Unlike the traditional performance measures which focus on only the financial throughput and monetary output of the supply chain, Balanced Scorecard provides the organizations with much more balanced overall business performance perspective by focusing on four different performance measures:
- Financial Growth
- Customer
- Quality through Business Process Improvement
- Innovation, Learning and Growth
Scorecard must be aligned to the organization’s vision and strategy:
Balanced Scorecard and Supply Chain Management:
A balance scorecard can also be aligned with some of the supply chain attributes to measure the performance of a complex supply chain. Customer utilizes the SCOR customer facing categories and as you will see from the metric list in following diagram broadens the scope to include more than just customer delivery performance. Process organizes metrics by value chain process and for those metrics that are a result of multiple processes an Aggregate category is added. Financial has categories for both profit and growth which is a significant aspect of value chain improvement. Employee utilizes two categories, one focused on performance and the other on development.
Below is an example of a Balanced Scorecard:
Before implementing the Balanced Scorecard, every organization must address the followings:
- How does our balanced scorecard relate to our supply chain?
- What benefits we are expecting to reap by implementing a balanced scorecard in our supply chain?
- How does the balanced scorecard differ from other methodologies?
- Does every supply chain organization need a balanced scorecard of some type?
- How will we identify our scorecard measures?
- Do standard KPIs need to be modified to meet the needs of our supply chain?
- How do we involve our customer in developing KPIs?
- How exactly we will implement the balanced scorecard ?
- How can we determine the ROI on our supply chain?
- What are the unique balanced scorecard prerequisites and priorities of our industry?
- Do we need an external support to implement balanced scorecard?
- What are the key challenges of implementing balanced scorecard and how can these roadblocks and barriers be overcome?
- What are the factors that contribute to balanced scorecard success?
- What will be the success criteria of our balanced scorecard implementation process?
Balance Scorecard Institute has defined nine steps to successfully building and implementing a balance scorecard. These nine steps are as below and can be easily understood by the following figure:
In Step One, the scorecard building process starts with an assessment of the organization’s Mission and Vision, challenges (pains), enablers, and values. Step One also includes preparing a change management plan for the organization, and conducting a focused communications workshop to identify key messages, media outlets, timing, and messengers.
In Step Two, elements of the organization’s strategy, including Strategic Results, Strategic Themes, and
Perspectives, are developed by workshop participants to focus attention on customer needs and the organization’s value proposition.
Perspectives, are developed by workshop participants to focus attention on customer needs and the organization’s value proposition.
In Step Three, the strategic elements developed in Steps One and Two are decomposed into Strategic Objectives, which are the basic building blocks of strategy and define the organization’s strategic intent. Objectives are first initiated and categorized on the Strategic Theme level, categorized by Perspective, linked in cause-effect linkages (Strategy Maps) for each Strategic Theme, and then later merged together to produce one set of Strategic Objectives for the entire organization.
In Step Four, the cause and effect linkages between the enterprise-wide Strategic Objectives are formalized in an enterprise-wide Strategy Map. The previously constructed theme Strategy Maps are merged into an overall enterprise wide Strategy Map that shows how the organization creates value for its customers and stakeholders.
In Step Five, Performance Measures are developed for each of the enterprise-wide Strategic Objectives. Leading and lagging measures are identified, expected targets and thresholds are established, and baseline and benchmarking data is developed.
In Step Six, Strategic Initiatives are developed that support the Strategic Objectives. To build accountability
throughout the organization, ownership of Performance Measures and Strategic Initiatives is assigned to the
appropriate staff and documented in data definition tables.
throughout the organization, ownership of Performance Measures and Strategic Initiatives is assigned to the
appropriate staff and documented in data definition tables.
In Step Seven, the implementation process begins by applying performance measurement software to get the right performance information to the right people at the right time. Automation adds structure and discipline to the system and helps people make better business decisions.
In Step Eight, the enterprise-level scorecard is ‘cascaded’ down into business and support unit scorecards, meaning the organizational level scorecard (the first Tier) is translated into business unit or support unit scorecards (the second Tier) and then later to team and individual scorecards (the third Tier). Cascading translates high-level strategy into lower-level objectives, measures, and operational details and is the key to organization alignment around strategy.
In Step Nine, an Evaluation of the completed scorecard is done. During this evaluation, the organization tries to answer questions such as, ‘Are our strategies working?’, ‘Are we measuring the right things?’, ‘Has our environment changed?’ and ‘Are we budgeting our money strategically?’
The balanced scorecard is a strategic planning and management system that helps everyone in an
organization understand and work towards a shared vision. A key benefit of using a disciplined framework is that it gives organizations a way to connect the dots between the various components of strategic planning and management, meaning that there will be a visible connection between the projects and programs that people are working on, the measurements being used to track success, the strategic objectives the organization is trying to accomplish and the mission, vision and strategy of the organization.
organization understand and work towards a shared vision. A key benefit of using a disciplined framework is that it gives organizations a way to connect the dots between the various components of strategic planning and management, meaning that there will be a visible connection between the projects and programs that people are working on, the measurements being used to track success, the strategic objectives the organization is trying to accomplish and the mission, vision and strategy of the organization.