Bench Marking & Balanced Score Card By CA. Pramod Prabhu. S.H., B.Sc, P.G.D.B.A., A.C.A, C.I.S.A (U.S.A)

BSC - Meaning Is a set of financial & non financial measures relating to a company’s critical success factors It provides a balance which supports progress against predetermined objectives, without sub optimization This concept was developed by Prof. Robert Kaplan of Harvard Business school & David Norton This has been adopted by a growing No. of organisations as a means to effectively manage their performance & strategy. BSC being a new performance measurement concept, retains the characteristics of traditional performance measurement techniques It’s main objective is to provide a comprehensive framework for translating a firm’s strategic objectives into a coherent set of performance measures

BSC - Advantages Wholistic Approach: Brings strategy & vision as the centre of management focus. It helps companies to assess overall performance, improve operational procedures & enable management to develop better plans for improvements. It provides management with a comprehensive picture of business operations Overall Agenda: Brings together in a single report, various aspects like customer orientation, shortening the response time, improving quality etc. of a competitive agenda Objectivity: Emphasizes the need to provide the user with a set of information addressing all relevant areas of performance in an objective & unbiased manner MBO: facilitates communication & understanding of business goals & strategies at all levels of the firm, which enables MBO

BSC - Advantages Feedback & Learning: By providing strategic feedback & learning, it guards against sub ordination. It emphasizes a combination of traditional & non-traditional performance measures System approach: Helps senior management to consider all important performance measures together & allows them to see whether an improvement in one area has been achieved at the expense of another.

Major components of a BSC A well designed BSC combines financial measures of past performance with measures of the firm’s drivers of future performance The specific objectives & measures of a BSC are derived from a firm’s vision & strategy Generally the BSC has following perspectives from which a company’s activities can be evaluated: a) Customer perspective: How customers see us? Here the business is viewed through eyes of customers, measuring & reflecting upon customer satisfaction b) Internal perspective: In what processes must the firm excel? The focus is on key internal processes that drive the business c) Innovation & learning perspective: Can we continue to improve & create value. Is a measure of potential financial performance concentrating on organisation’s people & infrastructure

Major components of a BSC d) Financial Perspective – Value to shareholders: It measures the results that the organisation delivers to its stakeholders Perspective Goals & Financial Measures Customer Goal: Price, delivery, Quality, Support Perf Measures: Competitive Price, No. of on time deliveries, lead time for delivery, quality vis –a- vis industry standards, No. of defects, Response time, customer satisfaction surveys etc. Internal Business Goal: Manufacturing process efficiency, Sales penetration, New product introduction Perf Measures: Manf cycle time, Annual sales Vs Plan sales, Increase in customers , rate of new product introduction per Q

Major components of a BSC Perspective Goals & Financial Measures Innovation & Learning Goal: Tech/Cost/Market leadership, R & D Perf Measures: Product performance vis a vis competitors, No. of new products with patented technology, Mnf OH per Q as a % of sales, rate of decrease in cost per Q, Market share in all major markets, No. of new products & patents Financial Goal: Sales, Cost of sales, Profitability, Prosperity Perf Measures: Revenue & Profit growth, Extent to which the cost remained fixed/decreased each year, ROCE, Cash flow

Benchmarking Is the process of identifying & learning from best practices anywhere in the world. Is a powerful tool for continuous performance improvement. It involves comparing the firm’s products, services or activities against other best performing organisations to find out how the product/service or activity can be improved & ensure that improvements are implemented Types of Benchmarking: 1. Competitive: Comparison of own products, processes & business results with that of competitors. Usually done through associations of third parties 2. Strategic: LT strategies, viz. new product/service/core competencies development etc. are compared with those of best practice organisation 3. Global: The distinctions in international culture, business processes, trade practices across companies are bridged & their impact for business process improvements are understood & utilised

Benchmarking 4. Process: Comparison of firm’s critical business processes & operations against best practice organisation performing similar work/service 5. Functional: Used when businesses draw benchmarking partners from different business sectors/ areas of activity to find ways to improve similar functions/work processes 6. Internal: Involves seeking BM partners within same firm, say, business units located in different areas 7. External: Involves seeking help of outside firm that are known to be best in class BM can also be categorized into i. Intra-group BM: A group of companies in same industry agree that similar units within co-operating companies will pool & share data on their processes. The processes are benchmarked against each other at /near operational level

Benchmarking ii. Inter – Industry BM: A non competing business with similar process is identified & asked to take part in a BM exercise. Ex. Publisher of school books approaching a publisher of university level books to establish a BM relationship

Benchmarking - Stages 1. Planning: Determining BM goal statement, Identify best performance, establish BM/process improvement team, define relevant BM measures 2. Collection of data & info: 3. Analysis of findings based on data collected 4. Formulation & implementation of recommendations 5. constant monitoring & reviewing

Benchmarking – Pre requisites 1. Commitment: Support of senior managers & commitment towards continuous improvements 2. Clarity of objectives: BM teams should have a clear picture of their performance & other BM measures before approaching others 3. Appropriate scope: Scope of work should be appropriate in light of objectives, resources, time available & experience level of people involved 4. Resources: Sufficient for timely completion of project 5. Skills: & competencies as required for the process 6. Communication: Stakeholders, staff & their representatives should be kept informed of the reasons for BM

Benchmarking – Difficulties in Implementation 1. Time consuming: Significant staff time & company resources may be wasted benchmarking non critical functions 2. Lack of management support: Direct involvement of top brass required 3. Resistance from employees: 4. Paper goals: Goal may become not to improve processes but to match best practice at any cost 5. Copy Paste attitude: Key element in BM is adaptation of a best practice to tailor it to company’s needs & culture

Benchmarking code of conduct To contribute to efficient, effective & ethical BM, individuals agree for themselves & their organisation to abide by the following principles for BM with other organisations: 1. Principle of legality: Avoid discussions/actions that may result in restraint of trade 2. Principle of exchange: Be willing to provide same level of info that you request 3. Principle of confidentiality: BM info should not be communicated outside the BM partners 4. Principle of use: Use the info only for operations improvement within the BM partners 5. Principle of first party contact: Initiate contacts only through a BM contact designated by the partner company

Benchmarking code of conduct 6. Principle of third party contact: obtain permission of the person concerned before providing their name in response to a contact request 7. Principle of preparation: Through adequate preparation at each process stage, demonstrate commitment to the efficiency & effectiveness of BM process