THE BALANCED SCORECARD
Mission
CONCEPT
Why the Balanced Scorecard and Why Now?
Performance Measures and Management have never been hotter.
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Three Factors:
Inability of Organizations to Execute Their Strategy.
Reliance on Financial Measures. Corporate Accounting Scandals: Enron once the 7th largest company in U.S. $63.4 Bn. bankruptcy.
WorldCom 107 billion dollar bankruptcy.
Tyco, Global Crossing, Adelphia and dozens of others.
Doing Business in Post-Enron Era
Sarbanes-Oxley Act:
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Section 906 Requires Certification by CEO & CFO Reports fully comply with the requirements of securities law and that the information in the report fairly presents, in all material respects, the financial condition and results of the operation of the company.
Wall Street:
They want broader reporting. Hewitt Associates:
Found evidence that companies highly aligned with traditional metrics tend to be the worst performers in shareholder return.
Origin of Balanced Scorecard
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Developed by Robert Kaplan Accounting Professor at Harvard and David Norton a Consultant in the Boston Area. They were looking to develop new methods of performance measurement. Kaplan & Norton found that a reliance on financial measures was affecting a companies ability to create value. What did they mean by this? Kaplan and Norton came up with this tool that captured performance measures on activities throughout the company: Customer Issues. Internal Business Processes. Employee Activities. Shareholder Concerns.
Origin of Balanced Scorecard
Over the Next Four Years Companies That Adopted the Balanced Scorecard saw immediate results.
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Kaplan and Norton wrote The Balanced Scorecard.
50% of the Fortune 1000 have adopted the Balanced Scorecard.
HBR hailed it as one of the 75 most influential ideas of the 20th century.
As companies around the world transform themselves for competition that is based on information, their ability to exploit intangible assets has become far more decisive than their ability to invest in and manage physical assets.
What is a Balanced Scorecard?
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Essentially the scorecard measures how well your organization did along 4 institutional measures: Financial. Internal processes. Customer. Innovation and learning. The scorecard essentially lines up your goals and helps the members of your organization go in the same direction to meet those goals.
What is a Balanced Scorecard?
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Where is the organization going?
Vision
Vision
How do we get there?
Strategy
Critical Success Factors
Financial Customer
Internal Business Process Organizational Learning
What do we need to do well to achieve these strategies?
How do we measure how well we are doing? What do we focus on to affect the KPIs?
KPIs
Strategic Initiatives
What is a Balanced Scorecard?
Mission
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Measures Expressed in a Matrix
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Financial Cost Reduction, Market Share, etc.
Internal Processes Cycle time Quality, etc.
External / Customers Satisfaction, Retention Rates, etc.
Innovation / Learning Hours Training, Quality, Attendance, etc.
Measures Expressed in Other Forms
External
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Measures performance against expectations
Measures employees skills, procedures, methods...
Balanced Objectives
Financial
Learning & Innovation
Internal
Measures the economic impact of actions taken
Measures effectiveness, ability to adapt
Steps in Implementing Balanced Scorecard
Identify Vision
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Identify Strategies
Identify CSFs & Perspectives
Identify Measures
Evaluate Create Action Plans Follow up & Manage
Considerations before You Start Implementing BSC Process
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What are your Mission? Goals? Core Competencies?
What are your critical success factors?
Variables, conditions, or characteristics which have a direct in influence on satisfaction OR If you dont succeed here your business is in trouble.
Considerations before You Start Implementing BSC Process
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What are your core processes? People? Materials? Methods? Equipment? Environment?
What is the relationship between the intended outcome and the process to get there? Whats the cause and effect?
How much are you doing that is necessary and because youve always done it that way? Look functionally and cross functionally
Considerations before You Start Implementing BSC Process
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What is private sector doing? People? Materials? Methods? Equipment? Environment?
How well do you compare to others doing the same thing?
What processes do others use to come to analogous outcomes? How much does it cost them? How long does it take? Could you be faster, better, or smarter about the way you do it?
Key Things to be Done Throughout
Communicate progress early and often. Develop a scorecard at the corporate level and then cascade it down to lower
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organizational levels. This will help focus the actions in one direction to help
your goals.
Teach your scorecard process. Support training to develop scorecards and try to use internal people to do it. Focus on your organizations scorecard. Involve as many people as early as you can. Encourage individuals to make their own scorecards for their own use. Communicate changes; refer to the scorecard often; make it a part of the organizations culture. Use the results of the scorecard to foster change; not to punish. Encourage trial and error.
ASA(FM&C) Strategy Map
Four Strategic Themes
Funding = Requirements
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Systems Integration
Cost Control
Resource Generation
Leverage/Innovate
Themes Promote Teamwork and Communication Across Organizational Lines
Balanced Scorecard - Strategy Map Objectives
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Cost Control
Objectives Help to Implement the Strategy for Each Theme and Perspective Statement of What Strategy Must Achieve
Objectives
Imbed a Cost Culture in Program/Budget Reviews, Decisions and Actions
Balanced Scorecard - Strategy Map
The Strategic Theme Story
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1. Funding = Requirements
Cost Control
2. Control and Reduce Program Costs
3. Maximize the Impact of Each Dollar Spent
3 4 5 6
4. Imbed Cost Culture in Program/ Budget Reviews, Decisions and Actions
5. Improve Output and Performance Measures/develop Full Costs by Program 6. Develop a Cost Culture
Balanced Scorecard - Strategy Map
Objectives Linked to Measures
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Cost Control Objectives
Measures
Number of Programs With
Integrated Performance Reviews Percent of Performance Reviews That Yield Cost Reductions
How Success Will Be Tracked
Balanced Scorecard - Strategy Map
Targets
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Cost Control
Objectives
Measures Targets Number of Programs With Integrated Performance Reviews Worst 0 Business As Usual 0 Planned 20 Benchmark 40 Best 100 Improvement Needed
Balanced Scorecard - Strategy Map
Initiatives
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Cost Control
Objectives
Key Action Programs Required
Measures
Targets Initiatives Link Output & Performance Measures to Army Cost & Performance Reviews Starting With the Initial OMB / OSD Programs for Performance Measures Integrated Into FY11 Budget
ASA(FM&C) Strategic Map
Theme Relationships
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Systems Integration
Cost Control
Themes Are Not Stovepipes & Are Resource Not Organizationally Organized Generation Leverage/Innovate Requires Cooperation / Teamwork More Time to Devote to Higher Leverage Activities
Provide Timely & Relevant Management Information Integrate Functional & Financial System Requirements
Imbed a Cost Culture in Program Budget Reviews
Improve Output Measures/full Cost by Program
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An Example
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Strategic Theme: Cost Control Financial Control & Reduce Program Costs Customer
Objectives
Measurement in Program Costs per Year How Success Will Be Tracked
Target Than 2% per Year
Initiative
Control &
Reduce Program Costs Statement of What Strategy Must Achieve
% Change Less
Eliminate
Duplicate Contractor Payments Key Action Programs Required
Internal
Improvement Needed
Learning
Strategy
The Unique and Sustainable Ways by Which We Will Create Value for the Army
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Funding = Requirements
Improve Accountability of the Army Reduce Program Costs
More Funds for Army Programs Increase Investment Funds
Resource Generation
Systems Integration
Leverage /Innovate
Cost Control
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What processes have you experienced in developing a balanced scorecard? Can you share your successes in linking strategy, goals, and tactics?
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THANK YOU
