The balanced scorecard was developed to communicate the multiple linked objectives that companies must achieve to compete on the basis of capabilities and innovation, not just tangible physical assets. The balanced scorecard translates an organization’s mission and strategy into a set of performance measures that provide the framework for implementing its strategy. It is called the balanced scorecard because it balances the use of financial and non-financial performance measures to evaluate performance. It is a business performance scorecard. The balance sheet scorecard, starts at the highest level of the business with the overall mission and vision of the business and considers financial and non-financial aspects as equally important. And also, focuses on the key performance indicators (KPIs) and looks at them from four financial perspectives. They are:
Financial Perspective
Customer Perspective
Internal business process perspective
Learning and Growth Perspective
Finance Perspective.
A balanced scorecard retains the financial perspective since financial measures are valuable in summarizing the readily measurable economic consequences of actions already taken. Financial performance measures indicate whether the company’s strategy implementation and execution are contributing to bottom-line improvement.
Typically related to profitability measured, for example, by operating income, return on capital employed, economic value added, rapid sales growth, and generation of cash flow.
Customer Perspective.
Managers identify the customer and market segments in which the business units will compete and the measures of the business unit’s performance in these targeted segments. This typically indicates several core and generic measures of the successful outcomes of a well-formulated and implemented strategy. The core outcome measure includes customer satisfaction, customer retention, new customer acquisition, customer profitability, and market share in targeted segments. Previous measures may appear to be generic for all types of organizations. For transacting a particular strategy, however, they should be customized to the targeted customer groups from whom the business units expect their greater growth and profitability to be derived.
Customer attributes:
Products and service attributes
Customer relationship
Image and reputation
Internal business process perspective
The executive will identify the critical internal processes in which the organization excels. The critical internal business processes enable the business unit to:
Deliver the value propositions that will attract and retain customers in targeted market segments.
Satisfy shareholder expectations that will attract and retain customers in targeted market segments.
Internal business process measures focus on the internal business processes that will have the greatest impact on customer satisfaction and achieving the organization's financial objectives. Each business has unique processes for creating value for customers and producing financial results.
Innovation Operation Post-Sale the service
Cycle Cycle Cycle
Innovation Cycle:
The innovation process represents the "long wave" of value creation in which companies first identify and nurture new markets, new customers, and the emerging and latent needs of existing customers. In addition to surveying existing and potential customers, this segment could also include imagining entirely new opportunities and markets for the products and services that the organization could supply.
Operation Cycle:
Existing products and services are produced and delivered to customers. The operations process represents that short wave of value creation in organizations. The operation process starts with the receipt of a customer order and ends with the delivery of the product or service to the customer.
Post-sale service cycle:
A post-sale service includes warranty and repair activities, treatments for defects and returns, and the processing and administration of payments. Some companies have explicit strategies to offer superior post-sales services.
E.g., companies that sell sophisticated equipment and systems may offer training programs for customers.
Learning and growth perspective
Identifies the infrastructure that the organization must build to create long-term growth and improvement. Businesses are unlikely to be able to meet their long-term targets for customers and internal processes using today’s technologies and capabilities. Intense global competition requires that companies continually improve their capabilities for delivering value to customers and shareholders.
Principle sources of learning and growth
People
Systems
Organizational Procedures
Horizontal Balanced Scorecard – Balance between different shareholders.
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