How to Build

Balanced Score Card

By Sabir Syed
 A Balanced Scorecard Approach –
Setting Strategic and Financial Objectives

• A balanced scorecard for measuring

company performance is optimal; it entails
– Setting financial and strategic objectives
– Placing balanced emphasis on achieving
both types of objectives
(However, if a company’s financial performance is dismal or if its
very survival is in doubt because of poor financial results, then
stressing the achievement of the financial objectives and temporarily
de-emphasizing the strategic objectives may have merit)
• Just tracking financial performance overlooks the
importance of measuring whether a company is
strengthening its competitiveness and market position.
The surest path to sustained future profitability year after
year is to relentlessly pursue strategic outcomes
that strengthen a company’s business position and
give it a growing competitive advantage over rivals!
 Recap

• Balanced Scorecards provide a framework

for communicating strategy in operating
terms (measurements and targets).
• You must communicate strategy in
operating terms if you expect people to
execute on your strategy.
• When people are asked about strategy,
they reach for their balanced scorecard.
 Agenda
• This slide presentation will outline the
major steps for building a balanced
scorecard.
• How you execute these steps will depend
upon many factors: Company culture,
tolerance for change, leadership, etc.
• However, please try to follow the same
sequence, focusing on the strategic maps.
 Overview
• Balanced Scorecards are constructed from
strategic maps
• Throughout the process, we will refer back
to these maps, making sure everything is
linked. This is very important since we
want to capture a “cause and effect”
relationship in building the scorecard.
Why the Balanced Scorecard
• Improves how you communicate
strategy
• Superimposes a discipline whereby you
capture cause-effect; otherwise you
create pockets of under-performance.
• Also forces you to think about strategic
measurement as opposed to tactical or
operating type measurements
 Start with Strategy
• Begin with your strategic plan – what
things are critical to future success?
• Focus on customers – what values will we
add to our customers
• Define the processes – how will we deliver
these services to our customers
• Build the organization – what capabilities
must we put in place
 Strategic Goals
• The first components of your strategy are
goals.
• Strategic goals establish direction in
concrete terms.
• Strategic goals anchor the rest of the
process.
• Strategic goals should fit with the vision
and mission of the organization.
 Goal Attributes
• Very short statement
• Directly relates to the mission
• Broad in scope
• Covers long time period (such as 3 years)
• Examples:
- Improve Customer Service
- Leverage Core Competencies
- Develop more innovative products
 Strategic Objectives
• Once we establish our first anchor (goals),
we can develop a set of strategic
objectives.
• Strategic objectives define what actions
must be taken to reach the strategic goals.
• Objectives are critical to future success.
For example, in order to grow revenues,
we must introduce new products and
expand our market share.
 Objective Attributes
• Longer statement than goal statement
• More specific than goal statement
• Indirect relationship to mission
• Covers shorter time period than goal (such
as 6 months or 1 year)
• Example:
- We will expand call center services to
include technical support
 Strategic Themes
• Based on strategic goals, three to five
strategic themes should emerge.
• From these themes, we will develop a
strategic map.
• Four common strategic themes are:
Operating Efficiencies, Customer
Relations, Product Innovation, and
Growing the Business.
 Strategic Model
• Strategic Models can emerge from four
principles:
1. Translate strategies into operating terms.
2. Link strategies throughout the entire
organization.
3. Commit everyone to implementing
strategy.
4. Make strategizing a continuous process of
learning and adjusting to change.
 Four Perspectives
• Before we build strategic maps, we need to
define four perspectives:
Financial: Top layer in the map, represents
financial outcomes (profits, revenues, etc.)
Customer: Next layer down, enables financial
results (service, image, price, quality, etc.)
Internal Processes: The values added to
customers, such as delivery, production,
distribution, etc.
Learning & Growth: The people, systems, and
organization that enable processes.
 Strategic Mapping
• Strategic Maps are the foundation of the
Balanced Scorecard.
• You will need one strategic map for each
strategic theme.
• Maps are constructed over four
perspectives.
• Strategic objectives are mapped over the
four perspectives, linked together.
 Linking
• Strategic objectives need to be placed in
the Strategic Map according to which
perspective fits with the objective.
• Objectives may cross over more than one
perspective.
• We usually start at the top with outcomes
and work our way down, looking at what
enables (drives) the outcome.
 Approval
• Once you have completed the strategic
maps, you will need to get approval from
executive management. Does this map
accurately tell the “story” of our strategy?
• If management disagrees with the map, go
back and redo the maps. We need to get
this step right since it represents the
foundation for the entire scorecard.
 Measurements
• For each strategic objective, you need one
measurement.
• Measurement provides us with feedback
on meeting the strategic objective.
• Most organizations will use many of their
existing measurements.
• Organizations requiring major change
should include driver type measurements.
 Measurement Criteria
• Measurements should drive change,
providing teeth to our strategy.
• Measurements define objectives in
specific terms. A good measurement
should tell you what your objective is – this
is an indicator of good linkage.
• Measurements should be repeatable,
quantifiable, and verifiable.
 Good Measurements
• Customer satisfaction:
- Response time to service customer
- Satisfaction survey scores
• Process Efficiency:
- Cycle time
- Downtime
- Number of Restarts
 Lead and Lag Measurements
• Leading measurements are drivers behind
performance and provide some
predictability (forward looking)
• Lagging measurements are usually final
outcomes that look back, such as
customer satisfaction or return on
investment
• Balanced scorecards should include both
leading and lagging type measurements
 Targets
• Once you establish measurements, you
need to set a target for each
measurement.
• Targets push the organization to a
required level of performance.
• Targets put focus on the strategy,
expressing the specifics of the strategy.
• When an organization hits its targets, then
it has successfully implemented its
strategy.
 Examples of Targets
• Total Time to Recruit New Employees:
Less than 40 days by year-end
• Utilization of rental facilities: Increase to
85% during peak summer months
• Growth in top line revenues: 10% increase
over last year
• Improve overall customer satisfaction:
Total scores exceed 90%
 Initiatives
• In order for things to happen in an
organization, you must initiate major
projects or programs. For example,
improving customer service may require a
new customer management system.
• Once you launch appropriate initiatives,
you should be able to meet your strategic
objectives. This closes the loop,
everything is now linked and away we go!
 Initiative Attributes
• Sponsored by senior management
• Designated owners manage project(s)
• Includes deliverables or milestones
• Usually has some time deadlines
• Could be difficult to launch – lack of
support, no funding, poorly defined, etc.
 Other Important Steps
• Scorecards are built around three teams:
Leadership Team (upper level
management), Core Team (middle level
management) and Measurement Team
(lower level functional personnel).
• Scorecards are built around at least four
group meetings: Kick Off Meeting followed
by at least one meeting for each of the
three teams.
Strategy Map: Diagram of the
BSC Terminology
cause-and-effect relationships
between strategic objectives

Strategic Theme: Statement of How success

Operating Efficiency what strategy in achieving The level of Key action
Financial
must achieve the strategy performance programs
Profitability and what’s will be or rate of required to
critical to its measured and improvement achieve
More success tracked needed objectives
Fewer planes
customers

Customer
Flight Lowest
Is on time prices

Objectives Measurement Target Initiative

Internal
• Fast ground • On Ground Time • 30 Minutes • Cycle time
Fast ground turnaround • On-Time • 90% optimization
turnaround Departure

Learning

Ground crew
alignment
Balanced Scorecard Example
Strategic Theme:
Objectives Measurement Target Initiative
Operating Efficiency
Financial
Profitability • Profitability • Market Value • 30% CAGR
• More • Seat Revenue • 20% CAGR
More Customers
Fewer Planes
Customers • Plane Lease • 5% CAGR
• Fewer planes Cost
Customer • Flight is on - • FAA On Time • #1 • Quality
Flight Lowest time Arrival Rating management
Is on Time Prices • Lowest prices • Customer • #1 • Customer
Ranking (Market loyalty
Survey) program
Internal • Fast ground • On Ground Time • 30 Minutes • Cycle time
Fast Ground turnaround • On-Time • 90% optimization
Turnaround Departure program

Learning • Ground crew • % Ground crew • yr. 1 70% • ESOP

alignment trained yr. 3 90%
Ground Crew yr. 5 100%
• Ground crew
Alignment • % Ground crew training
stockholders
THANKS