Week 2
Basic Balanced Scorecard:
How does it do the tricks?
Dr.oec.HSG SYARIFA HANOUM, S.T., M.T., CSEP
Departement of Business Management Institut Teknologi Sepuluh Nopember (ITS) 2023
Why Do We Need
the Balanced Scorecard?
“Less than 10% of strategies effectively formulated are effectively executed”
Fortune
“Business Strategy is now the single most important issue…
and will remain so for the next decades”
Business Week
→ To Implement Business Strategy !!!
Why Do We Need
Business Strategy ??
Strategic planning is important to an organization because it provides a sense of direction towards the Vision by outlining measurable goals.
Further reading……
Introduced in 1992, by Robert Kaplan and David
Norton, with their publication in Harvard Business review
”The balanced scorecard – Measures that drive performance”
Where it started . . .
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.
Harvard Business Review editors has named it one of the most influential business ideas of the past 75 years.
Strategy executions
with the Balanced Scorecard
Strategic Level
Operational Level
Bridging Strategic
& Operational Level
Translating Vision and Strategy into Four
Perspectives
Vision and Strategy
Objectives Measures Targets Initiatives FINANCIAL
“To succeed financially, how should we appear to our shareholders?”
Objectives Measures Targets Initiatives LEARNING AND GROWTH
“To achieve our vision, how will we sustain our ability to change and improve?”
Objectives Measures Targets Initiatives CUSTOMER
“To achieve our vision, how should we appear to our customers?”
Objectives Measures Targets Initiatives INTERNAL BUSINESS PROCESS
“To satisfy our shareholders and customers, what business processes must we excel at?”
© 2004 Superfactory™. All Rights Reserved. 8
Defining ‘balanced’
in the Balanced Scorecard
❖ Traditional financial reports look backward
▪ Reflect only the past: spending incurred, and revenues earned
▪ Do not measure creation or destruction of future economic value
❖ The Balanced Scorecard (BSC) came up with the idea of ‘balance’
▪ Balances financial and non-financial measures
▪ Balances short and long-term measures
▪ Balances performance drivers (leading indicators) with outcome measures (lagging indicators)
4 Perspective
of the Balanced Scorecard
Financial Perspective
Objectives Measures Targets Initiatives
1 2 3
Learningand Growth Perspective
Objectives Measures Targets Initiatives
1 2 3
Customer Perspective
Objectives Measures Targets Initiatives
1 2 3
Internal Business Process Perspective
Objectives Measures Targets Initiatives
1 2 3
Business Strategy
“To succeed financially, how should we appear to our shareholders?.”
“To satisfy our shareholders and customers, what business processes must we excel at?.”
“To achieve our vision,how will we sustain our ability to change and improve”
“To achieve our vision, how should we appear to our customers?.”
The Four Perspectives
A Simple Strategy Map of a “Fast Food restaurant”
Source:
“Strategy Maps”, Kaplan & Norton, 1996
A Complete Strategy Map of a “Low-cost Airlines”
Source:
“Strategy Maps”, Kaplan & Norton, 1996
Detailed statement of what is critical to
successfully achieving the
strategy
How success in achieving the strategy will be
measured and tracked
Key action programs required to
achieve objectives The level of
performance or rate of improvement
needed
Objective
Description Target
2 per setup per month each Outlet Office
Initiative Measure
Number of Reworks
Strategy Map
StakeholderInternal ProcessL&G
Faster Service Access
Self Service Applications
Web Enable Technologies Process and Value
Map Analysis
Lean Processes
Financial
Invest in IT
Stakeholder-driven Strategy Map of a Government Institution
Lean / Six Sigma Eliminate waste,
reworks, and other errors in our processes
Financial Perspective
The financial perspective is the common way for analysing and comparing companies.
This perspective also provides overview of company’s financial health.
Financial: Two directions
The Power of PowerPoint | thepopp.com 16
❖ M E A S U R I N G S T R A T E G I C
F I N A N C I A L T H E M E S
CUSTOMER PERSPECTIVE
Focuses on performance objectives that are related to the customers and
the market.
HOW DO CUSTOMERS SEE US?
Right now, many companies or organizations have a mission that
focuses on the customer. The mission is to be “number one in delivering value to customers”.
This perspective is a leading indicator. If the customer’s not
satisfied then they’ll move to another company that provides their needs.
Business would be sustainable if it can create and deliver products or services that are valued by the customers.
a. Product or Service Attribute
b. Customer Relationship c. Image and Reputation
Customer Value Propositions
MEASUREMENT
a. Market Share
b. Customer Acquisition c. Customer Retention d. Customer Satisfaction e. Customer Profitability
Customer Core Measurement
GROWTH HARVEST
• Number of new customers
• Sales from new customers
• % of repeat customers
• % of sales growth by repeat customers
Reflects the portion of the company controls over the existing market, such as number of customers,
number of sales and volume of sales units.
Market Share
Measure the the rate at which business unit is able to attract a new customers or win new business.
Customer Acquisition
CUSTOMER CORE MEASUREMENT
Measure the level at which company can maintain the relationships with customers.
Customer Retention
Estimated the level of satisfaction associated with specific performance criteria in a value proposition.
Customer Satisfaction
Measure the profits that company makes from selling products or services to costumers.
Customer Profitability
CUSTOMER CORE
MEASUREMENT
Includes the function of the product or service, price and quality. Companies must identify what customers
want, cause they have different preferences.
Product or Service Attribute
Concerning about customer’s feelings towards the process of purchasing products offered by company.
Customer Relationship
CUSTOMER VALUE PROPOSITIONS
Describe the intangible factors that attract costumers to deal with the company.
Image and Reputation
Internal Business Processes
❖ Managers identify the critical processes at which they must excel if they are to meet the objectives of shareholders and of targeted customer segments. Conventional performance measurement systems focus
only on monitoring and improving cost, quality, and time-based measures of existing business processes.
Internal business process value chain
This model encompasses three principal business processes:
• Innovation
• Operations
• Postsale service
Customer Need
Identified
Customer Need Satisfied Identify
the Market
Create the Product/
Service Offering
Innovation Process
Build the Products/
Services
Deliver the Products/
Services
Service the Customer Operations
Process
Postsale Service Process
Operations process-time, quality, and cost measurements
Process Time Measurements
Process Quality Measurements
Process Cost Measurements
To measure costs at the process level.
Typically, processes like order fulfillment, purchasing, or production planning and control use resources and activities from several responsibility centers.
To measure quality at the process level.
Typically, processes like waste, scrap, rework, yields (ratio of good items produced to good items entering the process), process part- per-million defect rates, returns, and percentage of processes under
statistical process control.
Measuring time at the process level.
Typically, processes like throughput time, processing time, inspection time, movement time, and waiting/storage time.
focuses on the capabilities of people. Managers would be
responsible for developing employee capabilities.
Key measures for evaluating managers’ performance would be
employee satisfaction, employee retention, and employee
productivity.
Learning And Growth
Perspective
Three principal categories for the learning and growth perspective:
✓ Human Capital: Employee capablities, training and
development of key managers and would-be managers in certain skills.
✓ Information Capital:
Information systems capabilities, access to information among teams within various division of the
organization.
✓ Organization Capital: Climate for action Motivation, empowerment, and alignment.
This perspective also reminds us of the relevance of continued learning and growth goals and how they affect
the continued competitiveness of the organization
© 2004 Superfactory™. All Rights Reserved. 29
A Comprehensive Strategy Map
Improve Shareholder Value
Revenue Growth Strategy Productivity Strategy
Build the Franchise Increase Customer Value Improve Cost Structure Improve Asset Utilization New Revenue Sources Customer Profitability Cost per Unit Asset Utilization
Shareholder Value ROCE
Product Leadership Customer Intimacy Operational Excellence
Price Quality Time
Function-
ality Service
Relation-
ships Brand
Customer Value Proposition
Image Relationship
Product/Service Attributes
“Be a Good Corporate Citizen”
(Regulatory and Environmental Processes)
“Build the Frnchise”
(Innovation Processes)
A Motivated and Prepared Workforce
Strategic Competencies Strategic Technologies Climate for Action
Financial Perspective
Customer Perspective
Internal Perspective
Learning &
Growth Perspective
Source: Kaplan & Norton, The Strategy Focused Organization
“Achieve Operational Excellence”
(Operational Processes)
“Increase Customer Value”
(Customer Management Processes)
Strategic Direction Create Environment
For Change Strategic Performance Management System
Linking it all together….
Communicate Strategies Define Objectives
Implement BSC
Balanced Scorecard Measure Performance
Improve Processes
Evaluate and Adjust Continuous Improvement
Redefine Initiatives
•Activity Based Costing
•Economic Value Added
•Forecasting
•Benchmarking
•Market Research
•Best Practices
•Six Sigma
•Statistical Process Control
•Reengineering
•ISO 9000
•Total Quality Management
•Empowerment
•Learning Organization
•Self-Directed Work Teams
•Change Management
Mission and Vision
Balanced Scorecard
Strategic Planning
Linking it all together….
Case Study: Coca Cola
Vision: “The Coca-Cola Company exists to refresh and benefit everybody it touches. The fundamental recommendation of our business is timeless, reliable, and simple. When we bring refreshment, worth, bliss and amusing to our partners, then we support and secure our brands, especially Coca-Cola. That is the way to satisfy our absolute commitment to give reliably alluring come backs to the proprietors of our business.”
Mission: “All that we do is propelled by our persisting mission:
•To Refresh the World in the body, brain, and soul.
•To Inspire Moments of Optimism through our brands and our activities.
•To Create Value and Make a Difference all over the place we lock in.”
Case Study: Coca Cola
The Coca-Cola Company is a pioneer in the refreshment business with a recognized brand and reliable worldwide presence. According to the Coca-Cola Company’s statement of purpose and 2023 Vision, some of its objectives include:
• Increase benefit by reducing expenses through effective and proficient production facilities;
• Focus on environment-friendly packaging development and upholding its sustainability;
• Continue to enhance its portfolio through events and organizations remembering customer demands;
• Increase yearly operating income by 6-8% with an aim of doubling revenues by 2023.
Case Study: Coca Cola
Coca-Cola considers cost reduction on competition expenses and sales development (an essential activity). In addition, It also considers the quantity of new customers and consumer loyalty rating.
Through the utilization of financial explanations, winning costs, and mechanical specialists, it concentrates on internal operations that enhance service delivery time by a method of the reduction in the time is taken for products or services to achieve the customers’ needs.
To improve the achievement of internal procedures that
create value for the clients and shareholders, it is important to distinguish company abilities that can upgrade an active re- engineering process.
The Coca Cola Company Strategy Map
Customer Financial
Internal Processes
Learning & Growth Vision:
Mission:
:
Dr.oec.HSG Syarifa Hanoum, S.T., M.T., CSEP
Department of Business Management
Faculty of Creative Design & Digital Business Institut Teknologi Sepuluh Nopember (ITS)
The End
❖ Thank you for coming!
