Balance Scored Card

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1© 1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved.

Robert S. KaplanHarvard Business School

The BALANCED SCORECARD




What Is a Balanced Scorecard?

A MeasurementA Measurement

System?System?

A ManagementA Management

System?System?

A ManagementA Management

Philosophy?Philosophy?




Translating Vision and Strategy: Four Perspectives

Vision and

Strategy

Objectives Measures Targets InitiativesFINANCIAL

“To succeed

financially, how

should we

appear to our

shareholders?”

Objectives Measures Targets Initiatives

LEARNING AN GRO!T"

“To achieve our

vision, how will

we sustain our

ability to

change and

improve?”


C#STOMER

“To achieve our

vision, how

should we

appear to our

customers?”


IT!"#$ %&'I!'' (")*!''

“To satisfy our

shareholders

and customers,

what business

processes must

we e+cel at?”



© 1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved.

-

The Balanced Scorecard Focuses on Factors thatCreate Long-Term Value

•Traditional financial reports look backward– Reflect only the past: spending incurred and revenues earned

– Do not measure creation or destruction of future economic value

• The Balanced Scorecard identifies the factors that create long-term economic value

in an organization for e!ample:

– "ustomer #ocus: satisfy retain and ac$uire customers in targeted segments

– Business %rocesses: deliver the value proposition to targeted customers

• innovative products and services

• high-$uality fle!ible and responsive operating processes

• e!cellent post-sales support

– &rganizational 'earning ( )rowth:

•

develop skilled motivated employees*• provide access to strategic information

• align individuals and teams to business unit ob+ectives (rocesses

*ustomers

(eople



.© 1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved.

The Four Perspectives Apply to MissionDriven As Well As Profit Driven Organizations

•,hat must we do to satisfy our financial

contributors•,hat are our fiscal obligations

•,ho is our customer•,hat do our customers e!pect from us

•

,hat internal processes must we e!cel atto satisfy our fiscal obligations our

customers and the re$uirements of our

mission

•.ow must our people learn and develop

skills to respond to these and future

challenges

Profit Driven

Profit Driven Mission Driven

Mission Driven

•,hat must we do to satisfy our

shareholders

•,hat do our customers e!pect from us

•

,hat internal processes must we e!cel atto satisfy our shareholder and customer

•.ow must our people learn and develop

skills to respond to these and future

challenges

Financial Perspective

Customer Perspective

Internal Perspective

Learning & Growth

Perspective

/nswering these $uestions is the first step to develop a Balanced

Scorecard



/© 1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved.

The Balanced Scorecard Framework Is Readily Adapted toNon-Profit and Government Organizations

The Mission, rather than the financial / shareholder objectives,

drives the organization’s strategy

"If we succeed, how willwe look to our financial

donors?

!o achieve our vision, howmust our people learn,

communicate, and work together?

The Mission

!o satisfy our customers,financial donors and mission,

what #usiness processes must we e$cel at?"

o achieve our vision,how must we look to

our customers?


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%ustomer Perspective

&inancial Accounta#ility Perspective

Internal Process Perspective

'earning and (rowthPerspective

)educe%rime

Increase

Perceptionof Safety

Availa#ility of

Safe,%onvenientransportation

Maintain

%ompetitivea$ )ates

Improve

Service*uality

Promote

+conomicpportunity

Strengthen-eigh#orhoods

+nhance.nowledge

Management%apa#ilities

%loseSkills (ap

AchievePositive

+mployee%limate

Streamline%ustomer

Interactions

ImproveProductivity

IncreasePositive

%ontacts

Secure&unding/Service

Partners

+$pand-on0%ity&unding

Ma$imi1e

2enefit/%ost

(row a$

2ase

MaintainAAA

)ating

Promote%ommunity

2ased

Pro#lemSolving

T$e City o% C$ar&otte Cor'orate(&eve& Lin)age Mode&

IncreaseInfrastructure

%apacity

Promote2usiness

Mi$



Why are Companies Adopting a BalancedScorecard?

• C$ange

ormulate and communicate a new strategy

for a more competitive environment

•Gro*t$Increase revenues, not ust cut costs and

enhance productivity

• I+'&e+ent

rom the 14 to the 14,444- !very employee

implements the new growth strategy in their

day5to5day operations

he)evenue(rowthStrategy

“Improvestabi lity by broadeningthe sources ofrevenuef romcurrentcust omers”

heProductivityStrategy

“I mproveoperatingefficiency byshifti ngcustomers tomorecost effectivec hannels ofdistri bution”

0mproveReturns

0mprove &perating1fficiencyBroadenRevenue2i!

0n c re a se " u sto mer"onfidencein&ur#inancial /dvice

0ncrease"ustomer Satisfacti onThroughSuperior 1!ecution

0ncrease1mployee%roductivi ty

/ccess toStrategic0nformation

DevelopStrategicSkills

/lign %ersonal)oals




LearningPerspective

"ross-Sel l the%roduct 'ine

Shift to /ppropriate"hannel

%rovideRapidResponse

D e ve l o p 3 e w%roducts 2inimize%robl ems

4nderstand"ustomer Segments



Why Do We Need a Balanced Scorecard?To Implement Business Strategy!

“!ess than "#$ of strategies

effectively formulated are

effectively e%ecuted”

&ortune

“'usiness (trategy is no) thesingle most important issue*

and )ill remain so for the ne%t

five years”

'usiness +ee



Our Research Has Identified Four Barriersto Strategic Implementation

Today,s Manage+ent Syste+s !ere esigned to Meet T$e Needs o% Stab&e

Industria& Organi-ations T$at !e,re C$anging Incre+enta&&y

You Can’t Manage Strategy With a System Designed for Tactics

Only 5% of the work force

understands the strategy

60% of organizations don’t link

budgets to strategy

Only 25% of managers have

incentives linked to strategy

85% of eecutive teams s!end less

than one hour !er month discussing

strategy

. o% /0 co+'anies

%ai& to e1ecute

strategy

T$e 2eo'&e 3arrier

T$e Vision 3arrier

T$e Manage+ent 3arrier

T$e Resource 3arrier



Balanced Scorecard “Early Adaptors” Have ExecutedTheir Strategies Reliably and Rapidly

4#SM5R6

3445

67 inprofita#ility

3448

3447

3449

63 in profita#ility

63 in profita#ility

63 in profita#ility

Mobi&

3445

2ro'erty 5 Casua&ty

Retai& 3an) 3445 Profits : ;$

344<34483447

Profits : ;=$Profits : ;35$Profits : ;34$

3ro*n 5 Root Engineering

4Roc)*ater6

3445'osingmoney 3447

63 in growthand profita#ility

Profit Stock

;>98M loss

Stock Price : ;84

344<

344834473449

;38M

;7M;=M;4=M

;9<

;33<;3<7;>8



The BSC “Early Adaptors” Have Executed TheirStrategies Reliably and Rapidly

T$e So&ution !as A&ready T$ere

3eat t$e Odds

. o% /0 co+'anies %ai&

to e1ecute t$eir

strategies

Fast

7 to 8 years to ac$ieve

brea)t$roug$ resu&ts

•The %'* helped create focus and alignment to unloc7 the

organi8ation9s “hidden assets”



S)A+(@

BMA- )+SB)%+S

2BSI-+SS B-IS +C+%BI+ +AM

I-&)MAI-+%-'(@

2BD(+S A-D %APIA'I-+SM+-S

The Balance Scorecar process allows an organi!ation to

align an focus all its resources on its strateg"

Question:How can complex organizationsachieve results like this in such

short periods of time?

Question:How can complex organizationsachieve results like this in such

short periods of time?

AnswerE

/lignment5



How Do They Do It?

1- # (rocess to "obilize the )rgani8ation and $ead )ngoing *hange

2- 'corecards That #escribe the $trategy

3- $in7ing 'corecard to *reate an Organization lignment - *ontinuous &ommunication to !mpower the :or7force

.- #ligning (ersonal 'oals( )ncentives( and &om!etencies :ith the

'trategy

/- ligning *esources, %udgets and Initiatives :ith the 'trategy

0- # eedbac7 (rocess That !ncourages +earning and !+perience

'haring

T$e Seven Ingredients o% "ig$&y Success%u& 3a&anced ScorecardT$e Seven Ingredients o% "ig$&y Success%u& 3a&anced Scorecard

2rogra+s2rogra+s


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3F 'eadership &rom theop

– -reate the -limate for -hange

– -reate a -ommon &ocus for -hange .ctivities

– ationalize and .lign the 0rganization

5F Bnlock and &ocus iddenAssets

– eengineer +or 1rocesses

– -reate 2no)ledge (haring 3et)ors

>F Make Strategy +veryoneGsHo#

– -omprehensive -ommunication to -reate .)areness

– .lign 4oals and Incentives

– Integrate 'udgeting )ith (trategic 1lanning

– .lign esources and Initiatives

<F Make Strategy a%ontinuous Process

– (trategic &eedbac That 5ncourages!earning

– 5%ecutive Teams Manage (trategicThemes

– Testing 6ypotheses, .dapting, and!earning

The Ingredients of Highly Successful BalancedScorecard Programs

S)A+(@

1!ecutive

'eadership

&ormulate&ormulate

-avigate-avigate%ommunicate%ommunicate

+$ecute+$ecute

' e a d e

r s h i

p f r o

m T o p

S t r a t e g y 0 s 1

v e r y o n e 6 s

7 o b

4 n l o c k . i d d

e n / s s e t s

S t r a t e g y : /

"

o n t i n u o u s

% r o

c e s s


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A Good Balanced Scorecard Tells the Storyof Your Strategy

• 1very measure is part of a chain of cause and effect linkages

• / balance e!ists between outcome measures and the

performance drivers or desired outcomes

• 1very measure is part of a chain of cause and effect linkages

• / balance e!ists between outcome measures and the

performance drivers or desired outcomes



The Problem: Most of Today’s Feedback SystemsAre “Controls” Oriented

%orrectionApplied

arianceDetected

Management

&eed#ack %ontrol 'oop



corrections result

input output

PioneerGs 2alanced Scorecard

Strategic MeasuresStrategic #Jectives

#inancially Strong

Delight the "onsumer

,in-,in Relationship

Safe ( Reliable

"ompetitive Supplier

)ood 3eighbor

8uality

2otivated ( %repared

Return on "apital 1mployed

2ystery Shopper Rating

Dealer 9 %ioneer )ross %rofit Split

2anufacturing Reliability 0nde!

Days /way from ,ork Rate

'aid Down "ost vs Best "ompetitiveRatable Supply

1nvironmental 0nde!

8uality 0nde!

Strategic "ompetency /vailability

& I - A - % I A '

% B S "

I - " + ) - A '

' (

Performance

Strategic Learning – Some Basic Concepts…

)eplacing the #udget with the 2alanced Scorecard is a step inthe right directionK

It creates strategic focus #ut not strategic learning

0nitiatives ( %rograms



Strategic Feedback Creates Strategic Learning

PioneerGs 2alanced Scorecard

Strategic MeasuresStrategic #Jectives

#inancially Strong

Delight the "onsumer

,in-,in Relationship

Safe ( Reliable

"ompetitive Supplier

)ood 3eighbor

8uality

2otivated ( %repared

Return on "apital 1mployed

2ystery Shopper Rating

Dealer 9 %ioneer )ross %rofit Split

2anufacturing Reliability 0nde!

Days /way from ,ork Rate

'aid Down "ost vs Best "ompetitiveRatable Supply

1nvironmental 0nde!

8uality 0nde!

Strategic "ompetency /vailability

& I - A - % I A '

% B S "

I - " + ) - A '

' (

Performance

0nitiatives ( %rograms

0mproveReturns

0mprove&perating1fficiencyBroadenRevenue

2i!

0ncrease"ustomer"onfidencein&ur #inancial

/dvice

0ncrease"ustomer SatisfactionThrough

Superior 1!ecution

0ncrease1mployee%roductivity

/ccesstoStrategic0nformation

DevelopStrategicSkills

/lign%ersonal)oals




Learning Perspective

"ross-Sellthe%roduct'ine

Shiftto/ppropriate"hannel

%rovideRapidResponse

Develop3ew%roducts 2inimize%roblems

4nderstand"ustomerSegments

strategic learning

loop

operational control loop

The Strategy

T.1

2/3/)1213T

211T03)

;Team %roblemSolving<

results

dialog

update

the

strategy

reallocate

priorities

03S0).T

./R=1ST03)

;Testing hypothesesand capturing

learning<

#&''&,-4%

/"T0&3

;"losing the loop<




A New Structure for Corporate Governance– Executive Team TakesResponsibility for Managing the Strategic Cross-Functional Themes

2oard of Directors

%+

%ase StudyEelecomm

-ew2usiness

(rowth

2usinessProcess%ouncil

ProfessionalDevelopment)oundta#le

StrategicManagement

System

%ommercialServices

)etailServices

% %&StrategicPlanning

uman)esources

(trategic Themes

Traditional 0rganization 7nits




3F 'eadership &rom theop

– -reate the -limate for -hange

– -reate a -ommon &ocus for -hange .ctivities

– ationalize and .lign the 0rganization

5F Bnlock and &ocus iddenAssets

– eengineer +or 1rocesses

– -reate 2no)ledge (haring 3et)ors

>F Make Strategy +veryoneGsHo#

– -omprehensive -ommunication to -reate .)areness

– .lign 4oals and Incentives

– Integrate 'udgeting )ith (trategic 1lanning

– .lign esources and Initiatives

<F Make Strategy a%ontinuous Process

– (trategic &eedbac That 5ncourages!earning

– 5%ecutive Teams Manage (trategicThemes

– Testing 6ypotheses, .dapting, and!earning

The Ingredients of Highly Successful BalancedScorecard Programs

S)A+(@

1!ecutive

'eadership

&ormulate&ormulate

-avigate-avigate%ommunicate%ommunicate

+$ecute+$ecute

' e a

d e r s h i

p f r o

m T o p

S t r a t e g y 0 s 1

v e r y o n e 6 s

7 o

b

4 n l o c k . i d d

e n / s s e t s

S t r a t e g y : /

"

o n t i n u o u s

% r o

c e s s




Not all Environments are Appropriate for a BalancedScorecard

•2alanced Scorecard must #e driven from the topE

– %+/% as sponsor

– +$ecutive leadership team commitment

•A clear sense of purpose is reLuired toE

– Drive change

– %larify and gain consensus a#out strategy

– 2uild a senior e$ecutive team

– &ocus the organi1ationE align programs and investments

– Integrate cross0functionally

– +ducate and empower the organi1ation

•he dynamics of the senior e$ecutive team will determine whetherthe 2alanced Scorecard #ecomes a strategic management system




Key Pitfalls to Avoid

• Middle management task force

• -ot driven #y senior e$ecutiveteam

• nly one or a few individualsinvolved

• oo long a developmentprocess allowing the !#est to#e the enemy of the !goodN

• Delay introduction #ecause ofmissing measurements

• Static not dynamic process

• reating the 2S% as an +IS

• Measurement to controlO not tocommunicate

• Management dictating actionsvsF employee improvisation toachieve desired outcomes

• &or management only, not

shared with all employees

Process Philosophy




,-. /+&.# $&O*.&*# "'."., $1$,."

Significant results can #e achieve in relativel" short perios of time$$$

Implement a framework to align and focus theorgani1ation from top to #ottom on its strategy

Identify the related key change initiatives reLuiredto reali1e the strategy and mo#ili1e theorgani1ation

%reate feed#ack processes at all levels to evaluateprogress against strategy, monitor and manageissues and priorities, and measure performanceand contri#ution to the #usinessF

'++)A(+

'+A)-I-(

S)A+(@

A'I(-M+-



2.© 1999 The Balanced Scorecard Collaborative and Robert S. Kaplan. All rights reserved.

Balanced Scorecard References

Book: The 'alanced (corecard8 Measures that 9rive1erformance

.BR /rticles >7an-#eb ?@A* Sept-&ct ?@* 7an-#eb ?@C

"ases: >2obil "hemical Bank "harlotte "itibank

,ells #argo=ideos: 2easuring "orporate %erformance

"D-R&2 Simulation: ;Balancing Eour "orporate Scorecard<

•%hone: >FGG CCF-CHFG or >CIH J@C-IJJ@

•#a!: >CIH J@K-C@FK

•0nternet: wwwhbspharvardedu



For Further Information

wwwF#scolFcom

elE BSAN 9=3F>84F5959

%esearchPu#lications

etworking Conferences

Training

Implementation

'isit (ur )e#site

ur MissionE

“To facilitate the )orld)ide

a)areness, use, enhancement

and integrity of the 'alanced(corecard as a valueadded

management process”

Documents

Balance Scored Card