The Balanced Scorecard Flashcards
Why BSC?
Performance management focused too much on:
- financial measures
- historical outcomes
- short term objectives
What is the BSC?
A framework for linking performance management to strategy implementation. Provides balance between:
- Short and long-term objectives
- Financial and non-financial measures
- Lagging (outcomes) and leading (drivers) indicators
- External and internal performance perspectives
Basic principles
- What gets measured gets done
- Strong link between performance measurement and strategy
- Importance of systematising measures into (four) different perspectives
- Provides balance
Which are the four perspectives?
- Financial - How do we look to shareholders?
- Customer - How do customers see us?
- Internal business - What must we excel at?
- Learning and growth - How can we continue to improve and create value?
Information on the BSC?
Objectives: What strategy must be achieved and what is critical to succeed?
Measures: How success will be measured and tracked?
Targets: Performance expectations
Initiatives: Key action programs required to achieve objectives
Most popular measures
Financial: Profitability, revenue growth, ROI, cost reduction, share price
Customer: Market share, customer satisfaction, customer service level
Internal: Productivity
Learning and growth: Employee satisfaction
The development of BSC
- Generation 1, 2 and 3
Generation 1
Provide a balanced view of the organization
Using a balance
of financial and non- financial measures, leading and lagging indicators and external and internal perspectives. Creating better performance measurement information
Generation 2
Articulate link to strategy
Linking the choice of performance measures to strategic objectives. Allowing individuals and teams to define what they must do well to contribute to higher-level goals
Generation 3
Connecting the perspectives
- Linking measures (A)
- Strategy maps (B)
Identifying the
cause-and-effect relationships between and within scorecard perspectives. Using scorecards for strategy refinement and implementation and strategy maps
Coming up short on non-financial performance measurements
- When companies don’t know what to measure, they often measure too much
- It’s not uncommon for business units within the same company to use different methodologies to measure the same thing
Four common mistakes
- Not linking measures to strategy
- Not validating the links
- Not setting the right performance targets
- Measuring incorrectly
Problems
BSC can be difficult to implement on a corporate level due to needs for simplicity, comparability and capital market pressure
Generation 3B - Increased focus on implementation strategy and using the BSC as a strategic management system
Translating the vision
- Clarifying
- Gaining consensus
Communicating and linking
- Communicating and educating
- Setting goals
- Linking rewards to performance measurements
Business planning
- Setting targets
- Aligning strategic initiatives
- Allocating resources
- Establish milestones
Feedback and learning
- Articulating the shared vision
- Supplying strategic feedback
- Facilitating strategy review and learning
Generation 3A - Example
Employee perspective
- Employee satisfaction
Internal process
- Product quality
- Delivery lead time
Customer
- Customer loyalty
Financial
- Sales
- Profitability
- Growth
