Developing a Balanced Scorecard

CIPD Norfolk Group, 17 October 2006 Richard Barnes Culturetracker.com

     

What is a “Balanced” Scorecard

A strategic and operational tool Owned by the Executive Shared by everyone Balances:  Long and short term    Hard and soft measures Leading and trailing indicators Internal/external perspectives Like writing a novel, not writing a list Measures support change, not monitoring

It is NOT

      A new idea An end in itself A playing field for internal politics An “initiative” of Finance, HR, Marketing etc.

Boardroom art A make-work exercise

Its origins

    Nolan-Norton Consultants 1990 12 client “Organisation of the Future” study group Based on premise that financial measures were insufficient for a modern business Principles espoused previously by:     Rensis Likert (The Human Organisation, 1960) TQM “gurus” (Deming, Crosby, Juran etc.)* European Foundation for Quality Management (1985) Maisel and McNair parallel models

* Original K&N source was part of a TQ programme

The EFQM Excellence Model

9% 9% 10% 14% 8% 20% 9% 6% (percentages show how each elements is scored for importance) 15%

Kaplan and Norton model (1996)

Customer Financials Balanced Scorecard Learning & growth Business Processes

A question of balance?

Customer perspective Corrective activity Developmental activity Balancing compliance with added value Financial Measures Key performance ratios Financial health Balancing leading with trailing indicators Balanced Scorecard Business Processes

Drumbeat

Time, cost, quality Balancing inputs and outputs Learning and growth People measures Knowledge measures Balancing soft and hard indicators

Building the Balanced Scorecard

How do you create value?

The key question

A strategic tool

   Starts with strategy Continuous process Needs to become culturally embedded

The story of a scorecard

To be successful for our shareholders, we must be (position in market), which means that we must return superior financial results in .......

Our customers are the people who will secure these results for us so we must offer our customers superior value by .........

To deliver this superior value we must excel in the way we manage the processes for .......

These processes are operated by our people. We must provide our people with ....... to achieve excellent performance.

Cause and effect chain

May be reversed Strategic Objective What Financial Measure How Customer Value Measure How Process Measure How Employee Measure

Cause and effect chain example

F C Become No 2 player What Market share How Service span offer How P Services delivered per customer How E Availability of data

The Balanced Scorecard

Where does it fit?

Where does it fit?

Balanced Scorecard Vision Mission and CSFs Strategic Objectives Building Using

Culture and values (leadership/style/relationships etc.)

Example Retail Strategic themes

Themes  Broadening the offer    Focus on Health and Beauty Friendly and Fun Destination of Choice Projects  Pharmacy store expansion    New store opening process Living the Mission Category management Measures  Pharmacy store sales growth    Brand Penetration (Market Research) Mystery Shopper Footfall and basket size

Sample retail scorecard

Customer perspective Basket Size Mystery Shopper index Footfall Complaints Financial Measures Sales Revenue growth Return on Turnover Cost of sales Shrinkage Balanced Scorecard Business Processes Stock Outs New store plan vs. actual Strategic Projects delivery Supply chain process time Learning and growth Absence level Stability index Mission involvement index Starfish.net ideas

PEOPLE

Joined up thinking?

Blue arrows indicate positive correlation. Red arrows negative. Broken line is a weaker connection

CUSTOMER

Staff Loyalty Complaints* Development Satisfaction * No data available for this element

0.16

Morale (absence)

-0.20

only in Metro and Extra Stores Recruitment

0.27

only in smaller store formats - Metro and Express One in Front*

-0.28

OPERATIONS

Productivity

0.1

0.13

-0.1

0.16

Loyalty* Market share* Sales Growth*

0.17

0.11

-0.16

0.22

Cost Controls (Sales var)

-0.1

Stock availability Waste Mgt* Stock Mgt Profitability* Driving extra sales to bottom line* Number at arrow head indicates size of Pearson co-efficient of correlation.

Superstores used for consistency of statistic except where indicated.

FINANCE

Using the Balanced Scorecard

Drill-down into HR systems

Performance management

Age What is valued?

Pre-industrial Age Industrial Age Obedience Output Information Age Community Loyalty Knowledge Innovation

Key process Key Output Culture

Belonging Contribution Social Compliance Output Empowerment New value Work-ethic Mobility

Learning and growth

      Employee satisfaction Employee capability Information availability Knowledge growth Performance and reward management systems Cultural measures from surveys – e.g. leadership, communication, recognition (enablers)

Success factors

 Drill-down into Systems   Planning and objective setting Operational targets        Budgeting Internal audit Continuous improvement Project management Performance management/appraisal Reporting and meeting regimes Reward and recognition.......

“Unfortunately, this year’s low score on morale in the employee survey means our balanced scorecard index is below the threshold for the bonus award”

…with grateful thanks to Catbert