Balanced Scorecard Framework

BALANCED SCORECARD FRAMEWORK Objectives, Measures, Targets, and Initiatives Within each of the Balanced Scorecard financial, customer, internal process, and learning perspectives, the firm must define the following: • • • • Strategic objectives - what the strategy is to achieve in that perspective. Measures - how progress for that particular objective will be measured. Targets - the target value sought for each measure. Initiatives - what will be done to facilitate the reaching of the target. The following sections provide examples of some objectives and measures for the four perspectives. Financial Perspective The financial perspective addresses the question of how shareholders view the firm and which financial goals are desired from the shareholder's perspective. The specific goals depend on the company's stage in the business life cycle. For example: • • • Growth stage - goal is growth, such as revenue growth rate Sustain stage - goal is profitability, such ROE, ROCE, and EVA Harvest stage - goal is cash flow and reduction in capital requirements The following table outlines some examples of financial metrics: Objective Specific Measure Growth Revenue growth Profitability Return on equity Cost leadership Unit cost Customer Perspective The customer perspective addresses the question of how the firm is viewed by its customers and how well the firm is serving its targeted customers in order to meet the financial objectives. Generally, customers view the firm in terms of time, quality, performance, and cost. Most customer objectives fall into one of those four categories. The following table outlines some examples of specific customer objectives and measures: Objective Specific Measure New products % of sales from new products Responsive supply Ontime delivery To be preferred supplier Share of key accounts Customer partnerships Number of cooperative efforts Internal Process Perspective Internal business process objectives address the question of which processes are most critical for satisfying customers and shareholders. These are the processes in which the firm must concentrate its efforts to excel. The following table outlines some examples of process objectives and measures: Objective Specific Measure Manufacturing excellence Cycle time, yield Increase design productivity Engineering efficiency Reduce product launch delays Actual launch date vs. plan Learning and Growth Perspective Learning and growth metrics address the question of how the firm must learn, improve, and innovate in order to meet its objectives. Much of this perspective is employee-centered. The following table outlines some examples of learning and growth measures: Objective Specific Measure Manufacturing learning Time to new process maturity Product focus % of products representing 80% of sales Time to market Time compared to that of competitors 8. Sample Generic Scorecard Perspectives Customer Goals Objectives Continuously improve Decrease lead time.* customer satisfaction. Increase on time delivery. Reduce customer complaints. Internal Business Financial Average lead time.* Percentage of deliveries on time. Number of customer complaints. Continuously improve Decrease cycle time** Average cycle time.** business processes. Increase quality. Number of defects and number of items reworked. Increase productivity. Innovation & Learning Measurements Average output per employee. Continuously develop Increase sales of new and deliver new products and services innovative products & services. Reduce development time. Percentage of sales obtained from new products & services. Continuously improve Decrease costs. financial performance. Increase sales growth Average unit costs. Increase market share Company's market share. Increase return on investment. Return on investment. *Lead time is the time from order receipt to delivery. ** Cycle time is the time from the start of a process to completion. Average time from initial design to production. Growth rate in sales.