Balanced scorecard orientation (intro public)
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The document introduces the balanced scorecard as a strategic management tool aimed at enhancing strategy execution by blending financial and non-financial performance metrics. It highlights the importance of defining strategic initiatives and offers a framework for monitoring progress and aligning organizational goals. The balanced scorecard is noted for its adaptability across various industries and its ability to aid organizations in navigating challenges and uncertainties.
Balanced scorecard orientation (intro public)
- 1. C O N S U L T I N G A L i m i t e d L i a b i l i t y C o m p a n y ParCon Consulting,LLC Measuring the Impact of Your Strategy A ParCon Consulting Learning Module Discipline: Strategy Execution February 10, 2014 Revision (5.1)
- 2. 2© Copyright ParCon Consulting, LLC SECTION ONE Introduction to the Balanced Scorecard Developing a working knowledge of this powerful management tool
- 3. 3© Copyright ParCon Consulting, LLC A ParCon Learning Module Introduction to the Balanced Scorecard When creating a strategic measurement system makes sense… Before discussing ways to measure the impact of strategy; it’s valuable to discuss why leaders seek out strategic measures in addition to the standard financial metrics already used in managing the business. Research shows that the greatest challenge with any strategy is its successful execution. The most common cause of failure is the inability of companies to both run the business and change the business in parallel. To overcome the challenges of these opposing forces, leaders must first define the strategic changes in terms that are clear enough to support action. These take the form of strategic initiatives. They then need a way to “keep score” – to monitor, assess and share the progress of change efforts in a way that helps creates urgency in the minds of the people charged with driving strategy. This demand for a visible “scoreboard” for that highlights strategic success is the foundation for building a strategic measurement system. The Strategy Changing the Business Important but not urgent Long term benefit New skills & capabilities Leaders’ support can vary Demands additional time Creates long-term value The Whirlwind Running the Business Feels constantly urgent Short term impact What “I” do every day Cultural reinforcement Takes 100% of your time Keeps business running A Clash of Two Opposing Forces “People are not stupid and they are not lazy; they are just incredibly busy”
- 4. 4© Copyright ParCon Consulting, LLC A ParCon Learning Module Introduction to the Balanced Scorecard What is a Balanced Scorecard? Introduced as an advanced performance measurement by Dr. Kaplan & Norton in 1992 Expanded to mainstream business leaders via The Balanced Scorecard 1996 Concept extended from measurement into a strategic management system in 2002 Identified by Bain Consulting as the most widely adopted strategy management framework in western business 2005 2013 BSC continues to undergo refinement and linkage with new management practices like Hoshin Konri and TQM The Balanced Scorecard is a performance management tool designed to assist business leaders in managing the execution of their strategy by monitoring the impact of key initiatives as well as the aggregate results. It is designed to blend traditional financial metrics with strategic non-financial performance indicators to provide executives with a more balanced view of not only how the company is performing but how well it is able to sustain that performance over time. History of the Balanced Scorecard Vision & Strategy Perspectives of Balanced Scorecard 20021996
- 5. 5© Copyright ParCon Consulting, LLC A ParCon Learning Module Introduction to the Balanced Scorecard What attributes mark a well designed scorecard? Using a set of 15-30 carefully selected strategic measurements that assist leaders to evaluate & monitor the “vital signs” of their enterprise, Combining classic financial results (lag) with predictive (lead) indicators to track current performance and help shed light on expected future results, Extending measurement & tracking beyond purely financial results to incorporate elements like; market & client performance, process improvements or human capital which tend to predict sustained success, Insuring that “owners”, units of measure, collection frequency, data quality, and expected results (targets) are explicitly defined, Incorporating a visual “dashboard” and performance icons that help executives evaluate whether their strategy is working “at a glance,” Using a disciplined & well designed governance (review) process that insures consistent, action oriented reviews coupled with disciplined follow-up. A Balanced Scorecard is designed to focus your organization’s attention on the results that matter most in the execution of your strategy. It does this by: A recent Bain & Company survey of more than 708 companies on five continents found that the BSC was used by 62 percent of responding organizations, a higher adoption rate than some other well-known management tools like Total Quality Management, Supply Chain Integration or Activity Based Management. Scorecards Drive Performance, Not Just Measure It
- 6. 6© Copyright ParCon Consulting, LLC A ParCon Learning Module Introduction to the Balanced Scorecard The BSC is an important link in the journey from data to wisdom Financial Reporting Operational Results Business Analytics and KPI Benchmarks & Performance Standards Balanced Scorecards Customer & Market Reporting Financial Data Operational Data Market Data Competitive Data Management Dashboards Data Information Knowledge Wisdom Strategic Insight Perspective Decision Support Strategic Measures, Key Metrics, Advanced Modeling Standard historical reporting Process analysis Discussion & experimentation Insight & understanding Management & design Integrity & timeliness Business Simulation & Advanced Modeling
- 7. 7© Copyright ParCon Consulting, LLC A ParCon Learning Module Introduction to the Balanced Scorecard Why do leaders adopt this method of performance management? Quickly Evaluate and Refine Strategy A well designed Balanced Scorecard forces strategic planners to be very clear on what results the strategy and its major components are expected to achieve Has proven better at predicting future results than using purely financial metrics A Balanced Scorecard helps to highlight the impact of strategic initiatives on business performance and can be an important test of the validity of a chosen strategy or set of initiatives Can assist executives in gaining clarity about underlying causes of financial and business results Motivate & Align Key Participants Instills & supports an enhanced strategic perspective by the leadership team helping them to stay focused working “on” the business, not just “in” the business Performance reviews are more productive; exception based with a focus on root causes and action plans The Balanced Scorecard helps to align individual activities with business and enterprise strategies Measures function as a tool to align desired behavior, by helping to communicate (in tangible terms) exactly what executives expect to happen as a result of the strategy Studies show that people respond to what’s inspected (measured), not what’s expected According to a 2003 study conducted by M.I.T. professors and published in the Harvard Business Review, companies that utilize strategic measures tied to “driver models” had on average a 2.93% better ROA and 5.14% better ROE than peers who utilized only classic financial measures. “We measure everything but understand nothing..” Jack Welsh “If I had to run a company on three measures, those measures would be customer satisfaction, employee satisfaction and cash flow.”
- 8. 8© Copyright ParCon Consulting, LLC A ParCon Learning Module Introduction to the Balanced Scorecard Who benefits from adopting an advanced strategic measures system? The Balanced Scorecard has proven to be a highly flexible management tool successfully deployed in organizations of all sizes, industries, and business models. Research shows that certain organizations tend to realize higher benefits including; Large and/or Growing Organizations: As firms grow, challenges in communication, alignment & control increase as does the need to rely on more sophisticated information systems that use more diverse measures. The BSC represents a management tool that helps leaders coordinate cross-functional and cross business decisions and activities. Companies Facing Uncertain Environments: Environmental uncertainty places added pressure on organizations and their strategies. Uncertainty requires a broader range of information incorporating non-financial and future oriented metrics that help to address volatility by supporting the development, evaluation and rapid implementation of successful competitive strategies. Knowledge & Service Oriented Organizations: Companies with significant intellectual capital (talent, patents, knowledge) tend to adopt the BSC because of its integration of non-financial (learning and growth) measures. Leaders in High Change Situations: Leaders charged with driving significant changes in their organization via strategy gravitate toward the BSC because of the “forward looking” components coupled with the ability to leverage it as both an alignment and change management tool. “People and their managers are working so hard to be sure things are done right, that they hardly have time to decide if they are doing the right things.” Dr. Steven Covey Scorecards Enhance Perspective
- 9. 9© Copyright ParCon Consulting, LLC A ParCon Learning Module Introduction to the Balanced Scorecard Is a Balanced Scorecard right for our organization? Will a Balanced Scorecard Work for Us? Use the checklist below to honestly evaluate whether a BSC effort is right for your organization. While it’s a powerful tool, it is also one that requires effort and sustained commitment to realize the benefits. We have a well defined strategy that clarifies our long-term goals as well as the key initiatives that we believe will help us realize them. We’ve considered “cause & effect” elements of our strategy; that is what actions we believe will drive the desired goals and results. Our leaders & managers are aligned, engaged and committed to driving strategy. Our people understand the strategy and are excited about the potential impact. They are ready to help if they can. We see strategy as an integral part of how we intend to manage our business going forward. We are (or desire to be) a metrics and performance driven organization that values the insights that meaningful measures can give to our leaders and people. Quantifiable results have allot to do with how our people get rewarded and recognized and we expect that strategy would be no different. Deciding whether a Balanced Scorecard makes sense for your organization is a decision that shouldn’t be taken lightly. Our experience is that scorecards “say” easy but they “do” hard. Do they work? Yes!! But the journey to success can be more challenging than you imagine. Making the Right Call