The Balanced

Scorecard
and Strategy Map
Chapter 2

1
Performance Measurement
Systems
• Measurement must support the company’s strategy and
operation

• Must be designed so companies get better at managing and

• Need to move from reliance on financial measures to a mix of

2
Balanced Scorecard
• The Balanced Scorecard (BSC) provides a system for
measuring and managing all aspects of a company’s
performance
• The scorecard balances traditional financial measures of
success, such as profits and return on capital, with
nonfinancial measures of the drivers of future financial
performance
• The Balanced Scorecard measures organizational performance
across different perspectives

3
 The Four Perspectives of the
Balanced Scorecard
Four different but linked perspectives are derived from the organization’s mission, vision and
strategy:

Financial
Financial
Creating
Creating organizational
organizational value
value
for
for owners/shareholders.
owners/shareholders.

Mission, Process
Customer
Customer Vision, Ensuring efficiency and
Adding
Adding value
value for
for customers.
customers. Strategy quality in the value chain.

Learning
Learning and
and Growth
Growth
Investing
Investing in
in organizational
organizational 4
infrastructure.
infrastructure.
Balanced Measurements
• The BSC enables companies to:
• Track financial results
• Monitor how they are building the capabilities for future growth
and profitability
• With customers
• With their internal processes
• With their employees and systems

5
Strategy
• A strategy accomplishes two principal functions:
• Creating a competitive advantage by positioning the company in
its external environment with resources to support customers
better than its competitors

• Having a clear strategy provides clear guidance for how internal

6
Enter the Strategy Map
• The strategy map is a picture that illustrates the causal
relationships among the balanced scorecard perspectives
• The strategy map is a guide to action that relates the
management actions needed to achieve an organization
objective with the measures designed to assess performance
on those actions

7
The Overall Picture –
Summary

8
Financial Perspective
• The ultimate objective for profit-seeking companies
• Financial performance measures indicate whether the
company’s strategy, implementation, and execution are
contributing to bottom-line improvement
• A company’s financial performance can be improved in two
ways: productivity improvements and revenue growth

9
Financial Perspective
• Increased productivity occurs by:
• Lowering direct and indirect expenses
• Utilizing their financial and physical assets more efficiently
• Companies generate revenue growth by:
• Selling additional products or services to existing customers
• Selling new products, selling to new customers, and expanding
into new markets

10
Financial Measure
Alternatives

11
The Customer Perspective
• The customer perspective reflects what the organization
promises its target customers.
• This promise is called the value proposition
• The value proposition’s components are
• Price
• Quality
• Time
• Function
• Service

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Value Proposition
Alternatives
• A taxonomy originally developed by Michael Porter a well-
known strategist
• Cost Effectiveness
• You sell a commodity where prices are set by the market – your key
control lever is cost
• Product Leadership
• You compete by constantly bringing new products into the market
place – your key control lever is innovation
• Customer Intimacy
• You compete by meeting the unique requirements of each customer
– you key control lever is understanding customer requirements

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Customer Objectives and
Measures

14
Process Perspective
• The process perspective reflects how the organization plans to
deliver its value proposition
• Useful to think in terms of process type
• Operations management processes
• Customer management processes
• Innovation processes
• Regulatory and social processes
• The customer value proposition will determine the relative
importance of each process type

15
Process Objectives and
Measures

16
Learning and Growth
Perspective
• Reflects the development of intellectual capital (organization
know-how) needed to develop and improve objectives in the
process perspective

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Learning and Growth
Perspective
• Identifies objectives that drive improvement in the process
objectives
• Human Resources
• Information Technology
• Organization Culture and Alignment

18
Learning and Growth Objectives
and Measures

19
BSC in Nonprofit and
Government Organizations
• The BSC is especially well-suited for nonprofit and government
organizations (NPGOs)
• Their success has to be measured by their effectiveness in
providing benefits to constituents
• Because nonfinancial measures can assess performance with
constituents, the BSC provides the natural performance
management system for NPGOs

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NPGOs and Strategy
• Many NPGOs encountered difficulties in developing their
initial BSC, finding that they didn’t have a clear strategy
• Many NPGOs place their mission objective at the top of their
scorecard and strategy map
• Cannot use the standard BSC architecture where financial
objectives are the ultimate, high-level outcomes to be achieved

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Managing with the BSC
• The benefits from BSC are realized as the organization
integrates its new measurement system into management
processes that:
• Communicate the strategy to all employees and organizational
units
• Align employees’ individual objectives and incentives to
successful strategy implementation
• Integrate the strategy with ongoing management processes

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Barriers to Effective Use
• Senior management is not committed

• Scorecard responsibilities do not filter down

• The solution is overdesigned, or the scorecard is a one-time

• The scorecard is treated as a systems or consulting project

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End of the Chapter