Building the
Balanced Scorecard
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Matt H. Evans, CPA, CMA, CFM 8/22/2009
Introduction
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.
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Matt H. Evans, CPA, CMA, CFM 8/22/2009
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.
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Matt H. Evans, CPA, CMA, CFM 8/22/2009
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.
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Matt H. Evans, CPA, CMA, CFM 8/22/2009
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
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Matt H. Evans, CPA, CMA, CFM 8/22/2009
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
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Matt H. Evans, CPA, CMA, CFM 8/22/2009
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.
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Matt H. Evans, CPA, CMA, CFM 8/22/2009
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
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Matt H. Evans, CPA, CMA, CFM 8/22/2009
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.
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Matt H. Evans, CPA, CMA, CFM 8/22/2009
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
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Matt H. Evans, CPA, CMA, CFM 8/22/2009
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.
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Matt H. Evans, CPA, CMA, CFM 8/22/2009
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.
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Matt H. Evans, CPA, CMA, CFM 8/22/2009
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.
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Matt H. Evans, CPA, CMA, CFM 8/22/2009
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.
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Matt H. Evans, CPA, CMA, CFM 8/22/2009
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.
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Matt H. Evans, CPA, CMA, CFM 8/22/2009
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.
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Matt H. Evans, CPA, CMA, CFM 8/22/2009
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.
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Matt H. Evans, CPA, CMA, CFM 8/22/2009
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.
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Matt H. Evans, CPA, CMA, CFM 8/22/2009
Good Measurements
Customer satisfaction:
- Response time to service customer
- Satisfaction survey scores
Process Efficiency:
- Cycle time
- Downtime
- Number of Restarts
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Matt H. Evans, CPA, CMA, CFM 8/22/2009
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
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Matt H. Evans, CPA, CMA, CFM 8/22/2009
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.
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Matt H. Evans, CPA, CMA, CFM 8/22/2009
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%
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Matt H. Evans, CPA, CMA, CFM 8/22/2009
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!
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Matt H. Evans, CPA, CMA, CFM 8/22/2009
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.
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Matt H. Evans, CPA, CMA, CFM 8/22/2009
Strategic Map for Strategic Theme #1:
Templates
Financial
Throughout this
process, we will use
Customer
templates to capture,
analyze and document
data. Templates are
Internal
used for strategic
mapping, defining
measurements, etc.
Learning
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Matt H. Evans, CPA, CMA, CFM 8/22/2009
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.
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Matt H. Evans, CPA, CMA, CFM 8/22/2009
Implementation
The minimum time for developing a
balanced scorecard is three months.
Full deployment of scorecards throughout
the entire organization can take more than
one year.
The best place to start building a scorecard
is where all components of the value chain
are in place: Customer, Innovation,
Production, Delivery, Services, etc.
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Matt H. Evans, CPA, CMA, CFM 8/22/2009
Summary
Balanced Scorecards are the best way of
communicating strategy.
Scorecards rely on a fully integrated
approach: Goals, Objectives, Mapping,
Measurements, Targets, and Initiatives.
The building of a balanced scorecard can
be experimental, whereby you test your
strategies, refine, and make changes as you
get feedback and learn what works.
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Matt H. Evans, CPA, CMA, CFM 8/22/2009
Where to Get More Information
Formal training in balanced scorecards is
available through the Balanced Scorecard
Collaborative (www.bscol.com)
Consulting services are available. My
training in balanced scorecards comes
directly from the Balanced Scorecard
Collaborative. If you have questions, feel
free to email me.
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Matt H. Evans, CPA, CMA, CFM 8/22/2009