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Introduction to the balanced scorecard

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Introduction to the balanced scorecard

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Kaplan and Norton's Balanced Scorecard approach encourages businesses to analyze and report performance based on four key perspectives - financial, customers, internal processes and organisational capacity.

This short presentation provides an overview of the balanced scorecard model.

Kaplan and Norton's Balanced Scorecard approach encourages businesses to analyze and report performance based on four key perspectives - financial, customers, internal processes and organisational capacity.

This short presentation provides an overview of the balanced scorecard model.

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Introduction to the balanced scorecard

  1. 1. INTRODUCTION TO THE BALANCED SCORECARD
  2. 2. WHAT ARE THE FOUR KEY ENABLERS OF BUSINESS SUCCESS?
  3. 3. PLANNING - ESTABLISHING GOALS AND PLANS TO ACHIEVE THEM.
  4. 4. ORGANISING - DETERMINING WHO WILL MAKE DECISIONS AND HOW WORK SHOULD BE PERFORMED.
  5. 5. LEADING - MOTIVATING EMPLOYEES TO ACCOMPLISH GOALS.
  6. 6. CONTROLLING - ESTABLISHING STANDARDS OF PERFORMANCE, MEASURES OF PERFORMANCE AND POSSIBLE CORRECTIVE ACTIONS.
  7. 7. SO, WHAT SHOULD ORGANISATIONS CONTROL AND MEASURE?
  8. 8. COMPANIES USUALLY.. Focus on financial measures, like cost and profit. Concentrate on short-term profits and risk long-term performance. Fail to consider other key areas that impact long-term performance.
  9. 9. Financial measures are important, but don’t tell the whole story. The problem with focusing solely on one measure, is that it may present a false reality. Hence, the balanced scorecard.
  10. 10. A BRIEF HISTORY LESSON The balanced scorecard framework was first introduced by Doctors David P. Norton and Robert S. Kaplan in 1992. Their aim was to address the challenges associated with only measuring financial performance. They realised that analysing a company’s financial outlook alone is insufficient. Mainly because this approach is only able to generate reports of the past — what happened last month, last quarter, last year. The doctors wanted to look to the future, and derive a toolset that can actively affect financial performance. Thus, the balanced scorecard framework was born. The name “balanced scorecard” comes from the idea of looking at strategic measures in addition to traditional financial measures to get a more “balanced” view of performance.
  11. 11. BALANCING FINANCIAL VS. NON-FINANCIAL MEASURES
  12. 12. THE BENEFITS
  13. 13. BETTER PLANNING First, a balanced scorecard allows for better strategic planning, as it gives organisations a way to “connect the dots” between big picture strategy elements such as: • Vision (aspiration) • Mission (purpose) • Strategic priorities (high-level plans) And more tactical operational elements such as: • Strategic objectives (continuous improvement activities) • Measures & targets (KPIs and performance benchmarks) • Initiatives (projects that help you reach your objectives and targets)
  14. 14. BETTER COMMUNICATION The balanced scorecard framework is easy to map out on a single sheet of paper. This fact makes communicating strategy quite simple.
  15. 15. Performance reports are much more useful when using a structured approach like the balanced scorecard. This is because management will always know exactly what to report on at all times. They’ll also be able to visualise performance in a powerful, intuitive way. BETTER REPORTING
  16. 16. HOW TO CREATE A BALANCED SCORECARD IN FOUR STEPS?
  17. 17. STEP 1: LOOK AT YOUR BUSINESS FROM FOUR PERSPECTIVES The Balanced Scorecard looks at an organisation from four different perspectives to measure its health. Each of these perspectives focuses on a different side of the company, creating a balanced view of the organisation.
  18. 18. LEARNING AND GROWTH The learning and growth perspective looks at the overall corporate culture. • Are people aware of the latest industry trends? • Is it easy for employees to collaborate and share knowledge, or is your company a mess of tangled bureaucracy? • Does everyone have access to courses and trainings? And the overall technology stack of a company. • Are people able to use the latest devices and software, or are your archaic systems stuck running yesterday’s tech? • What are you doing to make sure your organisation is staying ahead competition? LEARNING AND GROWTH
  19. 19. The internal processes perspective looks at how smoothly the business is running. Efficiency is key here. It’s all about reducing waste, speeding things up, and doing more with less. • Are there any obstacles standing between new ideas and execution? • How quickly can you adapt to changing business conditions? This perspective also encourages you to take a step back and get a little philosophical about your company. • Are you mastering the processes that affect your customers? • Which processes bring the most value? INTERNAL PROCESSES INTERNAL PROCESSES
  20. 20. CUSTOMER The customer perspective focuses on the people who actually buy your products and services. • Are you winning new business? • How about keeping your existing customers happy? • How are you viewed in your industry compared to competitors? It can also be used to address stakeholders internal to the company. • Are employees satisfied with the work environment? • Are employees motivated? CUSTOMER
  21. 21. FINANCIAL Just because you’re taking a balanced look at your organisation it doesn’t mean that you want to ignore traditional financial measures. Quite the contrary, the financial perspective is a major focus of the balanced scorecard. • Are you making money? • Are you cutting costs? The financial health of your organisation may be a lagging indicator showing the result of past decisions, but it’s still incredibly important. FINANCIAL
  22. 22. STACKING THE PERSPECTIVES The Balanced Scorecard shows how each perspective builds on the previous one. • Happy customers buy more of what you’re selling (Financial) • A better running business takes better care of its customers (Customer) • They’ll make your company run more smoothly (Internal Processes) • If you train your employees and build a culture of information sharing (Learning and Growth) FINANCIAL CUSTOMER INTERNAL PROCESS LEARNING AND GROWTH
  23. 23. STEP 2: CHOOSE STRATEGIC OBJECTIVES The next step in creating a balanced scorecard is choosing several strategic objectives for each perspective. Strategic objectives are the actions we must implement into your daily activities in order to see improvements in your strategic priorities. They break down abstract concepts like mission and vision into actionable steps.
  24. 24. All of your strategic objectives should begin with an action word. Improve, Reduce, Increase, Optimise, Maximise, Minimise. These are all great words that involve doing something. We’re looking for strategic objectives that you’re going to care about for quite a while. This isn’t about one-time events or deadlines. It’s about consistent improvement. It’s “Improve Win Percentage” not “Win the Premier League in 2020” There’s no use focusing on something that you can’t affect. For example, a lower federal interest rate may help your business, but it’s not something you can control. If it’s not actionable, keep it off your balanced scorecard. Some things are just too difficult to quantify. These things are bad candidates for strategic objectives. If you can’t do a brand recognition survey, don’t choose “Improve Brand Recognition” as a strategic objective. STARTS WITH A VERB ENDLESS ACTIONABLE MEASURABLE
  25. 25. STEP 3: CONSTRUCT YOUR STRATEGY MAP After you’ve chosen several strategic objectives for each perspective, you can layer them on top of the four perspectives. One of the most powerful elements in the balanced scorecard methodology is the use of strategy mapping to visualise and communicate how value is created by the organisation. A strategy map is a simple graphic that shows a logical, cause-and-effect connection between strategic objectives.
  26. 26. In the strategy map, each strategic objective is represented by a shape. Different objectives are linked to each other through arrows that show the cause-effect chain. By following the arrows, you can see how the objectives in the lower perspectives drive the success of the higher ones. LEARNING AND GROWTH INTERNAL PROCESSES CUSTOMER FINANCIAL Increase Revenue Increase Profitability Decrease Operating Costs Improve Clarity of Offering Improve Market Perception Improve Customer Satisfaction Improve Offering Selection Improve Information Services Improve Stock Reliability Improve Cost Control Improve Knowledge and Skills Improve Technology Improve Supply Chain
  27. 27. LEARNING AND GROWTH INTERNAL PROCESSES CUSTOMER FINANCIAL Increase Revenue Decrease Operating Costs Improve Clarity of Offering Improve Customer Satisfaction Improve Offering Selection Improve Stock Reliability Improve Knowledge and Skills Improve Supply Chain Each strategy map also has strategic themes. They represent the big-picture strategic focuses in your organisation and group together related objectives across the whole strategy map. PRODUCT EXCELLENCE OPERATIONAL EFFICIENCY
  28. 28. SET STRATEGIC INITIATIVES Strategic initiatives are projects (new or existing) that are designed to help your organisation achieve strategic objectives and have a significant organisation-wide impact. They are managed like any other project, meaning they are explicitly defined in terms of owner, schedule, resources needed, action steps, progress, and expected results. Some strategic initiatives are short-term, taking only a few days to implement, while others can take years to be fully implemented.
  29. 29. STEP 4: MEASURE YOUR SUCCESS The final building blocks of a balanced scorecard are measures. Every strategic objective should have one or two things that you measure to determine how an objective is performing. These measures are vital and should be tracked on a regular basis. Strategic KPIs monitor the implementation and effectiveness of an organisation’s strategies, and determine the gap between actual and targeted performance. For example, if you have a strategic objective to “Increase Acquisitions” a good measure might be “Number of New Acquisitions”.
  30. 30. LEADING VS LAGGING INDICATORS Leading Indicator: • An indicator of performance that might predict future success. Examples: • User guide usage • Calories per day • Using safety equipment Lagging Indicator: • An indicator of past performance that measures how we performed. Examples: • Customer satisfaction • Weight • Number of deaths
  31. 31. LEARNING AND GROWTH INTERNAL PROCESSES CUSTOMER FINANCIAL Increase Revenue Increase Profitability Decrease Operating Costs Improve Clarity of Offering Improve Market Perception Improve Customer Satisfaction Improve Offering Selection Improve Information Services Improve Stock Reliability Improve Cost Control Improve Knowledge and Skills Improve Technology Improve Supply Chain BUSINESS OBJECTIVES AND STRATEGY MAP MEASURES TARGETS INITIATIVES VISION MISSION STRATEGIC PRIORITY STRATEGIC RESULT Transforming society through the provision of ultra-high speed mobile information services The number one provider of ultra-high speed mobile information networks across the UK and Europe Content Partnerships Customer Service Brand Awareness Strong supply chain for entertainment and information services, exclusive agreements Clarity in offering that surpasses anything in the market today, best user interface Reinvigorated brand based on successes, attract a wider and younger audience • Net profit • Operating costs • Revenue in target markets • ↑ 5% per year • ↓ 3% per year • ↑ 12% per year • Implement new financial accounting system • Simplify billing operations • % Market share index • % Customer satisfaction index • % Focus group user index • ↑ 3% per year • 85% this year • > 90% each focus session • Competitive end user requirements market studies for new UK regions • New products as % of sales • Brand awareness score • Cost efficiency index • 12% this year • ↑ 5% per year • > 90% each reporting period • Create improved offering selection process • Training programme for new offerings and user interface • Employee development plans • Technology training index • Supply chain efficiency index • 95% this year • 90% efficient • Product and marketing training programme • 2 year football and news supply agreements
  32. 32. TIME FOR AN EXAMPLE LET’S CREATE A PERSONAL BALANCED SCORECARD.
  33. 33. MISSION: DEBUT FREE LIVING WITHIN 10 YEARS
  34. 34. Improve knowledge about efficient debt repayment LEARNING AND GROWTH MISSION: DEBUT FREE LIVING WITHIN 10 YEARS
  35. 35. Improve knowledge about efficient debt repayment Optimise tracking and management of monthly budget LEARNING AND GROWTH INTERNAL PROCESSES MISSION: DEBUT FREE LIVING WITHIN 10 YEARS
  36. 36. Improve knowledge about efficient debt repayment Optimise tracking and management of monthly budget Improve family dynamics LEARNING AND GROWTH INTERNAL PROCESSES CUSTOMER MISSION: DEBUT FREE LIVING WITHIN 10 YEARS
  37. 37. Improve knowledge about efficient debt repayment Optimise tracking and management of monthly budget Improve family dynamics Decrease debt towards financial institutions LEARNING AND GROWTH INTERNAL PROCESSES CUSTOMER FINANCIAL MISSION: DEBUT FREE LIVING WITHIN 10 YEARS
  38. 38. Q&A

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