Balance score Card

Like in several articles before already explained, is a company defined by its processes. If we would like to be able to define these processes properly, it is necessary, to have targets defined. Someone could now say: that is easy, a company has always the target, to earn money, that means to achive a resonable EBIT. For a lot of funktions this target is too abstract. Now, it was necessary, to develop a tool that enables to reach the EBIT target.

A tool to do so, is the balanced score card: The Balanced Scorecard (or balance score card) is a strategic performance measurement model which is developed by Robert Kaplan and David Norton. Its objective is to translate an organization’s mission and vision into actual (operational) actions (strategic planning).

These should be clustered in the categories:

1.           Financial

2.           Customer

3.           Internal business processes

4.           Learning and growth

What is a proposed process, to develop this Balanced Score Card? The Balanced Score Card is in some companies called „strategy map “. I like this name, because it shows to everyone in the company:

1.           What is the strategy of the company

2.           What I or my department should do, to support the strategy

3.           Which projects we must put in place, to reach our strategical targets.

The strategy map will be taken most seriously, if it is developer by the whole management team.

What could be a road map to develop the “strategy map”?

1. bring the whole management team together to explain the need of a “strategy map” and ask for their active involvement

2. Explain the development process (be carefull: explain clearly the Need of all steps. It must be avoided that everybody has a final strategy map in mind and the intermediat steps are only taken, because the process is described like that)

3. Give enough room for discussion. This is key to assure that afterwards the commitment of the management team is assured.

Strategy:

Consider the questions below as you formulate your business strategy in preparation for doing a Balanced Scorecard.

Voice of Stakeholder/FINANCIAL (growth, profitability, cash flow, return on investment)
What does our target market want that they are not currently getting?  
What innovative products, features, benefits or services could we add?                                                                                                                                                                   
How do we plan to get more customers?  
How do we plan to sell more to each customer?  
What new market opportunities can we exploit?  
What other strategies would increase growth and profitability?  
Voice of the Customer (high quality, fast or on-time, good value, pleasurable experience)
How can we make better quality products than our competitors?  
How can we deliver faster than the competition?  
What can we do to reduce cost or give more value to customers than our competitors?  
How can we give the customer a more pleasurable buying experience?  
How do we plan to retain customers longer—to create loyal customers?  
What is our Unique Selling Proposition (USP)?  
Internal Processes (effective business systems and operational excellence)
What systems/processes must we excel at?  
What new systems or processes would add value to the market and attract new customers?  
What new system or process would rock our industry?  
What systems would we need to become a “world- class” organization?  
Learning and Growth/Voice of Employee (learning, growth and employee retention)
How do we plan to attract the best employees?               
How do we plan to retain loyal employees?  
How do we provide a great place to work?  
How do we foster individual growth and learning?  
How do we reward or compensate performance?  

 State your specific business strategies within each of the four Balanced Scorecard perspectives.

Financial Strategies (growth, profitability, cash flow, return on investment)
We will . . .
We will . . .
We will . . .
We will . . .
We will . . .
Customer Strategies (high quality, fast or on-time, good value, pleasurable experience)
We will . . .
We will . . .
We will . . .
We will . . .
We will . . .
Internal processes Strategies (effective business systems and operational excellence)
We will . . .
We will . . .
We will . . .
We will . . .
We will . . .
Learning and Growth Strategies (learning, growth and employee retention)
We will . . .
We will . . .
We will . . .
We will . . .
We will . . .

Indicate the “what” and “why,” not the “how.”

Balanced Scorecard

  Below is an example of a Balanced Scorecard developed by an ambitious home builder.

Financial Perspective (How can we increase growth, profitability, cash flow, and return on investment?)

Objectives Measurement Target Action Plan
Increase sales growth Number of new starts per month 10 new starts Expand geographic market/open new office
Improve gross margin Sales minus cost of goods sold/net sales 55% Build homes faster with greater margins
Increase profitability Percent Income from Operations 10% Reduce construction cycle time and costs

Customer Perspective (How can we create product value, market differentiation, “killer customer care,” and raving fans?)

Objectives Measurement Target Action Plan
Customer satisfaction End of job survey/ number of complaints 90% satisfaction/2 complaints per home Create Internet communication system
Create “Dream Home” design packages Percent/frequency package is chosen 80% of houses sold are “Dream” packages Create floor plan and interior/exterior packages
High quality homes Points/quality rating of subcontractors Subcontractor must maintain 90 point avrg. of 100 possible points Create a “quality” score sheet for each sub and provide job feedback
Fast completion of homes Average days to complete 30 days from building permit to close Intense scheduling system/ reduce delay between steps

Internal Processes Perspective (What systems can we create or elevate to achieve operational excellence?)

Objectives Measurement Target Action Plan
Fast start—minimum  time from contract to building permit Days in process Submit app. to city within 5 working days from customer contract Reduce upfront interface and preparation  time with customer
Improve sales lead generation system Number of sales leads 50 leads per month Open another sales office in new region
Effectively schedule sub-contractors Percent of work started at scheduled time 75% of jobs started within 1 day of schedule Purchase BuildStar management software

Learning and Growth Perspective (How can we promote learning, innovation, and the personal growth and retention of valued people?)

Objectives Measurement Target Action Plan
Subcontractor certification Number of subs that are certified 75% of subs are certified Create subcontractor certification program
Improve staff building-process skills Number of skill sets times number of staff 80% completed Create a staff training program

Charts to develop a Balanced Scorecard

Company Name: ________________________________________  Date: _____________

Financial Perspective (How can we increase growth, profitability, cash flow, and return on investment?)

Objectives Measurement Target Action Plan
       
       
       
       
       

Customer Perspective (How can we create product value, market differentiation, “killer customer care,” and raving fans?)

Objectives Measurement Target Action Plan
       
       
       
       
       

Internal Processes Perspective (What systems can we create or elevate to achieve operational excellence?)

Objectives Measurement Target Action Plan
       
       
       
       
       

Learning and Growth Perspective (How can we promote learning, innovation, and the personal growth and retention of valued people?)

Objectives Measurement Target Action Plan
       
       
       
       
       

After putting the strategy statements in the four groups, the critical success factors can be defined.

For the analytic of the balanced score card can be done a wallpaper, which objective is promoting other objectives. At the end, the biggest power should be brought to EBIT improvement or EBIT backup.

At the end the action planes have to be scheduled in a way that the organisation can deal with the actions that the sequence of different actions is senseful and the development of the company is fast enough following market requirements and improvement for the companies position in the market.

Another possibility is, to develop the actions in the sequence shown below. In the discussion with a team, these headlines keep the team better on the discussion about the development of value drivers. This sequence is assuring that not immediately actions will be defined, which have no real connection to the strategical goals.

For example, the following formulations could be found for one strategical goal: Wie would like to have a 20% market share.

Now we must ask: what are the critical success factors? This could be for example in a price sensitive market: we must become cost leader.

Out of this we can easily derive the value drivers, like fix cost, design to cost, ….

To reach the KPIs for the value drivers, we can than define projects, on which different teams of the company can work.  

My experience to work with balanced score cards is extremely good. To work it out and to follow the projects, derived out of the value drivers, is a good method, to form the management team and to make them work on common targets for the company. On disturbances to rich the targets, the whole management team was reacting. In my opinion it is a “must” have for every company.

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