Balanced Scorecard MBA © Rajiv D. Banker Do not reproduce without permission MBA

Balanced Scorecard: Linking Strategy to Performance Financial Executives Research Foundation Only 29% of all chief financial officers are satisfied with their performance measures. 55% of balanced scorecard users are satisfied with their performance measures. © Rajiv D. Banker

Chicken Efficiency What behavior is induced when store performance is measured as the ratio of chicken sold to chicken used? © Rajiv D. Banker

What Makes an Outcome a Good Performance Measure SENSITIVITY: If the outcome changes a lot depending on the employee’s actions, then that outcome is a sensitive performance measure PRECISION: If factors beyond the control of the employee do not much impact the outcome, then that outcome is a precise performance measure CONGRUENCE: If the outcome accurately reflects relative priorities of the organization’s multiple objectives, then that outcome is a congruent performance measure. © Rajiv D. Banker

Sensitivity Precision Congruence Sensitivity Precision Performance Measure for a City Police Department © Rajiv D. Banker

The Balanced Scorecard….. Provides a method for the organization to systematically develop a comprehensive system of planning and control. Kaplan and Norton, Harvard Business Review, 1992 © Rajiv D. Banker

The Balanced Scorecard Financial Perspective How do we look to our owners and investors? Customer Perspective Internal Processes Perspective ? How do we look to our customers? How efficient and effective are the critical internal processes? Organizational Learning Perspective Are we able to sustain innovation and improvement? © Rajiv D. Banker

Balance in the Scorecard Balance between the four different perspectives of the scorecard Balance between financial and non-financial measures Balance between short-term and long-term objectives Balance between stakeholders (Investors, Customers, Employees, Society) © Rajiv D. Banker

Drivers of Satisfaction with Performance Measures Our performance measures help understand levers for successful implementation of strategy In our organization, linkages between internal processes, customer satisfaction and financial performance are made explicit Our mission and strategy are translated into measurable objectives at the operating level Satisfied Dissatisfied 82% 46% 74% 17% 82% 40% © Rajiv D. Banker

The Balanced Scorecard… Is a performance measurement system that translates an organization’s strategy into clear objectives, measures, targets, and initiatives. Kaplan and Norton, Harvard Business Review, 1996 © Rajiv D. Banker

Strategic Linkages Financial Perspective How do we look to our owners and investors? Customer Perspective Internal Processes Perspective Strategic Vision How do we look to our customers? How efficient and effective are the critical internal processes? Organizational Learning Perspective Are we able to sustain innovation and improvement? © Rajiv D. Banker

The Vertical Scorecard Financial Perspective Customer Perspective Internal Processes Perspective Organizational Learning Perspective © Rajiv D. Banker

Linking the Balanced Scorecard to Strategy Return on Investment Financial Customer Loyalty Customer On-time Delivery Internal Processes Process Quality Process Cycle Time Organizational Learning Employee Skills © Rajiv D. Banker

Cause and Effect Relationships Return on Investment Revenue growth Customer Retention Share of Wallet Customer Satisfaction Survey Customer Complaints and Returns On-time delivery Cycle Time Yield, Variability Employee Satisfaction Employee Skills Employee Teams Employee Training © Rajiv D. Banker

Performance Measurement System “OK, I think I’ve got all the data I need.” “Oops, looks like something bad has happened.” Data Information Knowledge Wisdom Collect Organize Analyze Manage © Rajiv D. Banker

Kaizen (Continuous Improvement)

Kaizen (Continuous Improvement) Japanese concept – not made redundant by the decline of the Japanese economy which may be due to other institutional factors! Focus on gradual and continuous improvement A whole business philosophy Importance of EVERYONE buying into the concept and the vision

Kaizen Great attention paid to customer requirements and needs Punctuality in all aspects – delivery, supply, manufacture, etc.

Kaizen Efficient stock control methods help reduce costs and improve cash-flow Leadership seen as vital. Ability to communicate a clear vision, take people along with the vision and to think about where the company needs to be in 5, 10, 15 and 20 years time

Kaizen Flexible working practices and empowerment – help increase efficiency, reduce costs and improve motivation

Kaizen Fundamental principles – often characterised as ‘lean production’ – reducing waste, zero defects, high quality control measures at all stages