Part I - Intro to Performance Measurement and the Balanced Scorecard Chapter 1 - Perfomance Measurement and the Need for

a Balanced Scorecard BSC treats two fundamental issues - effective perfomance measurement - Successful strategy implementation Financial Measurement Limitations Not consistent with today's business realities Driving by rearview Mirror Tend to reinforce functional silos Sacrifice long-term thinking Not relevant to many levels of the organization

What we need is a method for balancing the accuracy and integrity of our financi al measures with teh drivers of future financial perfomance of the organization. If strategy formulation is difficult its implementation is even more complicated . Barriers to Strategy Execution - The Vision Barrier - Only 5% of employees understand the strategy - People Barrier - Only 25% of managers have Incentives linked to strategy - Management Barrier - 85% of Executive teams spend less than one hour per month discussing strategy - Resource Barrier - 60% of organtizations don't link budgets to strategy BSC Origins of the BSC developed by Kaplan and Noton in 1990 where they led a research study of a dozen companies exploring new methods of performance management Being used not only to complement financial measures but also communiciate strat egies through the measures selected for their BSC. Adopted at 50% of Fortune 1000 One of the 75 most influential ideas of the 20th century by Harvard Business Rev iew Financial measures - lag indicators - outcomes of actions taken previously lead indicators - drivers of future economic performance These indicators are derived from the strategy devised by the company The balanced scorecard translates the vision and strategy of an organization by providing a framework that tells the story of the organization though the object ives and measures chosen BSC perspectives Financial - To succeed financially, how should we appear to our shareholder? Customer - To achieve our vision, how should we appear to our customer? Who are our target customers? What is our value proposition in serving them (Operational Excellence - Walmart, Product leadership - Nike, Customer intimacy - Nordstrom) ?

Internal Perspectives - To satisfy our shareholders and customers, what business process must we excel at? Learning and Growth - To achieve our vision, how will we sustain our ability to change and improve? BSC as an strategic management system - Overcoming the vision barrier through the translation of Strategy - Cascading the scorecard overcomes the people barrier - Strategic Resource Allocation overcomes the Resource Barrier