise statements that articulate what the


organization hopes to accomplish
Action phrases
Tell the story of the strategy through the causeand-effect relationships
Extensive (35 sentence) description of each
objective

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Typical objectives found in each of the four BSC


perspectives include:
Increase revenues through expanded sales to

existing customers (Financial perspective)


Become service oriented (Customer perspective)
Achieve excellence in order fulfillment through
continuous process improvements (Internal
perspective)
Align employee incentives and rewards with the
strategy (Learning and Growth perspective)
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Provide specificity and reduce the ambiguity that


is inherent in word statements
Specifying exactly how an objective is measured
will give employees a clear focus for their
improvement efforts
Once the objectives have been translated into
measures, managers select targets for each
measure

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Targets establish the level of performance or rate


of improvement required for a measure
Should be set to represent excellent performance
Should, if achieved, place the company as one of

the best performers in its industry

Initiatives are the short-term programs and action


plans that will help achieve the stretch targets
established for its measures

2012 Pearson Prentice Hall. All rights reserved.

Strategy is about selecting the set of activities in


which an organization will excel to create a
sustainable difference in the marketplace
Differentiation arises from both the choice of
activities and how they are performed. (Porter)

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The role for the BSC is to provide needed


specificity that makes vision, mission, and strategy
statements meaningful and actionable for
employees

2012 Pearson Prentice Hall. All rights reserved.

The ultimate objective for profit-maximizing


companies
Financial performance measures indicate whether
the companys strategy, implementation, and
execution are contributing to bottom-line
improvement
A companys financial performance can be
improved in two ways:

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Companies generate revenue growth by:


Selling new products
Selling to new customers
Selling in new markets

Increased productivity occurs by:


Lowering direct and indirect expenses
Utilizing their financial and physical assets more

efficiently

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Identify the targeted customer segments in which


the business unit competes and the measures of the
business units performance in these targeted
segments
This perspective typically includes several
common measures of the successful outcomes
from a well-formulated and implemented strategy:

Achieve customer satisfaction and loyalty


Acquire new customers
Increase market share
Enhance customer profitability
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A strategy identifies specific segments targeted for


growth and profitability
Companies must also identify the objectives and
measures for the value proposition it offers
customers

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The value proposition is the unique mix of product, price,


service, relationship, and image offered to the targeted
customers
Defines the companys strategy
Communicates what the company expects to do for its

customers better or differently from its competitors

Value propositions used successfully by different


companies include:
Best buy or lowest total cost
Product innovation and leadership
Complete customer solutions

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Means by which the organization will:


Create and deliver the value proposition for

customers
Achieve the productivity improvements for the
financial objectives

The Internal perspective identifies the critical


processes at which the organization must excel to
achieve its customer, revenue growth, and
profitability objectives

2012 Pearson Prentice Hall. All rights reserved.

Organizations perform many different processes,


which may be classified into four groupings:
Operating processes

Day-to-day processes by which companies produce


their existing products and services and deliver them
to customers

Customer management processes


Processes by which companies expand relationships
with targeted customers

2012 Pearson Prentice Hall. All rights reserved.

Innovation processes
Processes by which companies develop new
products, processes, and services,
Regulatory and social processes
Processes by which companies ensure that they meet
or exceed regulations on business practices

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Identifies objectives for the people, systems, and


organizational alignment that create long-term
growth and improvement
Define the employee capabilities, skills,

technology, and organizational alignment that will


contribute to improving performance in the
measures selected in the first three perspectives
Identify investments needed to improve the skills
of employees, enhance information technology and
systems, and align people to the companys
objectives
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Identifies how executives mobilize their intangible


assets to drive improvement in the internal
processes most important for implementing their
strategy
Examines each of the processes they selected in
the Internal perspective

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Develop core competencies and skills


Encourage employees to gain a broader business

understanding
Build the level of skills
Develop leadership skills

Provide access to strategic information


Engage and empower employees

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The BSC is especially well-suited for nonprofit


and government organizations (NPGOs)
Their success has to be measured by their
effectiveness in providing benefits to constituents
Because nonfinancial measures can assess
performance with constituents, the BSC provides
the natural performance management system for
NPGOs

2012 Pearson Prentice Hall. All rights reserved.

Many NPGOs encountered difficulties in


developing their initial BSC, finding that they
didnt have a clear strategy
Many NPGOs place their mission objective at the
top of their scorecard and strategy map
Cannot use the standard BSC architecture where

financial objectives are the ultimate, high-level


outcomes to be achieved

2012 Pearson Prentice Hall. All rights reserved.

The benefits from BSC are realized as the


organization integrates its new measurement
system into management processes that:
Communicate the strategy to all employees and

organizational units
Align employees individual objectives and
incentives to successful strategy implementation
Integrate the strategy with ongoing management
processes

2012 Pearson Prentice Hall. All rights reserved.

2012 Pearson Prentice Hall. All rights reserved.

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