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
How to run your business?
strategy
objectives
initiatives
The Business Balanced Scorecard is a framework for
describing, implementing and managing strategy at
all levels by linking objectives, initiatives and
measures to the organisations strategy.
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measures
What is a balanced scorecard?
Financial
Perspective
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.
How do we
look to
shareholders?
Customer
Perspective
How do
customers see
us?
Vision
and
Strategy
Innovation &
Learning
Perspective
Can we continue to
improve our
employees skills and
create value for our
clients?
Internal Business
Process
Perspective
What must we
excel at?
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)
Balance your key business objectives
Objectives
Financial Perspective
1.
2.
3.
4.
5.
6.
Improve Shareholder Value
Drive rapid revenue growth
Manage operating costs and profitability
Achieve profitability
Effectively utilize assets
Manage risk
Customer Perspective
Financial Perspective
1.
2
3.
4.
5.
Rapidly penetrate market segments
Sustain significant customer growth
Retain customers
Achieve high customer satisfaction
Provide extremely positive customer on-line
experience
6. Related to Product, customer & Image
Vision
and
Strategy
Innovation & Learning Perspective
1.
2.
3.
4.
5.
6.
7.
Sustain employee satisfaction
Maintain employee productivity
Retain employees
Innovate operationally
Measure training quantities
Measure training effectiveness
Measure and evaluate innovations
1.
2.
3.
4.
5.
6.
Improve quality
Improve efficiency
Build brand awareness
Expand distribution
Drive operational excellence
Measure performance of entire value
chain
7. Maintain technological leadership
The diagram illustrates an
example of a clients
organizational objectives.
In the balanced scorecard
development process, the
organizational objectives
should provide a balance
across the four dimensions
of performance.
and measure where you are
Company
Goals
Market Leadership
Translation from
Rapid product innovations
Time to market
Contribution of new
products to reveneactors
Cost Leadership
strategic choices
Critical Success
Factors
Key Performance
Indicators
Process efficiency
Utilization
Stocks
Waste
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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Example of a strategy map
Strategic
themes
Community
Safety
City within a city
Restructuring
Government
Transportation
Economic
Development
The corporate level Strategy map
Customer perspective
Financial Accountability
perspective
Internal process
perspective
Learning and growth
perspective
Reduce
crime
Increase
perception
of safety
Secure funding
Increase positive
contracts
Strenghten
neighborhoods
Improve service
quality
Maintain
competitive
tax rates
Maximize
benefit / cost
Grow tax base
Maintain
AAA Rating
Promote community
based problem
solving
Enhance Knowledge
management capabilities
Imporve productivity
Close
skills
gap
Streamline
customer
interactions
Achieve positive
employee
climate
For each of the boxes one ore more Key Performance Indicators
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need to be defined
Promote
economic
opportunity
Increase
infrastructure
capacity
The structure and the KPIs form the basis for the
reporting
Monthly reports:
1. Dashboard cockpit
+ Analysis
(Annex: dashboardsheets)
2. Financials + Specials
Quarterly reports:
XXX-specific
information
YYY-specific
information
Complementing
information
Management notes /
Management summary
2
Complementing
information
1
Dashboard
report
2 Complementing
information
1
Dashboard
report
Reporting is done per KPI
NUMBERS
Observations
Conclusions
Explanations
Actions
And in one presentation the total overview for the
company
Drill downs per area, department and per KPI are possible
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Co-Constructing the KPI tree
Day in the life of study
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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.
Dont 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.
Example
Top level objective is Delivery Reliability. Relevant KPIs could be Confirmed Line
Item Performance, Requested Line Item Performance.
CSFs for this top level objective are: the performance of Planning, Production,
Stock Management and Logistics
For Production a relevant KPI is Production Plan Attainment
CSFs for Production Plan Attainment are:
The performance of the equipment, availability of raw material,
availability of operators.
KPIs for these CSFs are the next level down KPIs.
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.
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Some remarks
Make sure that it is a genuine KPI-tree:
Not too many KPIs 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 KPIs 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.
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Next steps
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 KPIs 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 KPIs to
meetings.
Some KPIs need to be managed on shift/day frequency; others on
weekly/monthly/quarterly frequency
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Contact Details
W
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