Transcript MBA III SEMESTER : Business policy and strategic

MBA III SEMESTER : BUSINESS POLICY AND STRATEGIC MANAGEMENT Course No 301 Paper No. XVIII
Balanced Score Card
Some Historic Reference……..
In 1992,
an article by Robert Kaplan and David Norton entitled
"The Balanced Scorecard - Measures that Drive Performance"
in the Harvard Business Review caused a lot of attention
for their method, and led to their business bestseller,
"The Balanced Scorecard: Translating Strategy into Action",
published in 1996.
Dr. N.C.Dhande SRTM University, Nanded
[email protected]
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MBA III SEMESTER : BUSINESS POLICY AND STRATEGIC MANAGEMENT Course No 301 Paper No. XVIII
Balanced Score Card
THE 4 PERSPECTIVES OF THE BALANCED SCORECARD
• The Balanced Scorecard method is a strategic approach, and
performance management system.
• It enables organizations to translate a company's vision and strategy
into implementation, working from 4 perspectives:
1. Financial perspective.
2. Customer perspective.
3. Business process perspective.
4. Learning and growth perspective.
This allows the monitoring of present performance, but the method
also tries to capture information about how well the organization is
positioned to perform in the future.
Dr. N.C.Dhande SRTM University, Nanded
[email protected]
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MBA III SEMESTER : BUSINESS POLICY AND STRATEGIC MANAGEMENT Course No 301 Paper No. XVIII
Balanced Score Card
Dr. N.C.Dhande SRTM University, Nanded
[email protected]
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MBA III SEMESTER : BUSINESS POLICY AND STRATEGIC MANAGEMENT Course No 301 Paper No. XVIII
Balanced Score Card
1. THE FINANCIAL PERSPECTIVE
Kaplan and Norton do not disregard the traditional need for financial data.
Timely and accurate funding data will always be a priority, and managers will
make sure to provide it. In fact, there is often more than sufficient handling
and processing of financial data. With the implementation of a corporate
database, it is hoped that more of the processing can be centralized and
automated. But the point is that the current emphasis on financial issues leads
to an unbalanced situation with regard to other perspectives. There is perhaps
a need to include additional financial related data, such as risk assessment and
cost-benefit data, in this category.
2. THE CUSTOMER PERSPECTIVE
Recent management philosophy has shown an increasing realization of the
importance of customer focus and customer satisfaction in any company.
These are called leading indicators: if customers are not satisfied, they will
eventually find other suppliers that will meet their needs. Poor performance
from this perspective is thus a leading indicator of future decline.
Even though the current financial picture may seem (still) good. In developing
metrics for satisfaction, customers should be analyzed. In terms of kinds of
customers, and of the kinds of processes for which we are providing a product
or service to those customer groups.
Dr. N.C.Dhande SRTM University, Nanded
[email protected]
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MBA III SEMESTER : BUSINESS POLICY AND STRATEGIC MANAGEMENT Course No 301 Paper No. XVIII
Balanced Score Card
3. THE BUSINESS PROCESS PERSPECTIVE
This perspective refers to internal business processes.
Measurements based on this perspective will show the managers
how well their business is running, and whether its products and
services conform to customer requirements. These metrics have to
be carefully designed by those that know these processes most
intimately. In addition to the strategic management processes,
two kinds of business processes may be identified:
Mission-oriented processes. Many unique problems are
encountered in these processes.
Support processes. The support processes are more repetitive in
nature, and hence easier to measure and to benchmark. Generic
measurement methods can be used.
Dr. N.C.Dhande SRTM University, Nanded
[email protected]
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MBA III SEMESTER : BUSINESS POLICY AND STRATEGIC MANAGEMENT Course No 301 Paper No. XVIII
Balanced Score Card
4. LEARNING AND GROWTH PERSPECTIVE
* Includes employee training and corporate cultural attitudes
related to both individual and corporate self-improvement.
* In a knowledge worker organization, people are the main
resource.
In the current climate of rapid technological change, it is
becoming necessary for knowledge workers to learn
continuously.
Kaplan and Norton emphasize that 'learning' is something
more than 'training'; it also includes things like mentors and
tutors within the organization, as well as that ease of
communication among workers that allows them to readily
get help on a problem when it is needed. It also includes
technological tools such as an Intranet.
Dr. N.C.Dhande SRTM University, Nanded
[email protected]
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MBA III SEMESTER : BUSINESS POLICY AND STRATEGIC MANAGEMENT Course No 301 Paper No. XVIII
Balanced Score Card
4. LEARNING AND GROWTH PERSPECTIVE
* The integration of these four perspectives into a one graphical
appealing picture, has made the Balanced Scorecard method very
successful as a management methodology.
Objectives, Measures, Targets, and Initiatives
For each perspective of the Balanced Scorecard four things are
monitored (scored):
Objectives: major objectives to be achieved, for example,
profitable growth.
Measures: the observable parameters that will be used to measure
progress toward reaching the objective. For example, the objective
of profitable growth might be measured by growth in net margin.
Targets: the specific target values for the measures, for example,
7% annual decline in manufacturing disruptions.
Initiatives: projects or programs to be initiated in order to meet the
objective.
Dr. N.C.Dhande SRTM University, Nanded
[email protected]
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MBA III SEMESTER : BUSINESS POLICY AND STRATEGIC MANAGEMENT Course No 301 Paper No. XVIII
Balanced Score Card
DOUBLE-LOOP FEEDBACK
In traditional industrial activity, "quality control" and "zero defects" were
important words. To shield the customer from receiving poor quality
products, aggressive efforts were focused on inspection and testing at the
end of the production line. A problem with these approaches - as pointed
out by Deming - is that the true causes of defects could never be
identified, and there would always be inefficiencies because products with
a defect are rejected. Deming understood that variation is created at every
step in a production process, and the causes of variation need to be
identified and repaired. If this can be done, then there is a way to reduce
the defects and improve product quality indefinitely. To establish such a
process, Deming emphasized that all business processes should be part of
a system, with feedback loops. The feedback data should be examined by
managers to determine the causes of variation, and what are the processes
with significant problems. Then they can focus their attention on repairing
that subset of processes.
The balanced scorecard method includes feedbacks around
internal business process outputs. As in TQM. Additionally,
the Balanced Scorecard provides a feedback for the outcomes
of business strategies. This creates a "double-loop feedback"
process in the balanced scorecard.
Dr. N.C.Dhande SRTM University, Nanded
[email protected]
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MBA III SEMESTER : BUSINESS POLICY AND STRATEGIC MANAGEMENT Course No 301 Paper No. XVIII
Balanced Score Card
OUTCOME METRICS
• “You can't improve what you can't measure”. Therefore metrics must be
developed based on the priorities of the strategic plan, which provides the
key business drivers and criteria for metrics managers most desire to watch.
Processes are then designed to collect information relevant to these metrics
and reduce it to numerical form for storage, display, and analysis. Decision
makers examine the outcomes of various measured processes and strategies
and track the results to guide the company and provide feedback.
So the value of metrics is in their ability to provide a factual basis for
defining:
• Strategic feedback to show the present status of the
organization from many perspectives for decision makers.
• Diagnostic feedback into various processes to guide
improvements on a continuous basis.
• Trends in performance over time.
• Feedback around the measurement methods themselves.
Which measurements should be tracked?
• Quantitative inputs for forecast methods and for decision
support systems.
Dr. N.C.Dhande SRTM University, Nanded
[email protected]
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MBA III SEMESTER : BUSINESS POLICY AND STRATEGIC MANAGEMENT Course No 301 Paper No. XVIII
Balanced Score Card
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MANAGEMENT BY FACT
The goal of measuring is to permit managers to see their company more
clearly - from many perspectives - and hence to make wiser long-term
decisions. A 1997 booklet on the Baldrige Criteria summarizes this concept
of fact-based management:
"Modern businesses depend upon measurement and analysis of
performance. Measurements must derive from the company's
strategy and provide critical data and information about key
processes, outputs and results. Data and information needed for
performance measurement and improvement are of many types,
including: customer, product and service performance, operations,
market, competitive comparisons, supplier, employee-related, and
cost and financial. Analysis entails using data to determine trends,
projections, and cause and effect - that might not be evident without
analysis. Data and analysis support a variety of company purposes,
such as planning, reviewing company performance, improving
operations, and comparing company performance with competitors'
or with 'best practices' benchmarks."
Dr. N.C.Dhande SRTM University, Nanded
[email protected]
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MBA III SEMESTER : BUSINESS POLICY AND STRATEGIC MANAGEMENT Course No 301 Paper No. XVIII
Balanced Score Card
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Benefits of the Balanced Scorecard
Kaplan and Norton cite the following benefits of
the usage of the Balanced Scorecard:
Focusing the whole organization on the few key
things needed to create breakthrough
performance.
Helps to integrate various corporate programs.
Such as: quality, re-engineering, and customer
service initiatives.
Breaking down strategic measures towards lower
levels, so that unit managers, operators, and
employees can see what's required at their level to
achieve excellent overall performance.
Dr. N.C.Dhande SRTM University, Nanded
[email protected]
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MBA III SEMESTER : BUSINESS POLICY AND STRATEGIC MANAGEMENT Course No 301 Paper No. XVIII
Balanced Score Card
• The financial performance of an organization is
essential for its success. Even non-profit organizations
must deal in a sensible way with funds they receive.
However, a pure financial approach for managing
organizations suffers from two drawbacks:
• It is historical. Whilst it tells us what has happened to
the organization, it may not tell us what is currently
happening. Nor it is a good indicator of future
performance.
• It is too low. It is common for the current market value
of an organization to exceed the market value of its
assets. Tobin's-q measures the ratio of the value of a
company's assets to its market value. The excess value
is resulting from intangible assets. This kind of value is
not measured by normal financial reporting.
Dr. N.C.Dhande SRTM University, Nanded
[email protected]
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MBA III SEMESTER : BUSINESS POLICY AND STRATEGIC MANAGEMENT Course No 301 Paper No. XVIII
Balanced Score Card
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CAUTIONARY NOTE ON USING THE BALANCED SCORECARD
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You tend to get what you measure. People will work to achieve the explicit targets
which are set. For example, emphasizing traditional financial measures may
encourage short-term thinking. The Core Group Theory by Kleiner provides further
clues on the mechanisms behind this. Kaplan and Norton recognize this, and urge
for a more balanced set of measurements. But still, people will work to achieve
their scorecard goals, and may ignore important things which have no place on their
scorecard.
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EVOLUTION OF THE BALANCED SCORECARD
In 2002, Cobbold and Lawrie developed a classification of Balanced Scorecard
designs based upon the intended method of use within an organization. They
describe how the Balanced Scorecard can be used to support three distinct
management activities, the first two being management control and strategic
control. They assert that due to differences in the performance data requirements of
these applications, planned use should influence the type of BSC design adopted.
Later that year the same authors reviewed the evolution of the Balanced Scorecard
as shown through the use of Strategy Maps as a strategic management tool,
recognizing three distinct generations of Balanced Scorecard design.
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Book: Robert S. Kaplan, David P. Norton - The BSC: Translating Strategy into Action Book: Paul R. Niven - BSC Step-by-Step: Maximizing Performance and Maintaining Results Book: Paul R. Niven - BSC Step-by-Step for Government and Nonprofit Agencies -
Dr. N.C.Dhande SRTM University, Nanded
[email protected]
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MBA III SEMESTER : BUSINESS POLICY AND STRATEGIC MANAGEMENT Course No 301 Paper No. XVIII
Balanced Score Card
ASSIGNMENT
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Apply balance score card to an organization you know.
Study the balance score card applied by any organization.
Read the papers in international journals regarding balanced score card.
THANKS……….
Dr. N.C.Dhande SRTM University, Nanded
[email protected]
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