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 align • 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 value – 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 science. • 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 measures •Outcomes •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 experience. Example • Department of Energy Procurement Unit • FAA Logistics Center • UCSD • Oak Knoll Academy • Balanced Scorecard Institute has other examples.
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