Balanced Scorecard

Balanced Scorecard
Balanced Scorecard
YOU GET WHAT YOU MEASURE!
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Not always what you want to get.
Measurement (with rewards) affects
behavior.
What to measure?
What to Measure?
Traditional measures:
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Net income, EPS
ROA, ROE
Sales
Backward looking.
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Each of these measures what you did in the past.
May cause wrong behavior.
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Sacrifice long term for short term
Financial Measures
Make them more relevant
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Earnings versus ROA versus EVA
Abandon them for new metrics.
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Time to meal service
Employee turnover
Financial measures will follow.
Why Not Both?
No single metric can provide all the
necessary information to run a
business.
Go with a balanced portfolio of metrics.
The Balanced Scorecard.
Analogy to an Airplane
More than one instrument in the cockpit
Today I will focus on airspeed!
What about other things?

Fuel, altitude, bearing, destination.
Not Just a Bunch of Random
Metrics!
Just Looking at an assortment of
measures, some financial and some
non-financial, is not necessarily a
balanced scorecard approach.
You need to have an integrated set of
measures.
The Scorecard is a Strategic
Map
All roads should lead to your overall goal.
You need to ask what do we need to do to
get there.
The question should be asked from various
perspectives.
Each question, from each perspective,
ultimately leads to what you wish to achieve.
What Comprises a Balanced
Scorecard?
1.
2.
3.
4.
Four Components:
Mission
Perspectives
Objectives
Measures
Mission
Highest level within a scorecard
concept.
Answers the following questions:
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What is our overall reason for being?
Why do we exist as an organization?
Perspectives
Perspectives represent the various areas
that impact performance and determine
whether the mission is obtained.
Perspectives answer the question:

In what are the key areas must we focus
to obtain our mission?
Perspectives
The following perspectives are key for
most enterprises:
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Financial
Customer
Internal processes
Learning and growth
Objectives
Objectives identify what is important
within each perspective
Objectives - Financial
How does the investment community
view us?
Objectives - Customer
What segment do we serve?
What does the customer demand from
us?
What value do we provide to this
segment?
Objectives - Internal
Processes
What must we excel at?
What must we do to meet the
customers’ needs and provide value?
Objectives – Learning and
Growth
What must the organization do in order
to support and improve the processes
identified in the internal process
perspective?
Can we continue to improve and create
value?
What skills are needed?
Measures
Measures provide a way to keep score.
In other words, how can we determine
if we are doing what needs to be
done?.
The measures are the “actionable”
component of the scorecard.
How many metrics?
Just enough to get the job done.
Too many leads to sensory overload.
Try to keep it manageable.
Typical is about four per perspective.
Four perspectives
Financial
:
Customer
Vision
Internal Processes
and Strategy
Innovation and Learning
Rice Bowls-R-US
Rice Bowls-R-Us’ (RBRS) mission is to
sell more rice bowls than any other
restaurant chain, including the leader.
Panda Express.
I. M. Rice, the president of RBRS has
traditionally tracked total sales.
Rice Bowls-R-US
Such an approach is one-dimensional
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No insight is gained on why things have
improved (or faltered).
No insight is gained as to what needs to
improve?
No insight as to where problems lie.
Mr. Rice is only able to assess the
business from one perspective!
Rice Bowls-R-US
Mr. Rice asks himself:

What is it that sells more rice bowls?
Rice Bowls-R-US
Great service sells more rice bowls. It
is what the customer demands.
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Customer perspective
Measure
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Excellent results on customer surveys
Rice Bowls-R-US
How do we deliver great service?
Rice Bowls-R-US
Servers must deliver food efficiently and
with a smile.
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Internal process perspective
Measure
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Amount of time from order to delivery.
Rice Bowls-R-US
So how do we learn the process for
quickly getting the bowls into the
customers’ hands and interacting in a
pleasant way?
Rice Bowls-R-US
The servers need to be trained in the
latest techniques.
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Internal learning and growth perspective.
Measure
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Number of employees attending and
passing training classes
Rice Bowls-R-US
All the components work together to
support the ultimate goal of serving
more rice bowls.
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President Rice can see where the business
is running well or where help is needed.
Employees understand what they need to
do to achieve the goal.
Benefits of the BSC
Brings together in one report many
seemingly separate elements of the
firm.
Guards against sub-optimization.
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Reduce time to market
Reduce setup costs
Problem with Balanced
Scorecard
What is the score?
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Football analogy
Many metrics to measure, so what are
the trade-offs?
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Competing for scare resources such as
money, time
Solution
Treat Balanced Scorecard as an
instrument panel, not as a scorecard.
Choose one measure as the score (firm
value) and consider trade-offs among
other measures to realize ultimate goal.