The Balanced Scorecard

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The starting point in producing a balanced scorecard is identifying the strategic requirements for success in the firm. Typically, those strategic requirements will relate to products,markets, growth and resources human, intellectual and capital. For example, businesses like Dell may want to be low-cost producers achieving competitive advantage from selling undifferentiated products at lower prices than those of competitors, or a business may have a product development strategy to become a leader in technology and command a premium like Apple.

Their strategy may also be to develop and maintain market share, like Microsoft, or their strategy may be to occupy the number-one or number-two position in their lines of business. Performance measures have to be selected that clearly relate to the achievement of the strategies identified in the earlier process.

As has been seen throughout the discussion of performance measures in this text, the selection of appropriate indicators and measures is critical. The selected measures form the goals that management communicates to staff as being important. Those goals are what staff will strive to achieve.

If the wrong goals are selected then the firm may find itself doing the wrong things. The general problem is that performance measures that relate to limited parts of the business can be very prone to inducing dysfunctional behaviour. Management reporting systems and procedures need to be set up to track and report the measures regularly.

This involves all the issues relating to the processing of data and the reporting of information discussed earlier in this text. The precise requirements of reporting associated with the use of the balanced scorecard will make demands on both the management accounting and IT systems in an organisation.

Fully satisfying those demands has a cost and sometimes compromises may have to be made in order to contain that cost. All sorts of practical problems may be encountered in reporting on an indicator. For example, when reporting on revenue:. Looking back at the Scrumptious Sweets example, financial measures could include baked goods revenue growth, drink revenue growth, and product cost containment. A successful company should operate like a well-tuned machine. This requires that the company monitor its internal operations and evaluate them to ensure they are meeting the strategic goals of the corporation.

Internal Business Perspective: What Must We Excel at?

There are many variables that could be used as internal business measures, including number of defects produced, machine downtime, transaction efficiency, and number of products completed per day per employee, or more refined measures, such as percent of time planes are on the ground, or ensuring air tanks are well stocked for a scuba diving business. For Scrumptious Sweets, internal measures could include time between production and sale of the baked goods or amount of waste. All businesses have customers or clients—a business will cease to operate without them—thus, it is important for a company to measure how well it is doing with respect to customers.

Examples of common variables that could be measured include customer satisfaction, number of repeat customers, number of new customers, number of new customers from customer referrals, and market share. Variables that are more specific to a particular business include factors such as being ranked first in the industry by customers and providing a safe diving environment for scuba diving. Customer measures for Scrumptious Sweets might include customer loyalty, customer satisfaction, and number of new customers.

The balanced scorecard, strategy maps and dashboards: Why are they different?

The business environment is a very dynamic one and requires a company to constantly evolve in order to survive, let alone grow. To reach strategic targets such as increased market share, management must focus on ways to grow the company. The learning and growth measures are a means to assess how the employees and management are working together to grow the company and to help the employees grow within the company. Examples of measures in this category include the number of employee suggestions that are adopted, turnover rates, hours of employee training, scope of process improvements, and number of new products.

Balanced Scorecard - What is the Balanced Scorecard?

Scrumptious Sweets may use learning and growth measures such as hours of customer service training and hours on workforce relationship training. Balanced scorecards can be created for any type of business and can be used at any level of the organization. An effective and successful balanced scorecard will start with the strategic plan or goals of the organization.

Those goals are then restated based on the level of the organization to which the balanced scorecard pertains.

The Balanced Scorecard - Harvard Business Review

A balanced scorecard for an entire organization will be broader and more general in terms of goals and measures than a balanced scorecard designed for a division manager. Balanced scorecards can even be created at the individual employee level either as an evaluation mechanism or as a means for the employee to set and monitor individual goals. Once the strategic goals of the organization are stated for the appropriate level for which the balanced scorecard is being created, then the measures for each of the categories of the balanced scorecard should be defined, being sure to consider the areas over which the division or individual does or does not have control.

In addition, the variables have to be obtainable and measurable. Last, the measures must be useful, meaning that what is actually being measured must be informative, and there must be a basis of comparison—either company standards or individual targets. First, Figure Notice that this scorecard starts with the overall corporate mission. It then contains very broad goals and measures in each of the four categories: financial, customer, internal, and learning and growth.

In this scorecard, there are three general goals for each of these four categories. For example, the goals related to customers are to improve customer satisfaction, improve customer loyalty, and increase market share. For each of the goals, there is a general measure that will be used to assess if the goal has been met.

In this example, the goal to improve customer satisfaction will be assessed using customer satisfaction surveys. But remember, measures are only useful as a management tool if there is a target to work toward. Obviously, the goals on this scorecard and the associated measures seem almost vague due to their general nature. However, these goals match with the overall corporate strategy and provide guidance for management at lower levels to begin dissecting these goals to more specific ones that pertain to their particular area or division.

This allows them to create more detailed balanced scorecards that will allow them to help meet the overall corporate goals laid out in the corporate scorecard. Figure As you can see from the balanced scorecard for the brownie division, the same corporate mission is included, as are the same four categories; however, the divisional goals are more specific, as are the measures and the targets. The division will assess how well they are accomplishing this goal by tracking the number of customer suggestions and customer special requests, such as when a customer requests a special flavor of brownie not normally produced by the brownie division.

The idea is that if the division is meeting customer needs and requests, this will result in high customer satisfaction, which is an overriding corporate goal. The success of the division will be based on each employee doing his or her best at his or her specific job. Therefore, it is useful to see how the balanced scorecard can be used at an individual employee level. In this balanced scorecard the same categories are used, but there is more detail about each of the business objectives, and each objective has more refined measures than the prior two scorecards.

Kaplan mentions that the financial and customer perspective of the BSC can be combined to provide a framework in which a government organisation has three high level themes: Cost Incurred, Value Created, and Legitimizing Support.

6.3 Balanced scorecard

After the top-level scorecard has been created, the next step for public and non-profit organizations, similarly to private-sector organizations, is to deploy the process down through to its individual departments. The departmental scorecards must reflect the themes and objectives established in the top-level scorecard. The local scorecards describe how each department does its job to contribute to the top-level organizational objectives. Phase one — Strategy mapping : is the key output of the PSS, showing the relationships between outcomes and process and capability outputs. The phase is centred around a number of interactive workshops attended by a wide range of stakeholders that work together to discuss desired outcomes — strategic, financial, user-centric, etc.

Phase two — Service improvement : the strategy map is used as a quick way to appraise the effectiveness of different processes in satisfying the desired outcomes. This phase should become more factual by using available evidence or data, supplemented where appropriate by tools such as process maps, systems thinking and lean management. Phase three- Measurement and evaluation : here possible performance measures for each element of the strategy map should be considered, which should be selected on the basis that they provide value, are cost effective and minimise any perverse effects.

What is important is that an evaluation strategy should be developed in an early stage project group, task force, etc. First Name.

What is the Balanced Scorecard?

Last Name. In other words, the balanced scorecard will help planners to identify what should be done and how it should be measured: The BSC enables organizations to clarify their vision and strategy, and translate them into action.

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Description of the method. According to Moullin , most public and third sector organisations face two typical issues: How to improve outcomes for service users and other key stakeholders without increasing overall cost? How to develop performance measures that ensure quality without motivating staff to achieve arbitrary targets at the expense of poor service? Public Sector Scorecard, n. Relevant data sources. Implementation roadmap.

The Balanced Scorecard The Balanced Scorecard
The Balanced Scorecard The Balanced Scorecard
The Balanced Scorecard The Balanced Scorecard
The Balanced Scorecard The Balanced Scorecard
The Balanced Scorecard The Balanced Scorecard
The Balanced Scorecard The Balanced Scorecard

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