BSC?
a tool that uses financial and non-financial info, in an integrated and holistic way to assist managers to map out and aim for strategic goals
what does the BSC do?
• Traditionally MA focused mainly on financial performance measures. • Greater emphasis now being given to incorporating non-financial measures into the formal reporting system.
Two features of the BSC?
- Hollistic - adopts a broad perspective of business activity, across multiple functions and through different levels of organisational hierarchy. 2. Integrated - any one perspective of organisational activity (e.g. financial performance) is not to be viewed independently of alternative aspect of organisational activity (e.g. customer related).
4 perspectives to the BSC? and what do they mean?
- Financial perspective - how do we look to shareholders? 2. Customer perspective - how do customers see us? 3. The Internal business perspective - what must we excel at? 4. The Learning and growth perspective - can we look to excel and create value?
what are each of the 4 perspective broken in to? and what do they mean?
objectives should be translated into specific performance measures (for the above objectives), targets (using the performance measure) and initiatives (to try and achieve the target). * so set objectives, then performance measures, targets and initiatives
what does the financial perspective look at?
shows financial performance objectives of an org as a result of its strategy
explain the parts of the financial perspective objective of lower costs of production
performance measure - % cost per unit of prod. target - 10% fall in unit costs of prod. initiatives - place restrictions on overtime hours worked.
what is the customer perspective?
This is a focus for the organisation on its markets and its customers.
What is there an integration for customer perspective and why?
assumed integration between this and any revenue related elements of the financial perspective. as if customers more satisfied they can buy more.
explain the parts of the customer perspective objective of increase market share
performance measure - % market share target - 20% increase in market share initiatives - increase in advertising
what is the internal business perspective? where may integration exist?
This looks at what a business must do well internally to attain its strategic goals. Integration exists as if improve internal process can get positive result on financial or customer.
What does kaplan and norton break the internal business perspective in to?
Process value chain: 1. The innovation process - - This refers to how an org identifies new products or services to engage with or new markets and customers to attract 2. the operation process - This refers to the part of the value chain which entails producing and delivering goods and services to an organisations customer 3. The post sales service process. - This looks at an organisations performance in relation to customers after products or services have been traded * note each of the above will have their own objectives, performance measures, targets and initiatives.
what does the learning and growth perspective look at?
This perspective focuses an organisation and its employees on its continual learning and resource capabilities.
explain the parts of the LEarning and growth perspective objective of reducing employee turnover?
pm - % annual turnover of staff target - 10% fall intiative - intro profit related bonuses.
what is the cause and effect relationship
It is assumed Cause and effect relationships exist among and through the four perspectives. Cause and effect relationship defines where a particular outcome has occurred due to a particular happening.
who said it was difficult to map cause and effect relationship and why
Norreklit - risky and potentially misleading for Decision Making.
types of performance measures? why important?
CIMA: Lagging measures • These are also known as outcome measures • “an indicator of performance that measures how we performed” - website Leading measures • These are also known as performance drivers. • “an indicator of performance that might predict future success” - internet ALL CO’S SHOULD INCLUDE BOTH LAG AND LEAD MEASURES IN THEIR PERFORMANCE MEASURES.
+VE aspects of BSC?
- cause and effect relationships between performance outcomes and their drivers exist.
- Managers can see what business areas need to be done well in order to reach org goals in future.
- It translates org strategy into meaningful measures which further augment communication of strategy among managers and workers.
- Potentially brings together aspects of what makes an organisation tick, and what helps an org achieve its goals into one report.
- BSC will contain multiple objectives that can help an org reach its goals.
- BSC captures all aspects of an org in one place and highlights the interconnections and possible knock on effects of the different aspects.
* i. In the past these aspects would have been reviewed independently by a company and it would therefore have been harder. - It interconnects each perspective and focuses on each perspectives objectives, measures, targets and initiatives, meaning it is a tool that guides managers from strategic aims in to real practice.
-VE aspects of BSC?
- assumed cause and effect relationships can be misleading and encourage poor decision making. E.g. customer perspective, think that customer satisfaction is a lead indicator for financial success. But customer satisfaction only lead indicator for this for profitable customers who remain customers in the long run
2. importance of performance measures can change over time
3. Timeliness - There is no time dimension in this model. Lead measures do not occur at the same point in time. How do you know when customer perspective effect financial then?
4. Confusion - In BSC there is set of objects/performance measures etc. spread across diff levels of the org. So there may be measures at top strategic decision-making level but their connected measures are at the lower operational level of org activity
5. Design problems -
- There is no best template to design or implement a BSC. They are easier to design than implement and use. For e.g. some companies find it hard to get useful and accurate performance measures info (especially for non-financial info).
- Org’s often find it hard to ID cause and effect relationships which in turn can undermine the aim to capture the range of org activities and their interconnectedness.
