Balanced

Scorecard
Presented To: Presented By:
Prof. Tripat Kaur Simranjeet singh
10415{M.com-2}
Contents
 What is a Balanced Scorecard?
 Definition
 Balanced Scorecard Concept
 Components of a balanced scorecard
 Balanced Scorecard Quadrants
 Financial Perspective
 Customer Perspective
 Internal business processes Perspective
 Learning and Growth Perspective
 Benefits of BSC
 Drawbacks of BSC
 Conclusion
 Bibliography
What is a Balanced Scorecard?

The balanced scorecard (BSC) is a strategic management and planning tool used
by many organizations. It focuses on aligning daily work with the organization’s
strategy while putting in place specific measures that allow management to
progress towards strategic targets.Organizations use BSCs to:
 Communicate what they are trying to accomplish
 Align the day-to-day work that everyone is doing with strategy
 Prioritize projects, products, and services
 Measure and monitor progress towards strategic targets
Definition

‘An approach to the provision of information to the management to assist with

strategic policy formulation and achievement. It emphasises the need to provide the
user with a set of information which addresses all relevant areas of performance in
an objective and unbiased fashion. The information provided may include both
financial and non-financial elements and cover areas such as profitability, customer
satisfaction, internal efficiency and innovation.’
CIMA Terminology, 2005
Balanced Scorecard Concept

 The BSC technique was developed by Kaplan and Norton (1992, 1996) to
combine financial control measures with non-financial control measures.
 It is used for implementing the mission and objectives of an organisation’s
business strategy.
 The basic idea of the Balanced Scorecard (BSC) is to focus the
organisation on performance measures and implementing the current
strategy.
Components of a balanced
scorecard
Here are some essential components of a balanced scorecard:

• These are high-level organizational goals. One can develop these goals by
conducting a SWOT or strength, weakness, opportunities and threat analysis of a
Objectives business to create objectives.
• Also, ensure that objectives are SMART, which means they are specific, measurable,
achievable, realistic and time-bound.
• After defining goals and objectives, focus on understanding how to measure business
objectives.
Measures • These measures help a business understand whether you are progressing toward
achieving the goals. Attach a specific KPI to ensure the business strategy is working.
• When defining the business objectives, ensure they directly relate to the KPI. It is
Indicators essential to have an associated value for each KPI a business defines.
• Also, ensure that the indicator is achievable.
• In a balanced scorecard framework, initiatives help a business succeed in its strategy.
Initiative • A business identifies these initiatives when writing a BSC and sets them when
implementing the scorecard. Usually, these initiatives have a start and end date.
 Balanced Scorecard Quadrants

The Balanced Scorecard consists of four interrelated quadrants, each containing measures
for a distinct perspective. These four perspectives are designed to cover the whole of the
organisation’s activities, both internally and externally, current and future.

Financial Customer
Four
perspective
Internal business Learning and Growth
processes
Financial The financial perspective measures strategies and plans that help
Perspective increase revenue and manage a business's financial risk. An
organisation achieves these goals by meeting the needs of
customers, shareholders and suppliers. Also, the financial
perspective scorecard measures metrics such as profitability,
operating cost and return on investment or ROI.

Often, the steps that a company takes to achieve these goals

include:
*Launching new products and services
*Reducing the cost of doing business
*Enhancing a company's value proposition
Customer The customer perspective of a BSC identifies how a company
perspective provides value to its customers and understands how satisfied the
customers are with products or services. Customer satisfaction
indicates a company's success. The customer perspective scorecard
evaluates customer acquisition cost, return on investment, reviews,
referrals, testimonials and customer retention rate. This helps an
organisation understand itself from a customer's viewpoint instead of
just an internal perspective.

Often, steps a company takes to achieve customer satisfaction can

include:
*Enhancing the shopping experience of customers
*Adjusting prices of its products or services
*Improving product quality
Internal The third perspective of a BSC is the company's internal processes.
business These processes can determine how well an organisation functions.
perspective Using the scorecard, companies can understand whether their
products or services conform to the customers' standards. Using the
BSC framework, companies can identify internal processes that
require improvement and implement the desired changes to reach the
financial and customer satisfaction goals.

Often, the steps a company takes to achieve an improvement in

business processes include:
*Implementing a task management system
*Using a waste management process
*Pursuing innovations to create new ways of meeting customer's
demand
Learning and The fourth perspective of the BSC focuses on elements that a
growth company requires to derive workplace performance. The positive
perspective changes a company makes in this perspective can also improve a
company's internal processes. This perspective evaluates employee
satisfaction rate, employee retention rate, employee training and
learning milestones.

Often, steps that a company takes to drive workplace performance

can include:
*Implementing programs and training for employee development
*Altering company's culture to ensure greater employee satisfaction
*Using new technologies to improve a company's information security
Benefits of BSC

 It avoids management reliance on short-term or incomplete financial measures. It ensures

that senior management takes a balanced view about the organisation’s performance.
 Using the BSC can assist in ‘driving down’ the corporate strategy to divisions and
functions by forcing management to develop success measures related to corporate
goals. Top level strategy and middle management level actions are clearly connected and
appropriately focused.
 It can help stakeholders to evaluate the organisation if measures are communicated
externally.
 The organisation’s performance reporting system (and the organization itself) is much
more likely to focus on staying competitive in the long term and to realise value for its
stakeholders.
Drawbacks of BSC

 The BSC does not lead to a single aggregate summary control. The popularity of
measures such as Return on Investment (ROI) has been because they conveniently
summarise ‘how things are going’.
 Measures may give conflicting signals and confuse management. For example, if
customer satisfaction and financial indicators are both falling, do management sacrifice
one or the other?
 It involves substantial shifts in corporate culture to implement, such as the need to re-
focus on the long term. The organisation must also be recognised as a set of processes
rather than separate departments.
 The approach is not a quick fix. It takes considerable thought to develop an appropriate
scorecard.
Conclusion

The balanced scorecard creates strategic awareness among the members

of the organization and aligns the strategies of different administrative units. It helps
to create a shared understanding about the efforts and steps needed for change.
The balanced scorecard translates the strategy into tangible objectives and
measures. The BSC is organized into four perspectives: Learning and Growth
perspective, Internal Process perspective, Customer perspective, and Financial
perspective The measures used in the BSC are mutually consistent and reinforcing.
The BSC should be viewed as more than a collection of disparate financial and
non-financial indicators. Instead it monitors a set of cause and effect relationships
that lead to better financial returns.
Bibliography

 www.balancedscorecard.org
 www.tutorialspoint.com
 www.cimaglobal.com
 www.coursehero.com
Thank you