A Balanced Scorecard

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A

Balanced Scorecard

with

VISION

A Vision International White Paper

Vision International A/S Aarhusgade 88, DK-2100 Copenhagen, Denmark Vision International A/S Aarhusgade 88, DK-2100 Copenhagen, DenmarkVision International A/S Aarhusgade 88, DK-2100 Copenhagen, Denmark Vision International A/S Aarhusgade 88, DK-2100 Copenhagen, DenmarkVision International A/S Aarhusgade 88, DK-2100 Copenhagen, Denmark

Phone +45 35430086 Fax +45 35434646 Phone +45 35430086 Fax +45 35434646Phone +45 35430086 Fax +45 35434646 Phone +45 35430086 Fax +45 35434646Phone +45 35430086 Fax +45 35434646

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1. Introduction

Balanced Scorecard is currently one of the hottest subjects in management. Everyday new articles, viewpoints, seminars and products occur in the media. In this paper we will share some of our views on and experiences with the management framework. Specifically we will focus on imple-menting a Decision Support System to support the Balanced Scorecard based on a flexible standard application.

The term “ The Balanced Scorecard “ - referred to as BSC - was introduced in 1991 by Robert S. Kaplan and David P. Norton and is well documented in their book of same name, which has become the bible for successful organizations all over the world. They introduced the Balanced Scorecard as a management tool, that converts visions and strategies to measurable targets, communicats strategic intent and measures performance in key areas of the business.

Kaplan & Norton’s message is: Measures That Drive Performance

What you measure is what you get. Senior executives understand that their organization’s measure-ment system strongly affects the behavior of managers and employees. Executives also understand that traditional financial accounting measures like return-on-investment and earnings-per-share can give misleading signals for continuous improvement and innovation activities today’s competi-tive environment demands. The traditional financial performance measures worked well for the industrial era, but they are out of step with the skills and competencies companies are trying to master today.

The BSC gives a much broader picture of organizations performance than traditional financial systems. Most of all it looks forward rather than to traditional financial reporting that documents the past, a good BSC tells management much more about what to expect of the future.

Thanks to PC’s, networks, Intranets and Internet its now possible to immediately identify any de-viation at any level in the organization and communicate it instantly. This very efficient combina-tion is what makes BSC so valuable to management in a broad sense and a driving force behind why so many organizations invest in developing a BSC.

The idea behind the BSC concept is really quite simple: No single fact or key indicator can reveal where the organization is headed in relation to the overall strategy. An organization must develop a balanced model, that focuses on the internal and external indicators as well as the related perform-ance drivers and outcome measures, which describe the cause-and-effect relationships behind the strategy.

Critical success factors can be personnel retention, sickness rate, revenue growth, profits, customer service, product sales mix, customer loyalty, production time and many others.

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The BSC includes 4 perspectives – that may be modified for the individual organization. These perspectives give a balanced picture of the present and future reality.

2. Balanced Scorecard

Based on our experiences, the following requirements must be met when implementing a Balanced Scorecard solution:

1. Strategy Documentation 2. Flexibility

3. Data Availability 4. Visibility

5. Adjustment to Individual Requirements 6. Data security

7. Analytical Facilities 8. Fast Implementation

Let’s take a closer look on these challenges, and discuss some ideas about how a BSC could look in your company.

2.1 Strategy Documentation

One of the main purposes with the BSC is to communicate the organizations strategy to all employees. A BSC must document how each measure on a lower level relates to the overall strategy.

In figure 1 we illustrate how strategies and measures are related. The organizations overall strategy is broken down to objectives which again are broken down to measures for e.g. business area, department, group or individual level.

Financial Perspective

Measure the ultimate results that the company provides to its shareholders. Customer Perspective

Focus on customer needs and satisfaction as well as market share. Internal Perspective

Focus attention on the performance of the key internal processes driving the business.

Learning and Growth

Direct attention to the basis of all future success – the organization’s people and infrastructure.

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Figure 1

This is a very generic view, that in reality can be implemented in many ways. As an example from a BCS implemented by Vision International A/S, figure 2 is widely used within the company to visualize the connection between a measure and the overall strategy.

Figure 2

Organization level

Business area level

User level

Strategy

Objectives

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2.2 Flexibility

The work of breaking down a strategy to useful measures is a complicated and dynamic process that never ends.

It is a true challenge to find the right measures. One measure believed to be an important one might end up being a derived indicator. For example a strategic target such as “ employee satisfaction “ could the measure “ employee retention “ could be a derived trend, while “ sickness and absentee “ may be a much better measure.

It is very important to recognize that as the business environment constantly changes, so must the strategy and the targets of the organization.

The BSC solution must be able to handle this dynamic environment. This means being able to easily change existing measures as well as adding new ones. It should be equally easy to change design and add new analysis and reports.

2.3 Data Availability

Any BSC should be able to re-use existing data from the organizations different operational system, thus data needs to be entered only once. It is important to note, that although reuse of data is important, it should not lead to limitations for which measures are chosen. There has to be a willingness to use resources on manual data input and maintenance of data – like data from external sources – or it will be almost impossible to design a BCS that works.

As a starting point it is necessary to collect, cleanse, and manipulate relevant data from the operational systems into a Data Warehouse. This task could end up being the by far largest resource load during the implementation. We strongly recommend that as part of a BSC implementation, that an efficient tool for Data Warehouse implementation and administration are being used.

Even a well-designed Data Warehouse will probably not cover more than 80% of the data needed for the BSC. The missing data must be collected and maintained manually.

2.4 Visibility

The BSC solution must be very visible to ensure the wanted effect:

n In order to influence the employees the BSC must be communicated as an integral part of the organizations identity.

n To ensure the needed data discipline any employee that feeds data to the solution must be able to see what the data is used for.

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In principle, a BSC must be available for all employees, hundreds or even thousands of users. This means the BSC must support:

n A consistent and easy to use user interface

n Distribution methods that are easy to maintain like Internet/Intranet

2.5 Adjustment to Individual Requirement

Obviously different employees have different focus areas. It must be possible to choose different measures on the different organizational levels. A top manager might be interested in measures like “ Company recognition” while an employee in the sales department might want to follow “ Number of New customers”.

Any employee should be allowed to compose his personal BSC, one that both holds overall organization measures as well as measures for the department, the function or even for the employee himself. It should also be possible to compose a BSC of measures from across the organization like “ New Customers “ in all divisions.

As an illustration figure 3 shows a BSC for a person in top management while figure 4 shows the BSC for an employee in the service department.

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Figure 4

2.6 Data security

Data in a BSC will often include confidential data and there may be good reasons to limit access to employees only to certain data. Potentially this can cause conflicts in analysis like benchmarking across organizational levels, that demands for a flexible security system, where it is possible to set up individual security profiles.

A flexible security system is needed so some employees have full access to all data, others have access to certain levels, certain measures or even certain products.

2.7 Fast implementation.

Flexibility in a chosen Balanced Scorecard application greatly enhances the chance of success, e.g.

n A BSC implementation needs to involve the whole organization from the start and does not leave time for experiments.

n Most time is spent defining the indicators and finding the relevant data, which is more important than using resources on design and test of the solution.

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2.8 Analytical facilities.

It is important to the “ Learning Organization “ to have a feed-back system, providing a view of the actual results versus targets. This leads to needs for an easy way to drill down in the underlying data in order to understand the causes behind a result.

Intuitive appreciation of the situation for each measure in the BSC is provided through a set of speedometers. In order to evaluate the status in depth, a number of different analytical screens are provided:

n nn n

n Trend analysis. Analyzing the measure over time, showing the trend indicating whether it is a short or a long-term problem.

n nn n

n Benchmarking analysis. Comparing different organizational units to each other, like business units, production units, customer groups or sales teams.

n nn n

n Deviations analysis. Identifying the largest deviations in the different structures. n

nn n

n Ad hoc analysis. Flexible reporting and analysis on any data.

These analyses are all based on the power of the Pilot DSS and offers unparalled flexibility, including an easy to use interface.

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2.8.1 Trend analysis

The trend analysis shown in figure 5 gives the user the option to choose any target and compare it to the actual result.

The target here is Return Rate and is seen within the organisational hierarchy like showing Vision, E-Commerce and All Products. Drill down is available within each level

The time period is another choice and by showing the moving average it is easy to spot the trend against the target.

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2.8.2 Benchmarking

A very useful supplement to comparing results to targets. The user gets a better understanding of the data when the results can be compared with other departments, business units, projects etc., answering questions like: - how is my sales team performing compared to other teams ?

Benchmarking is also very useful in connection with auditing targets. Since targets change over time, this analysis helps in setting new targets, and is a great help if targets are being set for new areas or new levels in the organisation.

The example in figure 6 shows benchmarking of Sickness target and benchmarked on Sickness excl. longterm and Both Gender. Any level in the organization dimension and any time period can be selected.

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2.8.3 Deviation Analysis

The purpose of the Deviation Analysis is to identify underlying and hidden problems. Finding the largest deviations between a result and a target is a very useful feature and helps the user to quickly focus on problem areas – or very successful areas.

Looking at the target Return Rate we are looking at a measure that on the speedometer is in the yellow area and with a neutral trend. Drilling down in the organization Channel, shows deviations within each Business Area. The color code applies to boths the actual deviation between result and target, but also – and equaly important – between the target and the calculated trend.

Comparing actual results to targets shows great variation between Business Areas while all targets are in the red compared the trend.

To make it easier to go through the many different views of data, the user can drag and drop his choices in the funnel area.

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2.8.4 Ad hoc analysis.

The more analytical oriented staff will require tools to do Ad-hoc analysis. They want to build different scenarios and analyze exactly the data they need in a given situation. A standard solution will not meet their requirements.

The Vision BSC solution offers Ad hoc functionality is based on the tight integration between Pilot DSS and Microsoft Excel ensures that the data is exactly that is being presented in the standard solution.

On top of the Excel facilities, the user also has access to a powerful OLAP engine. Any kind of Drill-down, roll-up, slice & dice, ranking and sorting is at hand. All this is available within Excel and the user will see Excel transformed to a spreadsheet with full OLAP functionality.

The example shows an analysis where markets and products are evaluated against each other and the use of the graphical Excel functions.