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Balanced Scorecard
for MBA students
Girish Kelkar
Why the Balanced Scorecard?
• The Organization will become more “strategically focused” over the
next ten years given the recent policy directive issued by BSP (Budget
& Strategic Planning).
• People at all levels have relied heavily on tactical performance
measurements, such as number of maps submitted, number of land
structures in flow, and % of supply vendor contracts in place.
• Need more balanced approach to looking at performance, both tactical
and strategic.
• Only 5% of a workforce tends to understand their company’s strategy.
• 86% of executive teams spend less than one hour per month
discussing strategy.
A Major Driver is . . .
• The Organization’s Information Resource Planning System (IRPS):
• The Balanced Scorecard will be the strategic view of performance for the agency, balancing out our current
tactical view of performance which is already in place.
Requirements for General
Performance Management /
Results
•Required
to develop long-term Strategic Plans ("SP")
•Specify
general Goals and Objectives (Business Plan)
•Develop
Annual Performance Plans ("APP")
•Specify
measurable performance goals
•Annual
Performance Report ("APR")
•Demonstra
te actual results
•APP goals
should show the expected progress toward meeting the long-term goals of the SP
•Developm
ent needs (Group & Individuals)
Where it started . . .
• Introduced in 1992, by Robert Kaplan and David Norton, the Balanced
Scorecard is the most commonly used framework for ensuring that
agencies execute their strategies.
• Today, about 70% of the Fortune 1,000 companies utilize the
Balanced Scorecard to help manage performance.
–Measurements
–Targets (Budgets & Internal Targets)
–Initiatives
• Everything must be linked: Goals to Objectives, Objectives to
Measurements, Measurements to Targets.
Four Views of Performance
Strategic Objectives
Stakeholders
• Strategy can be described as a “If we succeed, how will we look to
our stakeholders?”
series of cause and effect
relationships.
Internal Processes
• Provides a “line of sight” from
“To satisfy our customers, at which
strategic to operational activity processes must we excel?
Investments
“In order to succeed, what
investments in people and
infrastructure must we make?”
Four Views of Performance
The Importance of Alignment
Complete Framework for IRPS
Organizati
on Departme
nt
Team/
Individual
Reviews
Alignment all the Way Through
Goal: Improve environmental health
Performance Gap: Less than Organization Goals, say Quality
Initiative: Data Mining Analysis of Quality reports Resource
Investment
Innovation Management
Improved "Cause Justified Initiatives to
and Effect" Business Improve Quality
Knowledge Processes
Improved Quality Investments Available to
Assessment Reports be Allocated to Other
Critical Areas
Financial
Management
Quality
Decreased
Health
Costs Relationship Improved Output Quality
Management
Enhanced Customer
Confidence
Increased
Investment
Accountability
In order to be successful, the
Organizational KRAs should .
..
• Be comprised of a balanced set of a limited vital few measures;
Improved Returns on
More rapid and accessible services &
Investments
products with quality
Internal Process
Economic Model
Reduce Re-Activities thru Establish Web Based Self
Process
ABC/M Services
Process
& Growth
Learning
The 4 to 5
Rule
• Articulates how the organization creates value for its constituents and
legitimizing authority
• Displays key priorities and relationships between outcomes (the
"what") and performance enablers or drivers (the "how")
• Provides a clear view of "how I fit in" for sub-organizations, teams,
and individuals
• "Cascading the scorecard throughout the organization”
• Clearly mapping the various units and functions back to the
organization -wide map is critical to leveraging and ensuring
alignment
Strategy Maps –
A Better Way to Communicate Strategy
Promote Transparency:
Ensure Alignment:
Communicate with and
Each sub-unit and individual educate constituents, partners,
link their objectives oversight bodies, and the
to the map. general public.
Source: "Using Balanced Scorecard Technology to Create Strategy-Focused Public Sector Organizations", Robert S. Kaplan,
April 21, 2004, pg. 20
Multiple Choice Question –
Cause Effect on Strategy
Map
• The top perspective of the Balanced Scorecard is the final end results
or outcomes we want to achieve. This perspective is called:
– a. Internal Processes
– b. Stakeholder / Customer
– c. Learning & Growth
– d. Investments
Multiple Choice Question –
and the answer is . . .
• b – “Stakeholder / Customer” are those who we ultimately serve and
we must meet their needs and requirements. This is our final end
result within the scorecard model.
Highly Skilled
Sub-section Process Efficiency Grow Globally Workers
Scorecard
Strategy Map
Stakeholder
Objective
Measure Target Initiative
Lean Processes Description
Eliminate waste, Number of Rejects / 20 % reduction Lean / Six
reworks, & other Reworks in shop floor Sigma
Process and Value errors in processes rejections
Map Analysis for
Better quality
L&G
Web Enable
Technologies
Investments
Invest in IT
Alignment of Scorecard Components
Make sure the components of your scorecard fit together. We want to create a
tight model for driving execution of your strategy.
Goal Objective Measurement Target Initiative
Achieve Reduce Operational Cost per Rejection of 5% - Year 1 Activity Based
operational Rejections by 20% critical parts , observe 10% - Year 2 Costing /
efficiencies with Service Costs by 30% trends for reduction, 15% - Year 3 Management
best practices in over the next 5 years ensure reduction in
the industry sector overall cost of quality Introduction of Best
Practices
Reduce identified re- Waste Volume Waste stream Lean / Six Sigma
activities within primary Charts, Rework reductions of 5% each
processes by 80% over Tracking, Cycle Time year, Reworks cut in
the next 3 years End to End half for next 3 years,
cycle time cut by 75%
Identify & correct
Critical rejections
Multiple Choice Question –
Create a Tight Model
• The Balanced Scorecard process captures a cause and effect
relationship based on having all parts linked together.
a.Mission
b.Goals
c.Budgets
d.Targets
Multiple Choice Question –
and the answer is . . .
• d - Measurements should be linked to targets. We want a one-to-one
relationship so that measurements are actionable to the Agency.
The Context of Measurement
– a. Stakeholder / Customer
– b. Learning and Growth
– c. Organization Investments
– d. Internal Processes
Multiple Choice Question –
and the answer is . . .
• b – this measurement relates to helping grow the workforce and this
would most likely fit with the Learning and Growth perspective of the
Balanced Scorecard.
Some Basic Guidelines for
Good Performance
Measures
• You should have at least one measurement for each objective.
• Measurements define or explain objectives in quantifiable terms:
Goal
Strategic/GPRA Goals
Outcome
End-Outcomes
Performance
Measures
Process Flow
Causal Analysis
Prototype
Product
Desired
Outcome Acceptable Not Acceptable
Results
Back to
To Market Of
Laboratory
Testing
Top Ten Metrics Service Sector
• Outputs/Product
• Program Inputs
• Financial Indicators
• Work/Activities
• Timeliness of Services
• Internal Measures of Quality
• Operating Ratios
• Outcomes of Products or Services
• External Customer Service
• Equity of Services to Users
How to Set Targets
• Past performance trends per historical data.
• Performance levels of similar organizational units at a comparable
level that facilitates benchmarking.
• Best practices across the organization, the public sector or the private
sector. Must be at a pre-existing high level of performance before you
use this approach.
• For newly launched services, may have to establish a baseline per a
prototype test and extend out from this point forward.
• For major strategic shifts, may have to set directly per the plan itself
without regard for hard data.
Checklist for Setting Targets
• Targets match up with measurements, one to one.
• Targets require improving current levels of performance.
• Targets are a stretch, but achievable: they may require improvements
to existing processes.
• Targets are quantifiable so that the target communicates if the
expected performance was met.
• Long-term targets are established before short-term targets.
• Financial/Budget related targets are established before non-financial
targets.
Examples of Targets
Average Turnaround Times at 8 days 7.5 days FY06 6.8 days FY07
Docking Sites FY05
Utilization Rate for Self Serve 10% 18% 25%
Web Portal FY05 FY06 FY07
Rotation Internship Participation 1,800 2,500 3,900
Rates FY05 FY06 FY07
Glider integration mapping tool Establish 8 per sets 10 per sets
used for geo-sets baseline
Employee Rotation Program Improve the employee turnover and satisfaction scores
Web Self Service Portal Reduce Organization costs and streamline our services
for more direct service delivery
Common Knowledge Center Expand the overall knowledge base so that inter-
functions can learn from one another
Customer Survey and Analysis Develop a more systematic process across the entire
Tool Program Organization to better connect to our customers
Shared Service Center Tracking Reduce reworks and overlaps between our seven
System shared service centers
Going from Output to Outcome
When you first launch your Initiative, you probably want to use an Output
Measurement. Once the Initiative is up and running, change your
measurement to an Outcome to see if the Initiative is really having
strategic impact.
Initiative Output Measurement Outcome Measurement
Lean Process / Six Sigma Number of Projects Defined by Overall reductions in errors, reworks,
Region and cycle times
Activity Based Costing / % of Service Center Outlets with Reductions in identified re-activities
Management (ABC/M) ABC Models in place for per process study
Allocation Costs
Employee Competency % of Employees who have a Higher skill levels of employees using
Models Competency Model in place the models
Strategic Themes
• Describes an overall strategic direction
• Can improve the communication effectiveness of the Strategy Map
• Examples of themes:
– Innovative Services
– Lean Processes
– Adaptive Organization
– Realign our Core Competencies
– Reach the Stakeholder
• Group common set of objectives around a theme
Multiple Choice Question –
Sequence Of Steps
The basic steps for creating a Balanced Scorecard include:
• A = Align your strategy map to other organizational units
• B = Create your strategic plan – including goals and objectives
• C = Extend your strategy map into measurements and targets
• D = Map your strategy over four perspectives
–A C BD
–C A DB
–B D AC
–C B AD
Multiple Choice Question –
and the answer is . . .
• c –Step 1 or B – Start with your strategic plan
• Step 2 or D – Map your strategic plan
• Step 3 or A – Align your strategy map
• Step 4 or C – Extend the strategy map into measurements and
targets
Case Study Instructions
• The following handout is an example strategic plan for the Western
Organization Region Office (WARO).
• Your team has been assigned the responsibility of mapping the
WARO Plan into a single strategy map.
• Each team will be assigned to a breakout room – use post it notes on
the large white template sheets
• Try to limit your objective boxes on the strategy map to no more than
20 per our 4 to 5 Rule.
• If you have time, you might want to consider arranging or grouping
certain objectives together around themes.
• Each team will provide a 10-minute brief.
• You have 90 minutes to complete the case study exercise.
Table of Contents
Leadership
Leadership Learning
Learning &
& Growth
Growth Perspective
Perspective
Human
Human Resource
Resource Capital
Capital Learning
Learning &
& Growth
Growth Perspective
Perspective
Business
Business Results
Results Measurements
Measurements and
and Targets
Targets
Process
Process Management
Management Internal
Internal Process
Process Perspective
Perspective
Strategic
Strategic Planning
Planning Strategy
Strategy Map
Map
Customer
Customer Focus
Focus Stakeholder
Stakeholder // Customer
Customer
Perspective
Perspective
HR Scorecard – Background
• The industrial world around all of us is undergoing a transformation and
HR is no exception for the same.
• The role of HR is undergoing a change from Transactional / operational to
Strategic Discipline.
• There is a growing concern about ability of an organization to evaluate
the effectiveness of HR function at the strategic issues and its effect on
the overall performance of the organization. HR teams have challenge to
match these needs.
• HR has as yet not earned a position of Strategic importance in many
organizations but there is a growing concern about this change.
• HR contribution is difficult to quantify due to inherent nature of human
characters & attitudes but one can feel the effect of the contribution if
there is an effective Hr function.
• HR Scorecard provides a way to get over this problem. This is designed
based on the original score-card concept from Kaplan & Norton
HR Scorecard – Background
• Based on various studies carried out that firms with more effective HR management consistently out performs
the competition.
• However it is difficult to directly co-relate HR contribution to organizational success.
– Customer satisfaction
– Internal Operations
– People and Learning Opportunities / Competencies
– Internal Systems & Processes
• HR processes need to ensure that employees in the company develop the requisite
competencies & behaviors to effectively achieve the organizational goals.
• It is not good enough to only develop good HR strategy & policies but it is equally
important to ensure proper implementation of such programs.
• High performance HR systems will have to unique since it is organization specific, taking
care of goals, strategy & people.
HR Function - the points to
note---contd
HR Function – Employee
Behavior
• In High-performance organizations employee competencies and behavior matter the
most and this has to be a major area of attention for the HR team.
• As specified earlier the BSC approach the organizational strategy are mapped to the
employee behaviors.
• Strategic / productive behaviors are such behaviors that serve the final outcome for the
organization.
• There are two types of behaviors:
– Strategic behaviors that are directly useful to implement
chosen strategy that are necessary for all the organizational
units & levels.
– Situational behaviors that required at specific events (these
are not required all the time for all the departments.
• HR needs to understand behavior of people & processes that create the value for the
organization. HR then needs to develop ways to ensure that they instill these behaviors in
the organization & also must develop ways to measure the impact.
Balanced Scorecard (BSC)
& Balanced Performance
•
Measurement
BSC emphasizes the importance of measuring Business Results from the perspective of
Strategy Implementation & does not rely too much on the financial results.
• It is necessary to identify parameters that influence the results rather than just look at the final
results in financial terms. Cause –effect relationships need to be understood well.
• Managers need to communicate the important of key parameters and what factors and
behaviors cause them, to the employees.
• Design of a measurement system is two step process.
1.Employee Talent
• Enlarge Talent Pool for identified key skill-sets
• Invest in Employee Development programs
• Ensure diversity in talent pool
1.Leadership Development
• Identify Fast Track Employees
• Provide Coaching & Development
• Establish Rewards & Key Deployments for Leadership behavior
1.Customer Service & Support
• Create an atmosphere for Employee involvement & Engagement
• Increase Business Intelligence & Awareness about Customer Service
• Plan & operate motivational & empowerment initiatives
An example of HR Strategy
&
•
Score-card parameters
HR Strategy can be defined as specified below:
4.Organizational Integration
• Create better systems & programs for knowledge sharing
• Enhance participation by the shop floor employees
4.HR Capability
• Develop Core HR Competencies
• Identify Key talent for growth & development
• Invest in appropriate Technologies
• Invest in Employee self Improvement Programs
• Improve Strategic Contribution of HR function in the organization
• HR function has to be proactive in stance & has to improve ability to communicate the essence of
HR Strategy to all the Employees in the organization
• HR must be handled in an alert way & make suitable changes in the stance depending on the
changes in the Business Environment