Dear kajal
1. Balanced Scorecard (BSC) is a set of measures derived from an organization’s vision and strategy. It is a concept that helps translate strategy into action. It requires an organization to balance its goals across multiple perspectives to reduce the chance that one goal will dominate others to the detriment of the organization. It leads to a realistic compromise that addresses short-term goals and longer-term staying power.
2. The balanced scorecard was developed by Robert S. Kaplan and David P. Norton in early 1990s. The article The Balanced Scorecard - Measures that Drive Performance of Harvard Business Review (year 1992) – describes balanced scorecard as a methodology used for measuring success and setting goals from financial and operational viewpoints. With those measures, leaders can manage their strategic vision and adjust it for change.
3. BSC links performance measures by looking at a business's strategic vision from four different perspectives: financial, customer, internal business processes, and innovation & learning. These four perspectives of the Scorecard provide a balance between desired outcomes and drivers for those outcomes and between objective and subjective performance measures. BSC is prescriptive about a balanced range of measures and about how one perspective defines the drivers for the next.
a. Financial Perspective
The financial perspective provides a view of how the senior executives, the board of directors and the shareholders see the company. Typical metrics in this perspective might be earning per share, revenue growth and profit maximization. In the BSC, financial measures play a dual role: they define the financial performance expected from the strategy and they serve as the ultimate targets for the objectives and measures of all the other scorecard perspectives. The financial measures are chosen based on the business life cycle and also the strategic theme chosen for the financial perspective. In addition to increasing returns, most organizations are concerned with the risk of these returns. Therefore, when it is strategically important, these organizations will want to incorporate explicit risk management objectives into their financial perspective.
As a conclusion, eventually all objectives and measures in the other scorecard perspectives should be linked to achieving one or more objectives in the financial perspective.
b. Customer Perspective
The customer perspective provides a view of how the customers see the company. Kaplan and Norton contend that, " to put the balanced scorecard to work, companies should articulate goals for time, quality, and performance and service and then translate these goals into specific measures." Overall, this is a measure of how the company provides value to the customer. Changes made to a business process output that lowers the customer’s cost or allows the customer to achieve his or her objective, have value for the customer. For example, it’s not enough to simply bring down the cost of an item. The delivery time and manner in which the customer is dealt during times of sales and support are important as well. It is a measure of that value that should be captured by the metrics (e.g. market share, customer satisfaction, customer loyalty, customer acquisition) representing this perspective.
In this perspective, managers must first determine core measures that will describe the successful outcomes of a well-formulated and implemented strategy. They have to also identify what are the attributes that the customers value and choose the value proposition that they want to deliver to the targeted customers. Today, many companies have a corporate mission that focuses on the customer.
c. Internal Business Process Perspective
The internal business process perspective provides a view of what the company must excel at to be competitive. Kaplan and Norton recommend that, "companies also attempt to identify and measure their company's core competencies, the critical technologies needed to ensure continued market leadership."
In this perspective, the managers must identify the internal processes that are crucial to their organization and develop the best possible measures with which to track the organization’s progress. These processes should help them deliver superior value to their customers and achieve financial targets. The Balanced Scorecard go beyond the simple assessment of existing processes, and usually identifies new processes that the organization should implement in order to be successful. By incorporating innovation processes measures, the Balanced Scorecard provides managers with a set of tools that does not only reflect the short term, but also gives insight about the longer-term.
d. Innovation and Learning Perspective
Kaplan and Norton underscore the importance of innovation and learning in their statement that, "a company's ability to innovate, improve, and learn ties directly to the company's value." While the financial perspective deals with the projected value of the company, the innovation and learning perspective sets measures that help the company compete in a changing business environment. This is of principal interest to the CEO and the architects of the long-range business plan. Their focus for this innovation is in the formation of new or the improvement of existing products and processes. This perspective looks at how effectively the organization can redesign and implement new business process, introduce and exploit new technology and adapt to changing conditions in general. Thus the measures in this perspective are truly the enablers of the other three perspectives. These measures are like the roots of a tree that will ultimately lead through the trunk of internal process to the branches of customer results and finally to the leaves of financial returns. Metrics of this perspective can be adaptability, employee satisfaction, and willingness to share and gain knowledge.
With the financial, customer and internal perspectives, managers are able to identify the gaps between existing organizational resources and the ones required to be successful. The only way to close those gaps is for the organization to judicially invest in employees and information technology and to design the most appropriate organizational structure that could support their strategy. The given below diagram shows the Balanced Scorecard.
4. The steps of implementation are:
Identifying and defining Key Performance Indicators from the multiple perspectives:
First the multiple perspectives are to be identified, which can be, as: Financial Measure, Customer Measure, Internal Process and People (Learning & Growth). After this the main task is to identify the Key Performance Indicators (KPI) in each of these multiple perspective.
a. Identifying Key Action Areas
b. Implementation of Key Action Areas
c. Monitoring Key Action Areas
5. The advantages of the Balanced Scorecard:
a. First, the measures incorporated in the Balanced Scorecard are grounded in the organization’s strategic objectives and competitive demands. Therefore, this set of critical indicators helps the organization focus its efforts on the strategic vision.
b. The four perspectives of the Balanced Scorecard enable organizations to track financial results while simultaneously monitoring progress in building the capabilities and acquiring the intangible assets they need for future growth. The Balance Scorecard then becomes the cornerstone of the organization’s current and future success. Also, by balancing external and internal measures, there is no trade-off among key success factors.
c. Finally, managers can use the Balanced Scorecard to:
־ clarify and gain consensus about the strategy;
־ communicate the strategy throughout the organization;
־ align departmental and personal goals to the strategy;
־ link strategic objectives to long-term targets and annual budgets;
־ identify and align strategic initiatives;
־ perform periodic and systematic strategic reviews;
־ obtain feedback to learn about and improve strategy.
6. Potential Problems with a Balanced Scorecard:
a. The creation of a Balanced Scorecard involves a considerable amount of time on the part of everyone whose performance will be measured; the selection of appropriate measures for the four perspectives too is very time consuming. This is simply due to the fact that there are a large number of potential goals and targets and even more ways to measure them. People are likely to disagree about which objectives to measure and how to measure those objectives, and it will take time before consensus is achieved.
b. The time factor involved in designing a Balanced Scorecard can be considerable since it involves a lot of people in the organization. Their commitment is important not only in building the Balanced Scorecard but especially in implementing and using it. Although a Balanced Scorecard may be well designed, lack of participation and commitment on the part of staff will make the scorecard useless.
c. Finally, there is always a chance that too many measures will be selected. This is a problem because it is very difficult to track a large number of measures. Furthermore, some of the measures selected may be objective, such as employee turnover rates, and other measures may be subjective measures, such as employee morale or quality time spent with customers. The subjective measures, by definition, involve somebody’s judgment and, therefore, are more prone to error. Consequently, there is a question whether subjective measures should be used and if so how can they be made more reliable.
Regards
Shivani sawhney
From India, Chandigarh
11. Balanced Scorecard (BSC) is a set of measures derived from an organization’s vision and strategy. It is a concept that helps translate strategy into action. It requires an organization to balance its goals across multiple perspectives to reduce the chance that one goal will dominate others to the detriment of the organization. It leads to a realistic compromise that addresses short-term goals and longer-term staying power.
2. The balanced scorecard was developed by Robert S. Kaplan and David P. Norton in early 1990s. The article The Balanced Scorecard - Measures that Drive Performance of Harvard Business Review (year 1992) – describes balanced scorecard as a methodology used for measuring success and setting goals from financial and operational viewpoints. With those measures, leaders can manage their strategic vision and adjust it for change.
3. BSC links performance measures by looking at a business's strategic vision from four different perspectives: financial, customer, internal business processes, and innovation & learning. These four perspectives of the Scorecard provide a balance between desired outcomes and drivers for those outcomes and between objective and subjective performance measures. BSC is prescriptive about a balanced range of measures and about how one perspective defines the drivers for the next.
a. Financial Perspective
The financial perspective provides a view of how the senior executives, the board of directors and the shareholders see the company. Typical metrics in this perspective might be earning per share, revenue growth and profit maximization. In the BSC, financial measures play a dual role: they define the financial performance expected from the strategy and they serve as the ultimate targets for the objectives and measures of all the other scorecard perspectives. The financial measures are chosen based on the business life cycle and also the strategic theme chosen for the financial perspective. In addition to increasing returns, most organizations are concerned with the risk of these returns. Therefore, when it is strategically important, these organizations will want to incorporate explicit risk management objectives into their financial perspective.
As a conclusion, eventually all objectives and measures in the other scorecard perspectives should be linked to achieving one or more objectives in the financial perspective.
b. Customer Perspective
The customer perspective provides a view of how the customers see the company. Kaplan and Norton contend that, " to put the balanced scorecard to work, companies should articulate goals for time, quality, and performance and service and then translate these goals into specific measures." Overall, this is a measure of how the company provides value to the customer. Changes made to a business process output that lowers the customer’s cost or allows the customer to achieve his or her objective, have value for the customer. For example, it’s not enough to simply bring down the cost of an item. The delivery time and manner in which the customer is dealt during times of sales and support are important as well. It is a measure of that value that should be captured by the metrics (e.g. market share, customer satisfaction, customer loyalty, customer acquisition) representing this perspective.
In this perspective, managers must first determine core measures that will describe the successful outcomes of a well-formulated and implemented strategy. They have to also identify what are the attributes that the customers value and choose the value proposition that they want to deliver to the targeted customers. Today, many companies have a corporate mission that focuses on the customer.
c. Internal Business Process Perspective
The internal business process perspective provides a view of what the company must excel at to be competitive. Kaplan and Norton recommend that, "companies also attempt to identify and measure their company's core competencies, the critical technologies needed to ensure continued market leadership."
In this perspective, the managers must identify the internal processes that are crucial to their organization and develop the best possible measures with which to track the organization’s progress. These processes should help them deliver superior value to their customers and achieve financial targets. The Balanced Scorecard go beyond the simple assessment of existing processes, and usually identifies new processes that the organization should implement in order to be successful. By incorporating innovation processes measures, the Balanced Scorecard provides managers with a set of tools that does not only reflect the short term, but also gives insight about the longer-term.
d. Innovation and Learning Perspective
Kaplan and Norton underscore the importance of innovation and learning in their statement that, "a company's ability to innovate, improve, and learn ties directly to the company's value." While the financial perspective deals with the projected value of the company, the innovation and learning perspective sets measures that help the company compete in a changing business environment. This is of principal interest to the CEO and the architects of the long-range business plan. Their focus for this innovation is in the formation of new or the improvement of existing products and processes. This perspective looks at how effectively the organization can redesign and implement new business process, introduce and exploit new technology and adapt to changing conditions in general. Thus the measures in this perspective are truly the enablers of the other three perspectives. These measures are like the roots of a tree that will ultimately lead through the trunk of internal process to the branches of customer results and finally to the leaves of financial returns. Metrics of this perspective can be adaptability, employee satisfaction, and willingness to share and gain knowledge.
With the financial, customer and internal perspectives, managers are able to identify the gaps between existing organizational resources and the ones required to be successful. The only way to close those gaps is for the organization to judicially invest in employees and information technology and to design the most appropriate organizational structure that could support their strategy. The given below diagram shows the Balanced Scorecard.
4. The steps of implementation are:
Identifying and defining Key Performance Indicators from the multiple perspectives:
First the multiple perspectives are to be identified, which can be, as: Financial Measure, Customer Measure, Internal Process and People (Learning & Growth). After this the main task is to identify the Key Performance Indicators (KPI) in each of these multiple perspective.
a. Identifying Key Action Areas
b. Implementation of Key Action Areas
c. Monitoring Key Action Areas
5. The advantages of the Balanced Scorecard:
a. First, the measures incorporated in the Balanced Scorecard are grounded in the organization’s strategic objectives and competitive demands. Therefore, this set of critical indicators helps the organization focus its efforts on the strategic vision.
b. The four perspectives of the Balanced Scorecard enable organizations to track financial results while simultaneously monitoring progress in building the capabilities and acquiring the intangible assets they need for future growth. The Balance Scorecard then becomes the cornerstone of the organization’s current and future success. Also, by balancing external and internal measures, there is no trade-off among key success factors.
c. Finally, managers can use the Balanced Scorecard to:
־ clarify and gain consensus about the strategy;
־ communicate the strategy throughout the organization;
־ align departmental and personal goals to the strategy;
־ link strategic objectives to long-term targets and annual budgets;
־ identify and align strategic initiatives;
־ perform periodic and systematic strategic reviews;
־ obtain feedback to learn about and improve strategy.
6. Potential Problems with a Balanced Scorecard:
a. The creation of a Balanced Scorecard involves a considerable amount of time on the part of everyone whose performance will be measured; the selection of appropriate measures for the four perspectives too is very time consuming. This is simply due to the fact that there are a large number of potential goals and targets and even more ways to measure them. People are likely to disagree about which objectives to measure and how to measure those objectives, and it will take time before consensus is achieved.
b. The time factor involved in designing a Balanced Scorecard can be considerable since it involves a lot of people in the organization. Their commitment is important not only in building the Balanced Scorecard but especially in implementing and using it. Although a Balanced Scorecard may be well designed, lack of participation and commitment on the part of staff will make the scorecard useless.
c. Finally, there is always a chance that too many measures will be selected. This is a problem because it is very difficult to track a large number of measures. Furthermore, some of the measures selected may be objective, such as employee turnover rates, and other measures may be subjective measures, such as employee morale or quality time spent with customers. The subjective measures, by definition, involve somebody’s judgment and, therefore, are more prone to error. Consequently, there is a question whether subjective measures should be used and if so how can they be made more reliable.
Regards
Shivani sawhney
From India, Chandigarh
Rightly put Shivani...
Here's my take on this:
====================
The Balanced Scorecard (BSC) is a strategic performance management framework that allows organisations to manage and measure the delivery of their strategy.
Like most good ideas, the concept of the Balanced Scorecard is very simple.
The idea is to use a model as a template for designing objectives and measures in each of the following perspectives.
* The Financial Perspective::: covers the financial objectives of an organisation and allows managers to track financial success and shareholder value.
* The Customer Perspective::: covers the customer objectives such as customer satisfaction, market share goals as well as product and service attributes.
* The Internal Process Perspective::: covers internal operational goals and outlines the key processes necessary to deliver the customer objectives.
* The Learning and Growth Perspective::: covers the intangible drivers of future success such as human capital, organisational capital and information capital including skills, training, organisational culture, leadership, systems and databases.
A Strategy Map highlights that delivering the right performance in the one perspective (e.g. financial success) can only be achieved by delivering the objectives in the other perspectives (e.g. delivering what customers want). You basically create a map of interlinked objectives. For example:
* The objectives in the Learning and Growth Perspective (e.g. developing the right competencies) underpin the objectives in the Internal Process Perspective (e.g. delivering high quality business processes).
* The objectives in the Internal Process Perspective (e.g. delivering high quality business processes) underpin the objectives in the Customer Perspectives (e.g. gaining market share and repeat business).
* Delivering the customer objectives should then lead to the achievement of the financial objectives in the Financial Perspective.
Strategy maps therefore outline what an organisations wants to accomplish (financial and customer objectives) and how it plans to accomplish it (internal process and learning and growth objectives). This cause-and-effect logic is one of the most important elements of best-practice Balanced Scorecards. It allows companies to create a truly integrated set of strategic objectives.
==============================
Key Benefits of using Balanced Scorecards:::
Research has shown that organisations that use a Balanced Scorecard approach tend to outperform organisations without a formal approach to strategic performance management. The key benefits of using a BSC include:
1. Better Strategic Planning
2. Improved Strategy Communication & Execution
3. Better Management Information
4. Improved Performance Reporting
5. Better Strategic Alignment
6. Better Organisational Alignment
KEEP SHARING...
From India, Delhi
Here's my take on this:
====================
The Balanced Scorecard (BSC) is a strategic performance management framework that allows organisations to manage and measure the delivery of their strategy.
Like most good ideas, the concept of the Balanced Scorecard is very simple.
The idea is to use a model as a template for designing objectives and measures in each of the following perspectives.
* The Financial Perspective::: covers the financial objectives of an organisation and allows managers to track financial success and shareholder value.
* The Customer Perspective::: covers the customer objectives such as customer satisfaction, market share goals as well as product and service attributes.
* The Internal Process Perspective::: covers internal operational goals and outlines the key processes necessary to deliver the customer objectives.
* The Learning and Growth Perspective::: covers the intangible drivers of future success such as human capital, organisational capital and information capital including skills, training, organisational culture, leadership, systems and databases.
A Strategy Map highlights that delivering the right performance in the one perspective (e.g. financial success) can only be achieved by delivering the objectives in the other perspectives (e.g. delivering what customers want). You basically create a map of interlinked objectives. For example:
* The objectives in the Learning and Growth Perspective (e.g. developing the right competencies) underpin the objectives in the Internal Process Perspective (e.g. delivering high quality business processes).
* The objectives in the Internal Process Perspective (e.g. delivering high quality business processes) underpin the objectives in the Customer Perspectives (e.g. gaining market share and repeat business).
* Delivering the customer objectives should then lead to the achievement of the financial objectives in the Financial Perspective.
Strategy maps therefore outline what an organisations wants to accomplish (financial and customer objectives) and how it plans to accomplish it (internal process and learning and growth objectives). This cause-and-effect logic is one of the most important elements of best-practice Balanced Scorecards. It allows companies to create a truly integrated set of strategic objectives.
==============================
Key Benefits of using Balanced Scorecards:::
Research has shown that organisations that use a Balanced Scorecard approach tend to outperform organisations without a formal approach to strategic performance management. The key benefits of using a BSC include:
1. Better Strategic Planning
2. Improved Strategy Communication & Execution
3. Better Management Information
4. Improved Performance Reporting
5. Better Strategic Alignment
6. Better Organisational Alignment
KEEP SHARING...
From India, Delhi
Dear Ms. Kajal Greetings for the day :) In one line i will define the Balance scorecard " It is purely based on how do u look yourself, ur customers, goal and achievement and ur efforts for that."
From India, New Delhi
From India, New Delhi
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Bsc final.doc
Bsc-toolkit-sho rt-pic.ppt