RAFIQAH BINTI FAUZI 2013420654 BM7001DF

BALANCE SCORECARD

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1.1 ORIGINS AND BACKGROUND

Robert Kaplan

David Norton

1990
Study on Measuring Performance in the Organization of the Future
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1.1 ORIGINS AND BACKGROUND

Harvard Business Review article The Balanced Scorecard-Measures that Drive Performance (January February 1992)

Harvard Business Review article Putting the Balanced Scorecard to Work ( September October 1993)

Harvard Business Review article Using the Balanced Scorecard as a Strategic Management System (January February 1996)
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1.2 DEFINITION

The term scorecard signifies quantified performance measures and balanced signifies the system is balanced between:
Short-term and long term objectives
Financial and non-financial measures

Lagging and leading indicators

Internal and external performance perspectives

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1.2 DEFINITION

(Riven, P.R., 2006)

The Balanced Scorecard as a carefully selected set of quantifiable measures derived from an organizations strategy.

(Smith, R.F., 2007)

A Balanced Scorecard is a management tool that provides senior executives with a comprehensive set of measures to assess how the organization is progressing towards meeting its strategic goals.

(Olve, Roy & Wetter, 2000)

The Balanced Scorecard is a method for reaching agreement on where an operation should be heading for reaching agreement on where an operation should be heading and for making sure that it stays on course

(Kaplan, R.S. & Norton, D.P., 1996)

The Balanced Scorecard provides managers with the instrumentation they need to navigate to future competitive success.

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1.3 USES OF BALANCED SCORECARD

To set objective

To determine measures

To predict outcomes

To determine initiatives

To gain the big picture

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2.0 BALANCED SCORECARD PERSPECTIVES

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3.0 PROCESS OF BUILDING A BALANCED SCORECARD

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Define the industry, describe its development and the role of the company
Establish/confirm the companys vision Establish the perspectives Break the vision down according to each perspective and formulate overall strategic goals

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Identify critical factors for success

Develop measures, identify causes and effects and establish a balance

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3.0 PROCESS OF BUILDING A BALANCED SCORECARD

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Establish the top-level scorecard

Breakdown of the scorecard and measures by organizational unit

Formulate goals

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Develop an action plan

Implementing the scorecard

Source: (Olve, Roy and Wetter, 2000)

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3.0 PROCESS OF BUILDING A BALANCED SCORECARD

Define the industry, describe its development and the role of the company To develop a foundation for establishing a consensus on the characteristics and requirements of the industry

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SWOT analysis

Porters five competitive forces

KappAhl retail-clothing chain A succession of management changes proved difficult to restore profitability KappAhl gone too far in imitating the efforts of competitors to focus on youthful target group KappAhls strength and soul were to be gound in another profile that of a service company for the general public, but with an up-to-date image

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3.0 PROCESS OF BUILDING A BALANCED SCORECARD

Establish/confirm the companys vision Since the balance-scorecard model is based on a shared comprehensive vision, it is essential to ascertain at an early stage whether a jointly held vision in fact exists

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1996 Vision, mission statement, and main strategies were revised and confirmed

KappAhl as the industrys leading service company

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3.0 PROCESS OF BUILDING A BALANCED SCORECARD

Establish the perspectives The development perspective should thus show the ways in which management intends to develop the organization and the products and services offered for the purpose of streamlining processes and/or adding value for customers

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KappAhl perspectives Finance Internal business process Customer Development / Learning and growth Employees

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3.0 PROCESS OF BUILDING A BALANCED SCORECARD

Break the vision down according to each perspective and formulate overall strategic goals The purpose of this step is to translate the vision into tangible terms from the established perspectives and thereby to achieve the overall balance which is the unique feature of the model and the method KappAhl Strategic goals Finance: High and even earnings Customer: Increased market share and delighted customers Employees: Satisfied employees Process: On time; short process times Development: Innovation force; learning organization

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3.0 PROCESS OF BUILDING A BALANCED SCORECARD

Identify critical factors for success
The company must now decide what are the most critical factors for success and rank them in order of priority

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KappAhl critical factors for success Critical factors for achieving desired levels of profit and cash flow
Fewer seasonal variations Lower markdowns Performance/sq. metre
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Critical factors for customer

Critical factors for employees

Leadership Critical factors for development Daring to test new ways

Critical factors for process

Timeliness Lead time orderto-store

Match customers expectations

In-store traffic Merchandising

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3.0 PROCESS OF BUILDING A BALANCED SCORECARD

Develop measures, identify causes and effects and establish a balance
Develop relevant key measures for subsequent use in our work KappAhl key measures Finance Customer Profit Q1 and Q3 Match customers expectations In-store traffic Merchandising Market share / Customer satisfaction Index Number of visitor Radar

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Fewer seasonal variations

Lower markdowns Performance/sq. metre

Markdowns Gross profit/sq. metre

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3.0 PROCESS OF BUILDING A BALANCED SCORECARD

KappAhl key measures Employees Process Satisfied Employee Index Timeliness Lead time orderto-store Satisfied Employee Index Percentage ontime Days from order to delivery

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Leadership

Development Daring to test new ways

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3.0 PROCESS OF BUILDING A BALANCED SCORECARD

Establish the top-level scorecard The top-level scorecard is put together for approval and for presentation to the person concerned
KappAhl as the industrys leading service company Good value for smart dressers

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Finance
High and even earning

Customer
Increased market share; delighted customers

Employees
Satisfied employees

process
On time; short process times

Development
Innovation force; learning organization

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3.0 PROCESS OF BUILDING A BALANCED SCORECARD

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Reduced seasonality Low markdowns Performance/sq . metre Profit Q1 and Q3 Markdowns Days of inventoried goods Gross profit/sq. metre

Match customers expectation In-store traffic Merchandising

Leadership

Timeliness Lead time order-to-store

Daring to test new ways

Market share Customer satisfaction index Number of visitors Radar

Satisfied Employees Index

Percentage ontime Days from order to delivery

Satisfied Employees Index

An overview of KappAhls overall balanced scorecard

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3.0 PROCESS OF BUILDING A BALANCED SCORECARD

Breakdown of the scorecard and measures by organizational unit
Corporate group

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The company

The documentation was turned over to 15 different project groups corresponding to units in the formal organization The groups were asked to prepare scorecards for their respective units at KappAhl : each unit was determine how it could contribute to achieving the vision in the top-level scorecard
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The Business Unit

Division 1

Division 2

Division 3

Production

Construction

Purchasing

The Department/Function
Production unit 1 Production unit 2

The workgroup

Chassis

Interior

The Individual

Production line

Example of a breakdown of top-level measure

Example

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3.0 PROCESS OF BUILDING A BALANCED SCORECARD

Formulate goals Goal consistent with vision and overall strategy

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The project group maintained continuous contact with the 15 different units as they were developing their scorecards

To see that the process maintained momentum and remained consistent with the purpose indicated in KappAhls top level scorecard

To make sure that the measures were well defined and that goals were set at reasonable levels

To observe whether there is potential for conflict between goals

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3.0 PROCESS OF BUILDING A BALANCED SCORECARD

Develop an action plan Specify the steps to be taken to achieve the goals and the vision which have been established

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Business areas

Supply chain management

Concept & marketing

Operations (stores)

Vision & Business Idea

Area of focus

Budget & objectives

Finance
Customer Measures of the above Employees process Development Performance drivers
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Outcome measures

How different organizational units enter into the different perspectives at KappAhl

Example

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3.0 PROCESS OF BUILDING A BALANCED SCORECARD

Implementing the scorecard The implementation plan should therefore include rules and suggested ways to ensure that balanced scorekeeping becomes part of the daily work of the company Everyone readily accepted this way of thinking, and even without any formal system of performance monitoring, the scorecards for the different units at KappAhl proved to be major factor in turning the company around

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The company was already showing a profit of over 100 million SEK in 1997

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KEY PERFORMANCE INDICATORS (KPIs)

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4.1 DEFINITION OF KPI

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Key Include anything that allows the business to gain a competitive advantage over others in the same market. The indicators should deal only with the aspects of the business that help it succeed

Performance KPI is to find actions and events that the business can clearly identify, measure and quantify, and that the company itself or its employees can influence

Indicator An "indicator" should be a metric that helps predict future results

Source: (Cultrona, 2009)

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4.1 DEFINITION OF KPI

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KPIs represent a set of measures focusing on those aspects of organizational performance that are the most critical for the current and future success of the organization (Parmenter, 2007)

Key performance indicator are important indicators for assessing the outcome of management (Wu & Chen, 2012)

Key performance indicator are quantifiable measurements, agreed to beforehand, that reflect the critical success factors of an organization (Reh, 2009)

Key performance indicator means factors to which the development, performance or position the business of the company can be measure effectively

Source: Company act 2006, section 471(6)

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5.0 DEVELOPING AND USING KPIs

A 12- step model (Parmenter, 2007)

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Senior Management Team commitment

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Recording performance measures in a database Selecting Team-Level performance measures Selecting organizational Winning KPIs Developing the reporting framework at all level Facilitating the use of Winning KPIs Refining KPIs to maintain their Relevance

Establish a Winning KPI project team

Establish a Just Do It culture and process Setting up a holistic KPI development strategy Marketing the KPI system to all employees Identifying organization-wide critical success factor

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5 6
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6.0 IMPORTANCE OF KPI

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Goal measurement

Vital Information

Education

Continuity

Consideration

Source: (Hamlett, 2006)

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7.0 HOW TO MEASURE A KPI

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STEP 1 Choose the target and range for your business

STEP 2
Set the time period for measuring KPI STEP 3 Assign numerical values to the categories of the KPI range Source: (Lorette, 1996)

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7.1 HOW MANY KPIs?

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Measures that matter across industries

the choice of which ones are key is unique to each company and its strategy; it is therefore impossible to specify how many KPIs a company should have. However, our experience suggests that between four and ten measures are likely to be key for most types of company.
Source: www.corporatereporting.com
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There have been several inspired theories on the optimal number of KPIs but in practice 5 9 KPIs

work well
Source: www.simplekpi.com

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8.0 RELATIONSHIP BETWEEN KPIs AND BALANCED SCORECARD

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Issue

Issue Issue Issue

Issue
Critical success factors Balanced scorecard

Issue

Scorecard and serves as a base for specifying the KPIs (Iveta, 2012)
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Financial results Internal processes

Customer satisfaction Staff satisfaction

Learning & growth

Community & environment

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