1. Balanced Scorecard Translating Strategy Into Action (Kaplan & Norton, 1996)
A 4-hour Introduction

2. Introduction BSC, what’s that?
”..provides managers with the instrumentation they need to navigate to future competitive success..”
”..translates an organization’s mission and strategy into a comprehensive set of measures that provides the framework for a strategic measurement and management system..”

3. Introduction
There has been an increasing need to mobilize and exploit, not just tangible assets, but also and even more so intangible assets

4. Intangible assets enable
Develop customer relationships that retain the loyalty of existing customers and enable new customer segments and market areas to be served effectively and efficiently
Introduce innovative products and services desired by targeted customer segments
Produce customized high-quality products and services at low costs and with short lead times
Mobilize employee skills and motivation for continuous improvements in process capabilities, quality, and response time
deploy IT (databases and other systems)

5. The Basic Framework Financial Internal Business Customer Vision and
To succeed financially,
how should we appear
to our shareholders?
Vision and
Strategy
Customer
To achieve our vision,
how should we appear
to our customer?
Internal Business
Process
To satisfy our shareholders
and customers, what busi-
ness processes must we
excel at?
Learning and Growth
To achieve our vision, how
will we sustain our ability to
change and improve?

6. The Strategic Framework for Action
Clarifying and Trans-
lating the Vision and
Strategy
Clarifying the vision
Gaining consensus
BSC
Communicating and
Linking
Communicating and educa-
ting
Setting goals
Linking rewards to perfor-
mance measures
Strategic Feedback
and Learning
Articulating the shared vision
Supplying strategic feedback
Facilitating strategy review
and learning
Planning and Target
Setting
Setting targets
Aligning strategic initiatives
Allocating resources
Establishing milestones

7. Why Does Business Need a Balanced Scorecard?
Financial perspective
Customer perspective
Internal-Business-Process perspective
Learning and Growth perspective

8. Internal-Business-Process
Enables the business (unit) to:
Deliver the value proposition that will attract and retain customers
Satisfy shareholder expectations of excellent financial returns.
The IBP measures focus on the internal processes that will have the greatest impact on customer satisfaction and achieving an organization’s financial objectives.

9. IBP traditional vs. BSC approach
Two fundamental difference:
Traditional: monitor and improve existing BP
BSC: usually identify entirely new processes at which firms must excel to meet customer and financial expectations
Traditional: focus on processes which deliver today’s products and services to today’s customers.
BSC: incorporate innovation processes into IBP enabling value creation as driver of FUTURE performance.

10. Value system Company Value Supplier Customer Customer Customer value
value value value
The direction of transaction-based value creation
The two-way value process within a relationship

11. IBP: value chain perspective
Innovation
Operations
Customer
Need
Identification
Satis-
facation
Design
Develop
Make
Market
Service
Time-to-market
Supply Chain
Business Processes
Innovation Process
Product Desin
Product Development
Operations Process
Manufacturing
Marketing
Postsale Service

12. The Value Chain Decomposed
Firm infrastructure (finance, accounting, legal)
Human resource management
Technology development
Procurement
The value chain depicts the firm as a collection of value-creating activities. One widely accepted version sets out five primary activities (inbound logistics, production operations, outbound logistics, marketing and sales, and service) and four support activities.
A firm creates more value than its competitors only by performing some or all of these activities better than they do. To do this, the firm must possess resources and capabilities that its competitors lack; otherwise the competitors could immediately copy any strategy for creating superior value.
Inbound logistics
Production operations
Outbound logistics
Marketing and sales
Service

13. Drug Development Process – ’the Staircase model’ – the ’FIPCO’ model
Discovery
(2-10 years)
Preclinical Testing
Laboratory and animal testing
Phase I
20-80 healthy volunteers used to
determine safety and dosage
Phase II
patients used to look
for efficacy and side effects
Phase III
patiens used to monitor adverse reactions to long-term use
Regulatory Review/Approval
Additional Postmarketing Testing Phase IV
Years
Preclinical
Clinical

14. Cause-and-Effect Relationship
ROCE
Financial
Customer
Customer
Loyalty
On-Time
Delivery
Process
Quality
Process
Cycle Time
IBP
Employee
Skills
Learning and Growth

15. Core Skills Action Platform Core Product(s)/ Service(s) Technological
Knowledge
Market-Access
Organisational Values
Competitive
Advantage
Market B
Market A
Market N
Action
Platform
Base

17. Measuring Business Strategy
On a very broad level:
Growth
start-up, take-off, maturity, decline
Sustain
Harvest
Lead to financial themes in business strategy:
Revenue growth and mix
Cost reduction/productivity improvement
Asset utilization/investment strategy

18. Measuring Strategic Financial Themes
Strategic Themes
Revenue
Growth and Mix
Sales growth rate by segment
Percentage revenue from new
product, services, and custo-
mers
Share of targeted customers and
accounts
Cross-selling
Percentage revenues from new
applications,
Customer and product line
profitability
Percentage unprofitable custo-
Cost Reduction/Produc-
tivity Improvement
Revenue/Employee
Cost versus competitors’
Cost reduction rates
Indirect expenses
(expenses of sales)
Unit costs (per unit of output,
per transaction)
Asset
Utilization
Investment (percentage of
sales)
R&D (percentage of sales)
Working capital ratios (cash-
to-cash cycle
ROCE by key asset categories
Asset utilization rates
Payback
Throughput
Harvest Sustain Growth
Business Unit Strategy

19. Recap: cash-to-cash cycle (Churchill, HBR, 2001, How Fast Can You Grow)
Purchase Raw
Materials or Mer-
chandise from
Supplier
Sell
Product
Days Receivable
Days Inventory
Days Payable
Cash-to-cash Cycle
Pay Supplier
for Materials
(Merchandise)
Collect cash
from customer

20. Customer Perspective Core Measurement include: Market share
Reflects the proportion of business in a given market (#customer, $spent, unit volume sold) that the business sells.
Customer retention
Tracks, in absolute or relative terms, the rate at which a business unit retains or maintains ongoing relationships with its customers.
Customer acquisition
Measures, in absolute or relative terms, the rate at which a business unit attracts or wins new customers or business.
Customer satisfaction
Assesses the satisfaction level of customers along specific performance criteria within the value proposition
Customer profitability
Measures the net profit of a customer, or a segment, after allowing for the unique expenses required to support that customer.

21. Customer perspective – the logic
Market
Share
Customer
Profitability
Customer
Acquisition
Customer
Retention
Customer
Satisfaction

22. Customer Value Proposition
Generic:
Value = Product/Service Attributes Image Relationship
Functionality Quality Price Time
Example: Retail Banking
Product/Service Attributes
Image
Relationship
Breadth of
Offering
Error
Free
Seamless
Services
Know-
ledgeable
Convenient
Personal
Adviser
Responsive
Strategic Measures
Service
Failure
Index
Request
Fulfillment
Time
Core Customer Measure
Customer
Very satisfied
Survey
Customer
Retention
Market
share
New Customer
Acquisition

23. IBP – the Generic Value Chain model; RECAP
Postsale
Service
Process
Innovation
Operations
Customer
Need
Identification
Customer
Need
Satis-
facation
Identify
the
Market
Create the
Product/
Service
Offering
Build the
Products/
Services
Deliver the
Product/
Service
the
Customer

24. IBP Three principal business processes Innovation Operations
the firm studies the emerging or latent needs of customers (e.g. Gap-model)
Operations
Existing products are produced and delivered
Postsale services

25. The Innovation Process
Customer
Need
Identification
Satis-
facation
Identify
the
Market
Create the
Product/
Service
Offering
Build the
Products/
Services
Deliver the
Innovation
Operations
Postsale
Process
Seek answers to two crucial questions:
What range of benefits will customers value in tomorrow’s products?
How might we, through innovation, preempt competitors in delivering those benefits to the marketplace?

26. The firm’s R&D group
Performs basic research to develop radically new products and services for delivering value to customers
Performs applied research to exploit existing technology for the next generation of products and services, and
Makes focused development efforts to bring new products and services to market
Historically, little attention devoted to developing performance metrics for product design and development processes-.

27. Measures for basic and applied research
Percentage of sales from new products
Percentage of sales from proprietary products
New product introduction versus competitors’; also new product introduction versus plan
Manufacturing process capabilities
Time to develop next generation of products

28. Measure for product development
Break-even time metric (BET)
the time from the beginning of product development work until the product has been introduced and generated enough profit to pay back the investment oriinally made in its development
Rather a metric for desired behaviour than a measure of outcome
Time-to Market
the time the product starts to generate sales
Break-Even-After Release (BEAR)
The time from sales began to when the product generates profit

29. Value Chain Postsale Service Process Innovation Process Operations
Manage Risk
Customer
Need
Identification
Customer
Need
Satis-
facation
Make
the
Market
Create the
Product
Determine
Channel
Market and
Sell
Distribute
and
Services
Leverage
Relationship
Manage the Business
Strategic
Themes
Target
Profitable
Segments
Match the
Customer with
the Channel
Service
Quality
Cross-sell
Strategic
Measures
Quality of Market
Share (profitability
by segment)
% of Revenue from
new products
Channel Transaction
Mix
Internal Customer
Satisfaction
Cross-sell Ratio
Selling Contacts per
salesperson
New Revenue per

30. Operations Process – time, quality and cost measurements
Cycle or throughput times can be measured in many ways. The start corresponds to the time when:
Customer order is received
Customer order, or production batch is scheduled
Raw materials are ordered for the order or production batch
Raw materials are received
Production on the order or batch is initiated
The end corresponds to:
Production of the order or the batch has been completed
order or batch is in finished goods inventory, available to be shipped
order is shipped
order is received by the cutomer

31. Learning and Growth Perspective
Three principal categories:
Employee capabilities
Information systems capabilities
Motivation, empowerment, and alignment

32. Linking BSC measures to strategy
Cause-and-effect relationships
Performance drivers
Linkage to financials