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Integrated Management - 7 - Balanced Scorecard

The document discusses the balanced scorecard concept created by Kaplan and Norton. It summarizes the balanced scorecard as a performance measurement framework that combines both financial and non-financial metrics across four perspectives: financial, customer, internal business processes, and learning and growth. The balanced scorecard allows companies to track financial performance while also ensuring the drivers of future performance are properly managed. It provides a more comprehensive view of the company's performance than traditional financial reporting alone.

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Gizem Gökpınar
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94 views40 pages

Integrated Management - 7 - Balanced Scorecard

The document discusses the balanced scorecard concept created by Kaplan and Norton. It summarizes the balanced scorecard as a performance measurement framework that combines both financial and non-financial metrics across four perspectives: financial, customer, internal business processes, and learning and growth. The balanced scorecard allows companies to track financial performance while also ensuring the drivers of future performance are properly managed. It provides a more comprehensive view of the company's performance than traditional financial reporting alone.

Uploaded by

Gizem Gökpınar
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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BALANCED SCORECARD

A CONCEPT AND A METHOD TO HELP US IN OUR


DISCUSSIONS WHERE OUR BUSINESS SHOULD BE
HEADING.
THE MAJOR ISSUE: THE NEED FOR THE MANY
ORGANIZATIONS (COMPANIES) IS TO DEVELOP THEIR
CAPABILITIES TO PROSPER IN THE FUTURE.
THIS WILL PRODUCE NO PROFITS IN THE CURRENT
YEAR, ONLY COSTS.

TRADITIONAL STYLE TO PREPARE FOR THE


FUTURE WAS TO DEVELOP DEPARTMENTS
AND THROUGH REQUIREMENTS OF
CENTRALIZED AUTHORIZATION FOR
CAPITAL EXPENDITURES.

MODERN STYLE TO PREPARE FOR THE FUTURE IS


ABOUT INVESTING IN COMPETENCE, CULTIVATING
CUSTOMER RELATIONSHIPS, AND CREATING DATA
BASES.
MUCH OF THIS WORK IS DONE ELSEWHERE IN THE
ORGANIZATION THAN AT HEADQUARTERS.
THESE ARE THE FUNDAMENTAL REASONS WHY
ORGANIZATIONS (COMPANIES) REQUIRE A
BALANCED SCORECARD.

IN A BALANCED SCORECARD, OUTCOME


MEASURES ARE COMBINED WITH MEASURES THAT
DESCRIBE RESOURCES SPENT OR ACTIVITIES
PERFORMED.
PROFIT IS AN OUTCOME MEASURE THAT SHOULD
BE COMBINED WITH OTHER PERFORMANCE
DRIVERS. THESE MESAURES ARE INTERRELATED.

TRADITIONAL MANAGEMENT CONTROL

FURNISHES MISLEADING INFORMATION FOR


DECISION-MAKING.
FAILS TO CONSIDER THE REQUIREMENTS OF
TODAYS ORGANIZATION AND STRATEGY.
ENCOURAGES SHORT-TERM THINKING AND
SUBOPTIMIZATION.

PLAYS SECOND FIDDLE TO THE REQUIREMENTS


OF FINANCIAL ACCOUNTING.
PROVIDES MISLEADING INFORMATION FOR COST
ALLOCATION AND CONTROL OF INVESTMENTS.
FURNISHES ABSTRACT INFORMATION TO
EMPLOYEES.
PAYS LITTLE ATTENTION TO THE BUSINESS
ENVIRONMENT.
MAY GIVE MISLEADING INFORMATION.

SCORECARD RECORD OR PROCESS?

SCORE: AS A NOUN A RECORD OF POINTS MADE (AS IN


A GAME) AND AS A VERB TO ASSIGN OR GRADE IN
THE MERRIAM-WEBSTER DICTIONARY.
BALANCED SCORECARD: THE GRADING SHOULD
REFLECT A BALANCE AMONG SEVERAL IMPORTANT
ELEMENTS OF PERFORMANCE.

THE TERM BALANCED INDICATE A BALANCE


BETWEEN A PROFIT AND A MARKET APPROACH TO
CONTROL THROUGH THE USE OF OTHER MEASURES
SUCH AS KNOWLEDGE, THE TRUST OF CUSTOMERS
AND EMPLOYEES, AND THE QUESTION OF WHAT
FUTURE BUSINESS TO BE IN.

THE IDEA OF THE SCORECARD IS TO DESCRIBE THE


ESSENTIAL INGREDIENTS OF BUSINESS SUCCESS.
ALTHOUGH FINANCIAL MEASURES ARE ULTIMATELY
THE PARAMOUNT AT A COMPANY OPERATING IN A
MARKET ECONOMY, OTHERS ARE KNOWN AS LEADING
INDICATORS.
THESE ARE EARLY SIGNALS OF FACTORS, WHICH WILL
BE REFLECTED IN FINANCIAL PERFORMANCE UNTIL
MUCH LATER.

ROBERT KAPLAN & DAVID NORTON WORKED IN A


NUMBER OF COMPANIES TO DEVELOP MEASURES OF
PERFORMANCE IN THE ORGANIZATION OF THE
FUTURE.

THE FOUR PERSPECTIVES WHICH COMPRISE THEIR


BASIC MODEL ARE THE FOLLOWING:

THE FOUR PERSPECTIVES WHICH COMPRISE THEIR


BASIC MODEL ARE THE FOLLOWING:

THE FOUR PERSPECTIVES WHICH COMPRISE THEIR


BASIC MODEL ARE THE FOLLOWING:

TO SUCCEED FINANCIALLY, HOW SHOULD WE


LOOK TO OUR SHARE-HOLDERS?
TO SUCCEED WITH OUR VISION, HOW SHOULD
WE LOOK TO OUR CUSTOMERS?
TO SATISFY OUR SHAREHOLDERS AND
CUSTOMERS, AT WHAT INTERNAL BUSINESS
PROCESSES MUST WE EXCEL?

TO SUCCEED WITH OUR VISION, HOW SHALL WE


SUSTAIN OUR CAPACITY TO LEARN AND TO GROW?
AN EXPLICIT VISION AND STRATEGY UNDERLIE ALL
FOUR PERSPECTIVES.
STRATEGIC AIMS, MEASURES, SPECIFIC GOALS, AND
ACTION PLANS ARE FORMULATED FOR EACH
PERSPECTIVE.

A TOP TO BOTTOM APPROACH OF STRATEGY

KAPLAN & NORTON DESCRIBE THE BALANCED


SCORECARD PROCESS AS A CYCLE.
MEASURES DESCRIBE WHAT IS ACHIEVED (OUTCOMES) OR
WHAT AFFECTS OUTCOMES (PERFORMANCE DRIVES).

EXAMPLE

EXAMPLE

INTERRELATED AND INTEGRATED AND INTERACTING


OBJECTIVE EXAMPLE

CAN BE USED IN FUNCTIONAL LEVEL AS WELL


EXAMPLE

BALANCED SCORE CARD DASH BOARDS BALANCED


SCORE CARD MUST BE AUTOMATED AND MUST ACT AS
BUSINESS INTELLIGENCE TOOL
EXAMPLE (ALSO SEE BIMSERS PRESENTATION)

BALANCED SCORE CARD DASH BOARDS BALANCED


SCORE CARD MUST BE AUTOMATED AND MUST ACT AS
BUSINESS INTELLIGENCE TOOL
EXAMPLE (ALSO SEE BIMSERS PRESENTATION)

BALANCED SCORE CARD EXAMPLE - QFD

THE PIONEERING IDEAS OF KAPLAN & NORTON IN


REGARD TO THE BALANCED SCORECARD
CONCEPT ARE THE FOLLOWING:
A COMPANY STRUCTURE FOR COMMUNICATING
STRATEGY.

FROM VISION TO ACTION PLAN

THE REQUIREMENT THAT WE DISCUSS THE CAUSE-ANDEFFECT RELATIONSHIPS AMONG DIFFERENT FACTORS AND
THAT WE ARTICULATE THE STRATEGIC HYPOTHESES
UNDERLYING OUR COURSE OF ACTION.
A SYSTEMATIC PROCEDURE FOR CONDUCTING THESE
DISCUSSIONS, SO THAT THEY REPLACE TRADITIONAL
PLANNING AND CONTROL OF AN ALMOST PURELY FINANCIAL
NATURE.
VIEWING THE COMPANY FROM DIFFERENT PERSPECTIVES
AND IN DIFFERENT TIME DIMENSIONS PROVIDES A UNIQUE
UNDERSTANDING OF THE BUSINESS AS A WHOLE.

ALTERNATIVE MODELS

MAISELS BALANCED-SCORECARD MODEL


THE PERFORMANCE PYRAMID
EP2M

THE PROCESS OF BUILDING A BALANCED SCORECARD

STRATEGY DEVELOPMENT
MANAGEMENT CONTROL SYSTEMS
SYSTEMS AND INFORMATION TECHNOLOGY
DEVELOPMENT
THE LEARNING ORGANIZATION

FROM VISION TO ACTION PLAN

THE VISION
PERSPECTIVES
STRATEGIC AIMS
CRITICAL SUCCESS FACTORS
STRATEGIC MEASURES
ACTION PLAN

FROM VISION TO ACTION PLAN

FROM VISION TO ACTION PLAN

FROM VISION TO ACTION PLAN

FROM VISION TO ACTION PLAN


EXAMPLE

FROM VISION TO ACTION PLAN


EXAMPLE

THE CONCEPT OF SCORECARD IS NO GUARANTEE


OF A SUCCESSFUL STRATEGY AND VISION.
THE GREAT STRENGTH OF THE CONCEPT LIES IN
THE VERY PROCESS OF BUILDING THE SCORECARD.
IT IS AN EFFECTIVE WAY TO EXPRESS THE
COMPANYS STRATEGY AND VISION IN TANGIBLE
TERMS AND TO GATHER SUPPORT FOR IT
THROUGHOUT THE ORGANIZATION.

THE STEPS IN BUILDING THE PROCESS


1. DEFINE THE INDUSTRY, DESCRIBE ITS DEVELOPMENT AND
THE ROLE OF THE COMPANY.
2. ESTABLISH/CONFIRM THE COMPANYS VISION.
3. ESTABLISH THE PERSPECTIVES.
4. BREAK THE VISION DOWN ACCORDING TO EACH
PERSPECTIVE AND FORMULATE OVERALL STRATEGIC
AIMS.
5. IDENTIFY CRITICAL FACTORS FOR SUCCESS.
6. DEVELOP MEASURES, IDENTIFY CAUSES AND EFFECTS AND
ESTABLISH A BALANCE.
7. ESTABLISH THE COMPREHENSIVE SCORECARD.
8. BREAKDOWN OF THE SCORECARD AND MEASURES BY
ORGANIZATIONAL UNIT.
9. FORMULATE GOALS.
10. DEVELOP AN ACTION PLAN.

REFERENCES:
PERFORMANCE DRIVERS, Nils-Gran Olve, Jan Roy and
Magnus Wetter, John Wiley & Sons, Chichester, 1999.
BALANCED SCORECARD, Robert S. Kaplan & David P.
Norton, Harvard Business School Press, 1996.

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