Devloping a Balanced Scorecard
- 1. By: Femi-Ola Iyanuoluwa Designing a Balanced Scorecard
- 3. Introduction The balanced scorecard (BSC) is a strategic planning and management system that organizations use to: • Communicate what they are trying to accomplish • Align the day-to-day work that everyone is doing with strategy • Prioritize projects, products, and services • Measure and monitor progress towards strategic targets
- 4. A little bit of History • The Balanced Scorecard (BSC) was originally developed by Dr. Robert Kaplan of Harvard University and Dr. David Norton as a framework for measuring organizational performance • Traditionally companies used only short-term financial performance as measure of success. • The “balanced scorecard” added additional non-financial strategic measures to the mix in order to better focus on long-term success.
- 5. A little bit of History • The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. • These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation.
- 6. Developing a balanced scorecard • Creating a Balanced Scorecard allows organizations to centre their strategy around key perspectives that have often been defined as, but which may be altered to meet organizational needs; • Customer & Stakeholder • Internal Processes • Financial • Learning/Growth. • The balanced scorecard also suggests that objectives, measures (KPIs), targets, and initiatives (actions) are developed relative to each of the above perspective.
- 7. Developing a balanced scorecard
- 8. Developing a balanced scorecard • Financial vs Non Financial Measures • Tangible vs Intangible Assets • Long-term vs Short-term goals • Internal vs External perspective • Performance Drivers vs Outcomes What do we balance?
- 9. Developing a balanced scorecard What is your vision and mission? Why does your organization exist? What makes it ‘different’ to others? What does it want to achieve? Ensure all are properly defined with clear and obvious language and goals. NB: The Vision question always comes first in strategic planning. Getting Started: 1. PLAN
- 10. Developing a balanced scorecard • Strategic Objectives are the continuous improvement activities that we must do to implement strategy. • They break down the more abstract concepts like mission and vision into actionable steps. Actions that your organization take should be helping you achieve your strategic objectives. • Examples might include: Increase Revenue, Improve the Customer or Stakeholder Experience, or Improve the Cost-Effectiveness of Our Programs. 2. Develop a Strategic Objective
- 11. Developing a balanced scorecard 3. Map out the Strategy • One of the most powerful elements in the Balance Scorecard methodology is the use of strategy mapping to visualize and communicate how value is created by the organization. • A strategy map is a simple graphic that shows a logical, cause-and-effect connection between strategic objectives
- 12. Developing a balanced scorecard 3. Map out the Strategy
- 13. Developing a balanced scorecard 4. Measure (KPIs) • For each objective on the strategy map, at least one measure or Key Performance Indicator (KPI) will be identified and tracked over time. • KPI’s indicate progress toward a desirable outcome. Strategic KPIs monitor the implementation and effectiveness of an organization's strategies, determine the gap between actual and targeted performance and determine organization effectiveness and operational efficiency.
- 14. Developing a balanced scorecard 4. Measure (KPIs) • Provide an objective way to see if strategy is working • Offer a comparison that gauges the degree of performance change over time • Focus employees' attention on what matters most to success • Allow measurement of accomplishments, not just of the work that is performed • Provide a common language for communication • Help reduce intangible uncertainty W H A T M A K E S A G O O D K P I W H A T M A K E S A G O O D K P I
- 15. Developing a balanced scorecard 5. Implementing Through Cascading • Cascading a balanced scorecard means to translate the corporate-wide scorecard (referred to as Tier 1) down to first business units, support units or departments (Tier 2) and then teams or individuals (Tier 3). • The end result should be focus across all levels of the organization that is consistent. The organization alignment should be clearly visible through strategy, using the strategy map, performance measures and targets, and initiatives.
- 16. Developing a balanced scorecard 6. Review and Assess • Manage review and assessment with Balance Scorecard • Evaluate results vs. targets • Examine results and outcomes • Adjust as necessary
- 17. Summary • A balanced scorecard is a performance metric used in strategic management to identify and improve various internal functions of a business and their resulting external outcomes. • The balance scorecard is useful to communicate strategy – It helps employees align their day to day activities to the strategic plan of the organization.