1 Balanced Scorecard Philosophy, Basics, Fundamentals, and Functions

2 Origins  One of a number of quality schemes and tools used by organisations to improve their performance  Created by Kaplan and Norton of Harvard Business School in the early 90’s  Originally adopted by organisations to improve their performance measurement systems

3 The Philosophy  “As companies around the world transform themselves for competition that is based on information, their ability to exploit intangible assets has become far more decisive than their ability to invest in and manage physical assets.” Kaplan and Norton Harvard Business Review 1996Kaplan and Norton Harvard Business Review 1996

4 Basics  Moves focus away from purely financial measures of performance  Balances financial measures with those from three additional perspectives: Customers Customers Internal business processes Internal business processes Learning and growth Learning and growth

5 Fundamentals  Context of vision and strategy  Balances performance from a number of different perspectives  Centres around identifying Critical Success Factors (CSF’s) for the organisation to achieve its objectives

6 Fundamentals (cont)  For each CSF, Key Performance Indicators (KPI’s) are identified to measure progress in achieving the objectives  For each KPI, targets and actions can be aligned and assigned to ensure activity is focused on delivering the objectives  Initiatives can be identified which will enable the targets to be achieved

7 Fundamentals - Chart

8 Creating a Balanced Scorecard (Chart)

9 Balanced Scorecard Example – General (Chart)

10 Client Loyalty Employer of choice CSF:KPI:CSF:KPI: Satisfaction of Service1. Client Satisfaction scoreLoyalty3. Retention 4. Number of referrals Perceived value2. Perceived value scoreInvolvement/Participation5. Percentage of employees involved (Involvement = Rotations, promotions, community involvement, committee involvement, etc) Operational Excellence Cost competitive CSF:KPI:CSF:KPI: Continuous improvement6 Percentage of gold medal suggestions implemented (Gold medal = suggestions mutually agreed to by SSC and clients) Among industry low-cost providers 9. Quartile vs similar organisations 7. Number of process related suggestions per associate Process delivery8. Percentage of Service Level Agreement targets met Achieving budget10. SSC actual costs vs budget

11 Balanced Scorecard as Strategic Management system  Links an organisation’s long-term strategy with its short-term actions through four processes Translating the vision Translating the vision Communication and linking Communication and linking Business planning Business planning Feedback and learning Feedback and learning (Kaplan and Norton 1996)(Kaplan and Norton 1996)

12 Translating the Vision  Helps managers build a consensus around the organisation’s vision and strategy  Translates the vision into operational terms that provide useful guides to action at the local level  Expresses vision and strategy statements as an integrated set of objectives and measures that will support the delivery of long-term success

13 Communicating and Linking  Represents a succinct presentation of what the organisation is trying to achieve for stakeholders, customers and staff  Facilitates the setting of goals for individuals and departments which are aligned to the strategy  Can be used to link rewards to performance measures

14 Business Planning  Enables organisations to integrate their business and financial plans  Can be used as a basis for allocating resources and setting priorities  Creates a framework for managing an organisation’s various change programs and initiatives  Encourages the establishment of specific milestones for the measures that mark progress toward achieving the strategic goals

15 Feedback and Learning  Assists an organisation to monitor progress from all 4 perspectives and evaluate strategy in light of performance  Represents an essential strategic feedback system  Allows the relationship between performance measures and objectives to be tested and evaluated

16 Cause and Effect Relationship for a Profit Seeking Organisation  1. Financial (make a profit)  2. Customer (by satisfying customer needs)  3. Internal Processes (through being able to deliver value)  4. Learning and Growth (by having the necessary knowledge and tools available)

17 Cause and Effect Relationship for a Public Service Organisation  Customer (fulfil your value obligation to the public)  Internal Processes (through being able to deliver)  Learning and Growth (by having the necessary knowledge and tools available)  Financial (by securing and prioritising the use of financial resources)

18 Balanced Scorecard – summary of strategic applications  Clarify and update strategy  Communicate strategy throughout the organisation  Align team and individual goals with the strategy  Link strategic objectives to long-term targets and annual budgets  Identify and align strategic initiatives  Conduct periodic performance reviews to learn about and improve strategy