Balanced Scorecard 5
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Transcript of Balanced Scorecard 5
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Balanced Scorecard
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An operations strategy cannot be successful
without proper co-ordination with other
functional departments of the organization. There may be contradicting objectives
between the various functional strategies in
certain situations.
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The task of developing a comprehensive
strategy for a firm that integrates the finance,
marketing and operations function is complex Kaplan and Norton have developed a generic
strategy map template that they use in
consulting work. The template is a starting point for the
strategy design process
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When properly constructed, the strategy map
will portray an integrated and logical
description of how the strategy will beaccomplished
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Financial Perspective
Whether companies use return on investment,
return on capital employed or some othervalue based metric as the high level financial
objective, they have two basic strategies for
driving financial performance: growth andproductivity
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The growth strategy focuses on developing
new sources of revenue or profitability
It generally has two components:
Build the franchise
Increase customer value
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The productivity strategy features the
execution of operational activities in support
of existing customers They focus on cost reduction and efficiency
It has two components:
Improve cost structure
Improve asset utilization
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The productivity strategy yields results
quicker than the growth strategies.
Kaplan and Norton suggest a balancedapproach to ensure that cost and asset
reductions do not compromise a companys
growth opportunities
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Customer Perspective Customer perspective is the heart of the
corporate strategy design process and defines
how growth will be achieved There are three ways in which a company can
differentiate itself in the marketplace
Product leadership Customer intimacy
Operational excellence
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Internal Perspective This perspective defines the business
processes and the specific activities that the
organization must master to support thecustomer value proposition
The essence of strategy is in the activities-
choosing to perform activities differently or toperform different activities than rivals
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There are four sets of business processes
Product leadership
Customer intimacy
Operational excellence
Regulatory and environmental excellence
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Learning and Growth Perspective This defines the intangible assets needed to
enable activities and customer relationships to
be performed at high levels of performance There are three principal categories:
Strategic competencies
Strategic technologies Climate for action
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Learning and growth strategies are important
for long term development of the firm
It is vitally important that a firm align humanresources, information technology, corporate
climate and research activities with
requirements from the strategic businessprocesses and customer differentiation
strategy
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Kaplan and Norton have developed their
concept of the Balanced Scorecard to tell
how well an integrated strategy is beingexecuted.
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The Balanced Scorecard was introduced by
Robert S. Kaplan and David P. Norton in
1992 Emerged from the study Measuring
Performance in the Organization of the
Future conducted in the early 1990s. Most performance measures rely heavily on
financial accounting measures
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The study was motivated by the belief that
these performance measurements were getting
obsolete. Kaplan and Norton developed a framework
for integration and performance measurement
which included strategic, operational andfinancial measures
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According to Kaplan and Norton, financial
measures tell the story of past events, an
adequate story for industrial age companiesfor which investments in long-term
capabilities and customer relationships were
not critical for success. ..(contd)
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These financial measures are
inadequate, however, for guiding and
evaluating the journey that information agecompanies must make to create future value
through investment in customers, suppliers,
employees, processes, technology, and
innovation.
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The balanced scorecard is a concept formeasuring whether the activities ofa companyare meeting its objectives in terms of visionand
strategy.
It focuses not only on financial outcomes but alsoon the human issues
The balanced scorecard helps to provide a morecomprehensive view ofabusiness which in turnhelps organizations to act in their best long-terminterests.
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The strategic management system helps
managers focus on performance metrics while
balancing financial objectives with customer,process and employee perspectives.
Measures are often indicators of future
performance.
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The balanced scorecard is a management
system (not only a measurement system)
It enables organizations to clarify their visionand strategy and to translate them into action.
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It provides feedback around both the internal
business processes and external outcomes in
order to continuously improve strategicperformance and results.
When fully deployed, the balanced scorecard
transforms strategic planning from anacademic exercise into the nerve center of an
enterprise
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Balanced Scorecard is simply a concise report
featuring a set of measures that relate to the
performance of an organization. By associating each measure with one or
more expected values (targets), managers of
the organization can be alerted whenorganizational performance is failing to meet
their expectations.
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The BSC enables an organization to translate
the companys vision and strategy into
implementation working from fourperspectives
Customer perspective
Internal business process perspective Learning and growth perspective
Financial perspective
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The balanced scorecard provides answers tofour basic questions
How do customers see us (customerperspective)
What must we excel in (internal perspective)
Can we continue to improve and create value
(learning and growth perspective) How do we look to shareholders (financial
perspective)
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From the financial perspective, the scorecard
helps in systematic scrutiny of key financial
criteria that the company must achieve tomaintain its standing in the corporate world
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The customer perspective aids the process of
translating strategic statements to specific
measures that really matter to the customer,such as quality and delivery time.
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The internal perspective focuses attention on
critical internal operations that are needed to
satisfy customer requirements and help inidentifying and building the necessary
competencies for competitive success.
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The learning and growth perspective
emphasizes the need to look further into the
future , thereby helping to break away from ashort term focus.
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The Customer Perspective
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Recent management philosophy has shown an
increasing realization of the importance of customer
focus and customer satisfaction in any business.
These are leading indicators: if customers are not
satisfied, they will eventually find other suppliers
that will meet their needs.
Poor performance from this perspective is thus aleading indicator of future decline, even though the
current financial picture may look good.
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In developing metrics for satisfaction,
customers should be analyzed in terms of
kinds of customers and the kinds of processesfor which we are providing a product or
service to those customer groups.
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Internal Business Perspective
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This perspective refers to internal businessprocesses.
Metrics based on this perspective allow themanagers to know how well their business isrunning, and whether its products and servicesconform to customer requirements (the mission).
These metrics have to be carefully designed by those
who know these processes most intimately; with ourunique missions these are not something that can bedeveloped by outside consultants.
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In addition to the strategic management process, twokinds of business processes may be identified: a)mission-oriented processes, and b) support
processes. Mission-oriented processes are the special functions
of government offices, and many unique problemsare encountered in these processes.
The support processes are more repetitive in nature,and hence easier to measure and benchmark usinggeneric metrics.
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Learning and Growth Perspective
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This perspective includes employee training and
corporate cultural attitudes related to both individual
and corporate self-improvement.
In a knowledge-worker organization,people -- the
only repository of knowledge -- are the main
resource.
In the current climate of rapid technological change,it is becoming necessary for knowledge workers to
be in a continuous learning mode.
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Government agencies often find themselves unableto hire new technical workers, and at the same timethere is a decline in training of existing employees.
This is a leading indicator of 'brain drain' that mustbe reversed.
Metrics can be put into place to guide managers infocusing training funds where they can help themost.
In any case, learning and growth constitute theessential foundation for success of any knowledge-worker organization.
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Kaplan and Norton emphasize that 'learning' is morethan 'training'; it also includes things like mentorsand tutors within the organization, as well as that
ease of communication among workers that allowsthem to readily get help on a problem when it isneeded.
It also includes technological tools; what the
Baldrige criteria call "high performance worksystems." One of these, the Intranet, will beexamined in detail later in this document.
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Financial Perspective
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Kaplan and Norton do not disregard the
traditional need for financial data.
Timely and accurate funding data will alwaysbe a priority, and managers will do whatever
necessary to provide it.
In fact, often there is more than enoughhandling and processing of financial data.
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With the implementation of a corporatedatabase, it is hoped that more of the
processing can be centralized and automated. But the point is that the current emphasis on
financials leads to the "unbalanced" situationwith regard to other perspectives.
There is perhaps a need to include additionalfinancial-related data, such as risk assessmentand cost-benefit data, in this category.
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