Balanced Scorecard Kaplan Norton HBR July-August 2005

Balanced Scorecard Kaplan & Norton: HBR July-August 2005: repeat of 1992 seminal article Feb 2004: Strategy Map Oct 2005: Examples March 2006: Implementation examples Finland 2010

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? Finland 2010

Example: anonymous semiconductor company • FINANCIAL perspective GOALS Survive MEASURES Cash flow Succeed Quarterly sales Growth Operating income by division Increase in market share Increase in Return on Equity Prosper Finland 2010

CUSTOMER perspective GOALS New products Responsive supply Preferred suppliers Customer partnerships MEASURES % sales from new products % sales from proprietary products On-time delivery (customer definition) Share of key accounts’ purchases Ranking by key accounts # of cooperative engineering efforts Finland 2010

INTERNAL BUSINESS perspective GOALS Technology capability Manufacturing excellence Design productivity New product innovation MEASURES Benchmark vs. competition Cycle time Unit cost Yield Silicon efficiency Engineering efficiency Schedule: Actual vs. Planned Finland 2010

INNOVATION & LEARNING perspective GOALS Technology leadership Manufacturing learning Product focus MEASURES Time to develop next generation Process time to maturity % products equalling 80% of sales Time to market New product introduction vs. competition Finland 2010

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 Finland 2010

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 Finland 2010

Consumer Bank (anonymous) example: Human Capital Finland 2010

Information Capital Readiness Finland 2010

Organization Capital Readiness Finland 2010

SCM & BSC Beasley, Chen, Nunez & Wright, Strategic Finance 87: 9 [2006] CATEGORY Purpose Aim Learning & Growth for Employees To achieve our vision How will we sustain our ability to change & improve? Internal Business Processes To satisfy our stakeholders & customers Where must we excel in our business processes? 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? Finland 2010

Learning & Growth for Employees GOALS MEASURES Increase employee process ownership Employee survey scores Improve information flows Changes in information reports Frequencies across supply chain partners Increase employee identification of potential supply chain disruptions Compare actual disruptions with reports of potential disruption drivers RISK-RELATED GOALS Increase employee awareness Number of employees attending risk management training Increase supplier accountability Supplier contract provisions on risk Increase employee awareness of supply chain risks & other enterprise risks Number of departments participating in supply chain risk identification & assessment workshops Finland 2010

Internal Business Processes GOALS MEASURES Reduce waste across supply chain Pounds of scrap Shorten time from start to finish Time from raw material purchase to product/service delivery to customer Achieve unit cost reductions Unit costs per product/service delivered % of target costs achieved RISK-RELATED GOALS Reduce probability & impact of threats Number of employees attending risk management training Identify specific tolerances for key processes Number of process variances exceeding specified acceptable risk tolerances Reduce number of exchanges of supply chain risks to other enterprise processes Extent of risks realized in other functions from supply chain process risk drivers Finland 2010

Customer Satisfaction GOALS MEASURES Improve product/service quality Number of customer contact points Improve timeliness of product/service delivery Time from customer order to delivery Improve customer perception of value Customer scores of value RISK-RELATED GOALS Reduce customer defections Number of customers retained Monitor threats to product/service reputation Extent of negative coverage of quality in press Increase customer feedback Number of completed customer surveys about delivery comparisons to other providers Finland 2010

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 Finland 2010

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 Finland 2010

Gaudenzi & Borghesi Weights Criteria On-time delivery Completeness Correctness Damage-defect free Mean 100 90 75 50 315 weights Extreme 1 weights Extreme 2 Weights 0. 317 100 0. 402 50 0. 215 0. 286 0. 238 0. 159 66 50 33 249 Finland 2010 0. 265 0. 201 0. 133 100 50 33 233 0. 429 0. 215 0. 142

Weights: Contingent upon On-time first vs. Completeness first Criteria On-time first Completeness first On-time delivery Completeness Correctness Damage-defect free 0. 36 0. 29 0. 21 0. 14 Finland 2010 0. 22 0. 43 0. 21 0. 14

On-time delivery evaluation – Manager subjective scores Procurement On-time delivery Completeness Correctness Defect free Value scores Warehouse Mfg Trans. 0. 5 Order Cycle 1 0. 36 0 0. 5 0 0. 29 0. 21 0. 14 0 1 0. 5 0. 28 0. 5 1 1 0. 675 1 1 1 1 0. 82 1 0. 5 0 0. 395 Finland 2010

Completeness evaluation – Managerial subjective scores Procurement On-time delivery Completeness Correctness Defect free Value scores Warehouse 0. 22 0 0. 5 0. 43 0. 21 0. 14 0 1 0. 5 0. 28 0. 5 1 1 0. 675 Finland 2010 Order Mfg Trans Cycle 1 0. 5 0 1 1 1 1 0. 5 1 0 0. 89 0. 535

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] Finland 2010

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 Finland 2010