Description
The balanced scorecard (BSC) is a strategy performance management tool - a semi-standard structured report, supported by design methods and automation tools, that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the consequences arising from these actions
Balanced Score Card
STRATEGIC FINANCIAL COST MANAGEMENT
1
Drawbacks of traditional financial measure
( TPR-Traditional Performance Reporting)
• too financial-TPR system focuses entirely on cost control. In today’s world wide competitive environment , companies are competing in terms of product quality, delivery, reliability, after sales service and customer satisfaction-none of these variable is directly measured by TPR systems. TPR reports only details regarding cost control incurred by departments. They do not provide information on quality of service provides. • not customer driven • it is not clear how departmental measure are linked to company’s strategic objectives • are irrelevant • too inward looking • not always integrated • mainly developed for enterprises who are operating is sellers’ market • companies must develop performance measure that track customers’ demands like –timely delivery, defect free, short lead time, low prices & low cost of ownership.
2
Attributes of good performance measurement system
1. Effective internal & external communication 2. Clearly assigned & well understood accountability for results 3. Not just compilation of data, it must provide intelligence for decision makers 4. There should be linkage of compensation, rewards & recognition to performance measuerment 5. They should be positive & not negative 6. Disclosure of results & progress towards program commitments with employees, customers & other stakeholders.
3
Where BSC Started…
• Introduced in 1992, by Robert Kaplan and David Norton, the Balanced Scorecard is the most commonly used framework for ensuring that firms execute their strategies. Today, about 70% of the Fortune 1,000 companies utilize the Balanced Scorecard to help manage performance. • The most recent contribution to strategic management accounting • Integrated framework of performance measurement
4
What Is a Balanced Scorecard?
At the highest level, the Balanced Scorecard is A framework that helps organizations translate mission strategy into operational objectives ( a set of performance measures that provides framework for implementation of strategy) that drive both behavior and performance. Management accountants design reports to help Mamnagers track progress in implementing strategy. Many organisations have introduced Balanced Scorecard Approach to manage the implementation of their strategies. BSC does not focud solely on achieving financial objectives.It also highlights nonfinancial objectives that an organisation must achieve to meet & sustain its financial objectives. Te scorecard measures an organisation’s performance from four perspectives. A company’s strategy influences the measures it uses to track performance in each of these perspective. 5
Meaning of BSC What is it?
• BSC is a set of Financial & Non-financial measures relating to company’s critical success factor. • It is an approach which provides information to management to assist in strategic policy formulation & achievement. • It emphasises the need to provide user with set of information which addresses all relevant areas of performance in an objective & unbiased manner.
• It helps companies to asses overall performance, improve operational processes & enables management to develop better plan for improvements. • It offers managers a balanced view of their organisation upon wich they can base real change.
6
What is BSC? contd.
1) A measurement system-a new concept in performance measurement. 2) A strategic management system. 3) A communication tool. 4) BSC is basically concept in performance measurement. The score card measures organizational performance across four balanced perspectives: – Financial – Customer – Internal Business Processes • Innovation processes • Operation processes • Post sales service processes. – Learning and Growth
7
Concept of BSC
• The BSC complements financial measures of past performance with measures of the drivers of future performance, • Strategy Management tool. • The objectives & measures of BSC are derived from organization's mission and strategies.BSC should transform firm’s mission & strategies into tangible objectives & measures. • BSC translates organization's mission strategy into a set of performance measures that provides the framework for implementing its strategy. • It also highlights non financial measures. The score card measures organisation’s performance from four objectives. It is called BSC
because it balances the use of financial & nonfinancial performance measures to evaluate long run & short run performances in a single report. Non financial measures simply serve as leading indicators for hard-to-measure long run financial goals.
9
BSC as a Strategic Management System
? Translates strategy into: ? Objectives ? Measures ? Targets ? Initiatives • BSC complements financial measures of past performance with measurements of the drivers of future performance.BSC expands a set of business objective beyond summery financial measures. • Represents all perspective of the business. • Managers can now measure how their business units create value for current & future customers & how they must enhance internal capabilities & investment in people, systems,& procedures necessary to improve future performance.
10
BSC as a Measurement System
Financial
Customer Relations
Vision and Strategy
Internal Service Process
Learning, Innovation and Growth
11
12
What it should do…
• • • • • • • Clarify and translate vision and strategy Communicate and link strategic objectives and measures Plan, set, target, and align strategic initiatives Enhance strategic feedback and learning. Quantifies the Strategy in measurable terms Must capture a cause-effect relationship (ref next slide) Critical Components include: - Measurements - Targets - Initiatives • Everything must be linked: Goals to Objectives, Objectives to Measurements, Measurements to Targets. 13
Cause & Effect linkage of Perspectives
• Gain in learning & growth perspective • leads to improvement in internal business processes perspective. • which leads to higher customer satisfaction. • which leads to increase in market share. • in turn this finally leads to superior financial performance.
14
Why do it? Or advantages of BSC
• • • • • • • • • To achieve strategic objectives. To provide quality with fewer resources. To eliminate non-value added efforts. To align customer priorities and expectations with the customer. To track progress. To evaluate process changes. To continually improve. To increase accountability. Innovative companies are using BSC as strategic management system to manage their strategy over their long run
15
What’s in it for Managers?
• • • • • • Forces division to provide direction Engages division leadership in unit efforts Communicates to staff what is important to you Let’s you see the impact of your decisions and actions Allows staff to see the impact of their work Allows staff to see how they contribute to the organization as a whole • Engages employees in problem solving • If the customer is satisfied, your life is easier
18
The Four Cards
23
What’s in a card
• Get down to a set of quantifiable strategic objectives:
Too vague
Improve Customer Service
More precise
Reduce average customer wait times by 30% by year end
•
Make sure your objectives have a direct relationship to your goals and your goals have a direct relationship to your mission and values.
24
Financial Score Card
• Financial measures serve dual role as measures as well as overall objective of the system • Examples
– Costs – Revenue – Expenses – Budget – Return on Investment
25
Financial Perspective
? What financial steps are necessary to ensure the execution of our strategy/goals? ? Are the program’s/ department’s goals, implementation, and execution contributing to the bottom line? ? Are we meeting operational and financial targets? ? Dimensions of Quality:
– Efficiency
26
Customer Score Card
• Customer card allows companies to identify and measure, explicitly, the value proposition they will deliver to targeted customer and market segments • This perspective measures the ability of organisation to provide quality goods & services , the effectiveness of their delivery & overl all customer service & satisfaction • Beyond the Core – Customer Value – Product / Service Attributes – Customer Relationship – Image and Reputation
27
Customer Relations Perspective
? Who are our target customers? ? How do our customers see us? ? How do customers rate our performance? ? Dimension of Quality:
– Accessibility – Acceptability – Continuity
28
Internal Business Process
• Processes that are most critical for achieving customer and shareholder objectives • Examples – Sales cycle – Time of sale to delivery – Quality measures – Operational measures.
29
Internal Business Process
• Examples (health service)
– Unit Hour Utilization – Response Times – Quality Measures – Turn Around Times – Critical Vehicle Failures – Medication Errors – Patient Drops
30
Learning and Growth
• Examples
– Employee capabilities – Information system capabilities – Motivation, empowerment, and alignment – New Skills – New Knowledge – New Responsibilities
32
Learning, Innovation and Growth Perspective
? How can we continue to improve? ? What capabilities and tools do our employees need to execute our strategy/goals? ? Dimension of Quality:
– Competence – Participation
33
Non financial measures-some examples
• • • • • • • • • • • • • • • Number of defective finished product. Customer complaints. Unresolved complaints. Products returned. Warranty claims. In-process products rejected. Number of units produced per day per employee. Percentage of on-time deliveries. Percentage of orders filled. Inventory value/sales revenue. Machine down time in minutes/hours. Bottleneck machine downtime. Overtime (minutes) per employee. Average set up time in minutes Number of Training days
34
Non financial measures-some more examples
• • • • • • • • • • • • • • • Market share Yield Quality index Order delivery time % of employees trained in processes & quality management. % of manufacturing processes with real time feed back. Customer satisfaction index Customer returns & complaints. Coverage & strength of dealer. Number of dealers per state, region. Market Research activities measured in hours & rupees Time from order to customer receipt. Warranty expenses. Vendor quality defects. Amount of rework. • • • • • • • • • • • • • Labour efficiency , machine efficinecy. Amount of waste, rework,scrap. Machine down time. Set up time, Cycle time. Time lost due to accidents. Number of design Changes. Number of new patents & copy rights. Number of training hours. Employee turnover, attrition rate. Employee satisfaction survey rating. Number of complaints & grievances. Community service activities. % of revenue , hours by employees spent on corporate citizanship.
35
Illustrative BSC for airline business
37
Soutern Airlines’ Balanced Scorecard frame work
Strategic theme Operating efficiency Objectives (achieve&criti cal to success) Profitability More customers Fewer planes Flight is on time Lowest prices Measurement How success are measured) Market value Seat revenue Plane least cost FAA on time arrival rating Customer ranking(Market) Target(rate Of improvement needed) 30% CAGR 20% CAGR 5% CAGR 1 1 Quality managemen t Customer loyalty program Initiative (Key action)
Financial
Customer
Internal
Fast internal Turnaround
Ground crew alignment
learning
On ground time On time departure %ground crew trained % Ground crew stockholders
30 minutes 90%
Yr.1 Yr.3 Yr.5 70% 90% 100%
Cycle time optimisation
ESOP Ground crew training 38
1.Financial potential score card measures(Looking back)
Market share Revenue growth Operating profit Return on equity Stock Market Performance Growth in margin
Patient censes Unit profitability Fund raised For capital Improvement Cost per care % of revenue -new program
Revenue/cost Per available Passenger mile Mix of freight Mix of full fare To discounted Average age of fleet Available seat Miles and related yields
Outstanding Loan balances Deposit balances Non interest incom
Generic
Health care
Airlines
Banking39
2.Customer service and satisfaction(Looking from the outside in)
Customer satisfaction Customer retention Quality customer Service Sales from new Products/services
Generic
Patient satisfactory Survey Patient retention Patient referral Rate Admission or dis Charge timeliness Medical plan awareness
Health care
Customer retention Lost bag report No. of new Per 10000 Customers Passangers No.of products Denied boarding Per customer Rate Face time spent Flight cancellation Between loan Rate Officers and Customer complaints.. customers
Airlines
Banking
40
BSC-FRAMEWORK FOR ACTION
Clarifying & Translating Vision & Strategy
•Clarifying the visions •Gaining Consesus
Communicating & linking
•Communicating & education •Setting goals •Linking Rewards to performance measurement
BSC
Strategic Feed Back & Learning •Articulate shared vision •Supplying strategic Feedback
Planning & Target Setting •Setting Targets
•Aligning Strategic initiative •Allocating resources •Establishing milestones
44
Review/Summary
• The Balanced Scorecard is a framework that helps organizations translate strategy into operational objectives that drive both behavior and performance • The Balanced Scorecard is based on the premise that measurement motivates
• The scorecard is broken down into four perspectives that are linked
• The balanced scorecard has benefits across organizations • A typical balanced scorecard project is 12 weeks ( illustrative period, it would change with size & complex cities of enterprise), during which time organizations should translate strategy into operational objectives, determine measures, and provide guidance on setting targets and defining strategic initiatives
53
Benefits and limitations
BENEFITS
• • • • single report but four different perspective Specific performance measure Operational measurements together Improves communications within organisation
LIMITATIONS
• It is a top down approach, needs strong backing and deep involvement of senior management (CEO). • Expensive • Assumes capable MIS system, especially to gather results. • Need time to mature. • Many organisations start the process of implementing and but it is either half way carried or not consistently followed & implemented.
54
•The end
55
doc_707118043.pptx
The balanced scorecard (BSC) is a strategy performance management tool - a semi-standard structured report, supported by design methods and automation tools, that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the consequences arising from these actions
Balanced Score Card
STRATEGIC FINANCIAL COST MANAGEMENT
1
Drawbacks of traditional financial measure
( TPR-Traditional Performance Reporting)
• too financial-TPR system focuses entirely on cost control. In today’s world wide competitive environment , companies are competing in terms of product quality, delivery, reliability, after sales service and customer satisfaction-none of these variable is directly measured by TPR systems. TPR reports only details regarding cost control incurred by departments. They do not provide information on quality of service provides. • not customer driven • it is not clear how departmental measure are linked to company’s strategic objectives • are irrelevant • too inward looking • not always integrated • mainly developed for enterprises who are operating is sellers’ market • companies must develop performance measure that track customers’ demands like –timely delivery, defect free, short lead time, low prices & low cost of ownership.
2
Attributes of good performance measurement system
1. Effective internal & external communication 2. Clearly assigned & well understood accountability for results 3. Not just compilation of data, it must provide intelligence for decision makers 4. There should be linkage of compensation, rewards & recognition to performance measuerment 5. They should be positive & not negative 6. Disclosure of results & progress towards program commitments with employees, customers & other stakeholders.
3
Where BSC Started…
• Introduced in 1992, by Robert Kaplan and David Norton, the Balanced Scorecard is the most commonly used framework for ensuring that firms execute their strategies. Today, about 70% of the Fortune 1,000 companies utilize the Balanced Scorecard to help manage performance. • The most recent contribution to strategic management accounting • Integrated framework of performance measurement
4
What Is a Balanced Scorecard?
At the highest level, the Balanced Scorecard is A framework that helps organizations translate mission strategy into operational objectives ( a set of performance measures that provides framework for implementation of strategy) that drive both behavior and performance. Management accountants design reports to help Mamnagers track progress in implementing strategy. Many organisations have introduced Balanced Scorecard Approach to manage the implementation of their strategies. BSC does not focud solely on achieving financial objectives.It also highlights nonfinancial objectives that an organisation must achieve to meet & sustain its financial objectives. Te scorecard measures an organisation’s performance from four perspectives. A company’s strategy influences the measures it uses to track performance in each of these perspective. 5
Meaning of BSC What is it?
• BSC is a set of Financial & Non-financial measures relating to company’s critical success factor. • It is an approach which provides information to management to assist in strategic policy formulation & achievement. • It emphasises the need to provide user with set of information which addresses all relevant areas of performance in an objective & unbiased manner.
• It helps companies to asses overall performance, improve operational processes & enables management to develop better plan for improvements. • It offers managers a balanced view of their organisation upon wich they can base real change.
6
What is BSC? contd.
1) A measurement system-a new concept in performance measurement. 2) A strategic management system. 3) A communication tool. 4) BSC is basically concept in performance measurement. The score card measures organizational performance across four balanced perspectives: – Financial – Customer – Internal Business Processes • Innovation processes • Operation processes • Post sales service processes. – Learning and Growth
7
Concept of BSC
• The BSC complements financial measures of past performance with measures of the drivers of future performance, • Strategy Management tool. • The objectives & measures of BSC are derived from organization's mission and strategies.BSC should transform firm’s mission & strategies into tangible objectives & measures. • BSC translates organization's mission strategy into a set of performance measures that provides the framework for implementing its strategy. • It also highlights non financial measures. The score card measures organisation’s performance from four objectives. It is called BSC
because it balances the use of financial & nonfinancial performance measures to evaluate long run & short run performances in a single report. Non financial measures simply serve as leading indicators for hard-to-measure long run financial goals.
9
BSC as a Strategic Management System
? Translates strategy into: ? Objectives ? Measures ? Targets ? Initiatives • BSC complements financial measures of past performance with measurements of the drivers of future performance.BSC expands a set of business objective beyond summery financial measures. • Represents all perspective of the business. • Managers can now measure how their business units create value for current & future customers & how they must enhance internal capabilities & investment in people, systems,& procedures necessary to improve future performance.
10
BSC as a Measurement System
Financial
Customer Relations
Vision and Strategy
Internal Service Process
Learning, Innovation and Growth
11
12
What it should do…
• • • • • • • Clarify and translate vision and strategy Communicate and link strategic objectives and measures Plan, set, target, and align strategic initiatives Enhance strategic feedback and learning. Quantifies the Strategy in measurable terms Must capture a cause-effect relationship (ref next slide) Critical Components include: - Measurements - Targets - Initiatives • Everything must be linked: Goals to Objectives, Objectives to Measurements, Measurements to Targets. 13
Cause & Effect linkage of Perspectives
• Gain in learning & growth perspective • leads to improvement in internal business processes perspective. • which leads to higher customer satisfaction. • which leads to increase in market share. • in turn this finally leads to superior financial performance.
14
Why do it? Or advantages of BSC
• • • • • • • • • To achieve strategic objectives. To provide quality with fewer resources. To eliminate non-value added efforts. To align customer priorities and expectations with the customer. To track progress. To evaluate process changes. To continually improve. To increase accountability. Innovative companies are using BSC as strategic management system to manage their strategy over their long run
15
What’s in it for Managers?
• • • • • • Forces division to provide direction Engages division leadership in unit efforts Communicates to staff what is important to you Let’s you see the impact of your decisions and actions Allows staff to see the impact of their work Allows staff to see how they contribute to the organization as a whole • Engages employees in problem solving • If the customer is satisfied, your life is easier
18
The Four Cards
23
What’s in a card
• Get down to a set of quantifiable strategic objectives:
Too vague
Improve Customer Service
More precise
Reduce average customer wait times by 30% by year end
•
Make sure your objectives have a direct relationship to your goals and your goals have a direct relationship to your mission and values.
24
Financial Score Card
• Financial measures serve dual role as measures as well as overall objective of the system • Examples
– Costs – Revenue – Expenses – Budget – Return on Investment
25
Financial Perspective
? What financial steps are necessary to ensure the execution of our strategy/goals? ? Are the program’s/ department’s goals, implementation, and execution contributing to the bottom line? ? Are we meeting operational and financial targets? ? Dimensions of Quality:
– Efficiency
26
Customer Score Card
• Customer card allows companies to identify and measure, explicitly, the value proposition they will deliver to targeted customer and market segments • This perspective measures the ability of organisation to provide quality goods & services , the effectiveness of their delivery & overl all customer service & satisfaction • Beyond the Core – Customer Value – Product / Service Attributes – Customer Relationship – Image and Reputation
27
Customer Relations Perspective
? Who are our target customers? ? How do our customers see us? ? How do customers rate our performance? ? Dimension of Quality:
– Accessibility – Acceptability – Continuity
28
Internal Business Process
• Processes that are most critical for achieving customer and shareholder objectives • Examples – Sales cycle – Time of sale to delivery – Quality measures – Operational measures.
29
Internal Business Process
• Examples (health service)
– Unit Hour Utilization – Response Times – Quality Measures – Turn Around Times – Critical Vehicle Failures – Medication Errors – Patient Drops
30
Learning and Growth
• Examples
– Employee capabilities – Information system capabilities – Motivation, empowerment, and alignment – New Skills – New Knowledge – New Responsibilities
32
Learning, Innovation and Growth Perspective
? How can we continue to improve? ? What capabilities and tools do our employees need to execute our strategy/goals? ? Dimension of Quality:
– Competence – Participation
33
Non financial measures-some examples
• • • • • • • • • • • • • • • Number of defective finished product. Customer complaints. Unresolved complaints. Products returned. Warranty claims. In-process products rejected. Number of units produced per day per employee. Percentage of on-time deliveries. Percentage of orders filled. Inventory value/sales revenue. Machine down time in minutes/hours. Bottleneck machine downtime. Overtime (minutes) per employee. Average set up time in minutes Number of Training days
34
Non financial measures-some more examples
• • • • • • • • • • • • • • • Market share Yield Quality index Order delivery time % of employees trained in processes & quality management. % of manufacturing processes with real time feed back. Customer satisfaction index Customer returns & complaints. Coverage & strength of dealer. Number of dealers per state, region. Market Research activities measured in hours & rupees Time from order to customer receipt. Warranty expenses. Vendor quality defects. Amount of rework. • • • • • • • • • • • • • Labour efficiency , machine efficinecy. Amount of waste, rework,scrap. Machine down time. Set up time, Cycle time. Time lost due to accidents. Number of design Changes. Number of new patents & copy rights. Number of training hours. Employee turnover, attrition rate. Employee satisfaction survey rating. Number of complaints & grievances. Community service activities. % of revenue , hours by employees spent on corporate citizanship.
35
Illustrative BSC for airline business
37
Soutern Airlines’ Balanced Scorecard frame work
Strategic theme Operating efficiency Objectives (achieve&criti cal to success) Profitability More customers Fewer planes Flight is on time Lowest prices Measurement How success are measured) Market value Seat revenue Plane least cost FAA on time arrival rating Customer ranking(Market) Target(rate Of improvement needed) 30% CAGR 20% CAGR 5% CAGR 1 1 Quality managemen t Customer loyalty program Initiative (Key action)
Financial
Customer
Internal
Fast internal Turnaround
Ground crew alignment
learning
On ground time On time departure %ground crew trained % Ground crew stockholders
30 minutes 90%
Yr.1 Yr.3 Yr.5 70% 90% 100%
Cycle time optimisation
ESOP Ground crew training 38
1.Financial potential score card measures(Looking back)
Market share Revenue growth Operating profit Return on equity Stock Market Performance Growth in margin
Patient censes Unit profitability Fund raised For capital Improvement Cost per care % of revenue -new program
Revenue/cost Per available Passenger mile Mix of freight Mix of full fare To discounted Average age of fleet Available seat Miles and related yields
Outstanding Loan balances Deposit balances Non interest incom
Generic
Health care
Airlines
Banking39
2.Customer service and satisfaction(Looking from the outside in)
Customer satisfaction Customer retention Quality customer Service Sales from new Products/services
Generic
Patient satisfactory Survey Patient retention Patient referral Rate Admission or dis Charge timeliness Medical plan awareness
Health care
Customer retention Lost bag report No. of new Per 10000 Customers Passangers No.of products Denied boarding Per customer Rate Face time spent Flight cancellation Between loan Rate Officers and Customer complaints.. customers
Airlines
Banking
40
BSC-FRAMEWORK FOR ACTION
Clarifying & Translating Vision & Strategy
•Clarifying the visions •Gaining Consesus
Communicating & linking
•Communicating & education •Setting goals •Linking Rewards to performance measurement
BSC
Strategic Feed Back & Learning •Articulate shared vision •Supplying strategic Feedback
Planning & Target Setting •Setting Targets
•Aligning Strategic initiative •Allocating resources •Establishing milestones
44
Review/Summary
• The Balanced Scorecard is a framework that helps organizations translate strategy into operational objectives that drive both behavior and performance • The Balanced Scorecard is based on the premise that measurement motivates
• The scorecard is broken down into four perspectives that are linked
• The balanced scorecard has benefits across organizations • A typical balanced scorecard project is 12 weeks ( illustrative period, it would change with size & complex cities of enterprise), during which time organizations should translate strategy into operational objectives, determine measures, and provide guidance on setting targets and defining strategic initiatives
53
Benefits and limitations
BENEFITS
• • • • single report but four different perspective Specific performance measure Operational measurements together Improves communications within organisation
LIMITATIONS
• It is a top down approach, needs strong backing and deep involvement of senior management (CEO). • Expensive • Assumes capable MIS system, especially to gather results. • Need time to mature. • Many organisations start the process of implementing and but it is either half way carried or not consistently followed & implemented.
54
•The end
55
doc_707118043.pptx