Balanced Scorecard

Balanced Scorecard ( BSC, English for balanced reporting form ) is a concept for measuring, documenting and controlling the activities of a company or an organization in terms of its vision and strategy.

• 6.1 opportunities
• 6.2 risks
• 6.3 criticism

• 9.1 English
• 9.2 German

Overview

History

Companies developed in the Industrial Age control systems, which encouraged the efficient use of financial and material resources. The focus was on financial indicators such as the DuPont ratio system. The breaks from the industrial age to the information age were associated with a new, tougher competition. To meet this new challenge, in 1990 a study of several companies in the Nolan Norton Institute was commissioned. The aim was to support the then widespread financial indicators ( ROCE, ROI ) through other, non-monetary indicators. David P. Norton led the study, academic counseling came from Robert S. Kaplan. Representatives from 12 companies (AMD, American Standard, Apple, Bell South, CIGNA, Conner Periphals, Cray Research, DuPont, Electronic Data Systems, Gereral Electric, Hewlett -Packard and Shell Canada ) met then every 2 months and developed a new performance -Measurement model. Case Studies at the beginning of the existing performance measurement systems have been studied. It was discovered a approach of Analog Devices. This continued since 1987, a " corporate scorecard " a, certain financial measures supported by nichtmontäre. Then took the then Vice President, Arthur M. Schneiderman attended a meeting and laid the foundation stone of the SC. During this time, the scorecard was developed into a balanced scorecard, which was recognized as it requires a balance between different metrics. These were, for example, result - oriented and performance metrics. The performance indicators were almost exclusively monetary measures while the newly added indicators of non-monetary in nature. These are also referred to as a power driver. In addition, internal and external objectives should be in balance, which is represented by the four different perspectives. Here, the customer and financial perspective in balance for process and development perspective can be seen. The study was completed in December 1990. A summary of the study was published under the title The Balanced Scorecard - Measures Drive Performance did two years later in the Harvard Business Review.

When several companies reported after the release to get support for the implementation, recognized R. Kaplan and D. Norton, that a second round was necessary. The reasons were used in the figures of the company. These were operationally oriented and not linked to the corporate strategy. Then we tried the main relevant indicators ( key measurements ) to determine from the corporate strategy. To achieve this, the strategy of '' key success factors '' broken down (top-down reflection ). The director of studies published the results in a second article Putting the Balanced Scorecard to Work in HBR.

This strategic performance measurement (BSC ) now had to be embedded in a performance measurement system. The BSC should bring the company or SBU strategy expressed thereby providing transparency and clarity throughout the company. This bildetet the basis for the SBU to the existing vision and strategy align and should be an essential feature of their success ..

A study by the Gartner Group in 1998 showed that up to 2000 min. 40 % of Fortune 1000 companies would like to use a BSC. For the EMEA region this management tool is still at square one.

The balanced scorecard serves as a management tool to align the organization with strategic goals. In contrast to corporate mission statements and other fuzzy formulations of the Balanced Scorecard, the achievement of strategic objectives and measurable attempts to make feasible on the derivation of measures. Unlike traditional performance measurement systems, the BSC focuses attention on the assumed cause-and- effect relationships but also on non-financial indicators. 1996 already worked about 60 % of the Fortune companies with the Balanced Scorecard.

Concept

The basic concept is based on the idea of ​​a logical or physical object or system, receives the information and material from its environment, processes, outputs in a different form to its environment and learns in response to a ( tangible and / or intangible ) effect. This is done according to the scheme input → processing → ​​output → outcome / effect or Input → Process → Output → Return / Outcome / Impact / Result. The logic of the BSC asks this in the sense of Kanban or pull- push principle first for the desired effect to starting to get it back up to the necessary input.

Essentials of BSC are:

• Delimit a system
• Mapping the control structure of the system, ie its means-end or cause-and- effect logic (Strategy / validation; "Are we doing the right thing? "; Topic: form, structure, structure) Detecting the material and nonmaterial elements (objects or nodes )
• Detecting the relationships between the elements ( functions or edges)
• Evaluating the relationships between the elements (type, direction, strength or weight)
• Selecting the most important objects and functions ( strategy instead of " hygiene" )

• Determining variables ( attributes or edge or node weights (type ) ) to the selected objects and functions
• Form of target values ​​to the measured values ​​(set )
• Collecting measurement values ​​to the measured values ​​(actual)
• Deriving predictive values ​​( expectation)

• Development of measures in case of deviations between desired and actual
• Implementation of the measures

This allows both the argumentative - logical foundations of (business) system ( strategy or validation) as well as their operational and practical implementation (controlling or verification) represent and control. Heart of the approach is, as with other management methods also, graphs, trees, lists, and matrices for structuring and processing of a problem, in this case, organizational design, where appropriate.

Target

The term BSC is erroneously used for different types of indicator-based systems. The BSC, which requires a cause -and-effect analysis, however, is an original management method other than the descriptive process costing or the classic monetary indicators system ( see, eg, Du- Pont- scheme). Due to their flexible nature and, therefore design option, the Balanced Scorecard is a tool for setting up an integrated management system. About the indicators on the functions and attributes of the objects under consideration in the BSC, it is possible to follow the development of business vision. In this way, the BSC enables management to consider not only the financial aspects, but also to control structural indicators for business success. The methods of the BSC so the field of view of management should be guided by a traditional, marked by financial aspects of the company's perspective on all relevant parts and so to a balanced (English " balanced" ) lead image. The broader view allows then more concrete measures to align the organization to the objectives set.

Procedure

Structure of the BSC

The dimensions of the BSC are set individually for the specific application. But they almost always include the financial perspective ( return) and the customer perspective (Output), usually also the process perspective (process) and the potential or an employee perspective (input). Based on a strategy that considers not only the shareholders, other stakeholders (eg employees and suppliers ), critical success factors (CSFs ) is a performance measurement system ( scorecard ) can be determined and used with Key Performance Indicators ( KPI ) is created. The measured variables represent the degree of fulfillment of the strategic objectives. In a continuous process goals and goal achievement are checked and controlled by corrective measures.

Constitutive element of a balanced scorecard is the cause-and- effect diagram. With the cause- effect relationships is the corporate strategy with the customer's perspective, this with the process logic and the reconnected with actions at employee level. The logic of dependencies so almost automatically performs all four desired view.

The dependencies can be determined easily by all concerned and success drivers ( objects) in a ( cross-) table (matrix) are both column- like line by line removed and then the respective dependencies and relationships (functions) in terms of their significance, relevance or validity are evaluated as part of the validation. After the dependencies are worked out, the BSC graph is formulated in a BSC - story, for example, to achieve a better financial result, more premium customers need to be addressed, in turn, expect a sophisticated service process that takes only be ensured by well-trained staff can. Then, actual and expected values ​​of the measured variables (attributes ) are mapped and compared in a target-actual comparison or verification. Subsequently, possible and necessary measures, both in terms of the financial system as on the scorecard itself, discussed, defined and implemented. Finally, an overall assessment is made. The process is repeated regularly.

Integration of those involved and affected

To develop the BSC - diagram sense, stakeholders from all areas of the company as well as customers, suppliers and other third parties should ideally be included. This allows the BSC a role in a process of change ( change management, English "change management" ) play. If many of those affected are involved in the development of the BSC, the strategy is better accepted and the proposed measures can be implemented better.

Typically, the strategic objectives from different perspectives are considered: financial, customer, processes ( internal processes ) and employees (growth and maturation ). Other perspectives are useful if the company lays strong emphasis on it (for example, partner management or supplier BSC). For each of the perspectives indicators are selected to measure progress towards the strategic objectives. The challenge lies in selecting both fewer and more relevant indicators that affect ideally in different perspectives directly. For example, a customer indicator should be chosen so that its attainment has a positive contribution to the parent financial indicator.

Complexity Reduction

In the BSC objectives balanced, that is, it will constantly assess the impact of measures on all targets. From a psychological perspective, this requires a small number of the same to be considered figures, typically one to two per perspective. Overall, a BSC should not have more than 20 metrics. However, strict selection and reduction to a few key figures fail many BSCs. The aim should therefore be to create the entire arc of the overarching story to the few truly critical success factors, metrics and measures on the lowest level in a scorecard, so that the business concept in his unique claim ( USP) at a glance is comprehensible.

To map the size and variety of organizations, including BSC for individual divisions of the Group BSC can be derived ( for example, a shopping BSC or a human resources BSC). The objectives of the business units are linked to the corporate objectives.

Introduction

For the implementation and integration with strategy discussion and classic Controlling Deming and continuous improvement process can be used out of the quality or explicit introduction of concepts. Essential following general steps are:

Preparing introduction

• Delimit investigation and action space
• Determine action ideas and maxims
• Environment, situation and potential analyzes to perform, such as industry structure analysis
• Check structure and sequence of the BSC in structure and detail

Develop key statements ( Strategie-/Validierungs-Part )

• Clarify key issues, requirements and opportunities
• Derive qualitative objectives (outcomes ) and performance drivers ( causes)
• Evaluate cause-and- effect relationships, such as using a matrix / crosstab
• Leitmotifs and predictions summarized (Vision / Mission )

Objectives break down ( Controlling-/Verifizierungs-Part )

• Develop metrics and indicators on the objectives and drivers
• Determine Soll-/Ist-Werte well as time series and deviations to indicators
• Determine action responsible, deadlines and budgets
• Formulate action plan ( Story / strategy )

Introduce Scorecard

• Incorporate key figures in Controlling, Reporting and Forecasting
• Communicate contents of the scorecard
• Check environment regularly
• Customize outlook, objectives, drivers, metrics, key performance indicators, measures, deadlines, budgets, and responsible regularly

The first two blocks tend to be toward the outside of the environment, the latter two are more inward to the organization. By defined work packages of a standard implementation concept, the necessary regular review of the BSC is enabled. Individual steps can be repeated if change input parameters or in case of contradictions or lack of commitment of personnel. The BSC can be continuously improved in the organization over time.

Typical perspectives

In general, four perspectives, each with about one to two objectives and corresponding measures and related measures are used. It is important that this system, unlike almost all other controlling systems, is free in the determination of the dimensions (the number of perspectives can be larger or smaller). Although the perspectives described in the literature and below are commonly used. The strength of the BSC, however, is that, for example, environmental factors, or a life cycle assessment can be found as well as input stakeholder considerations or industry-specific factors.

Subsequently, the perspectives are listed by Robert S. Kaplan and David P. Norton and illustrated by two exemplary figures:

Financial perspective: Key Figures for achieving the financial goals.

• Revenue per sales representative: Supports the growth of the company, not necessarily the profitability.
• Cost per piece: Does the cost-consciousness, high volumes - but precludes the quality.

Customer Perspective: Key Figures for achieving the customer goals.

• Customer Satisfaction: Supports customer-oriented behavior, not necessarily short-term profit, but is difficult to measure.
• Time between customer request and response: Supports timely response to customer requests, is often used in conjunction with priorities.

Internal or process perspective: Key Figures for achieving the internal process and production goals.

• Process quality: Supports the delivered quality, not necessarily an effective and efficient production process.
• Process cycle time: Supports fast turnaround, low capital commitment and little intermediate storage. Can be evaluated in detail and continuously by means of Process Performance Management.

Employees, potential and learning and growth perspective: Key Figures for achieving the ( long-term ) survival goals of the organization.

• Sales ratio of new products to old products: Supports rapid development and enhancement of products.
• Turnover rate from the organization out: Supports the long-term employment of service providers in the organization promotes, performance differentiation, can block thinkers.

Example

In a company is to be improved as an essential part of the target customer orientation. The perspective here is therefore that of the customer. The critical factors in this a very good time delivery, few occasions for complaints and fast service and short repair times can be seen. At the same time, the costs may not be significantly increased.

This may be about the following metrics are used:

• Share to non-compliance deadline commitments
• Percentage of faulty products after delivery
• Average time spent in customer service and repair
• Cost per product

These are first identified, such as 20 percent missed appointments, ten percent of complaints and four weeks of stay. The next year, then there is less than ten percent of the appointments are not kept, the number of complaints should be reduced to seven percent and amount to the residence on average only three weeks. As measures may improve the scheduling ( punctuality ), improvement of quality management and increase the number of employees in the service and repair department (residence time ) into consideration. As the last measure would substantially increase the costs, can also be tried as well, or to improve the efficiency of the unit. A high sickness rate speaks for a low employee satisfaction. Also training have not been carried out in recent years. As an additional financial measures that are used:

• Average number of sick days
• Average number of training days per employee

Further developments and applications

The Balanced Scorecard approach as a concept can be applied not only to a company and its leadership. Other application areas are for example, cross-company projects. For these, the perspectives of the Balanced Scorecard has been adapted and scorecard with the concept of Project.

The focus of the Balanced Scorecard is on proprietary factors that influence the success of a company. Based on the public value concept have developed a public value scorecard, which the balanced scorecard supplemented by an external view Timo Meynhardt and Peter Gomez. This instrument provides added value in various dimensions as well as the existing tensions between the center and thereby enables a structured collection of social opportunities and risks in the business environment.

A further development of the concept of the balanced scorecard approach and adapt to interactive Internet applications is the collaborative balanced scorecard. The result of a collaborative balanced scorecard is equal to a balanced scorecard. When creating the collaborative balanced scorecard, however, interact with managers in addition to many experts from the organization. The approach to development is based on the approach of peer production in software development. First applications of a collaborative approach were successfully conducted within about Xerox. Furthermore, there are numerous programs available for creating balanced scorecards. For the visualization of the key figures often figures cockpits are used.

Since the Balanced Scorecard is ultimately based on a positive model, it can be in terms of falsification be epistemologically useful to align the scorecard rather than benefits, strategy, opportunities and "real" action on the contrary consistently to potential damage, hygiene, risks and avoiding errors. This would be in accordance with consistently placed on the possible errors with the largest property risks and the BSC consistent with a Failure Mode and Effects Analysis (FMEA ) supplemented or replaced by integrated or equal to this. In this case, the FMEA, which is also a cause-effect model is based would be extended to all perspectives. The ratio of control (object / function) and exception (measure ) this would, however, reversed, and the regular action principle understood as prevention and elimination of defects, exceptions, and errors ( damage rather than benefit- orientation). In practice, however, it will probably end up most likely a mixture of both approaches or as the SWOT on all 4, namely Strengths / opportunities ( benefit side) and weaknesses / risks ( damage side).

Assessment

Prospects

• Balanced Scorecards allow the display of strategies to operationalize and communicate.
• The vision and strategy can be broken down into operational actions ( measures).
• The inclusion of lead- (leading / Causes ) and lag indicators ( trailing / effects ) gives a balanced (balanced ) image and allows a forward-looking planning and leadership. The business model can be so hopefully successfully navigating through structural indicators.
• It allows to combine several or all the other controlling instruments ( adhesive function)
• Particular, it enables simple connection of the functions of Quality Function Deployment ( QFD) for benefits or opportunities aspects and Failure Mode and Effect Analysis (FMEA ) for damage or risks aspects with regard to the whole system ( organization, businesses, etc. ).
• It reveals deficits and important tasks.
• The causal relationships between the various business objectives are clear.
• The simple structure allows a reduction of complexity in the control.
• Actions and responsibilities can justify themselves.
• Employees to be strengthened: You get your own perspective. Their activity makes a measurable contribution to the implementation of the overall strategy of the company.
• The balanced scorecard refers alongside monetary objectives, but also non-monetary goals with a what makes it a " holistic " management process.
• It offers the possibility of incorporating, or alignment to the idea of ​​shareholder value or discounted cash flow / enterprise value.

Risks

• A balanced scorecard performance measurement system involves how each risk, implement false or unrealistic goals. Even "bad" strategies are implemented through the professional process.
• There is a risk of overloading the Balanced Scorecards with too many and too complex targets.
• A superficial examination of the Balanced Scorecard can mistakenly lead to a one-sided concentration on the figures, especially the past based measures. In this case, the actual intention of the Balanced Scorecard is lost, the alignment of action with strategic goals and the sustainable, future- oriented construction of potentials ( = action for the future).
• By fixing on performance indicators can occur conscious manipulation or a one-sided optimization of key figures - especially if the employee pay is tied to the fulfillment of key figures. Therefore, the principle of balance is to be observed ( balance between the various objectives ) in order to avoid undesirable effects.
• Naive application of the results of the process cost accounting without being accompanied by a balanced scorecard management can lead to serious mistakes and thus endanger the operation success.
• The operationalization may tempt us to rely on a paper form, rather than on the concrete given and thus rapidly changing environmental conditions adequately perceive and react to it. This must, where appropriate, by an independent or special within the BSC Chancen-Risiken-Sensorik/-Seismographik ( perspectives, objects, metrics, key performance indicators ) are intercepted as Stärken/Schwächen-, Umsatz/Kosten- or Innovations-/Traditions-Aspekte.
• Caution should be used when programs allow the power and control of behavior by employees. If such affected employees could no say enough with the introduction, there is a risk of a lack of acceptance. Furthermore, subject to such use at companies in Germany with works of participation after the Works Constitution Act.
• Studies show that the greatest successes in implementing end by focusing on the goal - action links ( relevance, - plausibility and significance criterion) are reached or the management measures in place the metrics orientation.

Criticism

For the implementation of the corporate strategy with the Balanced Scorecard, it is necessary to use for any deviation from the plan the person responsible for the appropriate measure to ensure the long-term acceptance. It should be noted that the metrics managers can not be held responsible for any deviation from the plan occurred. Especially with exogenous disturbances (eg economy, commodity prices, etc. ) the reason for the deviations is not to look at the key figures responsible. Therefore, it is of fundamental importance that between " are responsible, " and " not are responsible, " deviations is clearly distinguished. The best way to achieve this is to provide a measure attributable to the risks during the development of a balanced scorecard, for exactly these risks describe a " not responsible end " deviation from a plan or expectation value. With this approach, an integration of strategic management ( Balanced Scorecard) and risk management is possible, which boosts efficiency and the logical consistency of both systems.

Currently playing risks in the balanced scorecards hardly matters which may be due to Kaplan and Norton have this issue given almost no room in their description of the Balanced Scorecard. Therefore, a development of the traditional balanced scorecard under allocation of risks to the figures is a logical consequence, to promote the implementation of a value -oriented corporate strategy.