Balanced Scorecard Translating Strategy Into Action (Kaplan

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Balanced ScorecardTranslating Strategy Into
Action (Kaplan Norton, 1996)

• A 4-hour Introduction

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Introduction

• BSC, whats that?
• ..provides managers with the instrumentation
  they need to navigate to future competitive
  success..
• ..translates an organizations mission and
  strategy into a comprehensive set of measures
  that provides the framework for a strategic
  measurement and management system..

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Introduction

• There has been an increasing need to mobilize and
  exploit, not just tangible assets, but also and
  even more so intangible assets

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Intangible assets enable

• Develop customer relationships that retain the
  loyalty of existing customers and enable new
  customer segments and market areas to be served
  effectively and efficiently
• Introduce innovative products and services
  desired by targeted customer segments
• Produce customized high-quality products and
  services at low costs and with short lead times
• Mobilize employee skills and motivation for
  continuous improvements in process capabilities,
  quality, and response time
• deploy IT (databases and other systems)

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The Basic Framework
Financial To succeed financially, how should we
appear to our shareholders?
Vision and Strategy
Internal Business Process To satisfy our
shareholders and customers, what busi- ness
processes must we excel at?
Customer To achieve our vision, how should we
appear to our customer?
Learning and Growth To achieve our vision, how
will we sustain our ability to change and
improve?
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The Strategic Framework for Action

• Clarifying and Trans-
• lating the Vision and
• Strategy
• Clarifying the vision
• Gaining consensus

BSC

• Strategic Feedback
• and Learning
• Articulating the shared vision
• Supplying strategic feedback
• Facilitating strategy review
• and learning

• Communicating and
• Linking
• Communicating and educa-
• ting
• Setting goals
• Linking rewards to perfor-
• mance measures

• Planning and Target
• Setting
• Setting targets
• Aligning strategic initiatives
• Allocating resources
• Establishing milestones

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Why Does Business Need a Balanced Scorecard?

• Financial perspective
• Customer perspective
• Internal-Business-Process perspective
• Learning and Growth perspective

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Internal-Business-Process

• Enables the business (unit) to
• Deliver the value proposition that will attract
  and retain customers
• Satisfy shareholder expectations of excellent
  financial returns.
• The IBP measures focus on the internal processes
  that will have the greatest impact on customer
  satisfaction and achieving an organizations
  financial objectives.

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IBP traditional vs. BSC approach

• Two fundamental difference
• Traditional monitor and improve existing BP
• BSC usually identify entirely new processes at
  which firms must excel to meet customer and
  financial expectations
• Traditional focus on processes which deliver
  todays products and services to todays
  customers.
• BSC incorporate innovation processes into IBP
  enabling value creation as driver of FUTURE
  performance.

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Value system
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IBP value chain perspective
Innovation
Operations
Time-to-market
Supply Chain
Business Processes

• Innovation Process
• Product Desin
• Product Development

• Operations Process
• Manufacturing
• Marketing
• Postsale Service

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The Value Chain Decomposed
Firm infrastructure (finance, accounting, legal)
Human resource management
Technology development
Procurement
Inbound logistics
Production operations
Outbound logistics
Marketing and sales
Service
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Drug Development Process the Staircase model
the FIPCO model
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Cause-and-Effect Relationship
ROCE
Financial
Customer Loyalty
Customer
On-Time Delivery
Process Cycle Time
Process Quality
IBP
Employee Skills
Learning and Growth
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Measuring Business Strategy

• On a very broad level
• Growth
• start-up, take-off, maturity, decline
• Sustain
• Harvest
• Lead to financial themes in business strategy
• Revenue growth and mix
• Cost reduction/productivity improvement
• Asset utilization/investment strategy

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Measuring Strategic Financial Themes
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Recap cash-to-cash cycle (Churchill, HBR, 2001,
How Fast Can You Grow)
Purchase Raw Materials or Mer- chandise
from Supplier
Sell Product
Days Receivable
Days Inventory
Cash-to-cash Cycle
Days Payable
Pay Supplier for Materials (Merchandise)
Collect cash from customer
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Customer Perspective

• Core Measurement include
• Market share
• Reflects the proportion of business in a given
  market (customer, spent, unit volume sold) that
  the business sells.
• Customer retention
• Tracks, in absolute or relative terms, the rate
  at which a business unit retains or maintains
  ongoing relationships with its customers.
• Customer acquisition
• Measures, in absolute or relative terms, the rate
  at which a business unit attracts or wins new
  customers or business.
• Customer satisfaction
• Assesses the satisfaction level of customers
  along specific performance criteria within the
  value proposition
• Customer profitability
• Measures the net profit of a customer, or a
  segment, after allowing for the unique expenses
  required to support that customer.

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Customer perspective the logic
Market Share
Customer Profitability
Customer Acquisition
Customer Retention
Customer Satisfaction
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Customer Value Proposition
Generic
Core Customer Measure

• Customer
• Retention

• Customer
• Very satisfied
• Survey

• Market
• share

• New Customer
• Acquisition

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IBP the Generic Value Chain model RECAP
Postsale Service Process
Operations
Innovation
Customer Need Identification
Customer Need Satis- facation
Service the Customer
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IBP

• Three principal business processes
• Innovation
• the firm studies the emerging or latent needs of
  customers (e.g. Gap-model)
• Operations
• Existing products are produced and delivered
• Postsale services

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The Innovation Process

• Seek answers to two crucial questions
• What range of benefits will customers value in
  tomorrows products?
• How might we, through innovation, preempt
  competitors in delivering those benefits to the
  marketplace?

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The firms RD group

• Performs basic research to develop radically new
  products and services for delivering value to
  customers
• Performs applied research to exploit existing
  technology for the next generation of products
  and services, and
• Makes focused development efforts to bring new
  products and services to market
• Historically, little attention devoted to
  developing performance metrics for product design
  and development processes-.

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Measures for basic and applied research

• Percentage of sales from new products
• Percentage of sales from proprietary products
• New product introduction versus competitors
  also new product introduction versus plan
• Manufacturing process capabilities
• Time to develop next generation of products

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Measure for product development

• Break-even time metric (BET)
• the time from the beginning of product
  development work until the product has been
  introduced and generated enough profit to pay
  back the investment oriinally made in its
  development
• Rather a metric for desired behaviour than a
  measure of outcome
• Time-to Market
• the time the product starts to generate sales
• Break-Even-After Release (BEAR)
• The time from sales began to when the product
  generates profit

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Value Chain
Postsale Service Process
Innovation Process
Operations Process
Manage Risk
Customer Need Identification
Customer Need Satis- facation
Market and Sell
Distribute and Services
Leverage Relationship
Determine Channel
Manage the Business
Strategic Themes
Target Profitable Segments
Match the Customer with the Channel
Service Quality
Cross-sell

• Quality of Market
• Share (profitability
• by segment)

Strategic Measures

• of Revenue from
• new products
• Channel Transaction
• Mix

• Internal Customer
• Satisfaction

• Cross-sell Ratio
• Selling Contacts per
• salesperson
• New Revenue per
• salesperson

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Operations Process time, quality and cost
measurements

• Cycle or throughput times can be measured in many
  ways. The start corresponds to the time when
• Customer order is received
• Customer order, or production batch is scheduled
• Raw materials are ordered for the order or
  production batch
• Raw materials are received
• Production on the order or batch is initiated
• The end corresponds to
• Production of the order or the batch has been
  completed
• order or batch is in finished goods inventory,
  available to be shipped
• order is shipped
• order is received by the cutomer

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Learning and Growth Perspective

• Three principal categories
• Employee capabilities
• Information systems capabilities
• Motivation, empowerment, and alignment

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Linking BSC measures to strategy

• Cause-and-effect relationships
• Performance drivers
• Linkage to financials