20-20 balanced scorecard

An organisation needs to prepare for the future to ensure long term survival and profitability. The balanced scorecard provides a structured approach to deciding where the organization is heading (its strategies), what is needed to get there and what has to measured and controlled now to ensure that it stays on course to deliver the desired outcome in the future.

Example:

Assume the company wants to be the largest producer of product X in the country.  In order for that to happen one of the companies strategies is to  increase turnover.

From a financial perspective an increase in turnover of 15% on last year is required. This is the financial objective and can be measured monthly.

Who provides that turnover? - the customers, so what has to be done as far as the customers are concerned for the company to achieve the strategy: customers must receive their deliveries in full and on time. This is the customer objective and can be measured monthly as: per cent delivered in full and on time.

Internally the company does activities or processes e.g. filling orders, purchasing, production planning & control. These processes start with receipt of a customer order and finishes with the delivery of product or service to the customer.  What has to be done as far as the processes are concerned for the company to achieve the strategy: Appoint a new sales person. This is the process objective and can be measured as: date salesman appointed. Another process objective could be: To enter all orders into the production planning system promptly. This can be measured as Number of orders entered within 24 hours.

What infrastructure changes are needed to ensure that the strategy is accomplished. To install a new XYZ widget maker. This is the innovations objective and can be measured as the date it is achieved.

The balanced scorecard starts with a long term vision. Strategies that will make the vision a reality are decided upon. Each strategy is then assigned one or several objectives into each of the key perspectives that the company wants to consider. These are typically finance, customer, process and innovation.

The sequence of actions that must be taken in each of the perspectives to achieve the strategy is decided. The day-to day operations are monitored and controlled. With balanced scorecard the entire company is involved in discussions.  Knowledge and suggestions are drawn from those actually doing the job as well as the senior executives.

The basis of scorecard is that the perspectives are interconnected. Financial objectives cannot be achieved at the expense of the other perspectives.

The main elements of a balanced scorecard are:-

• A vision of where the company is heading, or what role its in the future will be.

The vision is the long-term status the organisation is attempting to achieve.

"Where are we going?"
"How do we see ourselves in the future?"

It is stated so that owners and employees can share and be guided by the organisation's view of its future.

Examples:
To be recognised as a world leader amongst ...
To have graduates with excellent employment opportunities
To have an international reputation for the quality of its ...
To be the country's leader in ...
To be the most successful organisation in the business of ...

• A mission statement to justify its existence

The mission is a statement of what the organisation is doing over the next 3 to 5 years.
"What are we here to do?"

Examples:
To deliver quality products and services to customers on time profitability.
To provide education that develops people for employment.
 

• Strategies on how to achieve the vision in a defined period of time.

  The strategies of the organisation are usually decided upon by a small group. Ask questions like
  "How can the organisation achieve a competitive advantage?"
  "What should we be doing to achieve our vision?"
  "How can we compete more effectively? Should we have a strategy to improve (whatever)?"
  "Should we develop new products or services"
  "What can we do to improve (whatever)?"

  Examples: Increase turnover by 15%; Optimise the production process; To increase the value of the business.

  Each strategy is examined from each of the perspectives - Financial, Customer, Internal processes & Innovation. A perspective is the aspect from which the strategies are viewed. i.e. how should we appear to the shareholders?, how should we appear to the customers?. To satisfy  shareholders & customers what business processes must we improve?. How will the  ability to change & improve be sustained or how will the infrastructure be provided to enable the objectives of the other 3 perspectives to be achieved?.

  Each perspective contains: 

   

  • Objectives

    The objectives define what will be done to achieve a strategy. These objectives take into account each of the perspectives.
    
    
    Example of objectives:
    
    Financial: Ensure the project is EVA positive, Identify cost drivers, Achieve cost savings of..., Increase stock turnover from 4 to 6, Minimise re-work to reduce costs by..., All new customers must be EVA positive, Ensure that all capital investment does not reduce the EcROCE.
    
    Customer: Increase the number of high quality customers over the next 12 months, To add value to existing clients, Deliver right the first time, To deliver on time at the customers' designated location, Be the supplier the client considers first, Be the preferred organisation for delivering customer support, Identify alliance opportunities, joint ventures, Identify existing markets at risk.
    
    Process: Improve availability of raw materials, Reduce turnaround time, Deliveries on time, Minimise the number of product rejects and rework, Product is ready when required, Customise products to customers requirements, Maintain software at latest revision level, Review of departments IT needs, Improve system availability, Appoint a new sales consultant, Implement staff training program to improve the production process, Make staff aware of the importance of customers.
    
    Innovation, learning and growth: Collect information on acquisition opportunities, Identify new product opportunities, Identify new technology advantages to our process, Find suitable production planning software, Obtain benchmarking data for the industry, Develop a new technique, Develop expertise in bar-coding, Find and implement new technology to reduce expenses, Maintain skill level of IT staff, Provide a caring and supportive work environment for employees, Develop a market intelligence system, Develop and assess the implementation of an executive health program, Document the vision, mission and strategic plan and communicate with staff and stakeholders, Re-engineer processes, Identify joint venture partners, strategic alliances or acquisitions that will benefit the organisation, Identify and evaluate existing research, Training on the effective use of ABC for all managers, Analyse customer database to find opportunities.
     

    Measure

    To measure progress, a means of monitoring is required and to accomplish this we need -

     

    • Targets and measures. Each objective has a target so that there is a basis for comparison of results over the duration of the project. Which measurements will be used to monitor progress towards each objective must be determined.
    • A method for rating the results relative to the target to enable analysis of progress. Are we on target, below target, above target etc.

Examples of measures:

 

% decrease % of achieved deliveries to planned % of products released on due date Availability of materials Average age of application Benchmarking data obtained Client survey Completion date 15 August Cost of rework Cost per desktop Cost reduction achieved Cost saving achieved Deliveries on time as ordered Deliveries on time to new markets EVA / EVA by customer

EcROCE Finished goods turnover Help desk hours Hours of education Hours of skills training Increase in sales value Index of user satisfaction Internet & WAN up-time Lost staff hours Market share Markets at risk NOPAT No of People trained No of seminars delivered Number of hours billed Number of projects held up Number of quality customers. Number of repeat calls. Number of trained people in bar-coding. Number of training hours delivered Percentage

Percentage IRR Percentage non-reworked jobs Percentage of YTD expense budget Percentage of on time delivery Percentage of rejects from suppliers Percentage of waste reduction Printer up time Projects on target Raw materials dollars Raw materials turnover Revenue growth Revenue growth - monthly Staff feedback sessions per month Survey response from customers Surveyed satisfaction of IT staff Waiting time for a call-back Workstation hours Worst case response

 

The perspectives are not limited to just the four above but that is normally sufficient.

Measurements are both financial and non-financial.

Measurements could be completion dates, percentages etc 

Strategies, Objectives and Measures are not always of equal importance so a weighting system is used  to designate their level of importance.

Start with a plan. Introducing it into the organization is the next step. How well this is done will ultimately determine success or failure. Everyone in the organization should understand

• What the goal is.
• What changes need to made, where and when they will occur.
• What is needed from each person in terms of performance, as well as the relationship between their performance and overall success.

What each department will contribute?. How, when & by whom?. A good starting point is an organizational chart for a clear picture on who works where, who supervises whom etc.

Each objective is assigned someone with the ultimate responsibility for the objective, usually a person in the senior ranks of the relevant department. Responsibility for the different tasks is cascaded down the chain of the chart hierarchy so that all staff relevant to the objective know when, where, how and what needs to be done and who will be their direct supervisor.

The next stage in the implementation process is the actual progress measurements taken at defined intervals.  These measurements are then compared to target and analysed at all levels i.e. staff member, department & organization. If all is not going to plan the problem area is soon traced through the hierarchy to find who & what is letting down the team. Is the department rating below target?. If so which part of that department is recording the below target rating? Which staff members are involved? Why was the target not met. What else can we do to ensure that the next performance rating will be positive.

Changes can be made at any stage along the way. e.g. a target might have been set unrealistically high, a new measure might be needed etc.

Balanced scorecard  is a management system for implementing strategy while  balancing concerns about financial performance with concern for other aspects of performance.

Manage and control

Traditional management techniques tend to focus on financial outcomes. This can lead to short term strategies that do not give due consideration to improving the internal processes of the business, and hence lost business. For example, there may be new technology available that, with an investment now, will lead to substantial financial benefits later. Implementing new technology may require different skill requirements from the staff, so consideration should be given to improving skill levels. Are the existing customers going to be around to sustain the growth of the business in the future? What strategies should be implemented to grow the desirable segment of the market? The balanced scorecard is the tool of choice for organizations to manage and control their future.
 

The balanced scorecard with "20-20"
 

"20-20" provides a well-structured approach to implementing the balanced scorecard. The software assists with determining the objectives of the strategies and the measurements used to determine their progress.

Use it to help focus on the correct markets, customers, services, products, internal processes and capabilities.

Use it to plan improvements in the capabilities and skills of the business to achieve the desired financial and customer outcomes.

"20-20" provides a structured approach to evaluating the achievements of the organization, its employees, its departments and its sectors. It monitors implementation of strategies. It measures the impact of strategies on the key perspectives common to any business, as well as perspectives particular to the organization. It manages and controls strategies that apply to the current activities of the business as well as planned future activities.

"20-20" is designed to implement balanced scorecard in any business or organization. By using "20-20" an organization will have a better appreciation of its direction. The program acts as a guide through the balanced scorecard process and assists with the management of strategies.




Why is the balanced scorecard software tool called"20-20"

In eye testing perfect vision is 20-20.

When strategies are formulated and implemented the vision of what is to be achieved should not blur as it is transmitted into the organization. Both management and implementers should have a clear view of what is to be achieved, how, and the progress towards implementation.

"20-20" drives the strategy implementation process by ensuring that the organization has a clear and unambiguous understanding (view) of how the operations will create the desired results. This creates a sharp ("20-20") picture that ensures strategic results are achieved.

How to use "20-20"

Set out below are the steps to be taken when designing a balanced scorecard system: -


· Define the vision and / or mission of the organisation.

· Decide the strategies needed to accomplish the organisation’s objectives.

· Identify the key perspectives that the organisation will consider, typically financial, customer, internal processes and innovation (also called learning, growth, renewal, and development).

· For each strategy identify the key objectives. These objectives will take into account all of the perspectives. Assign who will be responsible for each objective.

· Each objective must have one or more measure. Identify appropriate measures and put in place mechanisms to collect measurements at appropriate intervals.

· After building the balanced scorecard, use the software to monitor and communicate performance. How is the organisation as a whole doing? Is it doing equally well in each of the key perspectives? Are the strategies on track? What is the analysis per person or per department or per process? The software automatically provides this information both on the screen and in reports.

The secret of success is to keep the scorecard simple and straightforward so that it is relevant to its users. The scorecard should reflect how the business will improve and grow its activities to achieve the vision it has set. It facilitates implementing strategic decisions and review.
Steps can be implemented to take advantage of new opportunities revealed by the scorecard process and to avoid inefficiencies.

How do you use the features of "20-20" in your organisation?

You enter the strategies and key perspectives. For each strategy enter objectives and how they will be measured. Measurements are recorded. "20-20" uses your information to analyse and monitor the abilities and achievements of the business in implementing its strategies.
Use "20-20" for making strategic decisions and monitoring their implementation.

You will find that...
1. You get a realistic performance analysis by organisation, department, person, process and sector quickly and easily.
2. Results are shown in detail for strategies and objectives. You can view performance on the screen, graphically and in well-organised printed reports.

With "20-20" you can...

· Get a realistic assessment of how well the organisation is performing and planning for future sustainability and growth.

· Manage strategy implementation.

· Identify and control inefficiencies in the organisation.

If you want to focus your attention directly on the strategy implementation of a business, and want an easy to use, intuitive program that gets you to an answer quickly, use "20-20".