Characteristics of Balanced Scorecard:
Performance measures used in the balanced scorecard
approach tend to fall into four groups: financial,
customer, internal business process and learning and
growth.
Financial
"Has our financial performance
improved?" |
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What are
our financial goals? |
← |
Vision and
Strategy |
↑ |
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Customer
"Do customers recognize that we are
delivering more value?" |
← |
What
customers do we want to serves? |
← |
↑ |
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Internal Business Processes
"Have we improved key business
processes so that we can deliver more
value to customers?" |
← |
What
internal business processes are critical
to providing value to customers? |
← |
↑ |
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Learning and Growth
"Are we maintaining our ability to
change and improve?" |
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Exhibit 1-1
Internal business processes are what the
company does in an attempt to satisfy customers. For
example, in a manufacturing company, assembling a
product is an internal business process. In an
airline, handling baggage is an internal business
process. The basic idea is that learning is
necessary to improve internal business process;
improving business process is necessary to improve
customer satisfaction; and improving customer
satisfaction is necessary to improve final results.
Note
that the emphasis in Exhibit 1-1 is on improvement -
not on just attaining some specific objective such
as profits of $10 million. In the balanced scorecard
approach, continual improvement is encouraged. In
many industries, this is a matter of survival. If an
organization does not continually improve, it will
eventually lose out to competitors that do.
Financial performance measures appear at the top of
Exhibit 1-1. Ultimately, most companies exist to
provide financial rewards to owners. There are
exceptions. Some companies, may have loftier goals
such as providing environmentally friendly products
to customers. However, even nonprofit organizations
must generate enough financial resources to stay in
operation.
Ordinarily, top managers are responsible for the
financial performance measures - not lower level
managers. The supervisor in charge of checking in
passengers can be held responsible for how long
passengers have to wait in line. However, this
supervisor cannot reasonably be held responsible for
the entire company's profit. That is the
responsibility of the airline's top managers.
Customer Perspective |
Performance Measure |
Desired Change |
Customer satisfaction as
measured by survey results |
+ |
Number of customer complaints |
- |
Market share |
+ |
Product returns as a percentage
of sale |
- |
Percentage of customers retained
from last period |
+ |
Number of new customers |
+ |
Internal Business Process
Perspective |
Performance Measure |
Desired Change |
Percentage of sales from new
products |
+ |
Time to introduce new products
to market |
- |
Percentage of customer calls
answered within 20 seconds |
+ |
On-line deliveries as a
percentage of all deliveries |
+ |
Work in process inventory as a
percentage of sale |
- |
Unfavorable standard cost
variance |
- |
Defect-free units as a
percentage of completed units |
+ |
Delivery cycle time |
- |
Throughput time |
- |
Manufacturing cycle efficiency |
+ |
Quality costs |
- |
Setup time |
- |
Time from call by customers to
repair of product |
- |
Percent of customer complaints
settled on first contact |
+ |
Time to settle a customer claim |
- |
Learning and Growth Perspective |
Performance Measure |
Desired Change |
Suggestions per employee |
+ |
Value-added employee |
+ |
Employee turnover |
- |
Hours of in-house training per
employee |
+ |
|
Exhibit 1-2
Exhibit 1-2 lists some examples of performance
measures that can be found on the balanced scorecard
of companies. However, few companies, if any would
use all of these performance measures, and almost
all companies would add other performance measures.
Managers should carefully select the performance
measures for their company's balanced scorecard,
keeping the following points in mind:
-
First and foremost, the performance measures
should be consistent with, and follow from, the
company's strategy. If the performance measures are
not consistent with and follow from, the company's
strategy, people will find themselves working at
cross-purposes.
-
Second, the scorecard should not have too many
performance measures. This can lead to a lack of
focus and confusion.
While
the entire organization will have an overall
balanced scorecard, each responsible individual will
have his or her own personal scorecard as well. This
scorecard should consist of items the individual can
personally influence that relate directly to the
performance measures on the overall balanced
scorecard. The performance measures on this personal
scorecard should not be overly influenced by actions
taken by others in the company or by events that are
outside of the individual's control. And, using the
performance measure should not lead employees to
take actions that are counter to the organization's
objectives.
Real Business
Example:
When Improvement is not Better:
Mark Graham Brown, a performance
measurement consultant, warns managers to
focus on the right metrics when measuring
performance. He relates the following story:
"A fast-food chain gave lip service to may
objectives, but what senior managers watched
most rigorously was how much chicken its
restaurants had to throw away . . . What
happened? As one restaurant operator
explained, it was easy to hit your . . .
targets: just don't cook any chicken until
somebody orders it. Customers might have to
wait 20 minutes for their meal, and would
probably never come back - but you'd sure
make your numbers. Moral: a measurement may
look good on paper, but you need to ask what
behavior it will drive."
Source: "Using Measurement to Boost Your
Unit's Performance," Harvard Management
Update, October 1998. |
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