The Balanced
Scorecard
ASQ Vermont Section
16 April 2009
presented by
Jim Whitney, Champlain College
What is the Balanced Scorecard
(BSC)?
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Developed in early 90s
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Robert Kaplan (Renaissance Group)
David Norton (Harvard Business School)
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“Translating Strategy Into Action”
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Traditional financial measures were
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Too narrow – no connection to strategy
Too focused on the past – not predictive
Encouraged tendency to manage qtr to qtr
Too much “what” – Too little “why”
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Balanced Scorecard Library
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The Balanced Scorecard (1996)
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Strategy-Focused Organization (2001)
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Strategy Maps (2004)
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Alignment (2006)
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Execution Premium (2008)
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BSC: Four Perspectives
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Financial perspective
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Customer perspective
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Internal Business perspective
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Learning & Growth perspective
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BSC strategic focus
Sanger, Mark, Supporting the Balanced Scorecard. Work Study, V 47, No 6
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Example of a
Balanced Scorecard
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Financial perspective
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Uses traditional tools and reports
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Considers EVA© and ROCE
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Economic Value Added
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NOPAT- (capital x cost-of-capital)
Return on Capital Employed
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Emphasizes growth and improvement
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Links financial performance to strategy
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BSC encourages use of ABC
Traditional accounting
Salaries
$375,000
Benefits
92,000
Supplies
47,000
Phone
8,500
Travel
13,000
Total
$535,000
Activity Based Costing
Select suppliers
$82,000
Procure mat’ls
175,000
Certify vendors
92,000
Resolve problems 103,500
Expedite shortages 83,000
Total
$535,000
Johnson, Christian C., Introduction to the Balanced Scorecard and Performance Measurement Systems,
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Linking Finance to Strategy
Strategic Themes
Revenue Growth
and Mix
Grow
Business Unit
Strategy
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Sales growth rate by
segment
Percentage revenue from
new product, services and
customers
Sustain
Share of targeted customers
and accounts
Cross selling
Percentage revenue from
new applications
Customer and product line
profitability
Harvest
Customer and product line
profitability
Percentage unprofitable
customers
Cost Reduction/
Productivity Improvement
Asset
Utilization
Revenue per employee
Investment (% of sales)
R&D (% of sales)
Cost versus competitors'
Cost reduction rates
Indirect expenses
(% of sales)
Working capital ratios (cash
to- cash cycles)
ROCE by key asset
categories
Asset utilization rates
Unit costs (per unit of output,
per transaction)
Payback
Throughput
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Customer Satisfaction
Market
Share
Customer
Acquisition
Customer
Profitability
Customer
Retention
Customer
Satisfaction
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Customer perspective
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Market share (various criteria)
Customer retention (absolute or relative)
Customer acquisition (absolute or relative)
Customer satisfaction
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Specific performance criteria
Defined value proposition
Customer profitability
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Profitability by account
Net of any special account-specific expenses
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Customer perspective
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Value proposition typically includes
elements of
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Time
Quality
Price
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Internal Business perspective
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Focus on process improvement
Chose processes aligned with strategy
Identify customer need
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Identify the market
Create the product/service offering
Build the products/services
Deliver the products/services
After-sale customer service
Customer need satisfied
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Learning & Growth perspective
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Core measurements
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Employee productivity
Employee satisfaction
Employee retention
Enablers
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Staff competencies
Technology infrastructure
Climate for action/change
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What to measure?
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20-25 measures usually sufficient
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~ 20% of measures usually lack data
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No data
No measurement
No management control
No improvement
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Balancing the BSC
Heaviest emphasis is on business processes
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BSC and Quality
“…the process of self-assessment does not, of itself,
improve the organisation… a key step in the process is
to identify the ‘ vital few’ [areas of improvement relating
to the organization’s strategy]…
EFQM Brussels Representative Office, Assessing for Excellence: A Practical Guide for Self –Assessment, 1999
“When this does not happen, the excellence model type
quality tools become internally preoccupied, rigid and
generally unhelpful.
Harari, O., “The eleventh reason why TQM doesn’t work,” Management Review, V 82 No 5
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Quality Improvement Horizons
Andersen, H and G Lawrie, “Effective quality management
through third-generation balanced scorecard,” International
Journal of Productivity and Performance Management
V 53 No 7, 2004
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Quality Improvement Horizons
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Strategy-linked
Continuous Improvement
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Strategy maps ID critical processes
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Top-down implementation is typical
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Use rate-of-change to estimate horizon
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Horizon s/b in synch with strategic goals
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If not, consider process re-engineering
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BSC and Quality Programs
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Symbiotic relationship:
“BSC enhances quality programs – it
gives focus and clear linkages to
improvements in strategic customer
and financial outcomes”
Establishes and tests linkages between
quality of process and performance
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BSC and Baldridge
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Baldrige subcategories mirror BSC:
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Customer-focused results
Financial and market results
Human resource results
Organizational effectiveness
Curt Riemann, first Director of Baldrige National
Quality Program, attended BSC presentations in
early 90s. Changes in Baldrige followed soon after.
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BSC, Baldrige and EFQM
EFQM criteria:
Baldrige categories
 Leadership (10%)
 Leadership (12%)
 People (9%)
 Human resource focus (8.5%)
 Policy & strategy (8%)
 Strategic planning (8.5%)
 Partnerships & resources (9%)  Process management (8.5%)
 Processes (14%)
 Customer & market focus (9%)
 People results (9%)
 Information & analysis (8.5%)
 Customer results (20%)
 Business results (45%)
 Society results (6%)
 Key perf. results (15%)
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Linkages to Strategy
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EFQM and Baldrige: implicit
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BSC (via strategy maps): explicit
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Objectives
Measurements
Targets
Initiatives
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What BSC adds to quality programs
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Explicit causal linkages through strategy maps and
cascaded objectives
Establishes targets for breakthrough performance (not
merely best practices)
Often identifies entirely new processes critical for
achieving strategic objectives
Sets strategic priorities for process enhancements
Integrates budgeting, resource allocation, target
setting, reporting, and performance feedback into
ongoing management processes
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Generic Strategy Map
Johnson, Christian C., Introduction to the Balanced Scorecard and Performance Measurement Systems,
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Building strategy maps
Requires
consensus, clarity and commitment to
strategy at the executive level
Produces
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testable hypothesis in strategy
cascading objectives
Note implicit application of Theory of Constraints in use of
cascading objectives...prevents discontinuous process
optimization and optimizes organizational productivity
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Strategy Maps
Emphasis on best practices, w/o link to strategy,
produces optimal local business processes, but
suboptimal support for critical capabilities and
strategic initiatives.
“BSC starts with strategic priorities and then
identifies the process improvements needed to
support them.”
Quality models may be ad hoc and tactical, producing
good local results but lacking a coherent, SBU- and
enterprise-level framework
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Strategy linked to operations
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Organizations with no systematic process for
linking strategy to ops: only 27% as good or
better than average of industry peer group
With systematic linking (e.g. BSC): 70% as
good or better than industry peers
Source: Pateman, Andrew, Business Performance Management, December 2008
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Strategy linked to operations
Kaplan, Robert S and David P Norton, The Strategy Focused Organization, HBSP 2001
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Alignment
Five key principles:
 Mobilize change through executive leadership
 Translate strategy into operational terms
 Align the organization to the strategy
 Motivate to make strategy everyone’s job
 Govern to make strategy a continual process
Four archetypal value propositions
 Best total cost (consistent, timely and low cost)
 Product leadership (expand performance boundaries)
 Customer solutions (custom products/services, know-how)
 System platform (platform defines the industry standard)
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Two Faces of Alignment
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“Social” side
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Communication and teamwork
Understand and support changes needed
to pursue agreed-upon strategy
“Technical” side
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Integration of diverse operations
Apply six sigma, TQM etc.
Cascade strategy to align processes
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BSC in execution
Pateman, Andrew, Business Performance Management, December 2008
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10 Golden Rules for
Implementing a BSC
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There are no standard solutions: all business differ
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Top management support is essential
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Strategy is the starting point
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Limited and balanced number of objectives and measures
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No in-depth analyses up front, but refine and learn by doing
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Take a bottom-up and top-down approach
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It is not a systems issue, but systems are an issue
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Consider delivery systems at the start
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Consider the effect of performance indicators on behavior
10. Not
all measures can be quantified
Roest, Pim, Information Management and Computer Security, V 5 No 5, 1997
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Building a BSC with SWOT
BSC measures strategic alignment and success,
but does not decide or design strategy
BSC defines “whats” for QFD in a strategic
planning exercise, but does not provide
guidance on the “hows” required for strategic
management.
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Example of SWOT
Incorporating BSC
perspectives
Source: Lee, SF and Andrew Sai On Ko,
Managerial Auditing Journal, 15/1/2 2000
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Analysis Techniques Compared
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Tan, B L Development of an e-Business Selection Framework for Manufacturing
SMEs: A Study of the Printing Industry. PhD thesis, Aston University, 2005
Using VCA & BSC to develop QFD “hows”
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Tan, B and D Bennet, “Development and Application of
an Electronic-Manufacturing Selection Framework for SMEs”
International Journal of innovation and Technology Management
V 4 No 3 2007
Source: Lee, SF and Andrew Sai On Ko, Managerial Auditing Journal, 15/1/2 2000
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BSC Success Stories
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Cigna Property and Casualty
 Losing $1m/day in 1992; BSC introduced in 1993.
Became profitable in two years, sold division for
$3bn five years later.
Mobil’s US Marketing and Refining Division
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Last in industry profitability in 1993, introduced BSC to
communicate strategy to newly formed SBUs. Moved from
last to first place in industry in two years.
Brown and Root
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Introduced BSC in 1992 to assist in post-merger OD.
Moved to first place in their industry within three years.
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Performance Prism:
Next Generation BSC?
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The Balanced
Scorecard
ASQ Vermont Section
16 April 2009
Questions?
The Balanced
Scorecard
ASQ Vermont Section
16 April 2009
Thank you!