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									Balanced Scorecard

   Bruce C Hartman
      MGT 400
     Operating Assumptions for the
            Information Age
•   Cross Functions
•   Links in Supply Chains
•   Customer Segments
•   Global Scale
•   Innovation
•   Knowledge Workers
                 The Value Chain
Customer need identified

                             Customer Need satisfied
BSC as a Management System
• Defined top-down
  by strategy
• Balances
  – External and
    internal processes
  – Outcomes (lag) and
    drivers (lead)
  – Objective and
    subjective factors
Goals of BSC
        • Clarify and translate
          vision and strategy
        • Link measures with
          strategic objectives
        • Plan set targets and
        • Enhance feedback
          and learning
    Financial Accounting vs BSC
                    Less supportive of long     Emphasis on short term
• Why won’t         term investment             returns, improving
  financial                                     current share prices
                    Favors readily              Underinvestment in
  accounting        measurable returns          tangible assets where
  measure the                                   short term returns
                                                cannot be seen
  right things?
                    Overinvestment in           Easily valued assets
• The HBS Council   acquisitions rather than    rather than hard-to
                    internal development        value assets
  on                projects
  Competitiveness   Can operate                 Companies with strong
                    inefficiently while short   asset bases don’t have
  gives these       term earnings are ok.       to exploit undervalued
  reasons.                                      assets with hostile
                                                tender offers, leveraged
                                                buyouts, junk bonds.
        Lack of Transparency
• A high-level committee of the AICPA on financial
  reporting says a more balanced(!!) approach to
  reporting is needed.
   – Provide more information about plans,
     opportunities, risks and uncertainties.
     (SWOT? E&I Audit?)
   – Focus more on factors that create long term
   – Focus more on non-financial measures like
     how key processes are performing
   – Align info reported externally with info
     reported internally to senior management
          Types of Measures
• Outcomes
  – Final results: e.g.?
  – Lagging indicators

• Performance Drivers
  – Targets for process performance: e.g.?
  – Leading indicators
             Strategy as Theory
Strategy           Decisions              Execution    Outcomes

•Strategy is a theory.
•It’s about chains of cause and effect.
•Can’t be proved! Only can be proved false!
•Based on assumptions.
•Strategic assumptions and plans cause decisions which causes
what we do which results in outcomes.
          Disproving the Theory
• If Strategy theory is right then:
   – the plans cause the decisions which cause the effects.
   – the Performance Drivers should change as predicted.
   – the Outcomes should change in the predicted direction.
• If a measure does not change as anticipated, what could
  be wrong?
   – An assumption could be wrong or not apply.
   – A causal link could not work as expected.
   – There might not be a causal link– only coincidental.
• The theory is disproved!
• What do we do?
                    • Modify the theory!
           Double Loop Learning
• What is double loop learning?

      Strategy                 Decisions             Execution

Measures let us question if             Measures tell if we are
assumptions are valid or causal links   implementing the strategy as
are effective                           planned.
 How do we modify the theory?
• It’s like analyzing experimental results in
• Like cosmology or evolution.

• A company dialog is required!!
          Types of Measures

•   Financial
•   Customer
•   Internal and Business Value Chain
•   Learning and Growth
Framework for Translation
Chain of Causality

                •You need a mix of
                •Performance drivers
            Where to start?
• Authors say:
  – it’s easier to drive a BSC top down than up.
  – Why?
  – it is easier to define a Balanced Scorecard for
    an SBU than for a complex corporation.
  – Why?
• This is based on their consulting
•   Department of Energy Procurement Unit
•   FAA Logistics Center
•   UCSD
•   Oak Knoll Academy
•   Balanced Scorecard Institute has other

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