The Balanced Scorecard-Measures that Drive Performance

1. The Balanced Scorecard-Measures that Drive Performance Robert S. Kaplan and David P. Norton Harvard Business Review January-February 1992 pp.71-79 POSMIS Lab Junyoung Kim 2006.01.31

2. Contents • Introduction • Customer Perspective • Internal Business Perspective • Innovation and Learning Perspective • Financial Perspective • ECI’s Balanced Business Scorecard • Conclusion • Question & Answer

3. Introduction(1/3) • Organization’s measurement system strongly affects the behavior of managers and employees. • Traditional financial measures can give misleading signals for continuous improvement and innovation. • Traditional financial measures fit with not today but Industrial era. • No single measure can provide a clear performance target or focus attention of the business. • Managers want a balanced presentation of both financial and operational measures. • Operational : Cycle time, Defect rates…etc.

4. Introduction(2/3) • BSC, a set of measures that gives managers a fast but comprehensive view of the business, is devised. • BSC consists of financial measures and operational measures. • Operational measures : customer satisfaction, internal process, the organization’s innovation & improvement • Managers are able to view performance in several areas. • Airplane cockpit VS Management

5. Introduction(3/3) Internal Perspective Customer Perspective Innovation & Learning Perspective

6. Customer Perspective(1/2) • Many companies today have a corporate mission that focuses on the customer. • BSC demands translating companies’ general mission on customer into specific measures. • To put BSC to work, company should articulate goals for time, quality, performance & service, cost and then translate into specific measures. • Example : ECI • Get standard products to market sooner • Improved customers’ time to market • Become customers’ supplier of choice through partnerships with them • Develop innovative products tailored to customer needs

7. Customer Perspective(2/2) • Customers’ concerns tend to fall into time, quality, performance & service, and cost. • Lead time : the time required for the company to meet its customers’ needs • Existing products : from the time the company receives an order to the time it actually delivers the products • New products : how long it takes to bring a new product from the product definition to shipments • Quality • The defect level of incoming products as perceived and measured by the customer • On time delivery & the accuracy of delivery forecasts • Performance & service : contribution to creating value for customer

8. Internal Business Perspective(1/2) • The measure of what the company must do internally to meet its customers’ expectations is also important. • Excellent customer performance derives from processes, decisions, and actions in organization. • Mangers need to focus on those critical internal operations to satisfy customer needs. • The internal measures stem from the process that have the greatest impact on customer satisfaction.

9. Internal Business Perspective(2/2) • Companies identify and measure core competencies & technologies to ensure market leadership. • ECI : submicron technology capability • Companies decide what processes & competencies they excel at and specify measures for each. • ECI’s goal for internal business perspective • Manufacturing exellence • Design productivity • New product introduction • Managers must devise measures that are influenced by employees’ actions.

10. Innovation & Learning Perspective • The targets for success keep changing. • Intense global competition requires • Companies make continual improvements to their existing products and processes • Companies have the ability to introduce entirely new products with expanded capabilities. • A company’s ability to innovate, improve, and learn ties directly to the company’s value. • The role of continuous improvement in customer satisfaction & internal business process is important. • ECI’ innovation measures focus on the ability to develop and introduce standard products rapidly.

11. Financial Perspective(1/2) • Financial performance measures indicate whether strategy & execution are contribute to improvement. • The previous three perspectives are not linked with financial perspective automatically. • Example • 1. Quality & cycle-time improvement (internal improvement) • 2. Existing of excess capacity or inventory • 3. The lack of sales plan or capacity of putting to work of managers • 4. Disappointing financial results like the increase of debt

12. Financial Perspective(2/2) • The company understand a linkage between financial perspective and the previous three perspective. • If the linkage is not well, the linkage among the four perspective has to be redesigned. • Companies should specify how improvements in time, quality, performance & service, and cost will lead to higher market share & margins. • The ECI’s goal for financial perspective consists of survive, succeed, and prosper.

13. ECI ’s Balanced Business Scorecard

14. Conclusion(1/2) • Can not be implemented without senior managers who have vision & priorities of company • Puts strategy and vision, not control, to the members • Designed to pull people toward the overall vision • Help managers transcend traditional notions about functional barriers • Ultimately lead to improved decisions making and problem solving • Keeps companies looking-and moving-forward instead of backward

15. Conclusion(2/2) • Only The existing financial measures are to evaluate the enterprise’s activities of the past. • BSC can allow managers to see the past, the present , and the future. • BSC help managers have the well-balanced view of the performances of the enterprises.

16. Question & Answer