Chapter-9 Summary

“Balance Scorecard
and Strategy Map”
ANISH TIMILSINA
 Introduction
Companies use performance measurement systems to perform multiple roles.
The challenge is to find the right mix of financial and nonfinancial measures .
Throughout the 19th and 20th centuries, companies used only Financial Metrics.
By the end of 20th century, Balanced Scorecard was initiated.
The Balanced Scorecard
It measures organizational performance
across four different but linked
perspectives.
•Financial: how success is measured by
shareholders
•Customer: how to create value for
customer
•Internal Process: which process to excel
•Learning And Growth: what employee
capability, information system and
organizational capabilities required.
 BSC Objectives, Measures,
And Targets
Objectives : what need to be achieved. For e.g.: profitable
growth
Measures : the observable parameters that will be used
to evaluate progress towards reaching the objectives.
For e.g. the objective of profitable growth might be
measured by the growth in net margin
Targets : the level of performance or rate of
improvement required for a measure. For e.g. 5 %
growth in net margin.
 FINANCIAL PERSPECTIVE OF BSC

1. Profit maximization
2. A company’s financialIncrease shareholder value
performance can be improved through two
approaches:
 Productivity improvement (Lowering direct and indirect expenses & utilizing
their financial
Financial and physical
Achieve productivity assets more efficiently)
improvements Generate revenue growth
 Revenue growth (Selling new products, selling to new customers, selling in new
perspective
markets)
Enhance Expand
Improve cost Increase asset existing revenue
structure utilization customer value opportunities

• Lower unit costs • Achieve higher capacity • Grow sales with existing • Generate sales from
utilization customers new products, new
• Reduce general
and administrative • Reduce working capital • Improve customer customers, and new
requirements profitability markets
expenses
CUSTOMER PERSPECTIVE
Customer perspective should describe how a company
intends to attract, retain, and deepen relationships with
targeted customers by differentiating itself from
competitors
This perspective typically includes one or two objectives
for success with targeted customers:
◦ Achieve customer satisfaction and loyalty
◦ Acquire new customers
◦ Increase market share
◦ Enhance customer profitability
 PROCESS OBJECTIVES MEASURES
OPERATIONS MANAGEMENT
Improve the cost, quality, and cycle times • Supplier scorecard ratings: quality, delivery, cost

PROCESS PERSPECTIVE
of operating (production) processes •
•
•
Cost per unit of output
Product and process defect rates
Product cycle times
Improve asset utilization • Lead times, from order to delivery
How? •
•
Capacity utilization (%)
Equipment reliability, percent availability
CUSTOMER MANAGEMENT
identifies
Acquire new customers the critical operations
• % leads convertedmanagement,
• Cost per new customer acquired
customer
Satisfy management,
and retain existing customers • innovation,
Time to resolve customerand
concern or complaint
• Referenceable customers (willing to
regulatory and
Generate growth with customers social recommend)
processes in which
• Products and services per customer the
• Revenue or margin from post-sale services
organization
INNOVATION must excel to achieve its
Develop innovative products and services • Fundamental new ideas entering product
customer, revenue
Achieve excellence in research and
growth,
development and profitability
• Patent applications filed or patents earned
objectives
development processes • Total product development time: from idea
to market
• Product development cost vs. budget
REGULATORY AND SOCIAL
Improve environmental, health, and • of environmental and safety incidents
safety performance • Days absent from work
Enhance reputation as “good neighbor” • Employee diversity index
• Employees from disadvantaged communities
LEARNING AND GROWTH
PERSPECTIVE
OBJECTIVES MEASURES
HUMAN RESOURCESreflects
This perspective the capability that an organization should have:
Develop strategic competencies • % of employees with required capabilities and skills
•Human Resource
Attract and retain top talent • Employee satisfaction
•Information Technology • Turnover of key personnel

•OrganizationalTECHNOLOGY
INFORMATION culture and alignment
Provide applications that support the strategy • Strategic information coverage: % of critical
processes supported with adequate system
applications
Develop customer data and information systems • Availability of customer information (e.g., CRM
systems, customer databases)

ORGANIZATION CULTURE AND ALIGNMENT

Create a customer-centric culture • Employee culture survey
Align employees’ goals to success • Percent of employees with personal goals linked
to organizational performance
Share knowledge about best practices • # of new practices shared and adopted
and customers
 Barriers of effective use of
balanced scorecard
• Senior management is not committed
• Scorecard responsibilities do not filter down
• The solution is overdesigned, or the scorecard is treated as a one-time
event
• The Balanced Scorecard is treated as a systems or consulting project