BALANCED SCORECARD: AS A METHOD FOR PERFORMANCE ASSESMENT

1. BALANCED SCORECARD: AS A METHOD FOR PERFORMANCE ASSESMENT Semih AKKERMAN Murat ALTUN

2. Agenda Strategic PlanningConsciousness, Failure and Incredible Facts Performance Measurement Balanced Scorecard The Aim for Using BSC Applying of BSC step by step Case Studies

3. Strategic Planning Consciousness Do you really think that the executives look like they are conscious about strategic planning ?

4. Incredible Facts • Most of the workforce does not understand their company’s strategy.

5. Incredible Facts Most of the managers don’t have incentives linked to strategy.

6. Incredible Facts • Organisations don’t have ability of linking their budgets to strategy.

7. Incredible Facts • Executive teams don’t spend enough time for discussing strategy.

8. Strategic Planning Failure Paul R. Niven declaration about strategic failure; • Vision barrier • People barrier • Resource barrier • Management barrier

9. Performance Measurement “ I often say that when you can measure what you are speaking about, and expressit in numbers, you know something about it; but when you cannot measure it,when you cannot express it in numbers, your knowledge is of a meager and unsatisfactory kind. ” William Thomson Kelvin “If you can’t measure it, you can’t manage it.” “If you can’t measure it, you can’t improve it.” Robert Kaplan and David Norton

10. Initial Step Toward Balanced Scorecard General Electronics(1955) conducted a project to develop performance measures for GE’s decentralized business units: Profitability Market share Productivity Product leadership Public responsibility Personnel development Employee attitudes Balance between short-range and long-range objectives

11. Initial Step Toward Balanced Scorecard Not worked: corporate pressure for short-term profits led unit managersto compromise long-term objectives and their public responsibilities

12. Prominent Step Toward Balanced Scorecard:Japanese Management Movement (1975-1990) • Japanese innovations in quality and just-in time production (such as Total Quality Maagment,Just in Time,Short Cycle Time) shoke Western leadership in many industries. • US corporations had become obsessed with short-term financial measures and had failed to adapt their managementaccounting and control systems to the operational improvements from successful implementationof total quality and short-cycle-time management. Because, traditional western performance measurement are short term and financial performance oriented

13. Managing with information from financial accounting systems impedes businessperformance today because traditional cost accounting data do not track sourcesof competitiveness and profitability in the global economy. Cost information, perse, does not track sources of competitive advantage such as quality, flexibilityand dependability. […] Business needs information about activities, notaccounting costs, to manage competitive operations and to identify profitable products. (Johnson, 1980, 44-5).

14. Steps Toward Balanced Scorecard The US Government introduced Malcolm Baldrige National Quality Award in 1987 to promote quality awareness, recognize quality achievements, and publicize successful qualitystrategies. The initial set ofBaldrige criteria: • financial metrics (profits per employee), • customer-perceived quality metrics (market cycle time, late deliveries), • internal process metrics(defects, total manufacturing time, order entry time, supplier defects) and • employee metrics (training per employee, morale).

15. Mother of Balanced Scorecard • Asemiconductor company, Analog Devices described how executives at the top of the organization benefited from seeing nonfinancial informationand introduced a highly successful quality management system, which included an innovative quality improvement metric. • Analog’s vice president, an experienced Baldrige Award examiner,translated the Baldrige criteria into an internal corporate scorecard for his executive team. • The scorecard includes: • high-level financial metrics • customer quality metrics, such as on-time delivery, lead time, and customermeasureddefects • manufacturing process metrics, such as yield, part-per-million defect rates, and cycle times • employee metrics, such as absenteeism and lateness.

16. Balanced Scorecard Kaplan and Nortan (1992) developed a superior performancemeasurementtoolcalled Balanced Scorecard that uses both financial and non-financial measures for long-term performance. Four Perspective of Initial BSC

17. Balanced Scorecard After implementation of tool and feedback of BSC users (1993), Balanced Scorecard is not only measuremet system but also a core of management.BSC depends on management whether to be a record keeping instrument or a tool to focus on strategy to enchance organizational performance. (Larry D. Brady,FMC Corporation) Therefore,measures on balanced scorecard must be specifically designed to fit firm’s vision, mission,strategy, technology, and culture.

18. Balanced Scorecard Short term actions with long-term strategies? an improved measurement system to core strategic management system

19. Balanced Scorecard with Balance Scorecard link

20. Strategic Map in Balanced Scorecard Describe the cause-effect relationships between strategic objectives

21. Strategic Management System • Mobilize change through executive leadership • Translate the strategy into Operational Terms • Align the organization to the strategy • Motivate employees to make strategy their everyday job • Govern to make strategy a continual process

22. Balanced Scorecard

23. Balanced Scorecard The balanced scorecard is centered on four performance metrics or perspectives: • Customers • Internal processes • Financial • Learning and growth When implemented properly, each one of theseperspectives contains four subparts consisting of • Objectives - what the strategy is to achieve in that perspective • Measures - how progress for that particular objective will be measured • Targets - refer to the target value that the company seeks to obtain for each measure • Initiatives - what will be done to facilitate the reaching of the target

24. Balanced Scorecard The term “scorecard” signifies quantified performance measures and “balanced” signifies the system is balanced between: • Short-term and long term objectives • Financial and non-financial measures • Lagging and leading indicators • Internal and external performance perspectives

25. BSC for Non-Profit Organization

26. The Aim for Using BSC Statistical data taken from Bain & Company Guide;

27. The Aim for Using BSC Organizations use BSC mainly because; • Clarifying strategy and standing as the basic guideline • Describing strategic position and directions schematically • Including statements about strategic objectives and annual budget • Standing as the link between key component for reaching the long term target • Making any strategic upgrades possible and easy • Presenting the key elements in business strategy

28. The Aim for Using BSC Organizations use BSC mainly because; • Allocating resources in the most efficient manner • Simplifying the understanding of strategy • Giving advantage of comparing performance of different business units in the same framework

29. Applying of BSC Wallace’s three phases; • Phase 1: The Strategic Foundation • Phase 2: The Critical Components • Phase 3: Deployment

30. Applying of BSC Phase 1: The Strategic Foundation Step 1: Strategic Allignment • Determination of a clearly defined strategy, objective and target • Telling people what to do (objective) and what is expected (target)

31. Applying of BSC Examples; • Thanks to new drilling machines, we will increase the ratio of winning soil work tenders by %50 in next 10 years. • The time consumed for training employeeswill be decreased by %50 up to New Year through the implementation of new staff trainee software system. • We will decrease the cost and the time consumed up to % 15 through the implementing of new mobile concrete mixing equipment and the income will increase by % 20 in 6 months.

32. Applying of BSC Phase 1: The Strategic Foundation Step 2: Communicating the Plan • Transmitting the information by using appropriate communicating tools

33. Applying of BSC Examples; • Presentations, handouts or meetings for Executive Members • E-mail, newsletters or town hall meetings for Employees • Team meetings or Status memos for Project Teams

34. Applying of BSC Phase 1: The Strategic Foundation Step 3: Strategic Areas • Analyzing more than one perspective in one framework Four main ares frequently used by managers; • Financial • Customer • Process • Employee’s learning and growth

35. Applying of BSC Other areas used depending on the business; • Efficiency • Safety • Innovation Or • Philantrophy

36. Applying of BSC Examples;

37. Applying of BSC Phase 1: The Strategic Foundation Step 4: Strategic Grids • Connecting all the strategic objectives together within the light of determined strategic goal. • Investigation of the factors determining the strategy one by one

38. Applying of BSC Example;

39. Applying of BSC Phase 2 : Three Critical Components Step 5: Measurements • Determining whether the organization moves to the target or not

40. Applying of BSC Wallace suggestions; • Ability of being linked with a strategic objective • Being repeatable • Standing as the indicator of long term targets or performance • Being accountable, reliable, verifiable and accurate • Being available when needed

41. Applying of BSC Phase 2 : Three Critical Components Step 6: Targets • Association of measurements with reasonable targets for achieving the performance improvement

42. Applying of BSC Examples;

43. Applying of BSC

44. Applying of BSC Phase 2 : Three Critical Components Step 7: Programs • Tools used for achieving the strategic objective

45. Applying of BSC Phase3: Deployment Step 8: Launch • Performing of last checks • Feedback request and evaluation

46. Applying of BSC The functionality of BSC lives with the absolute adoptance by audience!

47. Case Studies

48. Case:Private SectorBalanced Scorecard for Insurance Companies in Turkey

49. Case:Private SectorBalanced Scorecard for Insurance Companies in Turkey Too many measures decreases the efficiency of BSC !!!

50. Case :Private SectorBalanced Scorecard for Insurance Companies in Turkey Efficient Balanced Scorecard