The BSC - Measures that drives performance Flashcards
Why a balanced scorecard and not continue with only financial measures?
“What you measure is what you get.”
The traditional financial performance measures worked well for the industrial era, but are out of step with the skills and competencies companies are trying to master today.
What is a BSC?
Managers should not have to choose between financial and operational measures.
A BSC — a set of measures that gives top managers a fast but comprehensive view of the business.
Which four important perspectives?
- Customer perspective (How do customers see us?)
- Internal perspective (What must we excel at?)
- Innovation and Learning perspective (Can we continue to improve and create value?)
- Financial perspective (How do we look to shareholders?)
Advantages of BSC?
- Forces managers to focus on a handful measures that are most critical
- Guards against sub-optimization
The customer perspective
The balanced scorecard demands that managers translate their general mission statement on customer service into specific measures that reflect the factors that really matter to customers.
They are:
- Time
- Quality
- Performance and service
- Cost
Need to set goals, measures and evaluate these factors (benchmark is good – hard to find “good levels” otherwise, rather arbitrary).
The internal business perspective
Internal measures should stem from business processes that have greatest impact om customer satisfaction - factors that affect cycle time, quality, employee skills and productivity.
Innovation and learning perspective
- The customer-based and internal business process measures identify the parameters that the company considers most important for competitive success. But the targets for success keep changing.
- Improvements to existing products and processes and the ability to introduce entirely new products with expanded capabilities will create more value for customers, resulting in new markets and increased revenues and margins.
- These targets emphasize the role for continuous improvement in customer satisfaction and internal business processes.
Financial perspective
Some trash financial targets, and claim that traditional financial measures do not improve customer satisfaction, quality, cycle time, and employee motivation. This is incorrect in at least two ways:
- A well-designed financial control system can actually enhance rather than inhibit an organization’s total quality management program.
- The linkage between improved operating performance and financial success is actually quite uncertain.
A failure to convert improved operational performance, as measured in the scorecard, into improved financial performance should send executives back to their drawing boards to rethink the company’s strategy or its implementation plans!
Measures that move companies forward and control bias?
Probably because traditional measurement systems have sprung from the finance function, the systems have a control bias. Senior managers may know what the end result should be, but they cannot tell employees exactly how to achieve that result, as in the industrial era. Conditions in which employees operate are constantly changing. By combining the financial, customer, internal process and innovation, and organizational learning perspectives, the BSC helps managers understand many interrelationships.
Financial perspective: Goals and measures
Survive - Cash flows
Succeed - Sales growth and operating income
Prosper - Increased market share and ROE
Customer perspective: Goals and measures
New products - percentage of sales from new and proprietary products
Responsive supply - On-time delivery
Preferred supplier - Ranking by key accounts
Customer partnership - Number of cooperative efforts
Internal business perspective: Goals and measures
Technology capability - Manufacturing vs competition
Manufacturing excellence - Cycle time, unit cost, yield
Design productivity - Efficiency
New product introduction - Actual introduction vs plan
Innovation and learning perspective: Goals and measures
Technology leadership - Development time
Manufacturing learning - Process time to maturity
Time to market - New product introduction vs competition
