1. EIN 5322 Engineering Management
Balance Score Card
Diana Rodriguez
PID #
Professor: Dr Lee.
Fall 2007

2. Content Definition and History
Perspectives and key performance indicators
Financial
Customer
Internal Business Processes
Learning & Growth
Problems associated to KPI
Implementation
Strategy focus (step 1)
Assessment (steps 2-5)
Change planning and implementation (step 6)
Continuous improvement (steps 7-8)

3. Content 5. Actual use of balance scored cards
Software application for BSCs
Software products and prices

4. Definition & History Balance Score Card
A new approach to strategic management was developed in the early 1990's by Drs. Robert Kaplan (Harvard Business School) and David Norton. They named this system the 'balanced scorecard'.  Recognizing some of the weaknesses and vagueness of previous management approaches, the balanced scorecard approach provides a clear prescription as to what companies should measure in order to 'balance' the financial perspective.
The balanced scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise.
Kaplan and Norton describe the innovation of the balanced scorecard as follows:
"The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation."

5. Definition & History Balance Score Card
a concept for measuring whether the activities of a company are meeting its objectives in terms of vision and strategy. By focusing not only on financial outcomes but also on the human issues, the balanced scorecard helps to provide a more comprehensive view of a business which in turn helps organizations to act in their best long-term interests
The balanced scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise.
Kaplan and Norton describe the innovation of the balanced scorecard as follows:
"The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation."

6. Definition & History
Since the original concept was introduced, balanced scorecards have become a fertile field of theory and research, and many practitioners have diverted from the original Kaplan & Norton articles. Kaplan & Norton themselves revisited the scorecard with the benefit of a decade's experience since the original article.

7. Definition & History
A balanced scorecard is a central list of numbers, which show each key part of an organization's success, such as financials, people, operations, suppliers, customers, and support systems. The numbers should measure not just important outcomes, but also the factors which influence, or drive, those outcomes.
The basic philosophy of the balanced scorecard is that people will focus on what is measure - more because it shows the company care about it than because of financial incentives. Most organizations, focus on a few financial measures, but that doesn't help them to improve their results, because if the company tells its employees to increase shareholder value - what should they do? But if the company knows what determines shareholder value - high customer loyalty, high quality or low price products, etc. - then they have some ground to stand on.

8. Definition & History The point of a balanced scorecard is to:
Align all members of an organization around common goals and strategies
Link initiatives to the strategy, making prioritization easier
Provide feedback to people on key issues - notably, areas where they can have an impact
Be an essential decision-making tool for everyone in the organization
The basic philosophy of the balanced scorecard is that people will focus on what is measure - more because it shows the company care about it than because of financial incentives. Most organizations, focus on a few financial measures, but that doesn't help them to improve their results, because if the company tells its employees to increase shareholder value - what should they do? But if the company knows what determines shareholder value - high customer loyalty, high quality or low price products, etc. - then they have some ground to stand on.

9. Perspectives Customer Financial
The balanced scorecard suggests that we view the organization from four perspectives, and to develop metrics, collect data and analyze it relative to each of these perspectives:
Processes
The strategic management system helps managers focus on performance metrics while balancing financial objectives with customer, process and employee perspectives. Measures are often indicators of future performance.
The earliest Balanced Scorecards comprised simple tables broken into four sections - typically these 'perspectives' were labeled "Financial", "Customer", "Internal Business Processes", and "Learning & Growth"
Customer
Learning &
Growth
Vision &
Strategy
Financial

10. Key performance indicators
Key Performance Indicators (KPI) are financial and non-financial metrics used to quantify objectives to reflect strategic performance of an organization. KPIs are used in Business Intelligence to assess the present state of the business and to prescribe a course of action. The act of monitoring KPIs in real-time is known as business activity monitoring. KPIs are frequently used to "value" difficult to measure activities such as the benefits of leadership development, engagement, service, and satisfaction
When identifying KPI's the acronym SMART is often applied. KPI's need to be:
Specific
Measurable
Achievable
Result-oriented
Time- based

11. The Financial Perspective
Perspectives
The Financial Perspective
Kaplan and Norton do not disregard the traditional need for financial data. Timely and accurate funding data will always be a priority
Kaplan and Norton do not disregard the traditional need for financial data. Timely and accurate funding data will always be a priority, and managers will do whatever necessary to provide it. In fact, often there is more than enough handling and processing of financial data.

12. Key performance indicators
The Financial Perspective
Key performance indicators
Cash flow
ROI
Financial result
Return on capital employed
Return on equity
Cash Flow refers to the amount of cash being received and spent by a business during a defined period of time. Measurement of cash flow can be used
to evaluate the state or performance of a business, to determine problems with liquidity, to generate project rate of returns.
Rate of return (ROR) or return on investment (ROI), is the ratio of money gained or lost on an investment relative to the amount of money invested.
Financial result is the difference between earnings before interest and taxes and earnings before taxes. It is determined by the earning or the loss which results from financial affairs.
Return on Capital Employed (ROCE) is used in finance as a measure of the returns that a company is relishing from its capital employed. The ratio can also be seen as representing the efficiency with which capital is being utilized to generate revenue. It is commonly used as a measure for comparing the performance between businesses and for assessing whether a business generates enough returns to pay for its cost of capital.
Return on Equity, measures the rate of return on the ownership interest of the common stock owners. ROE is viewed as one of the most important financial ratios. It measures a firm's efficiency at generating profits from every dollar of net assets, and shows how well a company uses investment dollars to generate earnings growth

13. The Business Process Perspective
Perspectives
The Business Process Perspective
This perspective refers to internal business processes. Metrics based on this perspective allow the managers to know how well their business is running, and whether its products and services conform to customer requirements (the mission).
This perspective refers to internal business processes. Metrics based on this perspective allow the managers to know how well their business is running, and whether its products and services conform to customer requirements (the mission). These metrics have to be carefully designed by those who know these processes most intimately; with our unique missions these are not something that can be developed by outside consultants.
In addition to the strategic management process, two kinds of business processes may be identified: a) mission-oriented processes, and b) support processes. Mission-oriented processes are the special functions of government offices, and many unique problems are encountered in these processes. The support processes are more repetitive in nature, and hence easier to measure and benchmark using generic metrics.

14. Key performance indicators
The Business Process Perspective
Key performance indicators
Number of activities
Opportunity success rate
Accident Ratios
Defect Rates

15. The Customer Perspective
Perspectives
The Customer Perspective
Recent management philosophy has shown an increasing realization of the importance of customer focus and customer satisfaction in any business.
Recent management philosophy has shown an increasing realization of the importance of customer focus and customer satisfaction in any business. These are leading indicators: if customers are not satisfied, they will eventually find other suppliers that will meet their needs. Poor performance from this perspective is thus a leading indicator of future decline, even though the current financial picture may look good.

16. Key performance indicators
The Customer Perspective
Key performance indicators
Delivery performance to customer – by date
Delivery performance to customer – by quantity
Customer satisfaction rate
Customer retention

17. The learning and growth Perspective
Perspectives
The learning and growth Perspective
This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement.
This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In a knowledge-worker organization, people -- the only repository of knowledge -- are the main resource. In the current climate of rapid technological change, it is becoming necessary for knowledge workers to be in a continuous learning mode. Government agencies often find themselves unable to hire new technical workers, and at the same time there is a decline in training of existing employees. This is a leading indicator of 'brain drain' that must be reversed. Metrics can be put into place to guide managers in focusing training funds where they can help the most. In any case, learning and growth constitute the essential foundation for success of any knowledge-worker organization.

18. Key performance indicators
The learning and growth Perspective
Key performance indicators
Investment rate
Illness rate
Internal Promotions %
Employee Turnover
Gender/Racial Ratios
illness rate is calculated by comparing employee illness-related absences against planned working time, within a specific period. Illness-related absence times and planned working times are calculated in days.

19. Problems Key performance indicators
It is difficult or impossible to measure the performance indicators exactly required to a particular business or process objective.
Often a rough guide rather than an exact measurement
Once a KPI is created, it becomes difficult to change them as your yearly comparisons with previous years can be lost
If it is too inhouse, it may be extremely difficult for an organization to use its KPIs to get comparisons with other similar organizations.
_ In practice, organizations and businesses looking for Key Performance Indicators discover that it is difficult or impossible to measure the performance indicators exactly required to a particular business or process objective.
_ Often a business metrics that is similar is used to measure that KPI. In practice this tends to work but the analyst must be aware of the limitation of what is being measured which is often a rough guide rather than an exact measurement.
_ Another serious issue in practice is that once a KPI is created, it becomes difficult to change them as your yearly comparisons with previous years can be lost.
_ Furthermore you should be aware that if it is too inhouse, it may be extremely difficult for an organization to use its KPIs to get comparisons with other similar organizations.

20. Implementation
The approach to change focuses attention on the critical few performance measures that drive success, eliminating non-essential metrics that add complexity and cost through a four-phase balanced scorecard
This approach present 8 steps to develop an strategic implementation of balance score cards in a company
Reference:
The balanced scorecard requires a rigorous process and commitment, but its benefits are worth the costs. Even if the company only adopts a few of the elements of the balanced scorecard, the research suggests it will have a competitive advantage. Best of all, much of the scorecard is simple common sense: getting agreement on strategy, strengths, and weaknesses; measuring essential business numbers; and focusing not just on financial outcomes, but also on the issues that will affect those outcomes in the future. The balanced scorecard, and all its pieces, leverage common sense into a substantial competitive advantage.

21. Implementation
Reference:
For larger organizations, a balanced scorecard is first installed at the top, where commitment is most vital to success. It is then cascaded throughout the organization, to focus departments' goals with the overall company goals. For single stores or small companies, this step might be unnecessary.

22. Implementation I. Strategic Focus
Step 1. Define Strategy Specifics
The specific strategy is the foundation for performance measures
What are the most important business objectives for the organization to achieve?
What “driver” results — for example, employee commitment, retention of high performers, and customer focus — are critical to achieve these objectives?
What “drivers” — for example, leadership, training, diversity, and values — impact performance on these driver results?
Reference:

23. Implementation II. Assessment
Step 2. Audit existing measures
Assessment of the fit between strategy and the existing measures.
Examination of the measurement processes in your organization.
Reference:

24. Implementation II. Assessment
Step 3. Develop new driver and performance measures
Develop new measures as needed; Using tools like: employee survey.
Wherever possible, existing measures are incorporated to ensure continuity.
Reference:

25. Implementation II. Assessment
Step 4. Apply new balanced scorecard
Use tools that make them easier to understand and to implement; Examples: balanced scorecard's dashboard of performance metrics.
Reference:

26. Implementation II. Assessment
Step 5. Analyze and report
Analysis is a critical element of strategic assessment. At this step in the process, a linkage analyses can be performed to identify the relationships between the employee data and the performance in key areas such as customer satisfaction, productivity, employee retention, and financial performance.
Reference:
Step 5. Analyze and report
Analysis is a critical element of strategic assessment. At this step in the process, a linkage analyses can be performed to identify the relationships between the employee data and the performance in key areas such as customer satisfaction, productivity, employee retention, and financial performance. These analyses will identify the people issues that have the greatest impact on performance. The result is a People Performance Index that predicts performance in your organization.
At this point it is possible to calculate the gain you can expect from your investment in people management knowing how much improvement you can realize in profitability, customer satisfaction, or other outcomes from targeted levels of improvement on people measures.
It is also important to compare the performance of the organization with industry leaders using data bases and benchmarking capabilities. These comparisons will allow the company to set targets by giving it an indication of what the leaders have achieved.

27. Implementation III. Change planning & Implementation
Step 6. Implement improvement plans
This process embeds the balanced scorecard and its measures in the day-to-day working life of the organization, spreads awareness of the impact of effective people management, and initiates the necessary change processes.
Reference:
The senior team is reconvened to:
Set priorities for action based on strategy, newly identified people drivers of business performance, and comparisons to high performing organizations.
Set specific performance targets and timetables.
Assign accountabilities for improvement efforts.
Map existing initiatives against priorities, and consolidate action wherever possible.
Develop plans for specific improvement initiatives.

28. Implementation IV. Continuous Improvement
Step 7. Track improvement with balanced scorecards
Leading organizations continuously track performance on their people measures. Ongoing tracking measures the short-term impact of improvement efforts and identifies emerging issues quickly.
Reference:
Leading organizations continuously track performance on their people measures. Ongoing tracking measures the short-term impact of improvement efforts and identifies emerging issues quickly.
Tracking can provide instant feedback on progress on key issues and enables management to implement needed course corrections.

29. Implementation IV. Continuous Improvement
Step 8. Continuous improvement through balanced scorecards
By re-embarking on the cycle once again, and cascading it down (or across, or up) to other levels, while continuing to track key measures and re-set goals, organizations can create and support continuous improvement programs which will provide a long-lasting competitive advantage
Reference:

30. Actual usage of the balanced scorecard
Companies are using the scorecard to:
Clarify and update budgets
Identify and align strategic initiatives
Conduct periodic performance reviews to learn about and improve strategy.
In 1997, Kurtzman found that 64 percent of the companies questioned were measuring performance from a number of perspectives in a similar way to the balanced scorecard.
Balanced scorecards have been implemented by government agencies, military units, corporate units and corporations as a whole, nonprofits, and schools; many sample scorecards can be found via Web searches, though adapting one organization's scorecard to another is generally not advised by theorists, who believe that much of the benefit of the scorecard comes from the implementation method.

31. Software Applications
Software packages are available that provide some ability to automate the reporting of Balanced Scorecard information. Meanwhile, many firms choose to use standard office software (such as spreadsheets, word processors, presentation software) to provide the same
functions as are provided by commercial software packages - trading the time taken to develop the appropriate templates in the packages and then use them against the typically high cost of commercial Balanced Scorecard software packages / services.

32. Software Applications
Crystal Decisions Balanced Scorecard Solution
Key Features : Cause and effect diagrams. Multiple-level scorecard support, from the individual to the enterprise. Data and text driven from industry-standard RDBMS. Integration with the data warehouse and many other data sources. Identification of potential problems and opportunities using the Highlighter view. Weighted scores view (high-level performance overview based on achievement). Multi-dimensional access to textual commentary. Powerful Performance Indicator Engine (PI Engine) for practical data-handling issues.

33. Software Applications
Host Scorecard
Key Features : This web-architected Balanced Scorecard and Dashboard software provides the ability to: - Easily access the organizational strategy, vision, and mission - Add and Link Objectives and Key Performance Indicators - Weight measures/objectives/scorecards - Add Initiatives (Action Plans) and track progress on projects - Enter feedback and notes related to any measure, initiative, or objective - Create and view multiple hierarchies for scorecards – ex. Corporate Scorecards and Strategic Business Unit (SBU) Scorecards

34. Software Applications
KPI Scorecard Enterprise Edition
Key Features : - Monitor all your financial and non-financial KPIs. - Instantly determine performance levels with Traffic Light reporting. - Produce easily interpreted and actionable one page scorecard reports. - Automatic graph, text and table development. - Export your reports into pdf, MS Word, MS Excel and even MS PowerPoint. - Extremely easy to use.

35. Software Applications
Microsoft Office Business Scorecard Manager
Key Features : Optimizing Business Performance and Strategic Decision-Making Business Scorecard Manager is a comprehensive scorecard and dashboard application that provides knowledge workers with deep contextual insight into business drivers. Information is delivered in a collaborative environment for effective business management and action in the performance-driven organization. A Microsoft Office product, Business Scorecard Manager empowers employees to build, manage, and use their own scorecards, reports, and visual resources using familiar tools.
Product Differentiators : The Benefits of Business Scorecard Manager Business Scorecard Manger provides the tools and platform for a practical, low risk, and complete business performance management (BPM) scorecard strategy for high impact and fast results. To align actions with business strategy, Business Scorecard Manager helps enable employees, processes, and systems to understand business drivers, shape solutions, and execute shared plans. Define and improve business performance Understand the organization’s drivers, challenges, and opportunities with scorecards and KPIs. Improve decision-making Use a collaborative environment to analyze data in context, formulate strategies, and execute on strategic plans. Make scorecarding a part of all business activities Empower end users to build, manage, and consume scorecards using familiar, easy-to-use applications such as Office and Microsoft SharePoint® technologies. Save time and money Leverage existing skills, technology, and investments to realize low-risk cost and time savings.
Product Pricing :  Production Licenses Prices Comments Business Scorecard Manager 2005 CAL $175 per device or per user A CAL is required for every user or device that accesses the server. Business Scorecard Manager 2005 Server License $4,999 US per server Each server on which Business Scorecard Manager 2005 is deployed requires a license Business Scorecard Manager 2005 External Connector License $30,000 US per server The External Connector License enables an unlimited number of non-employees to access Business Scorecard Manager 2005 without any technical limitations or restrictions.

36. Software Applications
Power*Scorecard
Key Features : Fully automates the process of Balanced Scorecarding. Web-Enables the administration and the viewing of Scorecards. Provides a Scorecard page at every level of the organization. Ensures that individual objectives are in support of departmental and corporate objectives. Provides quick access to supporting data. Provides ability to graph organizational performance and to drill-down on the
Product Pricing : $58,000 (includes web server installation)