Append below are some of the balanced scorecard examples of the Financial Perspective (KPI):-
- Annual sales/customers($)
- Average custome size($)
- Customer rating(%)
- Average time from customer contact to sales response(No)
- Average time spent on customer relations(No)
- Customers/employee ( No or %)
- Satisfied-customer index(%)
- Customer-loyalty index(%)
- Market Share
- No of Customer Complaints
- Return Rates
- Response Time
- Cost/customer($)
- Customers Lost(No or %)
- Customer retention
- Number of customers
- Annual sales per customer
- Marketing cost as a % of sales(%)
- Marketing expenses($)
- Number of proposals made
- Brand-image index (%)
- Response rate
- Sales volume
- Sales per channel
- Average customer size
- Customers per employee
- Frequency of sales transactions
- Sales closed/sales contacts(%)
- Number of visits to customers(No)
- Service expense/customer/year($)
It is important to understand the key or critical success factors for the Balanced Scorecard system to be successful:
- The leader/top management/board should walk the talk and utilizes the scorecard regularly in reviewing performance and in making plans for the future.
- The Balance Scorecard system should be used on its day-to-day use throughout all levels of the organization.
- Every individual should be aware and able to understand the importance of the performance measures and the relationship of the scorecard to the organization’s mission.
- Human Resources Department should ensure that the staff and management’s individual evaluations and compensation are linked from the organization’s performance to the balanced scorecard.
- Wrong selections of measures or having numerous measures for each perspective of a Balanced Scorecard
- When establishing the various perspectives key performance indicators, the objective is actually not to have numerous measures/metrics/kpi for each category/perspective but rather to select those few that best inform an organization when its operations are aligned with its mission and where to focus its attention and resources.
Looking merely at the financial aspects namely the final results will not be able to resolve the challenges faced by an organization.
The balanced scorecard looks at the following four fundamental performance areas of an organization and set major/crucial measures/matrix/key performance indicators for them:-
1. Financial performance
2. Customer satisfaction
3. Internal operations
4. Learning and innovation
By taking such integrated approach, the Balanced Scorecard is able to balance the vision and mission of the organization with everyday operations. In simple term, a strategic scorecard can help an organization identify the few core functions that translate its vision into reality.
Below explain each performance areas with its relevant measures and its purposes:-
FINANCIAL/MARKET MEASURES
- To inform an organization the results of actions already taken and whether those actions are contributing to its bottom line ( see examples of such measures)
CUSTOMER SATISFACTION MEASURES
- To inform an organization how it is performing in the eyes of the customer (see examples of such measures)
INTERNAL PROCESS/OPERATIONAL MEASURES
- To inform an organization about what it must do internally to meet customer and financial expectations. ( see examples of such measures)
LEARNING AND INNOVATION MEASURES
- Inform the organization on its capacity to continually innovate, improve, and sustain itself.(see examples of such measures)
Append below the following sources or references where we are able to obtain the necessary matrix measures for the four components of the Balanced Scorecard:
| FINANCIAL | CUSTOMER |
| • Annual report
• Performance reports • Analyst reports • Benchmark reports |
• Customer complaints
• Marketing/Sales Dept • Performance reports • Benchmark reports |
| INTERNAL PROCESS | LEARNING & GROWTH |
| • Operational reports
• Manufacturing reports • Benchmark data • Competitor data • Project plan |
• Human Resources data
• Core values • Benchmark reports • Consulting studies |
Balanced Scorecard is a useful management tool for charting the company’s Strategic management system/process. Besides, it is also deployed for the business’s Measurement system and as Communication Tool.
Also, those companies which set up Balanced Scorecard are able to service the customers better due to the following reasons:-
- knowing customer expectations “up front”,
- establishing strategies and goals consistent with these expectations,
- translating these strategies and goals into achievable action plans,
- providing goals that can be measured.
Balanced Scorecard is a useful tool for all level of management in terms of:-
- For top management- the company’s vision and mission need to be formulated before any other strategies can evolve ( using SWOT analysis)
- All level of management are able to specifically understand performance management re: on what are really key performance areas and key performance indicators
- When automated, where the Balanced Scorecard have been set, it helps to communicate to all personnel whichever level of hierarchy the company’s common goals/strategy to achieve or enhance shareholder value.
What is important to understand is that the Balanced Scorecard are applicable to individual department or even project and not necessarily on the company alone.
A brief history or background of the Balanced Scorecard:
- Balanced Scorecard is not at all new in the market. It was initiated in 1992 with many companies especially Fortune 1000 adopting the BSC with phenomenal result.
- It was originally developed in the early 1990’s by Dr Robert Kaplan ( Prof Harvard Univ) and David Norton (Consultant). Both men researched on exploring new methods of performance measurement. They believed that financial measures of performance alone were ineffective for the modern business enterprise.
- Their study identified four areas of performance measures :
- Customer issues
- Internal business process
- Employee activities
- Shareholder concerns
Management is doing things right; leadership is doing the right things.
Leaders shouldn’t attach moral significance to their ideas: Do that, and you can’t compromise.
The leaders who work most effectively, it seems to me, never say “I.” And that’s not because they have trained themselves not to say “I.” They don’t think “I.” They think “we”; they think “team.” They understand their job to be to make the team function. They accept responsibility and don’t sidestep it, but “we” gets the credit. This is what creates trust, what enables you to get the task done.
“Erroneous assumptions can be disastrous.”
“The most serious mistakes are not being made as a result of wrong answers. The truly dangerous thing is asking the wrong questions.”
Management means, in the last analysis, the substitution of thought for brawn and muscle, of knowledge for folkways and superstition, and of cooperation for force. It means the substitution of responsibility for obedience to rank, and of authority of performance for the authority of rank.
What is the manager’s job? It is to direct the resources and the efforts of the business toward opportunities for economically significant results. This sounds trite — and it is. But every analysis of actual allocation of resources and efforts in business that I have ever seen or made showed clearly that the bulk of time, work, attention, and money first goes to problems rather than to opportunities, and, secondly, to areas where even extraordinarily successful performance will have minimal impact on results.What is the major problem? It is fundamentally the confusion between effectiveness and efficiency that stands between doing the right things and doing things right. There is surely nothing quite so useless as doing with great efficiency what should not be done at all. Yet our tools especially our accounting concepts and detail focus on efficiency. What we need is (1) a way to identify the areas of effectiveness (of possible significant results), and (2) a method for concentrating on them.
Earlier article discuss the need for managers to understand risk management. The following are the risks, the manager of a firm normally might encountered:
1.0 Market Risk which relates to business environment, industry, political situation,
2.0 Liquidity Risk which relates to cash-flow, funding, capital,
3.0 Credit Risk which relates to customers’ reputation, settlement, accounts, payment,
4.0 Operational or Process Risk which relates to the systems, policies and procedures, internal controls and management supervision
Risk management is defined as the process of analyzing exposure to risk and determining how to best handle such exposure
It is imperative that managers need to understand the importance of managing the risk in an organization. By doing so, numerous benefits are reaped like for example:
- Once we have established a sound risk management culture into the organisation’s business framework, it promote productivity in the sense that senior management and line managers can focus more on their primary responsibilities instead of squandering resources on “fire-fighting” the challenges that may arise due to the lack of such practices,
- Its strengthen the business planning processes by allowing decision-makers to make contingency plans to avert possible “ mishaps” thereby producing more realizable opportunities for the organization on the whole and leading to increased shareholder value,
- It’s enhance shareholder value as it assist in reducing expenses as there are many direct and indirect cost of risk.
- Management is able to avoid paying the direct and indirect of risk namely:
- For Direct cost of risk, it comprises: cost of replacement, loss of revenue, damages paid.
- Indirect cost of risk comprises: loss of market, loss of reputation, management time, paid absence from work, effects on insurance premiums, product or service recall, write-offs of plant or material, medical expenses and effect on morale,
- It’s provide a sort of peace of mind for senior management,
- It’s might be matter of business survival or failure,
- The reputation of the organization for social responsibility has been enhanced in relation to another organization who ignores risk management which affects the overall community or society,
- With the current emphasis on good corporate governance by outsiders like investors, it’s a must that risk management is a tool to convince outsiders that the company has what it’s take. The presence of sound and effective risk management and controls systems inspires confidence in the investing public and others.
- It safe-guard an organization’s credibility and goodwill.
About MBA:
The Master of Business Administration (MBA) is an internationally-recognized degree Currently, this course is the most popular professional degree program in the world. Today there are over 2,500 MBA programs offered worldwide. First introduced at American universities around the turn of the 20th century, MBA programs have evolved in order to keep up with the demands of the times.
Traditionally a MBA program normally takes two-years to complete( USA is quite prevalent). Presently, one-year program, part-time and distance-learning programs are also widely available. Most MBA programs are taught in English, and are therefore attractive to international students wishing to study abroad. Many institutions in non-English speaking countries offer MBA programs in English, as well as in the country’s native language.
When enrolling for a MBA program, the student should take into account factors like location, duration of program, areas of specialization offered by an institution and more important that the business school have been accredited by the proper authorities.
It is interesting to note that there is no one uniform MBA curriculum, but rather a vast range of different kinds of programs to choose from.
Purpose of MBA program:
- Designed to prepare students and further develop the skills required for careers in business and management.
Benefits derived from pursuing MBA program:
- The value of the MBA, however, is not limited strictly to the ‘business’ world.
- Also useful for those pursuing a managerial career in the public sector, government, private industry, and other areas.
- MBA programs provide graduates with the preparation and practical skills needed to excel in management and leadership positions.
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