Balance Score Card

OVERVIEW OFOVERVIEW OFBALANCED BALANCED

SCORECARDSCORECARD

ORIGIN OF BALANCED SCORECARD

• In 1990 KPMG sponsored a one year study titled MEASURING PERFORMANCE IN THE ORGANIZATION OF TOMORROW

• Study conducted by Professors Robert Kaplan and David Norton of Harvard University

• Pilot company was Analog Devices• Research revealed that financial measures

were not the only measures to be monitored

ORIGIN OF BALANCED SCORECARD

• Study led to inclusion of non financial measures which impacted financial results

• Instrument which covered both financial and non financial measures was called THE BALANCED SCORECARD by Professors Kaplan and Norton

TODAY’S BUSINESS CHALLENGES

• Managing Top and Bottom lines• Meeting stakeholders expectations• Developing and retaining top talent• Creating a customer responsive organisation• Diminishing time to market• Market agility• Pricing and quality

STAKEHOLDERS EXPECTATIONS

• Delivering stakeholder value is a key driver for corporate success

• Stakeholders are: -Investors Capital Investment -Customers Profitability,loyalty -Employees Productivity,loyalty -Suppliers -part of virtual corpn -upstream integration -Fin Inst Financial health long and short term

BALANCED SCORECARD

• Provides method for organisation to systematically develop a comprehensive system of planning and control

• Performance measurement system that translates organisation strategy into objective measures, targets and initiatives

BALANCED SCORECARD

• Approach to performance measurement that combines financial measures with non-financial to provide a total corporate health

• Used for management and strategic control• Four standard dimensions as defined by

Kaplan & Norton but could be adapted to organisational needs

Balancing act of BSC

• Balanced scorecard provides balance between

-Short and Long term objectives -Financial and non financial measures -Lagging and Leading indicators -External and Internal performance

perspectives -Tangible and Intangible assets

CURRENT PROBLEMS

• Lack of integration between enterprise strategies and operational business processes shows following problems:

-Strategy not translated into operational schema nor broken down into elements

-90% of top management spends less than 1 hour per month on strategy discussions

-60% of employees do not relate directly to strategy -Focus on financial figures is high and past oriented

and stress laid on reactive measures

CURRENT PROBLEMS

• Lack of identification of potential opportunities and risks in terms of long term potential opportunities and risks in terms of of capital investments

• Inability of Operations planning and performance management to focus on current periods and their purpose within bounds of strategy in order to ensure profitability and liquidity

WHY BALANCED SCORECARD

• Operations performance measurement provide impulses for corporate strategy

• Combination of operations and strategic management makes it possible to assess decisions versus long term goals

THE BALANCED SCORECARD WHY DO IT

• Provide quality processes

• Achieve strategic objectives

• Eliminate non value added activities

• Track progress

• Evaluate process change

• Continually improve

• Increase accountability

THE STRATEGY FOCUSSED ORGANIZATION

• Vision -What we aspire to be• Mission -What we want to do• Values -What are our ethics in business• CSF -Critical factors in achievement of goals • Strategies -How we accomplish our goals• Objectives -Desired Outcomes• Measures -Indicators of our progress• Initiatives -Change process for objective achievement

VISION

• Picture of organization future

• Details where organization sees itself few years down the line

• Vision translated into objectives and strategies

VISION STATEMENT BY LEADING COMPANIES

• MICROSOFT -Empower people through great software anytime anyplace on any device

• SUN MICROSYSTEMS -Promote open systems and easy to operate computers and be leaders in emerging technologies(JAVA)

• TOYOTA -Manufacture of affordable reliable cars

VISION STATEMENT BY TATA MOTORS

• INDUSTRY LEADER IN SMALL CAR BY 2009

VISION STATEMENT OF INFOSYS

• TO BE A GLOBALLY RESPECTED CORPORATION THAT PROVIDES BEST OF BREED BUSINESS SOLUTIONS LEVERAGING STATE OF THE ART TECHNOLOGY DELIVERED BY BEST IN CLASS PEOPLE

MISSION

• Identifies a reason for existing

• A set of tangible statements of tangible statement of organizational purpose

• Declares joint purpose between Company and stakeholders

MISSION STATEMENT OF TATA MOTORS

• OUR COMMITMENT IS TO TOTAL CUSTOMER SATISFACTION THROUGH DILIGENT EFFORTS TO DEVELOP INDIGENISED AND LOW COST CARS AND EXPAND OUR CUSTOMER BASE ON AN ON GOING BASIS

MISSION STATEMENT OF INFOSYS

• TO ACHIEVE OUR OBJECTIVE IN ENVIRONMENT OF FAIRNESS HONESTY AND COURTESY TO CLIENTS EMPLOYEES VENDORS AND SOCIETY

VALUES

• Foundation on which company is built

• Vision and values are mirror of business and should stand the test of time

• Values should support vision and reflect in the daily operations of the company

• Value system may be influenced by external factors

• Vision charts future direction while values provide motor to get there

VALUES

• Develop supporting practices for values

• Values provide a guidance system for change management

• Values translated into measurable practices

• Examples are Customer Service:Average purchase and Market share;Employee care:Employee turnover and 360 degree appraisal

VALUES AT TATA MOTORS

• Transparent and honest Management

• Employees form an integrated part of the industrial family

• Customers , Dealers and suppliers form part of the extended family

• Ethical transactions within and externally

VALUES AT INFOSYS

• Integrity and transparency

• Fairness in dealings with stakeholders

• Pursuit of excellence

TRANSLATING VISION INTO DESIRED OUTCOMES

• VALUES-WHAT DO WE BELIEVE IN

• VISION-WHAT DO WE WANT TO BE

• MISSION-WHY DO WE EXIST

• VALUES-WHAT VALUES GUIDE US

• CSF-CRITICAL TO SUCCESS FACTORS

• STRATEGY-WHAT ARE OUR PLAN

• STRATEGIC OBJECTIVES-WHAT DO WE NEED TO ACHIEVE IN EACH KEY ACTIVITY TO SUCCEED

TRANSLATING MISSION INTO DESIRED OUTCOMES

• STRATEGIC OUTCOMES OF PERSPECTIVE -SATISFIED SHAREHOLDERS -DELIGHTED CUSTOMERS -EFFICIENT AND EFFECTIVE PROCESSES -MOTIVATED AND PREPARED WORKFORCE

STRATEGIC FOCUS

• THREE BUSINESS FOCUSSES -COST FOCUS -PRODUCT FOCUS -CUSTOMER FOCUS

COST FOCUSSED STRATEGY

• Directed at minimizing operations cost

• Company must command prices that are lower but close to industry average and render goods/services that are equal to industry standards

• Achievement of strategy through reduction of cycle time,labor cost, manufacturing cost

PRODUCT FOCUSSED STRATEGY

• Provides customer with unique value added services/features at premium price

• Fills niche area not served by cost leaders

• Tactics include better customer service

CUSTOMER FOCUSSED STRATEGY

• Provides customer with high service levels and product functions

• Premium commanded for product/services

MANAGING STRATEGY

• Four Processes -Translating Vision .Clarifying vision .Gaining consensus -Communicating and Linking .Communicating .Educating .Setting goals .Linking rewards to performance measures

MANAGING STRATEGY

• Four Processes -Business planning .Setting targets .Aligning strategic indicators .Establishing milestones -Feedback and learning .Articulating vision .Supplying strategic feedback .Strategic review

STRATEGIC GOALS

• Establishing strategic goals is the first step in building the balanced scorecard

• Strategic Goals establish direction in concrete terms. For Example: “ by the year 2005, we will grow revenues by 45%

• Strategic goals anchor the rest of the process• Strategic goals should fit with the vision and

mission of the organization

STRATEGY FOCUSSED ORGANIZATION

• Strategy is a key element for growth and success• Strategy is communicating in a easy manner• Strategic focus on navigation of activities to align

with strategy• Organizing is mobilization of employees to act

towards achievement of corporate objectives• Balanced scorecard provides framework to look at

strategy from different perspectives

STRATEGY FOCUSSED ORGANIZATION

• Five principles of strategic focussed organization -Translate strategy into operational terms -Align organizational strategy -Make strategy everybody’s everyday job -Make strategy a continual process -Mobilize change through leadership

STRATEGY FOCUSSED ORGANIZATION

• Five principles of strategic focussed organization *Translate strategy into operational terms -Strategy Maps -Balanced scorecards *Align organization to Strategy -Business unit synergies *Make Strategy everybody’s everyday job -Personal scorecards -Balanced pay cheques

STRATEGY FOCUSSED ORGANIZATION

• Five principles of strategic focussed organization *Make strategy a continual process - Link Budgets to strategies *Mobilize change through leadership -Usage of strategic management system

OBJECTIVES

• Objectives are desired outcomes

• Progress towards achievement of objective translated into measures

• Causal relationship between objectives

STRATEGIC OBJECTIVES

• IMPROVE RETURNS

• REDUCE COSTS

• INCREASE CUSTOMER SATISFACTN

• CREATE NEW PRODUCTS

• MAXIMIZE OPERATIONAL EFFCNCY

• RESPONSIVE SERVICE

• ALIGN PERSONAL GOALS

STRATEGIC MEASURES

• RETURN ON CAPITAL EMPLOYED

• MYSTERY SHOPPING RATING

• DEALER PROFITABILITY

• MFG RELIABILITY INDEX

• COST EFFECTIVENESS

• COMPETENCE AVAILABILITY

MEASURES(METRICS)

• Metrics are meaningful quantified measures• Metric should present data that enables action• Metrics should be tied to strategy and should

indicate how well organization objectives and goals are being met through core processes

• Metrics should motivate indivisuals to improve processes

MEASURES(METRICS)

• No one right set of metrics

• Balanced scorecard to be tailored to each specific company

• Resultant scorecard of indicators to be driven by firms strategy

• Typical reasons for misalignment of metrics are: outdated strategy;wrong management policies;over matured process

WHY MEASURE

• Track current actual performance against targets and predictions

• Track performance deficiencies and monitor improvements

• Motivate managers and employees to achieve performance objectives

• Predict future trends• Stimulate creation of new

initiatives,objectives,targets

MEASUREMENT TYPES

• Planning Are we achieving long term objectives like ROI, P/E RATIO etc

• Screening Are functional areas performing as per organizational strategic goals

• Controlling Short to intermediate range performance measured periodically

• Control Are processes performing in alignment with the functional goals.Measures expressed in non monetary terms and focus is on immediate performance issues

STRATEGIC OUTCOME(CURRENT MEASURE)

• Signifies current value of metric measurement of activity

• If objectives have to be met some or all of the following outcomes have to mature: -Satisfied Shareholders

-Delighted Customers -Effective Processes -Motivated and prepared work force

KEY PERFORMANCE MEASURES OF THREE STRATEGY FOCUSES

• COST FOCUSSED

• PRODUCT FOCUSSES

• CUSTOMER FOCUSSED

COST MEASURES

• COST

• CYCLE TIME

• CONFORMANCE TO STANDARDS

• CONFORMANCE TO QUALITY

PRODUCT MEASURES

• NEW PRODUCTS IN PIPELINE

• R&D BUDGET

• TIME TO MARKET

• FIELD SERVICE MEASURES

• EMPLOYEE SATISFACTION

CUSTOMER FOCUSSED

• COMPLAINT HANDLING

• RESPONSIVENESS

• PRICE PERFORMANCE

INITIATIVES

• Change process or activity designed to achieve one or more objectives

• Initiative helps move a measure towards target value

VISION

MISSION

OBJECTIVES (Goals)

BSC PERSPECTIVESSTRATEGIES

MEASURES (KPI)

Strategic Planning

Activity Execution & Control

TARGET Operational planningCURRENT VALUE

INTIATIVES

ALARMS

Tactical Planning

FEEDBACK CONTROL

ROOT CAUSE AND COST OF QUALITY

DRILL DOWN OF PLANNING

ELEMENTS OF A BALANCED SCORECARD

• PERSPECTIVE Various viewpoints from which organization considered.Standard 4 perspectives.• SCORECARD Monitor activities involved in converting strategy to reality. Encompasses current and targeted key figures and initiatives linked to strategies.

ELEMENTS OF A BALANCED SCORECARD

• OBJECTIVES Describes goals to be achieved within a perspective.Objectives linked to a strategy. • MEASURES KPI to be monitored for a target to be achieved.• INITIATIVES Set of activities that share one or more objectives as their purpose.• CURRENT Numeric value metric achieved• ALARM Which range does value fall

54

•The Balanced Scorecard Framework

•Customer

•Balanced

•Scorecard•Financials

•Learning& growth

•BusinessProcesses

Kaplan and Norton model (1996)

•Customer perspective

•Corrective activity

•Developmental activity

•Balancing compliancewith added value

•Balanced

•Scorecard

•Financial Measures

•Key performance ratios

•Financial health

•Balancing leading withtrailing indicators

•Learning and growth

•People measures

•Knowledge measures

•Balancing soft and

•hard indicators

•Business Processes

•Drumbeat

•Time, cost, quality

•Balancing inputsand outputs

A question of balance?

BALANCED SCORECARDSTANDARD DIMENSIONS

• FINANCE• How to manage stakeholders to be financially successful•

• CUSTOMERS INTERNAL *Who are internal and external *Metrics to Display performance of

• Customers Key organization process Metrics• *Define levels of • Requirement *Metrics compared with • service to match expectation•

LEARNING/VISION• *How to manage internal customers to realize vision• *Organization development through People improvement

Vision Strategy

Essential Elements of Balanced Scorecard

• Strategic Objectives = Management measures that can be understood by heads of departments

• Key Performance Indicators=Used to determine organizational performance

• Operational measure=Quantification of operational measures understood by all

BALANCED SCORECARD GENERATIONS

• FIRST GENERATION

-System for evaluating performance

.Performance measures

.Drilldown of strategy

.Perspectives

.Strategic objectives

.Performance indicators(KPI)

.Performance linked compensation

BALANCED SCORECARD GENERATIONS

• SECOND GENERATION

-Management Feedback Control Systems

.Organizational learning at end of term

.Root cause analysis and solution of problems

.Feedback for next term plan

BALANCED SCORECARD GENERATIONS

• THIRD GENERATION

-Framework for organizational change

.Change Management steps

.Strategy maps

.Definition of budgets and control of expenditure per initiative

Cause and effect chain

•Strategic Objective

•Financial Measure

•Customer Value Measure

•Process Measure

•Employee Measure

• What

• How

• How

• How

•May be reversed

VERTICAL SCORECARD(LINKAGES OF PERSPECTIVES)

FINANCIAL PERSPECTIVE

CUSTOMER PERSPECTIVE

INTERNAL PERSPECTIVE

LEARNING PERSPECTIVE

Cause and effect chain example

•Become No 2 player• What

• How

• How

• How

•Market share•F

•Service span offer•C

•Services delivered per customer•P

•Availability of data•E

PERSPECTIVE FINANCE

OBJECTIVE MEASURE• IMPROVE FA UTIL - % CAP UTIL -EQPT UPTIME -EQPT THRUPT• EFF W.C. -DYS INV -INV TURNOVER -%STKOUT• FIN RISK -BAD DEBT% -%UNCOLLECT ACR -INV OBSOLESC%

PERSPECTIVE FINANCE

OBJECTIVE MEASURE• OPER RISK -DEBT/EQUITY -ORDER BACKLOG -%ORDER CANCEL• INCR REV/CUST -WALLET SHARE• INCR CUST PROF -CUST PROFITABILITY -%UNPROFITABLE CUST• SALES PRODVITY –SALES EXP/TOTAL REV (COST OF SALES)

PERSPECTIVE FINANCE

OBJECTIVE MEASURE• BECOME IND COST LDR –COST/UNIT• ASSET UTILIZATION -SALES/ASSET

PERSPECTIVE LEARNING &INNOVATION

OBJECTIVES MEASURES• RAPID NEW PROD LNCH -NO NEW PR -DEV CYCLE • PROD OF NEW PROD -MFG COST -PROC YLD -FLD RETRN -FAILURES -WARRANTY CST -COMPLAINTS• SALES NEW PROD -REVENUES

PERSPECTIVE LEARNING &INNOVATION

OBJECTIVES MEASURES

• CONTINUOUS IMPR -NO IMPR PROC

-NO NEW IDEAS

-COST SAVING

-DEFECT REDN

-YIELD INCR

-PROC TIM RDN

PERSPECTIVE CUSTOMER

OBJECTIVES MEASURES• SEGMENTATION -PROF CONTR -MKT SHARE SEG• NONPROF CUST -%NON PROF CST• HIGH VALUE CUST -STATEGIC ACCT• BRAND MGT -BRAND AWARE%• NEW CUST ACQ -%LEADS CONV -COST/NEW CUST ACQ -CUST LIFETIME VAL -%NEW CUST ACQ

PERSPECTIVE CUSTOMER

OBJECTIVES MEASURES• CUST LOYALTY -%CUST ATTRITION -NO REFERRALS• CUST SATISF -%SATISF CUST• CUST RETAINED -%CUST RETAINED• LOW CUST COST -COST OF OWNERSHIP• ZERO DEFECT -PPM DEFECT• COMPLAINTS -NO CUST COMPLAINTS

PERSPECTIVE INTERNAL PROCESSES

OBJECTIVES MEASURES• Cost to serve -Cost of store + delivery• Product Agility -%Flexibility• Responsiveness -Lead time from order to dely -On time delivery % • Quality -%items delvd w/o defect• Cost of quality -cost of insp/prev/apprais/fail• Cost of product -Cost of operating processes• Unit cost -Unit cost per product• Marketing cost -Marketing cost/Total cost %

PERSPECTIVE INTERNAL PROCESSES

OBJECTIVES MEASURES• Continuous Impr -Cycle time/cost reduction

-Agility improvement -Quality improvement

• Cost of quality -cost of insp/prev/apprais/fail • Equipment eff -equipment O.E.E. • Cost of ownershp -%cost of purch as ttl cost

Learning and growth

• Employee satisfaction• Employee capability• Information availability• Knowledge growth• Performance and reward management

systems• Cultural measures from surveys – e.g.

leadership, communication, recognition (enablers)

LINKING SCORECARD COMPONENTS

STRATEGY

OBJECTIVE

Broaden Revenue Mix

Increase Customer Satisfaction

SUCCESS MSR

MEASURE

Revenue

Customer Retention

PERFORMANCE

TARGET

60% Product A40% Product B

95%

KEY ACTIONS

INTIATIVE

Sales Promotions

Loyalty Programs

PERSPECTIVE

FINANCIAL

CUSTOMER

INTERNAL-Improve Product Quality-Decrease Time to Market

-Customer Rejects-Customer Base Increase

5%5%

-TQM

-Agile Process

BALANCED SCORECARD

Factors to consider• Performance measures• Measures of process efficiency

– Time to execute process

– cost of process• levels of wastage, process agility& flexibility

- Outcomes vs. Outputs . Identify measures of process effectiveness

(output ,outcome)

– Leading vs. Lagging Indicators

PERFORMANCE MEASURES

• Design to track whether processes are moving in direction of strategy

• Perspectives performance

Financial capability & performance

Internal capability & performance

Learning capability & performance

Customer demand & satisfaction

SEVEN PRINCIPLES OF PERFORMANCE MSR

• Framework to contain 70-80% standardized measures and 20-30% specific to company

• Each measure should be linked as a leading indicator to one or more financial measurements

• Framework should contain minimum measures as possible for each level

SEVEN PRINCIPLES OF PERFORMANCE MSR

• Comprehensive measures for activity control

• Measures should take into account all side effects triggered by action

• Measures should allow comparison both internally and externally

• Measures chosen should be available in automated business transaction systems

STANDARDISED PERFORMANCE MEASURES

• ECONOMIC VALUE ADD

• SHAREHOLDER VALUE ADD

• SIX SIGMA

• TOTAL QUALITY MANAGEMENT(MALCOM BALDRIGE)

• INTERNATIONAL ORGANIZATION FOR STANDARDISATION(I.S.O)

WHAT TO MEASURE IN BALANCE SCORE CARD

• Stake holder desired outcomes

• Strategies required to fulfil outcomes

• Customer desired matrix

• Product and service matrices

• Process characteristics in terms of criticality and requirement for success

• Capabilities required to operate and enhance processes

OUTPUTS V/S OUTCOMES

• Output measure - recording of activity or effort( process efficiency)

• Outcome measure - assessment of results (process effectiveness – how well?)

LEADING V/S LAGGING INDICATORS

• Leading - What might be– performance drivers - inputs & outputs

• Lagging - What has transpired– outcomes & impacts

• Lagging/Leading indicators have

cause-effect relationship

STRATEGIC LAG MEASUREMENTS

• ROI

• REVENUE GROWTH

• MARKET SHARE

• CUSTOMER RETENTION

• SERVICE ERROR RATE

• ORDER TO CASH CYCLE TIME

• SUPPLY CHAIN COST

• REVENUE PER EMPLOYEE

STRATEGIC LEAD MEASUREMENTS

• REVENUE MIX

• SATISFACTION SURVEY

• PRODUCT DEVELOPMENT CYCLE

• HOURS WITH CUSTOMER

• PERSONAL GOAL ALIGNMENT %

CAUSE & EFFECT RELATIONSHIP

Financial Results

Customer Satisfaction

Business Processes

Learning & Growth

Satisfied & loyal customers lead to increased revenues

Improved processes leads to improved products/services

Skilled employees work to improve business processes

Employee knowledge leading to increased productivity

BALANCED SCORECARD AS A MEASUREMENT TOOL

• Closes gap between overall strategy and operative business

• BSC helps answer following:– Strategic objectives achieved– Our standing against competitors– Processes to be improved, how and why– Profitability of products, services, customer segments– How performance is judged by customers

• Directs attention to critical success indicators

SCORECARD HIERARCHIES

• BSC to be applied at all levels

• Set up hierarchy to communicate strategic objectives to all operating levels

• Cascading Score Card makes strategy transparent to all levels

• Score card broken down to level of individual employee

CASCADING BALANCED SCORECARD

Corporate Balanced Score Card

SBU level Balanced Score Card

Plant wise Balanced Score Card

Process wise Balanced Score Card Product wise Balanced Score Card

Employee Balanced Score Card

•S4•S3•S2•S1

•CEO

•HR

•COO

•PR-4•PR-3•PR-2•PR-1

•L1

•PL-1

•L2

•PL-2 •PL-3

•L3 •L4

•PL-4

•CSF

•HR mission

•HR vision

•CSF

•Corporate mission

•Corporate vision

PERSONAL SCORECARD

• Performance model provides for cascading and aligning personal goals

• Personal scorecard focuses indivisuals on the part of the performance model they can impact

• Personal metrics drilled down as shown in next slide

PERSONAL SCORECARD

• VP OPERATIONS -Operating Financials

• PLANT MGR -Prodn/Inv/Cost metrics

• SHIFT SUPRVSR -O.E.E.,Scrap

TAILORED SCORECARD

• HR Score Card• 6 Sigma Score Card• Malcolm Baldrige Score Card• Project Management Score Card• Distributor Score Card. Vendor Score Card• Outsourced Score Card• Environment mgmt score card• Safety mgmt score card

BALANCED SCORECARD MODEL IN H.R.

• EMPLOYEE RELATED STRATEGIC MEASURES

-Headcount v/s Plan -Recruitment v/s Plan

-Skills inventory v/s Plan

-Actual unplanned attrition v/s Industry

-Actual unplanned attrition v/s planned

BALANCED SCORECARD IN H.R.

• EMPLOYEE RELATED PROCESS MSR -Recruitment cycle time -Employee productivity -Sales per employee• EMPLOYEE RELATED CAPBLTY MSR -Total employee cost v/s Industry trend -Level of training hours per employee -Level of multi skilled employees

BALANCED SCORECARD IN QMS

• QMS measures processes and outcomes• Measures need to work in tandem to produce

higher quality,greater customer satisfaction,lower cost,higher profits

• Without integration of functional areas it is impossible to achieve TQM objectives

• In TQM systems measures are integrated vertically(across levels) and horizontally

across (functions)

SIX SIGMA METRICS

• DPMO• Defect Rate• Yield• Process Capability• Process Performance• Process Cycle Time• Sigma Quality Level• Cost of Poor Quality

BSC ADDS TO TOTAL QUALITY PROGRAMS

• Explicit causal links from operational improvements to a customer based value proposition

• Explicit linkages to productivity enhancements and financial outcomes

• Identify entirely new processes for improvement

• Set priorities among processes to improve

SUPPLY CHAIN MEASUREMENTS

• How well are supply chain operations performing at minimizing inventory and cost while maximizing customer service

• How much inventory is in my entire supply chain and how quickly does it turn

• How quickly can I respond to rapid changes in demand

• Accuracy of forecast

• Utilization of plant and assets

SUPPLY CHAIN MEASUREMENTS

• % on time delivery

• %full delivery

• %quality delivery

MATERIALS MGT METRICS FOR PURCHASING

• % PO delivered in time• % PO line items accepted 1st time• % supplied items found defective• % invoice mismatches• PR to PO conversion time• Average days for ACP• Inventory turns• Order cycle time• Cost per order

MATERIALS MGT SCORECARD FOR

INVENTORY• Inventory turnover ratio

• Average inventory in months

• % inventory unmoved > 12 mths

• Number of stock outs

• % items failed before lifetime

• Year to date cost of failure

SEVEN PERSPECTIVES OF MALCOM BALDRIGE

• Customer satisfaction

• Employee satisfaction

• Financial performance

• Operational performance

• Product/service quality

• Supplier performance

• Safety/Environment

SIX SIGMA BALANCED SCORECARD

• Patented by ALLIED SIGNALS a HONEYWELL GROUP

• Comprises of following scorecards: -voice of customer -lean enterprise -agile enterprise -quality value -total productivity maintenance -activity based management -voice of stakeholders & society

MEASUREOF EXCELLENCE

• Manufacturing - amount of scrap and rework; -equipment uptime and throughput; -cost of non conformity

• Quality assurance - Quality %;-cost of quality• Accounting - % late payments; -billing errors;-

incorrect account entries;payroll errors• Marketing - incorrect order entries;overstocked

field supplies;contract errors

VERTICAL INTEGRATION

• Cascading of senior management strategy down the organization so that at each succeeding level(as activities become more operational and detailed) they are aligned and derived from higher goals

• Vertical integration includes everyone from CEO to the receptionist

• Everybody understands his role in achievement of organizational objectives

HORIZONTAL INTEGRATION

• It is critical to link various targets together

• Requirement for multiple functions to work in unison to achieve objectives

• Metrics will measure cross functional performances

CREATING A BALANCED SCORECARD

Identify vision Identify strategies Identify CSF/ perspectives

Identify measuresEvaluateCreate action plan

Follow-up & manage

CREATING A BALANCED SCORECARD

• STEP1: IDENTIFY VISION-DEFINE VISION• STEP2: IDENTIFY STRATEGIES-WHAT

STRATEGIES SHALLWE FOLLOW? WHAT AREAS TO FOCUS ON?

• STEP3:IDENTIFY CSF AND PERSPECTIVE-WHAT DO WE HAVE TO BE GOOD AT IN EACH PERSPECTIVE

• STEP4:IDENTIFY MEASURES-WHAT SHOULD WE MEASURE IN EACH PERSPECTIVE

CREATING A BALANCED SCORECARD

• STEP 5: EVALUATE – HOW DO WE EVALUATE OUR SCORECARD

• STEP 6: CREATE ACTION PLANS – WHAT ACTIONS SHOULD BE INITIATED TO REACH OUR TARGETS

• STEP 7: FOLLOW UP AND MANAGE-HOW DO WE FOLLOW UP , UPDATE AND MAINTAIN OUR SCORECARDS

PROCESS STEPS TO IMPLEMENT BSC

• FOUR PROCESSES

• -TRANSLATING VISION

• -COMMUNICATING AND LINKING

• -BUSINESS PLANNING

• -FEEDBACK AND LEARNING

PROCESS STEPS TO IMPLEMENT BALANCED

SCORECARD• Translating vision

-vision and strategy need to be expressed in terms that can provide practical guidance for action at local level -definition of standard measures as translation of vision and strategy for middle management

PROCESS STEPS TO IMPLEMENT BALANCED

SCORECARD• Communicating and linking

-executives link strategy with department and indivisual goals and objectives -framework of standard operational measures acting as leading indicators of financial results gives a starting point for aligning strategy with action points

PROCESS STEPS TO IMPLEMENT BALANCED

SCORECARD• Business planning

-connection between strategy and financial planning w.r.t budgets -BSC outlines a logical process for integrating business plans with financial budgeting

PROCESS STEPS TO IMPLEMENT BALANCED

SCORECARD• Feedback and learning

-Process allows managers to monitor short term results from non financial perspectives -By tracking events strategy evaluated and fine tuned -Cause and effect relationship between business strategy and financial performance selected to monitor results

USAGE OF BALANCED SCORECARD

• FIGURES COURTESY SAP. A.G.

• GLOBAL USAGE QUADRANTWISE

• FINANCE 20%

• CUSTOMER 25%

• INTERNAL 35%

• LEARNING/GROWTH 20%

CHALLENGES IN IMPLEMENTATION OF BALANCED SCORECARD• Choosing correct strategies• Choosing correct leading and lagging indicators• Concentration on key indicators• Balancing financial & non- financial indicators• Applying measures consistently across business

units• Using appropriate number of measures• Applying measures consistently across regions

FAQ ABOUT PERFORMANCE MEASUREMENT

• What are key performance measures

• Who is responsible for performance measures

• How many performance measures are required

• How to establish standards and weights for performance measures

• Where do we get data and how relevant is this data for performance measurement

HOW TOP MGRS USE BSC

• Adoption of well defined and communicated business strategy with focus

• Adoption of 25-30 key performance measures over critical processes which affect cash flow, across perspectives

• Communication of strategic direction

• Establish performance categories,baselines and targets

HOW TOP MGRS USE BSC

• Align activities across organization

• Assign ownership of processes and develop process cost,cycle time,standards,quality and target measures

• Develop indivizual performance profiles that align activity with business plan

• Measure employee performance against balanced scorecard as well as implement balanced pay cheque

BENEFITS OF BALANCED SCORECARD• Best practices and strategic initiatives cascade

through the organization• Helps align key performance measures with strategy• Provides comprehensive picture of operations• Provides strategic feedback and learning• Allows performance comparison vis-à-vis industry

and world• Reduces vast information into few controllable KPIs

BSC AT DELPHI MFG SYSTEMS

• Division of GM• Spun off as independent company• Manufacturer of ancillary components• Toyota Production Systems implemented and

Balanced scorecard developed for TPS• In internal perspectives measures such as lean

characteristics,productivity,cost,quality,processing cycle time

• O.E.E• Scrap %

STRATEGY MAPS

STRATEGY MAP

• Tool for translating strategy into specific objectives in operational terms

• Strategy maps along with BSC provide a new framework for describing and implementing strategy

• Strategy map helps establish the cause effect relationship for measures across perspectives as well as linkages to tangible/intangible assets

STRATEGY MAP

• Provides framework to illustrate how strategy links intangible assets to value creating processes

• Financial perspective describes tangible outcomes of strategy in financial terms and are lag indicators showing whether strategy is successful

• Customer perspective defines value proposition for targetted customers

STRATEGY MAP

• Internal perspective identifies critical processes which impact strategy

• Learning and growth perspective identifies intangible assets that are vital to strategy

• Possible to define multiple strategies and map for each strategy

• Common strategy maps: -Improved shareholder value -Maximized operational efficiency

STRATEGY MAP

• What is Strategy Map– Graphical translation of business plan into action– Diagram depicting operational functions and strategy– Map has financial objective as final goal– Strategic objectives from each perspective connected by

arrows– Provides overall strategy overview of business units– Defines relation between objectives– Balanced scorecards constructed from strategy maps by development of cause – effect relationship– Makes vision a reality

BALANCED SCORECARDINTERLINKAGES OF CRITICAL SUCCESS FACTORS THROUGH

STRATEGY MAP

FINANCIAL

CUSTOMER INCREASED BUSINESS & PROFITABILITY

INCREASED REVENUES

INCREASED CUSTOMER SATISFACTION

INTERNAL ONTIME DELY

QUALITY CONTRATED QUANTITY

SERVICE

LEARNING AND GROWTH

EMPLOYEE SATISFACTION

RESKILLING/ MULTISKILLING/ EMPOWERMENT

STRATEGIC LINKAGE MODEL

STRATEGY:IMPROVED SHAREHOLDER VALUE

STRATEGIC LINKAGE MODELFINANCIAL PERSPECTIVEIMPROVED

SHAREHOLDER VALUE (ROCE)

SALES GROWTH

GROSS CONTR

ASSET TURNS

OVERHEARDS AS % OF NSV

RESPOND TO CUST NEED

CRM

CUSTOMER SERVICES

IMPL A/C MGT PROG

DELIVER GOOD

PROPOSALS

DELIVER GOOD INT.

CUST SERVICE

EFFECTIVE ASSET MGT

EFFECTIVE BUSINESS CONDUCT

DEV & RETAIN STAFF

DEV CUST ORIENTED

SALES/FORCE

UNDERSTAND IMPACT OF

MKT LEVELS

DEV BETTER WORK

PRACTICES

LEARNING GROWTH PERSPECTIVE

INTERNAL PERSPECTIVE

CUSTOMER PERSPECTIVE

CASE STUDY TATA MOTORS

CASE STUDY:TATA MOTOR

• Awarded best implementation of Balanced Score Card in Pacific Asia, in 2003 from BSC Collaborative Inc.

• Judged on following parameters:

– Safety– Quality– Delivery– Cost of operations– Morale

–Volume

– Market Share

– Customer satisfaction

– Dealer satisfaction

– Receivables

CASE STUDY:TATA MOTORS

• KOREAN TELECOM was the other awardee

• First Indian company to be awarded prize

• Implementation of BSC has enabled greater focus on different elements of operational performance

• Awarded to commercial vehicle business unit

TATA MOTORS STRATEGY MAP

INTERNAL

INCREASED ROCE

INCREASE PROFITABILITY

INCREASE BUSINESS WITH EXISTING CUST

PROMOTE EXPORT

BUSINESS

MAXIMISE ASSET UTILIZATION

BECOME INDUSTRY COST

LEADER

LOWER COST AND SHORTER LEAD

TIMES

MEETING WORLD CLASS MFG STDS

UPGRADE DELIVERY PROCESS

CAPABILITY

MINIMIZE OPERATING COST

EXCEL IN CRM

IMPROVE DESIGN/TESTING

CAPABILITIES

BUILD COMPETENCY LEARNING GROWTH

CUSTOMER

FINANCIAL

ACHIEVE CUST QUALITY

EXPECTATION

BALANCED SCORECARD AT TATA MOTORS

• FINANCIAL PERSPECTIVE OBJECTIVE -Increase ROCE : ROCE -Increase Customer base : No of new dealer and sales from new dealers -Increase business from existing cust:sales from existing dealers -Build export business:Sales from export business

BALANCED SCORECARD AT TATA MOTORS

• FINANCIAL PERSPECTIVE OBJECTIVE - Maximize asset utilization:Asset turnover -Become industry cost leader:operating cost/sales;cost reduction achieved over standard cost

BALANCED SCORECARD AT TATA MOTORS

• CUSTOMER PERSPECTIVE OBJECTIVE - Provide value for money thru low cost mfg that meets world class quality and delivery expectations:Customer satisfaction index

BALANCED SCORECARD AT TATA MOTORS

• INTERNAL PERSPECTIVE OBJECTIVE - Achieve customer expectations in quality level:Cars defective per 1000 -Meet delivery reqmnts:%redn in wait time and %on time dely -Optimize asset utilization:O.E.E -Minimize operations cost:Actual cost/Std cost and mfg cost/sales

HR STRATEGY MAP

• 3.COGS

•2. Profits

• 6.RETURNS

• 8.QUALITY

• 9.PRODUCTIVITy

• 4.WALLET SHARE

•1. ROE

• 11.INVOLVEMENT

• 13.TRAINING• 12.EMPOWERED

• 7.MFG. PROFIT

• 5.WARRANTY COSTS

• 10.LOYALTY

•FINANCILL•1 Max return on equity

•Max. profitability

•Min. costs of operations

•CUSTOMER•Max. Customer Satisfaction

•Min warranty costs

•Min customer returns•INTERNAL•Max. operational profitability

•Maximize quality %

•Maximize productivity/head count

•Max. Employee retention

•Maximize suggestions/empl

•Maximize decisions taken

•Max training days per employee

•L & Q

QUALITY MGT STRATEGY MAP