The Balanced Scorecard

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The Balanced Scorecard
Michael L. WernerUniversity of MiamiCoral
Gables, Florida
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What is Business Success?
Solid financial performance?
Can solid financial performance be achieved if
managers focus solely on financial measures of
success?
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Balanced Scorecard Refocuses Management
Financial perspective
Customer perspective
Internal perspective
Learning and Growth perspective
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The Balanced Scorecard
Developed in 1992 by Robert Kaplan and David
Norton
Originally developed as a measurement tool
Also helps companies manage and implement
strategy
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Popularity
Employed by half of Global 1000 (According to
Bain Company)
One of the most powerful management ideas
ever (Harvard Business Review)
Most requested and 1 in sales at Harvard
Business Publishing
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Kaplan and Nortons Premise
exclusive reliance on financial measures in a
management system was causing organizations to
do the wrong things.
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The Balanced Scorecard
A balanced plan for business
More than a financial plan
Based on corporate strategy
(Robert Kaplan and David Norton)
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The Trouble with Strategy
It is unlikely that a poor strategy is the
problem
Generally, the problem is implementing strategy
Even if strategy is communicated, employees may
not know what to do.
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Question?
Even if we communicate the strategy, will
employees really act?
The balanced scorecard can help communicate the
companys strategy and will also encourage
employees to act to achieve it.
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How can the Balanced Scorecard help?
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Four Distinct Perspectives
Financial perspective
Customer perspective
Internal perspective
Strategy
Learning and growth perspective
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Translating a Mission into Desired Outcomes
Mission
Core Values
Vision
Strategy
Adapted from Kaplan, Norton
Balanced Scorecard
Objectives
Strategic Initiatives
Strategic Outcomes
Motivated and Prepared Workforce
Effective Processes
Delighted Customers
Satisfied Shareholders
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For Each Perspective
Objectives (Goals)
Measures
Targets
Initiatives
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Simple Form and Relationships
Source Kaplan, Norton
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Objectives
Concise statements that articulate what the
organization hopes to accomplish
Each tied to the companys strategy
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Measures
Descriptions of how success in achieving
objectives will be measured
Each tied to the companys objectives
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Targets
Level of performance or rate of improvement
desired for each measure
Each tied to one of the companys measures
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Initiatives
Short-term programs and actions that will help
achieve the established targets
Each tied to company objectives and measures
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Financial Perspective
Overall objective To succeed financially
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Core Financial Measures
ROI/EVA
Profitability
Revenue growth/mix
Cost reduction
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Customer Perspective
Overall objective To achieve our vision of
how the company should appear to customers
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Core Customer Measures
Market share
Customer acquisition
Customer retention
Customer profitability
Customer satisfaction
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Internal Perspective

• Overall objective
• To excel at having superior business
• processes to satisfy
• shareholders and customers

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Internal Perspective Measures
Process quality measures Time to process an
order Number of Returns Defect rates Yield
ratios Lead-times Waste, scrap, and rework
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Learning and GrowthPerspective

• Overall objective
• To sustain the ability to change and improve
• (Employee capabilities are a key
• ingredient to this objective.)

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Core Learning and Growth Measures
Development and research measures
Number of training programs
Employees trained per month
Employee retention
Employee productivity
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Examples of Initiatives
New maintenance program
Upgrade selected equipment
Establish performance benchmarks
New training program
Establish frequent purchase program
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Next An example to help students understand
howthe Balanced Scorecard works
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A Balanced ScorecardExample
Large camera store
25,000 square feet
10 million in sales
Profits unacceptably low
Industry changing due to technology
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Basic Business Strategy
Financial We will ensure that we use our
resources and people to maintain financial
success.
Customer We will meet or exceed our customers
current and future expectations and requirements
with high quality products, reasonable prices and
superior service.
Internal We will provide high quality on-time
imaging products and services and provide an
efficient and effective means to deliver them in
a high quality fashion.
Learning and Growth We will attract and retain
high caliber people and promote an environment
that develops their interpersonal, business and
technical skills and knowledge. We will strive
to develop and maintain the best sourcing for our
products. We will strive to be aware and on the
cutting edge of imaging and business technology.
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Achieve the strategy? How do we get there?
With a map
A strategy map
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Strategy Map Objectives
Financial Success
Financial
Customers impressed with quality products and
services
Attract new customers Retain customers On-time
products and services
Customer
Leading edge production capabilities
Well functioning facilities
Internal
Trained workforce
On cutting edge of technology
Best product sourcing
Learning and Growth
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Strategy Map Measures and Targets
Measures
Targets
Operating income Increase gross margin Amount of
operating expenses
100,000 Increase by 5 Maintain
Financial
Number of new customers No. of returning new
customers Number of customer complaints Number of
items per invoice
TBD Increase by 20 Zero Increase by 30
Customer
Number of rejected prints Percent of late
orders New products and services
1 0 10 Increase
Internal
Amount of employee training Amount of technology
training Sales from new product sourcing
1 Session per month 1 Session per month Increase
by 30
Learning and Growth
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Strategy Map Initiatives
New Price Comparison Report
Financial
Monthly sales promotions New Frequent Customer
Sales Program Employee sales and product training
program
Customer
Operator and lab training program Daily services
backlog report New products and services program
Internal
Employee training program Technology training
program Three purchasing trips
Learning and Growth
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Employee Rewards
Operating income
100,000
20 of net income
Financial
Returning new customers Customer
complaints Number of items per invoice
Increase by 20 Zero Increase by 30
Customer
Rejected prints Late orders New products and
services
1 0 10 Increase
Internal
Employee training Technology training Sales from
new product sourcing
1 per month 1 per month Increase 30
Learning and Growth
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Employee Rewards25,000 Equally to Five Managers
Measure or Initiative
Target
Weight
Sales Price Comparison Report
Monthly
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Financial
Monthly sales promotions Frequent Customer Sales
Program Returning new customers Customer
complaints Number of items per invoice
1 per month Functioning Increase by
20 Zero Increase by 30
10 05 05 10 10
Customer
Rejected prints Late orders New products and
services
1 0 10 Increase
00 10 05
Internal
Employee training Technology training Sales new
prod. sourcing Three purchasing trips
1 per month 1 per month Increase 30 3
10 10 05 10
Learning and Growth
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Employee Rewards25,000 Equally to Five Managers
Measure or Initiative
Bonus Amount
Green?
Weight
Sales Price Comparison Report
0
No
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Financial
Monthly sales promotions Frequent customer sales
program Returning new customers Customer
complaints Number of items per invoice
2,500 0 0 2,500 2,500
Yes No No Yes Yes
10 05 05 10 10
Customer
Rejected prints Late orders New products and
services
0 2,500 0
Yes Yes No
00 10 5
Internal
Employee training Technology training Sales new
prod. sourcing Three purchasing trips
2,500 2,500 0 2,500
Yes Yes No Yes
10 10 05 10
Learning and Growth
Total Number of managers Amount per manager
17,500 5 3,500
Total
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Total Balanced Scorecard Employee Incentives
(Assuming Net Income of 115,000)
Net income Bonus percentage Total net income
bonus Net income bonus per manager Number of
managers Measures and initiatives bonus Total
bonus per manager Number of managers Total
bonuses
115,000 20 23,000
5 4,600 3,500 8,100
5 40,500
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Next Moving Beyond the Companys Overall
Scorecard
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Departmental and Personal Scorecards
Each department develops its own scorecard based
on the companys overall scorecard.
Each employee develops his or her scorecard based
on the companys and departments scorecard.
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Departmental and Personal Scorecards
Scorecards must be closely aligned with overall
company goals and objectives.
Each objective must be aligned.
Each measure must be aligned.
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Each PerspectiveMust be Addressed
Set objectives for each perspective.
Set basis for measurement for each objective.
This allows managers and employees to focus on
the success of each perspective.
It also keeps them from focusing on one
perspective while neglecting another.
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Implementing theBalanced Scorecard
The push to implement must come from top
management.
Managers must buy in.
It takes 15 to 36 months in large organizations.
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Possible Pitfalls of the Balanced Scorecard
Senior management not committed
One senior manager tries to build the scorecard
alone
Scorecard responsibilities dont filter down
The solution is overdesigned, or scorecard
treated as a one-time event
The balanced scorecard is treated as a systems
project
Anthony Atkinson, Robert Kaplan, S. Mark Yong
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Suggested Reading
The Balanced Scorecard, Robert S. Kaplan and
David P. Norton, HBS Press
The Strategy-Focused Organization, Kaplan and
Norton, HBS Press
The Balanced Scorecard Step by Step Paul R.
Niven, John Wiley Sons
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Suggested Reading
Just out this year Strategy Maps Converting
Intangible Assets into Tangible Outcomes, Robert
S. Kaplan and David P. Norton, HBS Press
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Suggested Internet Surfing
The Balanced Scorecard Collaborative at
www.bscol.com
The Balanced Scorecard Institute at
www.balancedscorecard.org
Free basic online presentation by Paul Niven
www.bettermanagement.com/seminars/ seminar.aspx?L
ibraryID6199
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Suggested Internet Surfing
Free netconferences are also available at The
Balanced Scorecard Collaborative
www.bscol.com/education/conferences/ netconferen
ces/ Generally on the fourth Thursday of each
month at 1100 A.M. ET. Next netconference
October 28, 2004
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Thank You

• Comments?
• Questions?

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Beyond the Scope
The slides that follow provide additional
insight into the balanced scorecard.
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Handling Initiatives
Inventory current initiatives
Map them to BCS Objectives
Eliminate nonstrategic initiatives
Add new initiatives
Prioritize remaining initiatives
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Five Principles of Strategy-Focused Organizations
Principle 1 Translate the strategy to
operational terms
Principle 2 Align the organization to the
strategy
Principle 3 Make strategy everyones job
Principle 4 Make strategy a continual process
Principle 5 Mobilize leadership for change
Anthony Atkinson, Robert Kaplan, S. Mark Yong
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Implementing theBalanced Scorecard
Select an architect and form a taskforce.

• Hold meetings, workshops,
• and synthesis sessions.

Determine where business units fit into the big
picture.
Develop business strategies
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Implementing theBalanced Scorecard

• Build a consensus around
• strategic objectives.

Select and design measures.
Establish targets
Establish initiatives
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The Balanced Scorecard and aNew Management
Processes
New management processes may result from
implementing the balanced scorecard.
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New Management Processes
1. Translating the vision
2. Communicating and linking
3. Business planning
4. Feedback and learning
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1. Translating The Vision
To build a consensus around the organizations
vision and strategy
To express the vision in terms of an integrated
set of objectives, measures and initiatives
Must be agreed upon by all senior executives
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2. Communicating and Linking
Communicates the strategy up and down in the
organization
Links strategy to departmental objectives
Links strategy to individual objectives
Expands on performance measures that focus only
on financial performance
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2. Communicating and Linking
A way to ensure that all levels of the
organization understand the strategy
A way to ensure that department and individual
objectives are aligned with the strategy
Links rewards to performance measures
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3. Business Planning
Enables companies to integrate their business and
financial plans
Various independent change programs difficult to
integrate
However when goals are set and coordinated using
the balanced scorecard meaningful priorities can
be set.
Resources allocated accordingly
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4. Feedback and Learning
Expands on the traditional financial focus
Can monitor results from three more perspectives
Can evaluate strategy in light of performance in
all four areas
Modify strategy to reflect real-time learning as
opposed to modifying strategy during the annual
strategic plan meeting
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New Management Processes
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The Balanced Scorecard
The balanced scorecard is more than a performance
measurement technique.
Innovative CEOs used the balance scorecard not
only to clarify and communicate strategy, but
also to manage strategy.
They are using the measurement focus of the
scorecard to accomplish critical management
processes.
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The Balanced Scorecard
Clarify and translate vision and strategy
Communicate and link strategic objectives and
measures
Plan, set targets, and align strategic initiatives
Enhance strategic feedback and learning
Kaplan/Norton
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The End

• If you have questions or comments
• regarding this presentation,
• please feel free to contact Mike Werner at
• mwerner_at_miami.edu
• or by phone at 305-321-1139
• .