Building a Balanced Scorecard David Apple Craig Cochran Bill Ritsch Georgia Tech ©2005 Craig Cochran, All Rights Reserved

Financial measures are the bread and butter of managing …and there a plenty of good reason for this ©2005 Craig Cochran, All Rights Reserved

Unfortunately, financial measures have lots of drawbacks: Always looking backwards Not good predictors of the future Tend to drive short term decisions ©2005 Craig Cochran, All Rights Reserved

Nobody would consider steering a boat by looking backwards… …but that’s exactly what organizations do when they rely on financial measures alone ©2005 Craig Cochran, All Rights Reserved

The Balanced Scorecard Internal performance measures Financial measures Customer & marketplacemeasures Human resource measures [Adapted from The Balanced Scorecard, by Robert Kaplan and David Norton] ©2005 Craig Cochran, All Rights Reserved

Driving performance across different times frames Financial measures – short term; actions taken to improve them show results very quickly. Internal performance measures – medium term; actions take longer to show results. Customer and marketplace measures – medium to long term; actions might take months or years to show tangible results. Human resource measures – long term; actions might take years to show tangible results ©2005 Craig Cochran, All Rights Reserved

Other themes of the balanced scorecard: Link to strategy Robust communication Frequent progress reviews ©2005 Craig Cochran, All Rights Reserved

©2005 Craig Cochran, All Rights Reserved A perfect fit for ISO 9001 Balanced scorecard measures “quality objectives” ©2005 Craig Cochran, All Rights Reserved

How do you build a balanced scorecard? Get top management involved Ask the right people the right questions Keep it short and sweet ©2005 Craig Cochran, All Rights Reserved

Selling top management What we’re doing now and why it doesn’t work Explanation of the Balanced Scorecard with examples Exactly how it could be applied in your organization and what its benefits would be ©2005 Craig Cochran, All Rights Reserved

Getting credible assistance… Recruit the finance people to help make the case ©2005 Craig Cochran, All Rights Reserved

Approaches to developing the scorecard: Wrong way Right way “Come back next week & tell us what you think we should be measuring” Facilitated sessions with process owners ©2005 Craig Cochran, All Rights Reserved

Asking the right people the right questions: Financial measures: Finance, accounting, top management, sales Internal performance measures: Production, design, quality assurance, engineering, purchasing, logistics Customer/marketplace measures: Sales, marketing, customer service, Human resource measures: HR, training, health and safety ©2005 Craig Cochran, All Rights Reserved

Top management is only present in one of these groups Why do you think that is? ©2005 Craig Cochran, All Rights Reserved

Facilitated sessions with process owners SWOT analysis Sessions for each of the 4 quadrants Fresh analysis of the issues ©2005 Craig Cochran, All Rights Reserved

Customer & Marketplace SWOT analysis What do customers think we do especially well? What was our biggest service success? What are our three best facts to sell a new customer? Where could our service improve? ©2005 Craig Cochran, All Rights Reserved

Customer & Marketplace SWOT analysis What problems do our customers keep telling us about? Where is market headed in 5 years? What 4 customer desires will become requirements? Biggest reasons we miss sales to competitors? Who could start competing with us? ©2005 Craig Cochran, All Rights Reserved

©2005 Craig Cochran, All Rights Reserved

Human Resource SWOT analysis What makes our people better? Who are our highest performers across the organization? What makes them performers? What employee skills and abilities could be improved? Think of the especially poor performers across the organization. What exactly makes these people poor performers? ©2005 Craig Cochran, All Rights Reserved

Human Resource SWOT analysis What skills and abilities do we think will be critical ten years from now? If we could send all employees to a single training course, what would that course be? What do employees do away from work that could seriously impact our success? What keeps our employees from performing at the best of their abilities? ©2005 Craig Cochran, All Rights Reserved

Internal Process SWOT Analysis What process of ours is a pinnacle of excellence? What makes it so? What part of our organization experiences the least waste? What enables this efficiency? What “bottlenecks” do we have in our processes? What can be done about them? What efficiencies do our competitors have that we don’t? What could we do to adopt these efficiencies? ©2005 Craig Cochran, All Rights Reserved

Internal Process SWOT Analysis What new methods and technologies may become applicable to our operations in the next five years? What is one process improvement we could implement that would put us head and shoulders above the competition? What internal processes are so inefficient or ineffective that they could ruin us? Which of our internal processes pose significant environmental, health, and safety risks? What are we doing about them? ©2005 Craig Cochran, All Rights Reserved

Financial SWOT analysis Why would a financial analyst say we’re well-poised for future growth and success? If we could only state three facts about our organization in order to sell an investor, what would those facts be? What financial assets do we manage especially well? What problems do our accountants seem to keep telling us about? What made us lose our biggest loans or investment opportunities? ©2005 Craig Cochran, All Rights Reserved

Financial SWOT analysis What financial advantages do our top competitors have we that we don’t? What investment strategy would significantly lower our tax burden? What is one financial number that doesn’t get examined much, but which could facilitate our future success if we managed it? What are the biggest reasons our financial reports would make a banker or investor depressed? ©2005 Craig Cochran, All Rights Reserved

Narrowing the field of potential measures Multi-voting Quantitative selection process ©2005 Craig Cochran, All Rights Reserved

Quantitative selection process Is the measure directly linked to strategy? Is the measure likely to create cost reductions? Do employees have personal incentives to improve this measure? Will the measure positively impact our customers? ©2005 Craig Cochran, All Rights Reserved

Quantitative selection process Are improvements in the measure likely to result in increased sales? Does the measure have broad applicability to all functions in the organization? What resources are available for improving this measure? ©2005 Craig Cochran, All Rights Reserved

©2005 Craig Cochran, All Rights Reserved Proposed Measure Evaluation Worksheet ©2005 Craig Cochran, All Rights Reserved

Strategic measures are: Quantifiable Different from one organization to the next Developed at the top of the organization Devoid of fuzzy BS (continued) ©2005 Craig Cochran, All Rights Reserved

Strategic measures are: Few enough to achieve focus Representative of a wide range of organizational concerns Clearly defined Revised as needed ©2005 Craig Cochran, All Rights Reserved

Would you like some assistance in developing a balanced scorecard? Georgia Tech can help ©2005 Craig Cochran, All Rights Reserved

A good reference on measures and improvement: Available here – www.patonpress.com ©2005 Craig Cochran, All Rights Reserved

A good resource for customer satisfaction techniques: Available here – www.patonpress.com ©2005 Craig Cochran, All Rights Reserved

©2005 Craig Cochran, All Rights Reserved For more information: Presenter: Craig Cochran 678-494-9938 craig.cochran@edi.gatech.edu Organization: Georgia Tech - CISQ 800-859-0968 www.cisq.gatech.edu ©2005 Craig Cochran, All Rights Reserved