Chapter 2:
The Balanced Scorecard
and Strategy Map
Part
1:
The Balanced
Scorecard
THE BALANCED SCORE CARD (BSC)
The Balanced Scorecard:
Measuring organizational performance
Across four different linked perspectives
Derived
from
the
organizations
mission, vision, and strategy
Four Perspectives of BSC
How is success measured
by our shareholders?
Financial
Process
At which processes must we
excel to meet our customer
and shareholder
expectations?
How do we create value for our
customers?
Custom
er
Learning
and
What employee capabilities,
Growth
information systems, and
organizational capabilities do we need
to continually improve our processes
and customer relationships?
The Four Perspectives of the Balanced
Scorecard
A Simple Balanced Scorecard of Linked Objectives and
Measures
Part
2:
Strategy
Strategy and BSC
Strategy creates a competitive advantage by positioning
the company in its external environment where its internal
resources and capabilities deliver something to its customers
that is better than or different from its competitors
Strategy provides clear guidance for where internal
resources should be allocated and enables all organizational
units and employees to make decisions and implement
policies that are consistent with achieving and sustaining the
companys competitive advantage in the marketplace
Essential Components of A good
Strategy
A clear statement of the companys advantage in
the competitive marketplace, what it does or intends
to do differently, better, or uniquely compared to
competitors
The scope for the strategy must be defined, where
the company intends to compete most aggressively,
either for targeted customer segments, technologies
employed, geographic locations served, or product line
breadth
Part
3:
BSC Objectives, Measures and
Targets
Objectives
A company should start its process of building a
Balanced Scorecard by developing word statements of
strategic objectives that describe what it is attempting
to accomplish with its strategy
Once the company selects and defines its objectives for
the four BSC perspectives, it can select measures for
each objective
The measures represent a quantitative indicator of how
performance on a strategic objective will be assessed
Measures
Measures describe in more precise terms how success in
achieving an objective will be determined.
Measures reduce the ambiguity that is inherent in word
statement
The selected measure also provides a clear focus to
employees on how their improvement efforts will be
evaluated
Measurement is a powerful tool for communicating
clearly what the company means in its word statements
of strategic objectives, mission, and vision
Targets
A target establishes the level of performance or rate of
improvement required for a measure.
Targets should be set to represent excellent
performance, much like the par scores on a golf course
By comparing current performance to the target
performance, employees and managers can determine
whether the company is achieving its desired level of
performance
Part
4:
Creating Strategy Map
Strategy Map
Strategy map is a picture to illustrates the causal
relationships among the strategic objectives across the four
Balanced Scorecard perspectives
Developing a strategy map follows a logical progress:
1. Identify the long-run financial objectives ( Financial Perspective)
2. Select the targeted customers that will generate the revenues
( attracting, retaining, growing) Customer perspective
3. Select objectives that create and deliver the customer value
proposition and also improve productivity and efficiency to improve
financial performance measures
4. identify the employee skills, information needs, and company culture
and alignment that will drive improvement in the critical processes
1. Mapping Financial Perspective
The Balanced Scorecards financial perspective contains
objectives and measures that represent the ultimate
success measures for profit-seeking companies
The companys financial performance improves through
two basic approaches:
Productivity improvements
Revenue growth
Financial Objectives and Measures
2. Mapping Customer Perspective
The customer perspective should describe how a
company intends to attract, retain, and deepen
relationships with targeted customers by differentiating
itself from competitors
It should contain specific objectives and measures for the
strategys scope how is the company performing with
its targeted customers
It also should represent the strategys advantage the
unique combination of product features, services, and
relationships it has selected to satisfy its customers
needs better than competitors can
Success in the customer perspective should lead to
Customer Outcome Objectives and Measures
Customer
Objectives for
Three Value
Propositions
Customer Value
Proposition
Objectives and
Measures
3. Mapping Process Perspective
The process perspective identifies the critical
operations management, customer management,
innovation, and regulatory and social processes
in which the organization must excel to achieve
its customer, revenue growth, and profitability
objectives
Process Perspective:
Operations management processes
Operations management processes are the
basic, day-to-day processes that produce
products and services and deliver them to
customers:
Achieve superior supplier capability.
Improve the cost, quality, and cycle times of operating
(production) processes.
Improve asset utilization.
Deliver goods and services responsively to customers
Process Perspective:
Operations management processes
Process Perspective:
Customer management processes
Customer management processes
expand and deepen relationships with
targeted customers.
Acquire new customers.
Satisfy and retain existing customers.
Generate growth with customers.
Process Perspective:
Customer management
processes
Process Perspective:
Innovation processes
Innovation processes develop new products, processes,
and services, often enabling the company to penetrate
new markets and customer segments
Successful innovation drives customer acquisition,
loyalty, and growth, in turn leading to enhanced
operating margins
Two important innovation sub processes:
Develop innovative products and services.
Achieve excellence in research and development processes
Process Perspective:
Innovation processes
Process Perspective:
Regulatory and social processes
Companies must continually earn the right to operate in the
communities and countries in which they produce and sell.
National and local regulationsaffecting the environment, employee
health and safety, and hiring and employment practicesimpose
minimum standards on companies practices, and companies must
comply with these to avoid shutdowns or expensive litigation
Regulatory and social performance along several critical dimensions:
Environment.
Health and safety.
Employment practices.
Community investment.
Process Perspective:
Regulatory and social processes
4. Mapping Learning and Growth
Perspective
Learning and growth perspective identifies the
objectives for the human resources, information
technology, and organizational alignment that
will drive improvement in the various process
objectives
Learning and Growth Perspective:
Human Resources
Strategic competency availabilityThe companys
employees have the appropriate mix of skills,
talent, and know-how to perform activities
required by the strategy
Learning and Growth Perspective:
Information Technology
Strategic information availabilityThe
companys information systems and knowledge
applications contribute to effective strategy
execution by facilitating process improvements
and better linkages with suppliers and customers
Learning and Growth Perspective:
Organization Culture and Alignment
Culture and climateEmployees have an
awareness and understanding of the shared vision,
strategy, and cultural values needed to execute the
strategy.
Goal alignmentEmployee goals and incentives are
aligned with the strategy at all organization levels.
Knowledge sharingEmployees and teams share
best practices and other knowledge relevant to
strategy execution across departmental and
organizational boundaries.
Learning and
Growth
Objectives
and Measures
Part
5:
APPLYING THE BALANCED SCORECARD
TO NONPROFIT AND GOVERNMENT
ORGANIZATIONS
The Balanced
Scorecard Model for
Public Sector
and Nonprofit
Organizations
End of Chapter
Thank You
