the Balanced Scorecard
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
The Balanced Scorecard
Management translates its strategy into
performance measures that employees
understand and accept.
Financial Customers
Performance
measures
Internal Learning
business and growth
processes
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
The Balanced Scorecard: From Exh.
10-11
Strategy to Performance Measures
Performance Measures
Financial What are our
Has our financial financial goals?
performance improved?
Customer What customers do Vision
we want to serve and
Do customers recognize that how are we going to and
we are delivering more value? win and retain them? Strategy
Internal Business Processes What internal busi-
Have we improved key business ness processes are
processes so that we can deliver critical to providing
more value to customers? value to customers?
Learning and Growth
Are we maintaining our ability
to change and improve?
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
The Balanced Scorecard:
Non-financial Measures
The balanced scorecard relies on non-financial measures
in addition to financial measures for two reasons:
Financial measures are lag indicators that summarize
the results of past actions. Non-financial measures are
leading indicators of future financial performance.
Top managers are ordinarily responsible for financial
performance measures – not lower level managers.
Non-financial measures are more likely to be
understood and controlled by lower level managers.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
The Balanced Scorecard for Individuals
The entire organization Each individual should
should have an overall have a personal
balanced scorecard. balanced scorecard.
A personal scorecard should contain measures that can be
influenced by the individual being evaluated and that
support the measures in the overall balanced scorecard.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
The Balanced Scorecard
A balanced scorecard should have measures
that are linked together on a cause-and-effect basis.
If we improve Another desired
Then
one performance performance measure
measure . . . will improve.
The balanced scorecard lays out concrete
actions to attain desired outcomes.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
The Balanced Scorecard
and Compensation
Incentive compensation
should be linked to
balanced scorecard
performance measures.
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
The Balanced Scorecard Exh.
10-13
Jaguar Example
Profit
Financial
Contribution per car
Number of cars sold
Customer
Customer satisfaction
with options
Internal
Business Number of Time to
options available install option
Processes
Learning Employee skills in
and Growth installing options
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
The Balanced Scorecard
Jaguar Example
Profit
Contribution per car
Number of cars sold
Customer satisfaction Results
with options Satisfaction
Increases
Strategies
Increase Number of Time to
Options options available install option Time
Decreases
Increase Employee skills in
Skills installing options
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
The Balanced Scorecard
Jaguar Example
Profit
Contribution per car
Results
Cars sold
Number of cars sold Increase
Customer satisfaction
with options Satisfaction
Increases
Strategies
Increase Number of Time to
Options options available install option
Employee skills in
installing options
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
The Balanced Scorecard
Jaguar Example
Results
Profit
Contribution per car Contribution
Increases
Number of cars sold
Customer satisfaction
with options
Number of Time to
options available install option Time
Decreases
Strategies
Increase Employee skills in
Skills installing options
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
The Balanced Scorecard
Jaguar Example
Results
Profit Profits
Increase
If number
Contribution per car Contribution
of cars sold Increases
and contribution
per car increase, Number of cars sold
profits
increase. Customer satisfaction
with options Satisfaction
Increases
Strategies
Increase Number of Time to
Options options available install option Time
Decreases
Increase Employee skills in
Skills installing options
McGraw-Hill/Irwin Copyright © 2006, The McGraw-Hill Companies, Inc.
Advantages of Graphic Feedback
Tim e to Install an Option
35
Time to Install in Minutes
30
25
20
15
10
5
0
1 2 3 4 5 6 7 8 9 10
Week
When interpreting its performance, Jaguar will look for
continual improvement. It is easier to spot trends or
unusual performance if this data is presented graphically.
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