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Balanced Scorecard Fundamentals Measuring Strategic Performance Dr. Shayne Tracy Balanced Scorecard Fundamentals Measuring Strategic Performance Dr. Shayne Tracy

Why Use the Balanced Scorecard? n n To maintain sustainable competitive advantage in the Why Use the Balanced Scorecard? n n To maintain sustainable competitive advantage in the information age, strategic business units must broaden their base of intangible assets and the means by which performance is measured and continuously improved. The balanced scorecard provides a comprehensive framework for implementing strategic plans by translating an organization’s strategy into a set of key performance indicators.

Performance Measures Yesterday n Traditional measures of performance only included financial Non Financial statistics Performance Measures Yesterday n Traditional measures of performance only included financial Non Financial statistics based on the MEASURES financial Financial accounting model. External FOCUS Internal Historical Future TIMEFRAME

Performance Indicators Today n The balanced scorecard focuses on an Non Financial integrated system Performance Indicators Today n The balanced scorecard focuses on an Non Financial integrated system of key MEASURES Financial performance indicators for critical success factors. External Historical Future TIMEFRAME Internal FOCUS

The Balanced Scorecard Dimensions Financial Perspective Customer Perspective Vision, Values Mission, Strategy Learning & The Balanced Scorecard Dimensions Financial Perspective Customer Perspective Vision, Values Mission, Strategy Learning & Growth Internal Processes

The Financial Perspective n To succeed financially, what level of financial performance do our The Financial Perspective n To succeed financially, what level of financial performance do our investors expect? Examples: n ROI, EVA n Return on capital employed (ROCE) n Revenue growth n Self-financiable growth rate n Cash flow return on assets n Market/customer/product profitability growth

The Customer Perspective n To achieve our strategy, how must we appear to our The Customer Perspective n To achieve our strategy, how must we appear to our customers? Examples: n Market share growth n Customer acquisition rate n Customer retention rate n Customer satisfaction scores n Number of new products/services n Product return rate n Defect rate n On-time delivery rate

Internal Business Processes n At what business processes must we excel to satisfy our Internal Business Processes n At what business processes must we excel to satisfy our clients/customers? Examples: n Product-development cycle time n Order-to-delivery response time n Six sigma (PPM) quality rate n Revenue per employee n Cash conversion cycle time n New product/service introduction rate n New product/service breakeven time

Learning & Growth Perspective n What people and systems do we need to sustain Learning & Growth Perspective n What people and systems do we need to sustain our ability to change and improve? Examples: n Employee retention/turnover rate n Salaries/wage index n Training/development hours per employee n Strategic competency index n Value-added per employee dollar n Sustainable growth analysis n Knowledge productivity rate

Economy, Effectiveness, Productivity and Performance n Economy is concerned with inputs only n n Economy, Effectiveness, Productivity and Performance n Economy is concerned with inputs only n n Effectiveness refers to the achievement of objectives n n Productivity is the ratio of outputs to inputs n n Performance is the quality of tasks and activities n total number of labour hours worked during the period total number of good units of output for the period number of good units of output per labour hour of input Number of “ 0” defects per unit of output per labour hour

Balanced Scorecard Workflow n n Strategic Plan Gap Analysis Implementation of Action Plans Recalibration Balanced Scorecard Workflow n n Strategic Plan Gap Analysis Implementation of Action Plans Recalibration Annually

Balanced Scorecard Planning and Implementation Workflow ENSURE SENIOR MANAGEMENT COMMITMENT Articulate strategy and mission Balanced Scorecard Planning and Implementation Workflow ENSURE SENIOR MANAGEMENT COMMITMENT Articulate strategy and mission Identify strategic business units to be measured Determine data gathering methods Gather benchmark and actual data Align incentives and compensation with BSC performance indicators Revise goals, if necessary Determine current performance gap Gain constituency acceptance of conclusions Identify and prioritize BSC perspectives Determine source of benchmark / target data Identify customers of BSC and their requirements Define critical success factors Eliminate redundant indicators Define relevant performance indicators w/CAR Identify causes of current and future gaps Establish performance goals and objectives Implement initiatives Estimate future attainable performance Assess progress toward goals Validate/update benchmarks Periodic Reappraisal Communication and consensus at each is critical

Communication Tools n n n n Check sheets/lists Goal/Objective Action Plans Project/Process Plans Cause Communication Tools n n n n Check sheets/lists Goal/Objective Action Plans Project/Process Plans Cause and effect diagrams Histograms, Pareto diagrams Control charts Scatter diagrams, Bar charts

Resources n n n n Frigo, Mark L. , & Krumwiede, Kip R. (2000, Resources n n n n Frigo, Mark L. , & Krumwiede, Kip R. (2000, January). "The Balanced Scorecard: A Winning Performance Measurement System, " Strategic Finance. 50 -54. The Society of Management Accountants of Canada. Applying the Balanced Scorecard, Strategic Management Series, Management Accounting Guideline. (1999). Mississauga, ON Canada: Author. Institute of Management Accountants. Statements on Management Accounting 4 DD, Tools and Techniques for Implementing Integrated Performance Management Systems. 1998. Montvale, NJ: Author. Harvard Business School Press. Harvard Business Review on Measuring Corporate Performance. 1998. Boston, MA: Author. Chee W. Chow, Kamal M. Haddad, & James E. Williamson. (1997, August). “Applying the Balanced Scorecard to Small Companies”, Management Accounting. 21 – 27. Robert S. Kaplan, David P. Norton. 1996. The Balanced Scorecard Boston, MA: Harvard Business School Press. Institute of Management Accountants. Statements on Management Accounting 4 U, Developing Comprehensive Performance Indicators. 1995. Montvale, NJ: Author.