Building the Balanced Scorecard

Introduction Balanced Scorecards provide a framework for communicating strategy in operating terms (measurements and targets). You must communicate strategy in operating terms if you expect people to execute on your strategy. When people are asked about strategy, they reach for their balanced scorecard.

Why do we need Balanced Scorecard…??? Improves how you communicate strategy Superimposes a discipline whereby you capture cause-effect; otherwise you create pockets of under-performance. Forces to think about strategic measurement as opposed to tactical or operating type measurements

HOW TO BEGIN….!! Begin with strategic plan – what things are critical to future success? Focus on customers – what values will we add to our customers Define the processes – how will we deliver these services to our customers Build the organization – what capabilities must we put in place

Strategic Goals The first components of any strategy are goals. Strategic goals establish direction in concrete terms. Strategic goals anchor the rest of the process. Strategic goals should fit with the vision and mission of the organization.

Attributes of a Goal Should be a very short statement Directly relates to the mission Broad in scope Covers long time period (such as 3 years) Examples: - Improve Customer Service - Leverage Core Competencies - Develop more innovative products

Strategic Objectives Once first anchor (goals) are established, develop a set of strategic objectives. Strategic objectives define what actions must be taken to reach the strategic goals. Objectives are critical to future success. For example, in order to grow revenues, we must introduce new products and expand our market share.

Objective Attributes Longer statement than goal statement More specific than goal statement Relationship to mission Covers shorter time period than goal (such as 6 months or 1 year) Example: - We will expand call center services to include technical support

Strategic Themes Based on strategic goals, three to five strategic themes should emerge. From these themes, develop a strategic map. Four common strategic themes are: Operating Efficiencies, Customer Relations, Product Innovation, and Growing the Business.

Strategic Models can emerge from four principles: Translate strategies into operating terms. 2. Link strategies throughout the entire organization. 3. Commit everyone to implementing strategy. 4. Make strategizing a continuous process of learning and adjusting to change.

4 Perspectives of BSC Financial: Top layer in the map, represents financial outcomes (profits, revenues, etc.) Customer: Next layer down, enables financial results (service, image, price, quality, etc.) Internal Processes: The values added to customers, such as delivery, production, distribution, etc. Learning & Growth: The people, systems, and organization that enable processes.

Strategic Mapping Strategic Maps are the foundation of the Balanced Scorecard. You will need one strategic map for each strategic theme. Maps are constructed over four perspectives. Strategic objectives are mapped over the four perspectives, linked together.

Linking BSC to Business Strategy Strategic objectives should be placed in the Strategic Map according to which perspective fits with the objective. Objectives may cross over more than one perspective. Start at the top with outcomes and work our way down, looking at what drives the outcome.

Approval of Maps After strategic maps are done, get approval from executive management. Ask questions likes….“Does this map accurately tell the story of our strategy?” If management disagrees with the map, go back and redo the maps.

Measurements For each strategic objective, you need one measurement. Measurement provides us with feedback on meeting the strategic objective.

Measurement Criteria Measurements should drive change, providing teeth to our strategy. Measurements define objectives in specific terms. A good measurement should tell you what your objective is. Measurements should be SMART..!!

Examples of Good Measurements Customer satisfaction: - Response Time to service customer - Customer Satisfaction Survey Scores Process Efficiency: - Cycle time - Downtime (time / ratio) - No. of Restarts

Targets Setting Once measurements are established, you need to set a target for each measurement. Targets push the organization to a required level of performance. Targets put focus on the strategy, expressing the specifics of the strategy. When an organization hits its targets, then it has successfully implemented its strategy.

Examples of Targets Total Time to Recruit New Employees: Less than “x” days by 2005 Utilization of rental facilities: Increase to 90% during peak summer months Growth in top line revenues: 12% increase than 2004 Improve overall customer satisfaction: Total scores on satisfaction exceed 85%

Initiatives Takers In order for things to happen in an organization, you must initiate major projects or programs. Once you launch appropriate initiatives, you should be able to meet your strategic objectives. This closes the loopholes and everything is linked.

Initiative Attributes Sponsored by Top Management Designated project(s) owners Includes deliverables or milestones Has some deadlines

Templates Throughout this process, use templates to capture, analyze and document data. Templates are used for strategic mapping, defining measurements, etc.

Pointers to keep in mind….!! Scorecards are built around three teams: Leadership Team (upper level management), Core Team (middle level management) and Measurement Team (lower level functional personnel). Scorecards are built around frequent group meetings: Kick Off Meeting followed by one meeting for each of the three teams.

Implementation The minimum time for developing a balanced scorecard is 3 months. Full deployment of scorecards throughout the entire organization can take one year or even more than that. The best place to start building a scorecard is where all components of the value chain are in place: Customer, Innovation, Production, Delivery, Services, etc.

Summary Balanced Scorecards are the best way of putting organization in its place. Scorecards rely on a fully integrated approach: Goals, Objectives, Mapping, Measurements, Targets, and Initiatives. The building of a balanced scorecard can be experimental, whereby you test your strategies, refine, and make changes as you get feedback and learn what works.

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