BALANCED SCORECARD

Balanced Scorecard

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How would you feel about boarding the plane afterthe following conversation with the pilot?

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Q: I am surprised to see you operating the plane with only a single instrument. What does it measure ?

A: Airspeed .I am really working on airspeed of this flight.

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Q: That is Good. Airspeed certainly seems important. But what about altitude. Would not an altimeter be helpful?

A: I have worked on altitude for the last few flights and I have gotten pretty good on it. Now I have to concentrate on proper air speed.

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Q: But I notice you don’t have a fuel gauge. Would not that be useful ?

A: You are right; fuel is significant, but I cannot concentrateon doing too many things at the same time. So on flight I am focusing on air speed. Once I get to be excellent atAir speed, as well as altitude, I intend to concentrate onFuel consumption on the next set of flights.

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Q: to the participants Would you like to board this plane after having this discussion ?

A: Perhaps not.

What could be the reasons?

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Navigating an organization is as complex as an Aero plane

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They also require instrumentation to guide their organizations

………. like pilots have to guide an aeroplane

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Would you be satisfied as manager getting one dimensional Information about your organization ?

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Perhaps not, therefore

You need instrumentations/ information to navigate

in this competitive world

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BSC provides managers with the instrumentations they need to Navigate future competitive success.

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BSC translates an organizational mission and strategy into comprehensive set of performance measures that provides the frame work for strategic measurement and Management system

4 Balanced Perspectives

Financial Customers Internal Business Processes Learning & Growth

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Measures are balanced

Between the outcome measures—the results from Past efforts---and the measures that drivefuture performance

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4 Perspectives permit a balance between

Short term and long term objectivesOutcomes and performance driversHard objectives measures andSoft objective measures

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Competing in the Information Age

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Industrial Age

Financial ControlROCEProd ControlProfitabilityPhysical Capital

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Information Age

Financial ControlROCEProd ControlProfitabilityPhysical Capital

Made ManySuch MeasuresObsolete

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Information Age

Develop Customer RelationshipIntroduce innovative products/servicesQuality products at low costEmployee development and motivationDeploy information technology

RequiredNewCapabilities

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Information Age

Cross FunctionalLinks to customers and SuppliersCustomer SegmentationGlobal ScaleInnovationKnowledge Workers

NewOperating

Environment

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Information Age

Total Quality ManagementJIT-Production and DistributionTime based CompetitionLean Production/Lean EnterpriseBuilding Customer-focused OrgActivity Based Cost ManagementEmployee EmpowermentReengineering

Improvementinitiatives

BALANCED SCORECARDCapital You don’t see on the Balance Sheet

Human Capital

The collective skill, knowledgeattitudes and behavoiur of thePeople in the Organization Information Capital

The resources and processes in place that ensure effective use ofThe human capital

Organizational Capital

The values, working relationshipAnd cultural norms at work inThe organisation

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balanced scorecard

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Measurement&

Reporting-1992

Alignment &Communication

1996

Enterprise Strategic

Management-2000Articles in HB Review

The BSC-Measures that Drive performance---1992

Putting BSC to work-1993

Using BSC as a Strategic Management System-1996

Acceptance and Acclaim

BSC Translated in 18 languages

Selected by HBR as most Important management Practice in 75 years

History

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FinancialMeasures areInadequate

For GuidingInformation ageOrganizations

Must Create future Value

Through

Investment inCustomersSuppliersEmployeesProcessesTechnology &Innovation

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A balance scorecard translate a organization’s mission and strategy into set of performance measures that provide the framework for

implementing its strategy

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Strategy specify how an organization matches itsown capabilities with the opportunities in the

marketplace to accomplish its objectives

Strategy

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A strategy is a set of goals and specific action plans that, if achieved, provide

the desired competitive advantage

Strategic Management involves identifying and implementing these goals and action plans

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•Anticipating changes•Product/service and production designed to accommodate expected changes•Flexibility•Ability to make quick changes•Speed to market•Agile manufacturing/ service•Driving firm by using windshield not the rear view mirror•Creative and integrative thinking………

strategic thinking

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Do we need to be clear about……?

GoalObjectiveMissionVision

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A goal or objective consist of a projected state of affairs whicha person or a system plans or intends to achieve or bring aboutA personal or organizational desired endpoint in some sort of assumed development.

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Vision: Defines where the organization wants to be in future.Vision: Defines where the organization wants to be in future.

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Mission: Defines where the organization is going now, describing why this organization exists

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Targets: defines goals and objectives

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Goal2008

Objective2013

Mission2028

5000 Cr 12,000 Cr 50,000 Cr

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Goal2009

Objective2014

Mission2029

7000 Cr 15,000 Cr 55,000 Cr

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Balance Scorecard as a Management System

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Balance Scorecard Emphasizes

Financial andNon Financialmeasures must bePart of InformationSystem

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Perspectives

Financial

Perspective Customer

PerspectiveInternal

BusinessProcess

Perspective

Learning &Growth

Perspective

Develop Strategic Goals

Mission VisionClarify mission & Vision statement

Strategic Goals

Derive Sub-GoalsSub-Goals

Map Sub-Goals to each quadrant of the Balanced Score Card

- identify measurement areas - develop measurement goals - postulate indicators - identify data elements

For each BSC Quadrant

Data Elements

Module

Trou

ble

Repo

rts

Indicators

Balanced Scorecard

Internal Business• Sub-Goals

Learning & Growth• Sub-Goals

Customer• Sub-Goals

Financial• Sub-Goals

Internal Business• Sub-Goals

Learning & Growth• Sub-Goals

Customer• Sub-Goals

Financial• Sub-Goals

MethodologyOverview

A Balanced Scorecard Perspective on Performance

Obj

ectiv

eM

easu

res

Targ

ets

Initi

ativ

esCUSTOMER

How do our customers see us?

Obj

ectiv

eM

easu

res

Targ

ets

Initi

ativ

es

LEARNING andGROWTH

Can we continue to improve and create value?

Obj

ectiv

eM

easu

res

Targ

ets

Initi

ativ

esFINANCIAL

How do we look to shareholders?

Obj

ectiv

eM

easu

res

Targ

ets

Initi

ativ

es

INTERNAL BUSINESSPROCESS

What must we excel at?

Visionand

Strategy

Obj

ectiv

eM

easu

res

Targ

ets

Initi

ativ

esCUSTOMER

How do our customers see us?

Obj

ectiv

eM

easu

res

Targ

ets

Initi

ativ

es

LEARNING andGROWTH

Can we continue to improve and create value?

Obj

ectiv

eM

easu

res

Targ

ets

Initi

ativ

esFINANCIAL

How do we look to shareholders?

Obj

ectiv

eM

easu

res

Targ

ets

Initi

ativ

es

INTERNAL BUSINESSPROCESS

What must we excel at?

Visionand

Strategy

Visionand

Strategy

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Perspectives

Financial

PerspectiveFinancial Perspective Evaluate the Profitability of the Strategy

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Perspectives

Customer

Perspective

Customer Perspective identifies Targeted Customer and market Segments and Measures the Organization’s success in these Segments

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PerspectivesInternalBusinessProcess

Perspective

This perspective focuses on internal operationsthat create value for customers that ,in turn,furthers the financial perspective by increasingthe shareholder value

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PerspectivesInternalBusinessProcess

Perspective

3 subProcesses

Innovation Process

Creating ProductsServices &ProcessesTo meet the demandOf Customers

Operations Process

Producing & deliveringExisting products thatWill meet the needs Of Customers

Postsales-ServiceProcessProviding service andSupport to the customerAfter the sale of a product or service

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PerspectivesLearning &

GrowthPerspective

This perspective identifies the capabilities theorganization must excel at to achieve superior internal processes that create value for Customers and shareholders

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Target ActualObjective Measures Initiatives Perform Perform

FinancialPerspective

IncreaseShareholdervalue

Operating incomeFrom ProductivityGain

Operating IncomeFrom Growth

Revenue Growth

Manage CostAnd UnusedCapacity

Build StrongCustomerRelationship

Rs 20 Cr Rs 20.12Cr

Rs 30 Cr Rs 34.20 Cr

6% 6.48%

FINANCIAL PERSPECTIVE

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Target ActualObjective Measures Initiatives Perform Perform

CustomerPerspective

IncreaseCustomerSatisfaction

Market Share inCommunicationNetwork Segment

Number of NewCustomers

CustomerSatisfactionRating

Identify futureNeeds ofCustomers

Identify newTargetCustomer Seg

Increase CustFocus of Sales

6% 7%

1% 2%

90% give 87%Gave Top two top twoRatings Rating

Customer Perspective

BALANCED SCORECARD Target ActualObjective Measures Initiatives Perform Perform

ReduceDelivery Time

Meet SpecifiedDelivery dates on time delivery

Improve postSales Services

ImproveProcesses

ImproveManufacturingCapability

Reduce Setup timeAutomation of Orders

Re-engineer orderDelivery process

Re-engineer order 92% 90%Delivery process

Improve CustomerService process

30 days 30 days

Service ResponseTime

Number of Impv.In BusinessProcesses

% of processesWith AdvancedControls

Within4 hrs

Within3 hrs

Organize teams from Sales & Manuf

Organize R&D/MfgTeams to implementAdv. control

5 5

75% 75%

INTERNAL BUSINESS PROCESS PERSPECTIVE

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Align EmployeeAndOrganizationalGoals

DevelopProcessSkill

EmpowerWorkForce

Learning and Growth Perspective

Employee Satisfac-tion Rating

% Employees Trained in Process& Quality Mgt

% WorkersEmpowered to ManageProcesses

EmployeeParticipation toBuild Team Work

EmployeesTrainingProgramme

Supervisors asCoaches ratherDecisionMakers

80% 88%EmployeesGive topTwoRatings

90% 92%

80% 80%

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BSC as Strategic Management System

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BalancedScorecard

as a Strategic

ManagementSystem

1 Clarify and Translate vision & Strategy

2 Communicate and link strategic objectives and Measures

3 Plan, Set Targets and align Strategic Initiatives

4 Enhance Strategic Feedback and Learning

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Clarifying andTranslating the Vision & Strategy

Clarifying the VisionGaining Consensus

Planning & Target Setting

Setting TargetsAligning Strategic

InitiativesAllocating ResourcesEstablishing Milestones

Communicating & Linking

Comm and EducatingSetting GoalsLinking Rewards to Performance

Strategic Feedback & Learning

Articulating the shared VisionSupplying Strategic FeedbackFacilitating Strategy review

and Learning

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Clarifying andTranslating the Vision & Strategy

Clarifying the VisionFormulation by Sr ExecutivesReaching ConsensusSorting Out DifferencesJoint Accountability

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Communicating & Linking

Communicating and Educating Newsletter Bulletin board Brochure Videos Intranet meetings

Setting GoalsLinking Rewards to

PerformanceEvery one Understand

Strategy for achievement Outcome Measures Efforts and Initiatives required

On time Delivery

Reduce setup timeBuy new machinesImprove delivery timeImprove packing

Communicating to

DirectorsExecutivesEmployees

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Planning &Target Setting

Plan to ChangeSet target for 3-5 yearsStretch targetsBenchmarking Alignment of TargetsAlignment of Strategic Planning

with operational Budgets

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Strategic Feedback &

Learning

Periodic Review and ChangeTargets-achieved or notPast and future ReviewInformation from allDouble loop learningCause and effect RelationshipValidity and ViabilityStrategy replacement according

to outcomes/performance drivers

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Features of Balance Score Card

Indicate company’s strategy and its link with perspectives

Strategy is communicated to all

Strategy translated into measurable targets

Motivates Managers to achieve targets

BSC limits the measures to only four

Highlights effect of one perspective on another

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Pitfalls in Implementing Balanced Score Card

Difficult to establish Fin-Non financial Linkages

Improvements at all levels may not be possible

Both subjective-objective measures Consideration

Considering Cost & benefits of initiatives

Non-financial Achievements are ignored

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Vision & Strategies not actionable

Strategies not linked to departmental and Individual Goals

Strategies not linked to Long term/short term Resource Allocation

Feedback that is tactical not strategic

Barriers to effective Implementation of BSC

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Strategy &Vision

Financial Plan& CapitalAllocation

Personal MBO &Incentives

MonthlyReviewBudget

1 Vision & Strategy not Actionable

2 Strategy notLinked to Dept Team& Individual Goals

3 Strategy not Linked to Resource Allocation

4 feedback that is tactically not strategic

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Cant be translated into actionCant be acted UponCant be understoodFragmentation & Sub optimization of effortsLacking consensus & ClarityDifferent AgendasNo integrationNot linked coherently to overall strategy

Barrier No 1: Vision and strategy not Actionable

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Separate Processes for Long term &Short term Strategic planningFunding to unrelated prioritiesPoor Monthly ReviewsUnfocused New Mgt TechniquesPoor Integration

Barrier No 3: Strategy not Linked to Resource Allocation

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Bulk of feedback is only financial measuresLittle time on strategy implementation & successNo priority to periodic review and meetingsInadequate informationPoor tactical review process

Barrier No 4: Feed back not tactically strategic

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Clarifying & TranslatingThe Strategy & Vision

Planning &Target Setting

Communicating And Linking

Strategic Feedback&

LearningBalance

Scorecard

•Goal alignments from top to bottom•Education and open communication about strategy

•Compensation is linked To Strategy

•Stretch targets are established and accepted•Strategic initiatives are clearly identified•Investments are determined by strategy•Annual Budgets are linked to long term planning

•The strategy is the reference point for the entire management process•The shared vision is the foundation for strategic planning

•Feedback system used to test The hypothesis on which strategy Is based

•Team problem solving

•Strategy development is a Continuous Process

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Let Us Review

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Perspectives

Financial

Perspective Customer

PerspectiveInternal

BusinessProcess

Perspective

Learning &Growth

Perspective

BALANCED SCORECARDTranslating the strategy to operational terms

If we succeed, how willWe look to ourShareholders?

The Strategy

Financial Perspective

To satisfy our customers,Which processes must

We excel ?

Internal Perspective

To achieve our vision,How must we look to our

Customers ?

Customers Perspective

To achieve our vision, how must our organisation team

Improves?

Organizational Learning

Measurement is the language that gives clarityTo vague concepts

Measurement is used to communicate,Not to control

Strategy can be described as a series of Cause and Effect relationship

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Clarifying andTranslating the Vision & Strategy

Clarifying the VisionGaining Consensus

Planning & Target Setting

Setting TargetsAligning Strategic

InitiativesAllocating ResourcesEstablishing Milestones

Communicating & Linking

Comm and EducatingSetting GoalsLinking Rewards to Performance

Strategic Feedback & Learning

Articulating the shared VisionSupplying Strategic FeedbackFacilitating Strategy review

and Learning

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BALANCED SCORECARDMake Strategy Everyone’s Job

CORPSBU

The Strategy Focused Workforce

EducationPersonal GoalAlignment

Balanced Pay checks

BALANCED SCORECARDMake Strategy a continuous Process

Strategy

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Budget

PerformanceInput Output

Strategic Learning Loop

Management Control Loop

85% of Mgt teamsSpends less than

1 hr per monthOn strategy

issues

60% OF OrgDon’t linkStrategy &

budgets

78% orgs lockBudgets to anAnnual cycle

92% of orgsDo not report

On leadindicators

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Questions