1. Four Strategic Perspectives The Balanced Scorecard concept involves creating a set of measurements for four strategic perspectives.

These perspectives include: 1) financial, 2) customer, 3) internal business process and 4) learning and gro th. The idea is to develop bet een four and seven measurements for each perspective. T o graphic illustrations appear belo to help conve! the idea.

The measurements should be focused on a single strateg! and be lin"ed, consistent and mutuall! reinforcing. Some generic measurements are presented in the table belo . Perspective
#inancial %ustomer (nternal business process

Generic Measurements
$eturn of %apital &mplo!ed, &conomic value added, Sales gro th, %ash flo %ustomer satisfaction, retention, ac'uisition, profitabilit!, mar"et share (ncludes measurements along the internal value chain for: (nnovation ) measures of ho customers* future needs. ell the compan! identifies the

+perations ) measures of 'ualit!, c!cle time, and costs. ,ost sales service ) measures for arrant!, repair and treatment of defects and returns. -earning and gro th (ncludes measurements for: ,eople ) emplo!ee retention, training, s"ills, morale. S!stems ) measure of availabilit! of critical real time information needed for front line emplo!ees.

2. What is a Strategy? . strateg!, according to /aplan and his coauthors, is a set of h!potheses about cause and effect relationships. 0efining an organi1ation2s strateg! involves: 1. 0efining the market the organi1ation plans to serve ) local, national, global. 2. 0efining the customer. Broad or narro , age group, income level etc. 3. (dentif!ing the critical internal processes needed to capture and satisf! those customers. 4. 0etermining the individual and organizational capa ilities re'uired in the other perspectives. #or more on strateg! see 3..42s Strateg! section. !. "n #$ample related to %ause and #&&ect The chain of cause and effect relationships ma! start ith improvements in the area of learning and gro th. These improvements tend to cause improvements in business processes, hich in turn cause improvements in customer satisfaction and subse'uentl! cause improvements in sales and the financial measurements of profitabilit!. The direction of the cause and effect relationships is emphasi1ed belo . -earning and gro th (nternal business process %ustomer #inancial

#or a more specific e5ample sho ing cause an effect, see the Sears &mplo!ee) %ustomer),rofit %hain illustration belo . '. What do you try to (alance? .n important part of the balanced scorecard concept is the emphasis on establishing a balance bet een four t!pes of measurements. These t!pes of measurements include: 1) Short term and )ong term, 2) #$ternal 6for shareholders and customers) and *nternal 6for critical business processes, innovation, and learning and gro th), 3) )eading indicators 6outcomes desired and performance drivers) and )agging indicators 6outcomes), 4) + ,ective measures 6e.g., financial) and Su ,ective measures 6e.g., man! non)financial). See the &5hibit belo 6item 7) for the idea.

-. .o/ Should the (S% (e 0sed? /aplan and 8orton also emphasi1e that 9the balanced scorecard should be used as a communication1 in&orming1 and learning system, not as a controlling s!stem.9 2. 3iagnostic 4ersus Strategic Measurements /aplan and 8orton ma"e a distinction bet een diagnostic measurements and strategic measurements. 3iagnostic measurements monitor hether something is in control. . statistical process control chart ith upper and lo er limits is a good e5ample of a diagnostic t!pe s!stem that can be used for controlling a process. Strategic measurements define a strateg! for competitive e5cellence and future success. The balanced scorecard is a strategic measurement s!stem.

5. Sample Generic Measurements (")"6%#3 S%+7#%"73 P#7SP#%8*4#S 9 S"MP)# M#"S07#M#68S:

Generic Measurement $+%&, &:., Sales gro th ,rofitabilit!, 3ar"et Share, $etention, -o!alt!, Satisfaction %ost, ,roductivit!, %!cle time, =ualit! Financial vs. 6on;&inancial #inancial #inancial #inancial #inancial 8on)financial 8on)financial 8on)financial 8on)financial #inancial 8on)financial 8on)financial 8on)financial Short 8erm vs. )ong 8erm Short term Short term -ong term Short term -ong term Short term Short term Short term Short term Short term Short term Short term -ong term -ong term -ong term )eading vs. )agging -agging -agging -ead ; -agging -ead ; -agging -ead ; -agging -ead ; -agging -ead ; -agging -ead ; -agging -ead ; -agging -ead ; -agging -ead ; -agging -ead ; -agging -ead ; -agging -eading -eading *nternal vs. #$ternal &5ternal &5ternal &5ternal &5ternal<< &5ternal &5ternal &5ternal &5ternal (nternal (nternal (nternal (nternal (nternal (nternal (nternal

Perspective Financial

%ustomer

(usiness Process

+rganizational )earning

&mplo!ee retention, 8on)financial Technolog!, 8on)financial %limate for action or %ulture. 8on)financial

<The ob>ective is to balance the measurements associated ith each perspective, all focused on a single strateg!. These measurements should reinforce each other. 3ost of the measurements are both leading 6drivers) and lagging 6outcomes). The direction of the cause and effect relationships is from the bottom of the e5hibit to the top. << 3an! customers are internal 6e.g., the ne5t operation do nstream), but the focus here is on the e5ternal customer.

<. Sample Generic Scorecard

Perspectives %ustomer Goals + ,ectives Measurements .verage lead time.< ,ercentage of deliveries on time. 8umber of customer complaints.

%ontinuousl! improve 0ecrease lead time.< customer satisfaction. (ncrease on time deliver!. $educe customer complaints.

*nternal (usiness

%ontinuousl! improve 0ecrease c!cle time<< .verage c!cle time.<< business processes. (ncrease 'ualit!. 8umber of defects and number of items re or"ed. (ncrease productivit!. .verage output per emplo!ee. ,ercentage of sales obtained from ne products ; services. .verage time from initial design to production. .verage unit costs. ?ro th rate in sales. %ompan!2s mar"et share. $eturn on investment.

*nnovation 9 )earning

%ontinuousl! develop (ncrease sales of ne and deliver ne products and services innovative products ; services. $educe development time. %ontinuousl! improve 0ecrease costs. financial performance. (ncrease sales gro th (ncrease mar"et share (ncrease return on investment.

Financial

<-ead time is the time from order receipt to deliver!. << %!cle time is the time from the start of a process to completion.

=. Sears %ausal Model .nother e5ample based on a causal model developed at Sears.

This graphic illustration as adapted from an illustration in $ucci, /irn and =uinn 61@@A). 1>. Federal Procurement Scorecard .n e5ample adapted from an illustration on page 1A2 of /aplan ; 8orton2s 1@@B boo" 6The Balanced Scorecard) is provided belo . 6Summar!).

11. #%*?s (alanced Scorecard .n e5ample based on an electronics compan! appears belo based on an illustration in /aplan ; 8orton 1@@2. #%* ?s (alanced Scorecard Perspectives @uestions Goals Measurements ,ercent of sales from ne products. +n)time deliver! as defined b! the customer. Share of "e! account2s purchases. %ustomer Co do 8e products. customers see usD $esponsive suppl!. ,referred supplier.

%ustomer partnership. Technolog! capabilit!. *nternal usiness 3anufacturing 4hat must e e5cellence. e5cel atD 0esign productivit!. 8e product introduction. Technolog! leadership. %an e *nnovation continue to 9 learning improve ; create valueD

8umber of cooperative engineering efforts. 3anufacturing geometr! versus the competition. %!cle time, Enit cost and Field. Silicon efficienc! and &ngineering efficienc!. .ctual introduction schedule versus planned introduction. Time to develop the ne5t generation. ,ercent of products that e'ual AGH of sales. 8e product introduction versus the competition. %ash flo . =uarterl! sales gro th and operating income b! division. (ncreased mar"et share and $eturn on &'uit!.

3anufacturing learning. ,rocess time to maturit!. ,roduct focus. Time to mar"et. Survive.

Co do e Succeed. Financial loo" to shareholdersD ,rosper.

12. 0nited Methodist Pu lishing .ouse (alanced Scorecard .n e5ample of a scorecard developed for a non)profit organi1ation is illustrated belo based on a description provided in an article b! #ors!the, Bunch ; Burton 1@@@. Enited 3ethodist ,ublishing Couse Balanced Scorecard
Perspective Financial Goals Measurements ,roduce revenues sufficient to cover (ncrease in sales gro th in relation to e5penses and provide reserves for the target. future. .chieve corporate earnings percentage in relation to target. .chieve $+( b! each mar"et business

unit 6profit center) in relation to target. %ustomer 3aintain abilit! to attract and retain %ustomer satisfaction based on surve! customers. 'uestionnaire. +n time product development and deliver!. 3aintain an effective and efficient distribution s!stem. *nternal Process ,roduce high 'ualit!, cost effective products. 3aintain internal process effectiveness. 3easures not specificall! defined. 3easure of error rates on shipments. 3easures not specificall! defined. 3easures not specificall! defined.

+rganization *nnovation and )earning

3easures related to success in 3aintain infrastructure needed for producing ne products, pro>ects and long)term gro th and improvement. services. 3aintain staff competence. ?oals related to learning ) not specificall! stated. 3easures not specificall! defined. 3easures of learning not specificall! defined.

1!. Frame/ork &or an *S Scorecard The follo ing graphic provides a frame or" for developing a scorecard for the information s!stems function. #or an e5planation see the summar! of 3artinsons, 0avison ; Tse.

1'. %riticisms o& the (alanced Scorecard &rame/ork and ho/ it is used (ttner and -arc"er argue that most companies have apparentl! adopted boilerplate versions of nonfinancial measurement frame or"s such as /aplan and 8orton2s Balanced Scorecard, but seldom establish the cause and effect lin"ages bet een the measurements and desired outcomes. This allo s self)serving managers to chose and manipulate measurements solel! to enhance their o n earnings and bonuses. The! discuss four mista"es that companies ma"e hen tr!ing to measure nonfinancial performance and provide si5 steps to follo to do it right 6(ttner ; -arc"er 2GG3 summar!). Co ever, the BS% is more controversial than indicated b! (ttner ; -arc"er. Some researchers have been ver! critical of the balanced scorecard. #or e5ample, 8orre"lit builds a case against the balanced scorecard b! sho ing that it is not based on sound or logical arguments. (nstead, according to 8orre"lit, the BS% te5t 6i.e., the 1@@B boo") appeals mainl! to emotion and the authorit! of /aplan ; Carvard and is a conceptuall! unclear model that relies on attractive ad>ectives and e5tensive use of

analogies and unrestrained metaphors. (t is impressionistic and closel! resembles propaganda ith heavil! loaded ords, metaphors, iron!, e5aggerations, incoherence and a clima5. 68orre"lit summar!). .nother criticism relates to a concept developed b! $eill! and $eill! referred to as 9a measure net or"9. #rom their vie point the balanced scorecard is incomplete, and the lin"ages among measurements and bet een perspectives is not e5plicit. The use of a measure net or" is suggested as a better approach. 6$eill! ; $eill! summar!). 1-. Strategy GraphicsA Maps1 %anvases 9 4alue %urves Strategy Maps /aplan and 8orton e5tend the concepts related to the Balanced Scorecard in The Strategy-Focused Organization: How Balanced Scorecard Companies Thrive in the New Business nvironment. 6Summar!). Strateg! 3aps are combined ith Balanced Scorecards to provide a ne frame or" for describing and implementing strateg!. .ccording to /aplan and 8orton, a strateg! map is 9a logical comprehensive architecture for describing strateg!. (t provides the foundation for designing a Balanced Scorecard that is the cornerstone of a strategic management s!stem9 6p. 1G). Strateg! 3aps reveal the cause)and)effect lin"ages needed to transform intangible assets into tangible financial outcomes. Strateg! 3aps, if designed correctl!, ma! provide the solution to the problems discussed b! (ttner ; -arc"er mentioned in the section above. .n adaptation of the Balanced Scorecard ?eneric Strateg! 3ap appears is illustrated belo .

Strategy %anvases and 4alue %urves The strateg! canvases illustrated in several articles b! /im ; 3auborgne 61@@7, 1@@@ ; 2GG2) might provide a better a! to begin anal!1ing a compan!2s strateg!. . strateg! canvas sho s graphicall! ho an organi1ation2s strateg! 6represented b! the compan!2s value curve) is different from it2s competitors. The South est .irlines strateg! canvas belo conve!s the idea. .ccording /im ; 3auborgne, a value innovator also needs a strong tag line, e.g., for South est, 9The speed of the plane at the price of the car ) henever !ou need it9.

,erhaps, starting the strateg! anal!sis and development process ith strateg! canvases and value curves ould provide the basis for more effective strateg! maps and balanced scorecards. +ther 7elated %oncepts and "rticles 7elationship (et/een Strategy1 P)% and (S% Ca!es and 4heel right discuss the connection bet een a companies process life c!cle and product life c!cle and ho that relationship relates to strateg!. The insights provided b! these authors has some important implications for strateg! development and the design of a balanced scorecard. See the t o Ca!es ; 4heel right summaries in the reference section belo for more information. 8he (usiness #cosystem

The business ecos!stem described b! (ansiti and -evien provides another interesting concept related to developing strateg!. Briefl! the main idea is that a compan! needs to define the business environment or ecos!stem in hich it operates, and recogni1e the compan!2s position ithin the s!stem, to help determine hich strateg! to follo .