The Balanced Business Scorecard

In this issue of the Oisin e-Newsletter we take a look at The Balanced Business Scorecard, a measurement and management system that successfully integrates the collection and use of key financial and non-financial information impacting business performance.

In the article entitled, “The Balanced Scorecard – measures that drive performance” the authors, David Norton and Robert Kaplan, argue that the traditional management methodology of basing decisions strictly on financial information is not sufficient in today’s marketplace where important intangible aspects such as customer loyalty and innovation exert a substantial influence on business success. While financial data does indicate how well a business has been performing economically, it is severely limited it its ability to reveal how a given economic performance has been achieved; it does not tell you what the company is doing right and what it is doing wrong.

In this now famous article, Norton and Kaplan introduced a measurement and management tool that incorporates the use of non-financial information required in order to understand the inner workings of organisations and drive significant improvements. They termed this tool the Balanced Business Scorecard.

In the original design, the Balanced Business Scorecard consisted of four views of the business: Financial Perspective, Customer Perspective, Internal Business Perspective and Innovation and Learning Perspective. Each of these views tracked a number of key drivers that govern business performance, giving a more accurate picture of what is happening in the business and thus allowing more strategic decisions to be made.

Some organizations have since added a fifth area, or replaced one of the four perspectives with one that uniquely reflects their business. For example, some have added an environmental dimension to their scorecard. However, the four perspectives described by Kaplan and Norton are generally applicable in a wide range of organisations and form an excellent starting point for the development of a Balanced Scorecard approach. The challenging part is fine tuning this structure so that the resulting model reflects what is most important to a particular business

The following are some examples of components that might be included within each perspective:

Financial Perspective:

• Revenue Growth
• Asset Utilization
• Average Selling Price
• Profitability

Customer Perspective:

• Customer Retention
• Customer Satisfaction
• Growth in a Particular Customer Segment

Internal Business Perspective:

• Profitability by Market Segment
• Percent of Revenue from New Products
• Percent of Revenue from New Customers
• Number of Deliveries during which a Related Product or Service is Cross-Sold

Learning and Growth Perspective:

• Employee Capability
• Employee Satisfaction (involvement, recognition, access to information, support from staff functions, etc.)
• Productivity (revenue per employee, return on compensation, profit per employee, etc.)
• Employee Alignment

According to Kaplan and Norton, the actual process of creating and implementing a business scorecard in an individual organisation consists of four management processes:

1. Aligning around the Vision: This involves managers building a consensus of opinion about the vision and strategy of the organisation. This stage also involves the translation of that vision into operational terms that can be understood and used at a local level within the enterprise.

2. Communicating and Linking: This integrates the organisation in terms of personal goals, team objectives and corporate strategy.

3. Business Planning: This is particularly intended to ensure that initiatives do not conflict with one another for time, energy or resources. In this phase, strategic initiatives are aligned with one another, targets set, milestones established and resources allocated.

4. Feedback and Learning: This phase establishes a feed-back loop to phase 1. Thus these four phases should not be seen as one-off exercises but rather as an ongoing management practice.

If you would like assistance in developing and implementing a Balanced Business Scorecard that reflects the particular strategic direction of your business, please contact one of our consultants on 61-3-9818-5667.

Public Program: Keys to Transformational Coaching

28 and 29 July, Richmond, Victoria

Oisin is proud to announce our next public program for the 2003 season: Keys to Transformational Coaching. This very popular two day program will be held on 28 & 29 August in Richmond, Victoria. The aim is to introduce participants to the concept of transformational coaching and to help them develop advanced coaching skills. These skills can be used to achieve extraordinary results both within their organisations and in their personal lives.

This Program is Suitable for:

• Senior leaders
• Managers
• Organisational development professionals
• Any person who seeks to drive high performance within their organisation

Program Overview: Putting Transformational Coaching in Context

Coaching is a process that enables individuals, teams and organisations embrace the current dynamic business environment and experience transformational change. It involves interacting with people in a way that shows them how to transform or stretch their vision, values and abilities and produce spectacular results in their lives and in their organisations.

Topics to be Covered in this Two-day Program:

• Current trends
• Coaching in the business context
• Building an in-depth understanding of coaching
• Critical coaching skills
• Facilitating the coaching conversation
• Managing each phase in the coaching process
• Assessment models
• Providing feedback
• Facilitating breakthrough thinking
• Managing the psychological framework
• Developing ourselves as coaches

Dates: 28 and 29 August 2003

Location: Fenix Conference Centre, 680 - 682 Victoria Street, Richmond, Victoria

Cost: $1175.00 (plus G.S.T.) - *groups of 3 people or more attract a discount

Booking Info: 61 3 9818 5667 or booking@oisinsuccess.com

www.benchmarking.org

www.benchmarking.org is the virtual home of The Benchmarking Exchange, an organisation started by a group of benchmark experts from Amdahl, Ameritech, AT&T, Dupont, EDS, GM, IBM and Pacific Bell. This site offers information on how to implement and measure quality and process improvements within organisations, and provides on-line tools to facilitate the achievement of these tasks.

Some of the on-line resources available from The Benchmarking Exchange include:

• Self assessment and diagnostic tools providing users with the ability to measure themselves, real-time against a number of well regarded criteria sets (e.g., Australian Quality Award (AQA), European Quality Award, the Malcolm Baldrige National Quality Award (MBNQA))

• A survey service where companies can design and solicit answers to their specific questionnaires and have the responses collected, collated and presented back to them via email.

• Electronic posting boards where queries regarding specific issues of interest can be displayed to more than 44,000 global fellow members.

Good to Great – Why Some Companies Make the Leap…and Others Don’t

What makes a great company and how is greatness achieved? In his book, “Good to Great” Jim Collins investigates the factors than enabled eleven US companies to make the transition from being solid companies to being perennial market powerhouses.

In Collins’s case study, companies that successfully made the leap to greatness shared three common experiences: They performed at or below the general stock market for at least fifteen years, then each, at a transitional point began to pull away from the competition, and finally, each company sustained returns of at least 3 times the general market for the next fifteen years.

In his book, Collins identifies and gives an in-depth analysis of a number of key elements that made it possible for these companies to achieve such impressive results, including:

• Leadership - characterised by humility plus a relentless pursuit of excellence

• The right people - when you know you need to make a people change, do so

• Truth - do not cover up bad news, seek out the truth so that people can learn and improve

• Simplify complexity - discern the fundamental economic driver of the business

• A culture of discipline - disciplined people, disciplined thinking, and disciplined action

To understand how to implement the lessons learned by the most successful companies grab a copy of “Good to Great - Why some companies make the leap and others don’t”. A worthy read for any leader seeking to drive organizational performance.