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HBS Balance scorecard as Strategic Mgt System (STEP 1: TRANSLATING VISION…
HBS Balance scorecard as
Strategic Mgt System
Why Balanced Scorecard?
complement financial measurement
address deficiency in traditional mgt system
link long-term strategies with short term actions
SC introduces 4 new mgt processes
(1) translating the vision
build consensus around vision & strategies
vision stmt expressed as a integrated set of objectives & measures that describe long-term drivers of success
(2) communicating & linking
managers communicate strategies up & down the org
link these strategies to departmental & individual objectives
(3) biz planning
enable companies/departments to integrate their biz and financial plans
instead of each initiatives fighting for executives attention, use BSC as the basis for allocating resources & setting priorities
undertake only initiatives that move the biz toward its long-term strategies
(4) feedback & learning
monitor short-term results from standpoint of biz as a whole, departments, & individuals from 3 perspectives
customers
internal biz processes
learning & growth
BSC enables biz to modify strategies to reflect real-time learning
Usage of BSC
align department and individual goals with strategies
link strategic objectives to long-term targets & annual budget
communicate strategies throughout the company
identify & align strategic initiatives
clarify & update strategies
conduct periodic reviews to learn about and improve strategy
STEP 1: TRANSLATING VISION & STRATEGIES
all 4 perspectives analyzed in 4 aspects:
objectives|measures|targets|initiatives
(1) CUSTOMER: formulated by senior executives
to achieve our visions, how should we appear to our customers
(2) FINANCIAL/VALUE
CREATION-SBDC:
formulated by senior executives
to succeed financially, how should we appear to our shareholders
(4) LEARNING & GROWTH:
formulated by middle & frontline managers
to achieve our vision, how will we sustain our ability to change and improve?
KRISTEN REQUESTS TO HAVE ONE MORNING PER WEEK RESERVED FOR KEEPING UPDATED ON NEW REGULATIONS
highlight gaps in ee's skills that biz would have to deliver the selected value propositions
(3) INTERNAL BIZ PROCESS:
formulated by middle & frontline managers
to satisfy our shareholders & customers, what biz processes must we excel at?
ie: vision = superior service to targeted customers
who's target customer?
what constitutes superior service?
Step 2: communicating & linking
(1) communicating & educating
broad-based communication program to share with ALL ee the strategies & critical objectives
brochures
newsletters
town-meetings
if needed to communicated beyond boardrooms to outside investors
inform abt those measures w/o disclosing sensitive info
(2) setting goals
high-level strategic objectives & measures must be translated into objectives & measures for departments & individuals
personal scorecard: 3-level
corporate objectives
departmental objectives
personal objectives:
initiatives
5 performance measures for objectives
target for each measure
KRISTEN PROPOSES TO HAVE CLIENTS EVALUATE THEIR CONSULTING EXP AFTER 10-HR PERIOD ENDS.
(3) linking rewards to performance measures
ie: executive's bonuses calculated based on
60%; financial measures
ROI
profitability
cash flow
operating cost
40%: non financial measures
dealer satisfaction
ee satisfaction
customer satisfaction
environmental responsibility
risks associated with such linkage
does the company have the right measures on the BSC?
does it have valid & reliable data for measures?
could unintended/unexpected consequences arise from the way targets for measures are achieved?
weighted average system
permit substantial compensation to be paid if the unit overachieves on a few objectives even if it falls far short on others
SOLUTION:
establish min. threshold levels for a critical subset of strategic measures
individual would earn NO incentives if performance fell short of any threshold
motivate ppl to achieve a more balanced performance across
Step 3: biz planning
the exercise of creating BSC forces company to integrate their budget planning & budgeting processes
(2) ensure the budget supports the strategies
(1) identify what actions/investment will drive the biz toward their targets
(3) identify measures of progress
(4) establish short-term milestones
Step 4: Feedback & learning
METHOD 1: in step 3: set milestones/short term goals --> forecasting relationships between changes in PERFORMANCE DRIVERS & associated changes in GOALS
ie: HYPOTHESIS = estimate amount of time it'd take for improvement in training and in availability of IT before bank ee could sell multiple financial products effectively
test, validate, and modify hypotheses embedded in CORPORATE/DEPARTMENTAL/INDIVIDUAL STRATEGIES
METHOD 2: evaluate the validity of biz STRATEGIES & the quality of EXECUTION by examining the linkage between 4 perspectives
accumulate data to document significant correlations & causation among BSC measures --> might take a long time
ie 1: higher ee's morale (learning & growth) --> higher customer satisfaction (customer) --> lower AR (financial) --> ROI (financial)
ie 2: higher ee morale (learning & growth) --> higher ee's suggestion (learning & morale) --> lower rework/waste (internal biz process) --> lower operating exp (financial) --> higher ROI (financial)