The Business Balanced Scorecard and Key Performance … · • “What gets measured, gets done ... Innovate operationally 5. Measure training quantities 6. Measure training e!ectiveness

The Business Balanced Scorecard and Key Performance Indicators

The principles and approach to build

Some relevant quotes

•  “Business performance measurement is as necessary as the scorecard of sports”

•  “What gets measured, gets done”

•  “What gets measured gets noticed”

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How to run your business?

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The Business Balanced Scorecard is a framework for describing, implementing and managing strategy at all levels by linking objectives, initiatives and measures to the organisation’s strategy.

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strategy

objectives

initiatives

measures

What is a balanced scorecard? •  The business balanced scorecard is

one of several tools for performance measurement and management.

•  The emphasis is on balance across multiple dimensions of performance; ensuring that good performance in one area is not offset by poor performance elsewhere.

•  The strategy drives the choice of

performance measures. A failure to meet targets could be because the strategy is wrong.

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Robert S. Kaplan and David P. Norton have developed what is considered to be the standard Balanced Scorecard template

Source: Robert S. Kaplan and David P. Norton, “Using the Balanced Scorecard as a Strategic Management System,” Harvard Business Review (January-February 1996)

Customer Perspective

How do customers see

us?

Internal Business Process

Perspective

What must we excel at?

FinancialPerspective

How do we look to

shareholders?

Innovation & Learning

Perspective

Can we continue to improve our

employees’ skills and create value for our

clients?

Vision and

Strategy

Balance your key business objectives…

The diagram illustrates an example of a c l ient ’s organizational objectives. In the balanced scorecard development process, the organizational objectives should provide a balance across the four dimensions of performance.

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—Objectives—

1. Improve Shareholder Value 2. Drive rapid revenue growth3. Manage operating costs and profitability4. Achieve profitability5. Effectively utilize assets6. Manage risk

Financial Perspective

1. Improve quality2. Improve efficiency3. Build brand awareness4. Expand distribution5. Drive operational excellence6. Measure performance of entire value

chain7. Maintain technological leadership

Financial Perspective

1. Sustain employee satisfaction2. Maintain employee productivity3. Retain employees4. Innovate operationally5. Measure training quantities6. Measure training effectiveness7. Measure and evaluate innovations

Innovation & Learning Perspective

1. Rapidly penetrate market segments2 Sustain significant customer growth3. Retain customers4. Achieve high customer satisfaction5. Provide extremely positive customer on-line

experience6. Related to Product, customer & Image

Customer Perspective

Vision and

Strategy

Key Performance Indicators

… and measure where you are

Key Performane Indicators are the indicators wich measure the performance of the

Critical Success factors, on the road to achieving the strategic goals

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Time to marketContribution of new

products to reveneactors

CompanyGoals

Critical Success Factors

Rapid product innovations

Market Leadership

UtilizationStocksWaste

Process efficiency

Cost Leadership

Translation from strategic choices

Example of a strategy map

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Customer perspective

Financial Accountabilityperspective

Internal processperspective

Learning and growthperspective

Secure funding Maximize benefit / cost

Grow tax base Maintain AAA Rating

Strategic themes

Reduce crime

Increaseperceptionof safety

Strenghtenneighborhoods

Improve service quality

Maintain competitive

tax rates

Promote economic

opportunity

Increase positive contracts

Promote community based problem

solving

Imporve productivity Streamline customer

interactions

Increaseinfrastructure

capacity

Enhance Knowledgemanagement capabilities

Close skillsgap

Achieve positiveemployee

climate

CommunitySafety

City within a city Restructuring Government

Transportation EconomicDevelopment

The corporate level Strategy map

Customer perspective

Financial Accountabilityperspective

Internal processperspective

Learning and growthperspective





Strategic themes

Reduce crime





tax rates

Promote economic

opportunity

Reduce crime





tax rates

Reduce crime





tax rates

Promote economic

opportunity



solving


interactions


capacity



solving


interactions


capacity


Close skillsgap


climate


Close skillsgap


climate

CommunitySafety



CommunitySafety



The corporate level Strategy map

For each of the boxes one ore more Key Performance Indicators

need to be defined

The structure and the KPI’s form the basis for the reporting

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Monthly reports:

1. Dashboard cockpit+ Analysis

(Annex: dashboardsheets)2. Financials + Specials

Complementinginformation

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Dashboardreport

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Quarterly reports: XXX-specificinformation

YYY-specificinformation


Management notes / Management summary


Dashboardreport

2

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Reporting is done per KPI

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NUMBERS

Observations

Explanations

Conclusions

Actions

And in one presentation the total overview for the company

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Drill downs per area, department and per KPI are possible

Day in the life of study Co-Constructing the KPI tree

•  Pick a top level objective and get a relevant multi-disciplinary group together (different departments, different companies).•  This creates collective insight, mutual understanding and ownership.

•  Work form the highest level to next levels down and determine the Critical Success Factors.•  Ensure that you are explicitly addressing all relevant business processes

and map them parallel to eachother. Prevent a mix up.•  Don’t just jot down the answers, always ask why they feel it is a CSF, test

this and challenge based on your knowledge.•  Determine per Critical Success Factor the appropriate (set of) Key Performance

Indicators.•  Go down in levels till you touch on the process control parameters which should

managed with Standard Operating Procedures and Out of Control Action Plans.•  Repeat this for all the top level objectives and ensure addressing all 4

dimensions of the Business Balanced Scorecard.

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Example

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•  Top level objective is Delivery Reliability. Relevant KPI’s could be Confirmed Line Item Performance, Requested Line Item Performance.

•  CSF’s for this top level objective are: the performance of Planning, Production, Stock Management and Logistics

•  For Production a relevant KPI is Production Plan Attainment•  CSF’s for Production Plan Attainment are:

•  The performance of the equipment, availability of raw material, availability of operators.

•  KPI’s for these CSF’s are the next level down KPI’s.•  Etc.

•  Such a KPI-tree will be a combination of technical (buisness process related) indicators and organisational indicators (people, skills, etc) and eventually also money related.

Some remarks

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•  Make sure that it is a genuine KPI-tree:•  Not too many KPI’s at top level, but sufficient to enable top management to

“control” the business.•  Focus on the real Critical Success Factors.•  Ideally you have done process maps for the relevant business processes prior to

starting this workshop (and have the maps on the wall during the session).•  The interrelations between the KPI’s of the four dimensions of the Business Balanced

Scorecard must be well understood!!•  Work with a large brown paper and large size “Post-Its” and clearly indicate the

levels on the paper:•  The whole group can maintain overview this way.•  Wait with drawing lines on the brown paper till you are sure that this is it.

•  If you want to turn a KPI in to a real KPI (in line with its formal definition) then you need to determine the current level and agree the target level. This is a separate activity outside the work session described above. But must be done.

Next steps

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•  Next steps would be around using the KPI tree to understand and drive performance:

•  Roles & Responsibilities in the organisation need to be clear•  Across the organisation the Responsibilities, Accountabilities need to

be defined as well as who to Report to and who to Inform: A “RACI”

needs to be created.•  This allows KPI’s to be connected to Roles in the organisation.

•  To really manage the performance by using the KPI-tree an Organisation Management System needs to be designed:

•  Meeting structure with Terms of References.•  Reporting structure that fits the meeting structure and connects KPI’s to

meetings.•  Some KPI’s need to be managed on shift/day frequency; others on

weekly/monthly/quarterly frequency

Contact Details

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W www.axistoconsulting.comE [email protected] +31 20 3120 413

Axisto B.V.Atlas ArenaHoogoorddreef 91101 BA AmsterdamThe Netherlands

The Business Balanced Scorecard and Key Performance … · • “What gets measured, gets done ... Innovate operationally 5. Measure training quantities 6. Measure training e!ectiveness

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