1. Balanced Scorecards

2. Agenda Discuss and describe “balanced scorecards”
Multiple performance measures
Financial and nonfinancial measures
Describe and illustrate “strategy maps”
How to link elements of the scorecard to the underlying business model of the organization
Takeaway

3. Performance Measures Goal of the firm is to maximize value (or profit)
Easier said than done
Giving the manager a profit based bonus contract
Assumes the manager knows how to improve profits
What actions to take?
Will these actions really be effective in improving profits?
We need to decompose the problem
Smaller and more focused goals and actions
These goals and actions combined generate profits

4. Balanced Scorecard
Idea is to consider a system of multiple measures (both financial and nonfinancial)
Four “perspectives”
Owners (financial)
Customers
Internal processes
Innovation and learning (or growth)
For each perspective, goals are linked to measures

5. Scorecard Perspectives
Financial
Goals
Measures …. ….
Customer
Internal
Goals
Measures
Goals
Measures …. …. …. ….
Innovation
Goals
Measures …. ….
Source: Kaplan and Norton (1991)

6. Financial Perspective
Ultimate goal is financial performance
Focus here is on for-profit firms
Example Goals
Example Measures
Profitability
Return on Investment
Growth
EPS growth (1, 5, 10 year)
Survival
Cash flow

7. Customer Perspective Customer experience is important for firms
Example Goals
Example Measures
Satisfaction
Satisfaction index
Delivery
% late deliveries
Improved service
Year-over-year complaints

8. Internal Perspective Efficiency (productivity) important to firms
Lean initiatives
Example Goals
Example Measures
Quality
Defects
Lean operation
Inventory turnover
Responsiveness
Cycle time

9. Innovation Perspective
Organization learning can be important for growth of the firm (and employees)
Example Goals
Example Measures
Innovative
New products
Leading edge
Patents
Knowledge
Employee competencies

10. Agenda Discuss and describe “balanced scorecards”
Multiple performance measures
Financial and nonfinancial measures
Describe and illustrate “strategy maps”
How to link elements of the scorecard to the underlying business model of the organization
Takeaway

11. Strategy Mapping Financial Grow revenues Control costs Customer
Satisfy customers
Add customers
Internal
Improve quality
Improve processes
Innovation
Develop skills
Innovate

12. Takeaway: The Balanced Scorecard
Identify key actions to generate profits
Measure these actions using the most appropriate financial and non-financial measures
Set goals for these measures
Link these goals and measures to each other by a “strategy map”
Main uses of Balanced Scorecard Information:
A guide to better planning and investment decisions
A compensation tool to evaluate divisional performance