Transcript Balanced Scorecard Fundamentals

Balanced Scorecard Fundamentals
Measuring Strategic
Performance
Dr. Shayne Tracy
Why Use the Balanced Scorecard?
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To maintain sustainable competitive
advantage in the information age, strategic
business units must broaden their base of
intangible assets and the means by which
performance is measured and continuously
improved.
The balanced scorecard provides a
comprehensive framework for implementing
strategic plans by translating an
organization’s strategy into a set of key
performance indicators.
Performance Measures Yesterday
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Traditional
measures of
performance
only included
financial
statistics
based on the
financial
accounting
model.
External
FOCUS
Non Financial
Internal
Financial
Historical
Future
TIMEFRAME
Performance Indicators Today
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The balanced
scorecard
focuses on an
integrated
system of key
performance
indicators for
critical success
factors.
Non Financial
MEASURES
External
Financial
Historical
Future
TIMEFRAME
Internal
FOCUS
The Balanced Scorecard Dimensions
Financial
Perspective
Customer
Perspective
Vision, Values
Mission, Strategy
Learning &
Growth
Internal
Processes
The Financial Perspective
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To succeed financially, what level of
financial performance do our investors
expect?
Examples:
 ROI, EVA
 Return on capital employed (ROCE)
 Revenue growth
 Self-financiable growth rate
 Cash flow return on assets
 Market/customer/product profitability growth
The Customer Perspective
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To achieve our strategy, how must we
appear to our customers?
Examples:
 Market share growth
 Customer acquisition rate
 Customer retention rate
 Customer satisfaction scores
 Number of new products/services
 Product return rate
 Defect rate
 On-time delivery rate
Internal Business Processes
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At what business processes must we
excel to satisfy our clients/customers?
Examples:
 Product-development cycle time
 Order-to-delivery response time
 Six sigma (PPM) quality rate
 Revenue per employee
 Cash conversion cycle time
 New product/service introduction rate
 New product/service breakeven time
Learning & Growth Perspective
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What people and systems do we need to
sustain our ability to change and
improve?
Examples:
 Employee retention/turnover rate
 Salaries/wage index
 Training/development hours per employee
 Strategic competency index
 Value-added per employee dollar
 Sustainable growth analysis
 Knowledge productivity rate
Economy, Effectiveness, Productivity
and Performance
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Economy is concerned
with inputs only
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Effectiveness refers to the
achievement of objectives
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Productivity is the ratio of
outputs to inputs
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Performance is the quality
of tasks and activities
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total number of labour
hours worked during the
period
total number of good units
of output for the period
number of good units of
output per labour hour of
input
Number of “0” defects per
unit of output per labour
hour
Balanced Scorecard Workflow
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Strategic Plan
Gap Analysis
Implementation of Action Plans
Recalibration Annually
Balanced Scorecard Planning and Implementation Workflow
ENSURE SENIOR
MANAGEMENT COMMITMENT
Articulate strategy
and mission
Identify strategic
business units to
be measured
Determine data
gathering methods
Gather benchmark
and actual data
Align incentives and
compensation with
BSC performance
indicators
Revise goals, if
necessary
Determine current
performance gap
Gain constituency
acceptance of
conclusions
Identify and
prioritize BSC
perspectives
Determine source
of benchmark /
target data
Identify customers
of BSC and their
requirements
Define critical
success factors
Eliminate
redundant
indicators
Define relevant
performance
indicators w/CAR
Identify causes of
current and future
gaps
Establish
performance goals
and objectives
Implement
initiatives
Estimate future
attainable
performance
Assess progress
toward goals
Validate/update
benchmarks
Periodic Reappraisal
Communication and
consensus at each
is critical
Communication Tools
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Check sheets/lists
Goal/Objective Action Plans
Project/Process Plans
Cause and effect diagrams
Histograms, Pareto diagrams
Control charts
Scatter diagrams, Bar charts
Resources
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Frigo, Mark L., & Krumwiede, Kip R. (2000, January). "The Balanced Scorecard: A
Winning Performance Measurement System," Strategic Finance. 50-54.
The Society of Management Accountants of Canada. Applying the Balanced
Scorecard, Strategic Management Series, Management Accounting Guideline.
(1999). Mississauga, ON Canada: Author.
Institute of Management Accountants. Statements on Management Accounting
4DD, Tools and Techniques for Implementing Integrated Performance Management
Systems. 1998. Montvale, NJ: Author.
Harvard Business School Press. Harvard Business Review on Measuring Corporate
Performance. 1998. Boston, MA: Author.
Chee W. Chow, Kamal M. Haddad, & James E. Williamson. (1997, August). “Applying
the Balanced Scorecard to Small Companies”, Management Accounting. 21 – 27.
Robert S. Kaplan, David P. Norton. 1996. The Balanced Scorecard Boston, MA:
Harvard Business School Press.
Institute of Management Accountants. Statements on Management Accounting 4U,
Developing Comprehensive Performance Indicators. 1995. Montvale, NJ: Author.