Transcript Balanced Scorecard

Balanced Scorecard
Bruce C Hartman
MGT 400
Operating Assumptions for the
Information Age
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Cross Functions
Links in Supply Chains
Customer Segments
Global Scale
Innovation
Knowledge Workers
The Value Chain
Customer need identified
Customer Need satisfied
BSC as a Management System
• Defined top-down
by strategy
• Balances
– External and
internal processes
– Outcomes (lag) and
drivers (lead)
– Objective and
subjective factors
Goals of BSC
• Clarify and translate
vision and strategy
• Link measures with
strategic objectives
• Plan set targets and
align
• Enhance feedback
and learning
Financial Accounting vs BSC
• Why won’t
financial
accounting
measure the
right things?
• The HBS Council
on
Competitiveness
gives these
reasons.
Less supportive of long
term investment
Emphasis on short term
returns, improving
current share prices
Favors readily
measurable returns
Underinvestment in
tangible assets where
short term returns
cannot be seen
Overinvestment in
acquisitions rather than
internal development
projects
Easily valued assets
rather than hard-to
value assets
Can operate
inefficiently while short
term earnings are ok.
Companies with strong
asset bases don’t have
to exploit undervalued
assets with hostile
tender offers, leveraged
buyouts, junk bonds.
Lack of Transparency
• A high-level committee of the AICPA on financial
reporting says a more balanced(!!) approach to
reporting is needed.
– Provide more information about plans,
opportunities, risks and uncertainties.
(SWOT? E&I Audit?)
– Focus more on factors that create long term
value
– Focus more on non-financial measures like
how key processes are performing
– Align info reported externally with info
reported internally to senior management
Types of Measures
• Outcomes
– Final results: e.g.?
– Lagging indicators
• Performance Drivers
– Targets for process performance: e.g.?
– Leading indicators
Strategy as Theory
Strategy
Decisions
Execution
Outcomes
•Strategy is a theory.
•It’s about chains of cause and effect.
•Can’t be proved! Only can be proved false!
•Based on assumptions.
•Strategic assumptions and plans cause decisions which causes
what we do which results in outcomes.
Disproving the Theory
• If Strategy theory is right then:
– the plans cause the decisions which cause the effects.
– the Performance Drivers should change as predicted.
– the Outcomes should change in the predicted direction.
• If a measure does not change as anticipated, what could
be wrong?
– An assumption could be wrong or not apply.
– A causal link could not work as expected.
– There might not be a causal link– only coincidental.
• The theory is disproved!
• What do we do?
• Modify the theory!
Double Loop Learning
• What is double loop learning?
Strategy
Decisions
Measures let us question if
assumptions are valid or causal links
are effective
Execution
Measures tell if we are
implementing the strategy as
planned.
How do we modify the theory?
• It’s like analyzing experimental results in
science.
• Like cosmology or evolution.
• A company dialog is required!!
Types of Measures
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Financial
Customer
Internal and Business Value Chain
Learning and Growth
Framework for Translation
Chain of Causality
•You need a mix of
measures
•Outcomes
•Performance drivers
Where to start?
• Authors say:
– it’s easier to drive a BSC top down than up.
– Why?
– it is easier to define a Balanced Scorecard for
an SBU than for a complex corporation.
– Why?
• This is based on their consulting
experience.
Example
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Department of Energy Procurement Unit
FAA Logistics Center
UCSD
Oak Knoll Academy
Balanced Scorecard Institute has other
examples.