Balanced Scorecard Approach Definition The Balanced Scorecard (BSC) is a conceptual framework enabling an organization in clarifying its vision

and strategy, thus effectively translating them into action. This performance management approach provides feedback around both the internal processes and external outcomes, essentially focusing on four indicators: Customer Perspective, Internal-Business Processes, Learning and Growth and Financials. Balanced Scorecards tell us the knowledge, skills and systems that our employees will need (learning and growth) to innovate and build the right strategic capabilities and efficiencies (internal processes) that deliver specific value to the market (customer) which will eventually lead to higher shareholder value (financial). Concept According to the Balanced Scorecard Collaborative, there are four barriers to strategic implementation: 1. Vision Barrier No one in the organization understands the strategies of the organization. 2. People Barrier Most people have objectives that are not linked to the strategy of the organization. 3. Resource Barrier Time, energy, and money are not allocated to those things that are critical to the organization. For example, budgets are not linked to strategy, resulting in wasted resources. 4. Management Barrier Management spends too little time on strategy and too much time on short-term tactical decision-making. Most of these barriers can be overcome by using the Balanced Scorecard, which combines the historical accuracy of financial numbers with the drivers of future performance. Using the Balanced Scorecard, strategic planners have a crisp and clear way of communicating strategy. With balanced scorecards, strategy reaches everyone in a language that makes sense. When strategy is expressed in terms of measurements and targets, the employee can relate to what must happen. This leads to much better execution of strategy. Not only does the Balanced Scorecard transform how the strategic plan is expressed, but it also pulls everything together. This is the so-called cause and effect relationship or linking of all elements together. For example, if we want strong financial results, we must have great customer service. If we want great customer service, we must have excellent processes in place (such as Customer Relations Management). If we want great processes, we must have the right people, knowledge, and systems (intellectual capital). In the past, many components for implementing a strategic plan have been managed separately, not collectively within one overall management system. As a result, everything has moved in different directions, leading to poor execution of the strategic plan. Like a marching band, everyone needs to move in lockstep behind one overall strategy.

Therefore, we should think of the Balanced Scorecard as a management system, not just another performance measurement program. And since strategy is at the center of value-creation for the organization, the Balanced Scorecard has become a critical management system for any organization. The BSC includes the following four perspectives or quadrants: Financial Perspective In general, the financial perspective is how a stakeholder views a companys plans for growth, handling risk and making a profit. It evaluates how well a strategy is being executed, as reflected in improved bottom-line results. Some examples: Reduced operating expenses: cutting costs is important if a company is to gain a competitive edge, but this can be balanced against other scorecard measures such as customer satisfaction and quality. New services or products: these reflect how much revenue has been earned from the introduction of new services within a set time frame. Customer Perspective The Balanced Scorecard also measures a companys ability to attain its strategic objectives in terms of customers and the marketplace. For example, a public transport company might wish to become the market leader in delivering value to passengers. Customer measures are necessary because the only route to long-term financial success is to deliver the services demanded by customers. The basic core measurements could include customer satisfaction, customer acquisition, and customer retention and customer profitability. These measures provide managers with a clearer idea of who their customers are, how to earn profits from them and what their customers value. The ultimate goal is to create a portfolio of services that delivers superior value for the targeted customers. Internal Process Perspective This category focuses on internal operations and emphasizes how a company delivers services according to the various modes of transportation offered. IN this category, physical internal drivers with a direct impact on economics are often described, such as schedule efficiency, average wage level, absenteeism ratio. Possible measures could include service quality with possible indicators on accessibility, availability, reliability, safety and comfort. Several other factors can be measured to ensure that a companys internal operations are aligned with its goals. Learning and Growth Perspectives/Innovation A company needs well-trained, highly skilled employees if it is to excel in the first three strategic perspectives. Educational goals drive the attainment of other strategic objectives. Invest in human capital by spending money on employee capabilities, information/knowledge systems and motivation, empowerment and alignment.

These factors can be measured by assessing employee satisfaction, skills and productivity. Other possible measures include productivity levels, training and skill levels, performance improvement and individual performance goals that align with the objectives of the Balanced Scorecard (BSC). According to BSC inventors Kaplan and Norton, the key to a companys long-lasting success is achieving a well-balanced performance of the above four perspectives.

It all starts at the bottom in the Learning and Growth perspective. Example - The Balanced Scorecard in Practice According to Public Transport International (June 2005), Belgian public transport company De Lijn decided to introduce the Balanced Scorecard (BSC) in 2003, first at corporate level and later at the regional and departmental level. According to BSC principles, key performance indicators were defined for each of the four perspectives: finance/results, customers, processes and innovation. Public transport companies typically include non-financial key performance indicators (KPIs) within the finance/result perspective. Of course, budget compliance and financial performance stand at the core of this perspective, but it is equally important for the company to live up to the commitments described in the management contract with the public authority.

For example, contributing to traffic safety is an important objective for public transport. De Lijns BSC finance/result perspective quadrant therefore contains KPIs on tram and bus accidents. Likewise, the steady increase in the number of passengers is a management contract commitment and therefore appears in the form of a KPI in the finance/results quadrant of the BSC. The process quadrant is made up primarily of human resources indicators. This includes data on productivity, but also on industrial relations, competence management, personnel flow, etc. The client quadrant mainly contains KPIs on customer satisfaction as measured by both satisfaction surveys and spontaneous customer reactions by phone or mail. The introduction of the BSC by De Lijn prompted a project on integration and further development of all qualityrelated data in a new quality barometer. The innovation quadrant is intended as a follow-up to various strategic projects. These are identified as having a direct link to the companys strategic objectives and having an impact throughout the whole organization. De Lijn, for example, developed a new electronic registration, ticketing and onboard computer system and deployed a new extended release of its IT-based operations planning system. To take another example, Viennas public transport company Wiener Linien used the introduction of a BSC to enable the implementation of its strategy. In the case of Wiener Linien, the individual business units, established as separate profit centers, had to achieve some sort of balance to improve the level of economic responsibility at this organizational level. To optimize the efficiency of the overall company, a superior system of targets was required and the BSC was chosen for this purpose. As a consequence Wiener Liniens scorecard was broken down into separate profit center scorecards, leaving the individual units with responsibility for their respective decisions. Implementation of a Balanced Scorecard Program Phases of Implementation When starting a Balanced Scorecard program it is essential to have key performance indicators (KPIs) in place. The company has to reach a consensus about what exactly has to be measured and which scores will trigger yellow or red alerts. This can be a lengthy process, involving discussions at different management levels. Also, making good use of the BSC involves the willingness and cooperation of all participants. Even if the BSC has been conceived as a management instrument rather than a control tool, there is still the risk of the program being perceived as a threat to management autonomy. Diagnosis using the BSC has to be followed up with further analysis and, where appropriate, targeted action.

The implementation of a BSC program consists of three major phases: planning, development and communication. The planning phase lays the groundwork for a successful project. This phase creates a BSC development plan and may include the following steps: a) Development of objectives for the BSC. b) Determine the appropriate organizational unit for a pilot scheme. c) Gain the support of top management. d) Form a BSC project team. e) Create a project plan. f) Develop a communication plan to inform others in the organization about our project. In the development phase, the following steps can be followed: a) Gather and distribute background material to give a clear picture of the organizations competitive position and employee competencies. b) Develop or confirm the companys mission, values, vision and strategy, drawing on the findings from step a). c) Conduct executive interviews to receive feedback on the organizations competitive position, key success factors and possible BSC measures. d) Develop objectives and measures in each of the BSC perspectives; organize executive workshops and gather feedback from middle management as well as employees. e) Establish targets for the measures to be undertaken, to show whether improvement efforts lead to acceptable results; gain a final consensus on the final BSC products. f) Draw up a BSC implementation plan, which develops a measurement tool as the basis for the new management system. Companies should expect to spend six to 12 months on the development phase. The amount of time involved depends on many factors, including the commitment of the executive team, the size and complexity of the organization, and its willingness to change. In the communication phase the company must communicate its BSC goals in order to build awareness of the BSC at all levels and encourage participation in the process. Team results must be disseminated rapidly and effectively. Advantages Balanced Scorecards provide the framework around which an organization changes through the execution of its strategy. This is accomplished by linking everything together. This is what makes the Balanced Scorecard so different; it captures the cause and effect relationship throughout every part of the organization. Like a laser beam, strategy now has a clear path to everyone in the organization. The key to the success of the Balanced Scorecard is its simplicity essentially seeing an organisation from four key perspectives one driving another.

Financial results are driven first by people. People with the right skills, motivation and information create effective and efficient processes, which in turn deliver products, relationships and services that create value for the customer. Customer value in turn delivers profit to meet the organisations financial objectives. This linkage is summarised in the following illustration:

Furthermore, a Balance Score Card offers clear methods for measuring goals, as well as describing specific actions that will help attain them. The scorecard approach is relatively simple and highly visual. Most company scorecards are split into sections with analysis and areas of improvement suggested under each heading. This means that managers are easily able to communicate the issues raised by the scorecard and the resulting strategies to staff members. The business objectives are illustrated in a clear fashion. Disadvantages Most Balanced Scorecard metrics are based on brainstorming; however the approach of brainstorming can have limited success in establishing sound metrics that have a good balance between lagging and leading measures. One aspect that appears on many company scorecards is an analysis of how the business is doing in terms of customer and client satisfaction. These elements are difficult to measure accurately

when compared to financial goals. Often, companies end up communicating with customers through questionnaires to discover satisfaction levels. Such questionnaires may yield inaccurate results if those asked have grown tired of similar surveys. Second, while the balanced scorecard gives companies an overall view of the four areas for concern in business growth and development, these four areas do not paint the whole picture. The financial information included on the scorecard is limited. Instead, to be successfully implemented, the balanced scorecard must be part of a bigger strategy for company growth that includes meticulous accounting methods. Finally, many companies use metrics that are not applicable to their own situation. It is vitally important when using balanced scorecards to make the information being tracked applicable to your needs. Otherwise, the metrics will be meaningless. Conclusion Strategy is the foundation around which all other activities take place. We need a framework for integrating strategy into all parts of the organization. Balanced Scorecards provide the framework by which an organization executes its strategy. The groundwork for building the balanced scorecard is to set the organization around a clear and concise strategy. From this strategy, we can translate our strategic objectives into a set of grids, connected over four perspectives: Financial Delivering expected financial results for investors. Customer Delivering value and benefits for customers. Internal Processes The set of processes that must be in place in order to meet the requirements of customers. Learning & Growth The set of values and principles related to intangibles (employees, systems, and organization), supporting and providing the required internal processes. The Financial and Customer perspectives tend to represent the deliverables; i.e. those things the organization must deliver on whereas the Internal Processes and Learning and Growth perspectives tend to represent those things the organization must do. Completing the strategic foundation (phase I) is the most important step in designing the Balanced Scorecard. And this requires considerable effort before we can start to build the three primary components of the Balanced Scorecard: Measurements, Targets, and Programs. Measurements control the process through communication and learning. Targets are the specifics of the strategy. Finally, we must have major initiatives or programs to make all of this stuff happen. Once we have populated the scorecard with measurements, targets, and programs, then we have successfully translated our strategy into operating terms. This completes construction of the Balanced Scorecard.

Once completed, we can move to the final phase of deployment. Deployment requires careful planning and coordination with other parts of the organization. Keep in mind that we are testing a whole new way of managing and therefore, we must readjust, modify, and revisit the design of our scorecard. Eventually, every employee should be able to look at their balanced scorecard and say: I understand what this means and what I need to do to make it happen. In conclusion, strategy is about change and getting an organization to change is one of the most difficult things to do. When we can successfully get the organization to change, then we have removed one of the biggest obstacles to execution of our strategic plan. This is why balanced scorecards are so important we must get our organization to change if we expect to execute our strategies. The Balanced Scorecard is the definitive management tool for making this happens. References: Kaplan, R. S., & Norton, D. P. (1996). The balanced scorecard: Translating strategy into action . Boston, Mass: Harvard Business School Press. Lingle, J. H., & Schiemann, W. A. (1996). From balanced scorecard to strategic gauges: Is measurement worth it? Management Review, 85(3), 56-61. American Management Association. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=9603130336&site=ehostlive Kaplan, R. S., & Norton, D. R. (2005). The Balanced Scorecard: Measures That Drive Performance. (cover story). Harvard Business Review, 83(7/8), 172-180. Harvard Business School Publication Corp. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=17602418&site=bsi-live Balanced Scorecard. Anti Essays. Retrieved December 28, 2011, from the World Wide Web: http://www.antiessays.com/free-essays/134315.html