Balanced Scorecard

Kaplan & Norton: HBR

July-August 2005: repeat of 1992 seminal article
Feb 2004: Strategy Map
Oct 2005: Examples
March 2006: Implementation examples

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 Perspectives
GOALS & PERFORMANCE MEASURES
Financial perspective
How do we look to shareholders?
Customer perspective
How do customers see us?
Internal Business perspective (BPR)
What must we excel at?
Innovation & Learning perspective
Can we continue to improve & create value?
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 Example:
anonymous semiconductor company
FINANCIAL perspective
GOALS MEASURES
Survive Cash flow
Succeed Quarterly sales
Growth
Operating income by division
Prosper Increase in market share
Increase in Return on Equity
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 CUSTOMER perspective
GOALS MEASURES
New products % sales from new products
% sales from proprietary products
Responsive On-time delivery
supply (customer definition)
Preferred Share of key accounts purchases
suppliers Ranking by key accounts
Customer # of cooperative engineering
partnerships efforts
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INTERNAL BUSINESS perspective
GOALS MEASURES
Technology Benchmark vs. competition
capability
Manufacturing Cycle time
excellence Unit cost
Yield
Design Silicon efficiency
productivity Engineering efficiency
New product Schedule: Actual vs. Planned
innovation Finland 2010
 INNOVATION & LEARNING
perspective
GOALS MEASURES
Technology Time to develop next generation
leadership
Manufacturing Process time to maturity
learning
Product focus % products equalling 80% of
sales
Time to market New product introduction vs.
competition

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 2004 article: Strategic Readiness
Strategy map: framework to link intangible
assets to shareholder value creation
Through the 4 perspectives
3 Intangible Asset categories essential to
implement strategy (Learning & Growth)
Human Capital
Skills, training, knowledge
Information Capital
Databases, information systems, networks, infrastructure
Organizational Capital
Culture, leadership, alignment with goals, knowledge sharing

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Strategy Map: Intangible assets link
to Internal Process
Intangible assets make up Learning & Growth perspective
Map to Internal Process perspective
Operations Management
Produce & deliver products & services
Customer Management
Enhance customer value
Innovation
Create new products & services
Regulatory & Social
Improve communities & the environment
Customer perspective
Price, quality, availability, selection, functionality, service, partnership, brand
Financial perspective
Productivity strategy
Improve cost structure
Increase asset utilization
Revenue growth strategy
Enhance customer value
Expand revenue opportunities

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Consumer Bank (anonymous)
example: Human Capital

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Information Capital Readiness

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Organization Capital Readiness

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 SCM & BSC
Beasley, Chen, Nunez & Wright, Strategic Finance 87:9 [2006]

CATEGORY Purpose Aim

Learning & Growth for To achieve our vision How will we sustain our
Employees ability to change &
improve?
Internal Business To satisfy our Where must we excel in
Processes stakeholders & our business processes?
customers
Customer Satisfaction To achieve our vision How should we appear to
our customers?
Financial Performance To succeed financially How should we appear to
our stakeholders?

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 Learning & Growth for
Employees
GOALS
Increase employee process ownership
Improve information flows
Increase employee identification of
potential supply chain disruptions
RISK-RELATED GOALS
Increase employee awareness
Increase supplier accountability
Increase employee awareness of
supply chain risks & other enterprise
risks
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MEASURES
Employee survey scores
Changes in information reports
Frequencies across supply chain
partners
Compare actual disruptions with
reports of potential disruption drivers
Number of employees attending risk
management training
Supplier contract provisions on risk
Number of departments participating in
supply chain risk identification &
assessment workshops
 Internal Business Processes
GOALS
Reduce waste across supply chain
Shorten time from start to finish
Achieve unit cost reductions
RISK-RELATED GOALS
Reduce probability & impact of threats
Identify specific tolerances for key
processes
Reduce number of exchanges of
supply chain risks to other enterprise
processes
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MEASURES
Pounds of scrap
Time from raw material purchase to
product/service delivery to customer
Unit costs per product/service
delivered
% of target costs achieved
Number of employees attending risk
management training
Number of process variances
exceeding specified acceptable risk
tolerances
Extent of risks realized in other
functions from supply chain process
risk drivers
 Customer Satisfaction
GOALS
Improve product/service quality
Improve timeliness of product/service
delivery
Improve customer perception of value
RISK-RELATED GOALS
Reduce customer defections
Monitor threats to product/service
reputation
Increase customer feedback
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MEASURES
Number of customer contact points
Time from customer order to delivery
Customer scores of value
Number of customers retained
Extent of negative coverage of quality
in press
Number of completed customer
surveys about delivery comparisons to
other providers
 Financial Performance
GOALS MEASURES
Higher profit margins Profit margin by supply chain partner
Improved cash flows Net cash generated over supply chain
Revenue growth Increase in customers & sales per
customer
% annual return on supply chain
assets
RISK-RELATED GOALS
Reduce threats from price competition Number of customer defections due to
price
Reduce cost overruns Surcharges paid
Holding costs incurred
Overtime charges applied
Reduce costs outside the supply chain Warranty claims incurred
from supply chain processes Legal costs paid
Sales returns processed
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 Gaudenzi & Borghesi
The International Journal of Logistics Management 17:1 [2006]

AHP in balanced scorecard style

Develop formula to evaluate risk within
departments
Focus on top level criteria
On-time delivery
Completeness
Correctness
Damage/defect free products

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 Gaudenzi & Borghesi Weights
Criteria Mean weights Extreme1 weights Extreme2 Weights
On-time 100 0.317 100 0.402 50 0.215
delivery
Completeness 90 0.286 66 0.265 100 0.429
Correctness 75 0.238 50 0.201 50 0.215
Damage-defect 50 0.159 33 0.133 33 0.142
free
315 249 233

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 Weights: Contingent upon
On-time first vs. Completeness
Criteria firstfirst Completeness first
On-time
On-time delivery 0.36 0.22
Completeness 0.29 0.43
Correctness 0.21 0.21
Damage-defect free 0.14 0.14

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 On-time delivery evaluation
Manager subjective scores
Procurement Warehouse Order Mfg Trans.
Cycle
On-time 0.36 0 0.5 1 0.5 0
delivery
Completeness 0.29 0 0.5 1 1 1
Correctness 0.21 1 1 1 1 0.5
Defect free 0.14 0.5 1 1 1 0
Value scores 0.28 0.675 1 0.82 0.395

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 Completeness evaluation
Managerial subjective scores
Procurement Warehouse Order Mfg Trans
Cycle
On-time 0.22 0 0.5 1 0.5 0
delivery
Completeness 0.43 0 0.5 1 1 1
Correctness 0.21 1 1 1 1 0.5
Defect free 0.14 0.5 1 1 1 0
Value scores 0.28 0.675 1 0.89 0.535

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 Other Business Scorecards in
Broader Perspectives
Internal auditing in accounting
Campbell, Adams, Campbell & Rose
Financial Executive 22:1 [2006]
Mental health governance
Sugarman & Kakabadse
The International Journal of Clinical Leadership 16
[2008]

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 Marketing natural gas vehicles
Janssen, Lienin, Gassmann & Wokaun, Transportation Research Part
A 40 [2006]

INDICATORS
1. Ratio of natural gas vehicles per
compress natural gas fueling stations
2. Type coverages (how many different
natural gas vehicle types were available)
3. Natural gas vehicle investment pay-back
time
4. Sales per type
5. Subsidies par automobile
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