44. The Balanced Scorecard

Question 1

What are key performance indicators (KPIs) and how should an organization use them?

Answer 1

• KPIs are a small set of critical data points that indicate to the executive team and other stakeholders whether the organization is on track to accomplish its strategic objectives.
• Each strategic objective established should be identified by one or two KPIs.

Question 2

Describe the financial and customer perspectives of the Balanced Scorecard Model and which question each perspective is focused on.

Answer 2

Financial perspective: Where the organization’s vision and mission are translated into financial performance. Focuses on the question: “How do we look to our shareholders?” Identifying what the shareholders are expecting will define the types of financial performance measures that should be established.
•Customer perspective: Focuses on answering the question: “What do our customers value?” The key to understanding what customers truly value is identifying what value customers are willing to pay for

Question 3

Describe the internal and learning perspectives of the Balanced Scorecard Model and which question each question is focused on.

Answer 3

Internal perspective: Focuses on the question: “At what business processes must we excel?” This depends on how the organization’s internal processes are tied to successfully delivering on the customer perspective. The three types of internal processes are innovation, production and delivery, and post-sale service or support.
•Learning perspective: Focuses on the question: “How do we sustain change and progress?” This is about identifying the key areas to improve to support key internal processes and key customer values.

Question 4

What are the four perspectives or themes that are presented in the Balanced Scorecard Model and which question is the focus of each model?

Answer 4

• Financial perspective: “How do we look to our shareholders?”
• Customer perspective: “What do our customers value?”
• Internal perspective: “At what business processes must we excel?”
• Learning perspective: “How do we sustain change and progress?”

Question 5

What does the term hypothesis testing mean when referring to Balanced Scorecard Strategy design and deployment?

Answer 5

Management determines that success in a particular financial objective requires effective deployment of core customer objectives that are dependent upon implementation of critical internal processes that are sustained by ongoing learning and growth initiatives. Specific strategic linkages between strategic objectives are established using linked KPIs. The linkages are “hypotheses” that are subsequently tested with data to observe whether the relationships are working.

Question 6

Briefly describe the process to implement a BSC.

Answer 6

• The leadership team clarifies the vision and mission into a communicable strategy.
• The leadership team drafts a balanced scorecard and strategy map to introduce to middle management.
• The implementation team is established and composed of key leaders, managers, and front-line employees.
• The implementation team rolls out the change process while leadership identifies and eliminates nonstrategic investments and realigns the organization to focus on the strategic objectives