The Balanced Scorecard

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The Balanced Scorecard
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The Balanced Scorecard

• Developed by Robert Kaplan and David Norton.
• Introduced in the early 1990s.
• Motivated in part by Wall Streets focus on
  quarterly earnings.
• Widespread adoption (hundreds of companies).

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Financial Performance Measures

• Financial measures are lag indicators they
  report on the outcomes of past actions.
• Traditional financial measures fail to accurately
  value intangible assets such as
• Customer relationships
• Innovative products and services
• Operating processes
• Human capital
• Information technology systems
• Organizational climate

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The Balanced Scorecard Identified Four
Perspectives

• Financial
• Customer
• Internal business processes
• Learning and growth

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The Balanced Scorecard Identified Four
Perspectives

• Financial
• Increase shareholder value
• Revenue growth
• New markets, products, customers
• Additional sales to existing customers
• Productivity
• Reduce direct and indirect expenses
• Utilize assets more efficiently

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The Balanced Scorecard Identified Four
Perspectives

• Customer
• Operational excellence
• Starbucks
• Customer intimacy
• Exceptional service
• Custom products and solutions
• Product leadership
• Apple

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The Balanced Scorecard Identified Four
Perspectives

• Internal business processes
• Build the franchise (innovation processes)
• Increase customer value (customer management
  processes)
• Operational excellence (operations and logistics)
• Good corporate citizenship (regulatory and
  environmental processes)

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The Balanced Scorecard Identified Four
Perspectives

• Learning and growth
• Employee capabilities and skills
• Technology
• Organizational climate

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Balanced Scorecard look-alikes

• Stakeholder scorecards
• Shareholders
• Customers
• Employees
• Key performance indicator scorecards
• a.k.a. KPI scorecards
• A checklist approach
• The Difference Performance Measurement versus
  Strategic Management

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The Balanced Scorecard

• Step 1 Review the organizations mission
  statement.
• Why does the organization exist?
• What are the organizations core values?
• Step 2 Develop a strategic vision.
• What does the organization want to become?
• Identify a clear picture of the organizations
  overall goal.

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The Balanced Scorecard

• Step 3 Translate the strategy into operational
  terms.
• Step 4 Align the organization to the strategy.
• Align across business units
• Align across staff functions
• Align with outside stakeholders (suppliers,
  customers, etc.)

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The Balanced Scorecard

• Step 5 Make strategy everyones everyday job.
• Communication and education
• Incentive compensation
• Step 6 Make strategy a continual process.
• Link strategy to the budgeting process
• Step 7 Mobilize leadership for change.