Balanced Scorecard Ing.J.Skorkovský,CSc. and various listed sources Department of Corporate Economy Balanced Scorecard and continuum of value I. •Balanced Scorecard is a step in the continuum describing value • and how the value is created Mission – why we exist Values – what is important to us Vision – what we want to be Strategy – our game plan Strategy map – translate to strategy Balanced scorecard – measure and focus See next show Mission –explanation of the term •Mission: what the company represents, what is the purpose of its existence, and what values it recognizes. •Examples: •Google: "Our mission is to organize the world's information so that everyone can access and use it„ (and make as much money as possible – tutor´s approach) •McDonald's: "We want to be the best in the world in fast service and provide customers with the best quality, service, cleanliness, and value.„ (and we don't mind that fast-food diets make people fat) – tutor´s approach) •Coca-Cola: "Refresh the world in mind, body, and spirit. Arouse moments of optimism and happiness through our brands. Create value and create the difference.„ • Visions •Vision: what the company wants to become, what is its target state •Examples: • •IKEA: "Creating a better everyday life for as many people as possible." •Harvard University: "Developing Leaders Who Will One Day Make a Global Difference" •SOS Children's Village: "A loving home for every child." • Step by step… Raison d´etre of the company The ideal state we want to achieve Plan how to achieve it Step by step procedure Mission Vision Strategy Tactics Raison d´etre = why we're here Balanced Scorecard and continuum of value II • Balanced Scorecard is a step in the continuum describing value • and how the value is created Target – what WE need to do (plan, project, budget, …) Personal Objectives – what I need to do Strategic Outcomes (sub-objectives for 4 groups) Satisfied Shareholders Delighted Customers Efficient and Effective Processes Motivated and Prepared Workforce See next slide to se budget tool (model) in EPR Budget model in ERP-setup Total budgeted amount =380 =100+200+80 Budget model in ERP – Sales of Consulting services Sales Line (invoice) 24.1.2019 Sales Line (invoice) 31.1.2019 Sales Line (invoice)7.2.2019 Genera Ledger Entries 400+480+60=940 Budget- Planned-Actual results (from BC) Area definitions •BSC developed by Robert Kaplan and David Norton •BSC examines a firm´s performance in four critical areas Finances – how should we look to our shareholders ? Customers – how should we look to our customer ? Processes – at which business processes must we excel ? Learning and Growing – how will we sustain our ability to change and improve ? Resource : Operation Management, Quality and Competitiveness in Global Environment, Russel &Taylor Basic strategy map (two lower BSC levels) Resource : Operation Management, Quality and Competitiveness in Global Environment, Russel &Taylor (not the red ones) Human capital Organizational Capital Information Capital Supplier Relationship Lower cost of ownership JIT delivery TQM – High quality supply Production and Services Lower cost of production Continuous improvement (Kaizen) Reduced cycle time (see Little´s law) Shorter production lead times Working capital efficiency (fin. leverage) MRP,MRP_II Advanced Planning and Scheduling Good Resource Planning Perfect way of cost calculation (actual-expected) Application of Theory of Constraints Linear programming- optimization SCM-Supply Chain Management Lower cost of transport Better way of stock replenishment Better delivery performance Risk Management Financial risks Cash flow management Operational risk Technological risk Analytic applications BI, transaction processing applications=ERP (BC).. Excellent training of resources… Efficient and flexible structures and reporting system, team work, company culture… Basic strategy map (two upper BSC levels) Resource : Operation Management, Quality and Competitiveness in Global Environment, Russel &Taylor (not the red ones) Competitive prices Low cost of supply Perfect Quality Deliveries in time Finance Become industry cost leader (Gartner Magic Quadrant Matrix) Maximize use of existing assets Improve cost management Processes – at which business processes must we excel (see previous slide) ? Strategy Increase value of customer account Stars and Milk Caws segments of Boston Matrix Stable product portfolio New resources generation (higher market share ) R&D related to current product portfolio Shareholder value Some explanation of benchmarks I (home study- one of many examples) •KPI-Key Performance Indicators –As businesses evolve, leaders need to understand how they’re performing across specific periods. –Many businesses use key performance indicators (KPIs) to quantify metrics and standardize performance reviews. –The fist step to implementing this process is to understand KPIs and how they can be defined for various business segments. •Example from financial area : –Working Capital Requirement : WCR measures the financial resources required to cover the lag between outgoing and incoming payments and shows the amount of financial resources needed by a company to ensure its production cycle and its repayments of both debts and upcoming operational expenses. –Net working capital requirement = Inventory + Accounts Receivable – Accounts Payable – •Explanation : A WCR having value less than 1 signals that outgoing funds needed for operations exceeds incoming sources from business activities. Conversely, and WCR between 1.5 and 2 is a sign that the company does not need to dip into its long-term resources to satisfy short-term requirements. • Parameters related to cash flow Receivables nad Payables in Business Central Cash flow Cash cycle (Cash-to-Cash) Explanation of benchmarks II (home study) •KPI-Break Even Point Q= F/(P-VC) , where F=Fixed costs, P=Unit Cost, VC=Variable cost Balanced Scorcard worksheet Resource : Operation Management, Quality and Competitiveness in Global Environment, Russel &Taylor Explanations : FTL-full truck load, LTL- less than truck load , SPC=statistical process control, EDI=electronic data interchange, Cycle time=time/unit=(e.g.7 min/1 customer request) (50+80)/2 Some time units for measuring (home study-examples of partialy used time parameters) •Will be presented later in sections such as : –Little´s law (WIP=Throughput *LT) – will be presented later in this course –Theory of Constraint (througput time) •Takt Time (TT) – rhythm in which we have to produce to satisfy customer demand (demand is for instance 240 toaster ovens and we can produce these in 480 minutes ->TT= 480/240=2 ovens/minute •Lead Time (LT) – Number of minutes, hours, or days that must be allowed for the completion of an operation or process, or must elapse before a desired action takes place – see next slide • ERP outputs and BSC Report generated from ERP Business Central w Based on KPI estimation in % out analysed company is excellent, but on the other hand, collecting money, credit limit and overdue management is falling behind Resource : Operation Management, Quality and Competitiveness in Global Environment, Russel &Taylor (only radar chart) ERP forms related to customer aging report BSC and OM (Processes discussed practically in Business Central are not listed here) Finances – how should we look to our shareholders ? Customers – how should we look to our customer ? Processes – at which business processes must we excel ? Learning and Growing – how will we sustain our ability to change and improve ? Project management Theory of constraints Production Critical chain Drum –buffer-rope MRP-MRP-II,JIT,APS Linear programming Cutting, blending Total quality management Pareto, ishikawa Product postitioning Little´s law Boston Matrix Gartner QM Workflow CONWIP Logistics EOQ, ABC Decision making Kepner-Tregoe Hurviwtz Business Intelligence Yield management Prospect theory Methods related to AOPR course Balanced Scorecard BEP analysis Strategic initiatives (two lower BSC layers have defined way : Goal-Measurement-Intent-Action Program Marketing skill Database of customers They arrived for the first time Unpleasant surprise Sales channel turnover Ratio WIN/LOST Goal Measurement Intent Action program Marketing skills % of skills % customers with correct data In one year 100% In 2 years 80 % Training New SW To keep our existing customers To enlarge market share Ratio WIN/LOST Quantity of problems by50 % - 2 years (decrease) Number of new customers by 100 % - 2 years (increase) Programof targeted marketing Support of image Action sales Provided value Better relationships Sales growth Profit growth Satisfied shareholders Used tool (one page approach) Metrics Process Margin Market share Branding Top quality Optimized setup time Delivery performance Selling price Selling 2 1 4 0 2 2 6 Inventory Management 0 1 2 3 1 4 2 Quality management 2 3 4 8 1 3 2 HR sector 0 1 2 1 0 2 2 Transport 0 2 3 2 0 2 0 Production 1 1 1 9 8 3 2 The numbers are chosen randomly. They represent the number of evaluators that connect the process and a measure of the performance of that process. The activities (processes) with the smallest number of points are not important for the achievement of the objectives and can be suppressed. The least important process from the evaluators' point of view 1+2+1+2+2=8 Výsledný graf po aplikaci JSS (transpozice FRT->BSC vrstev) Czech courses only BSC and Future Reality Tree relationship Finances Customers Processes Learning and Growing New Business Central Better forecasting in stock replenishment Reliable deliveries Better bottom line Strategy Map-The Simple Model of Value Creation To achieve our vision, how must our organization learn and improve ? To satisfy our customer, which processes must we excel at ? To achieve our vision, how must we look to our customers? If we succeed, how will we look to our shareholders ? Resource : Strategy Maps, Kaplan and Norton Learning and growth perspective Internal perspective Customer perspective Financial perspective Strategy Strategy map - example Strategic map (BSC) The need for unique resources-knowledge Resource searching Cost of resources Source selection parameters IQ creativity flexibility Compliance rate Resource Training Testing Trained resource low success rate Service delivery Satisfied customer Competitive Advantage Higher market share Profit Happy shareholders Resource profile TOC CONWIP Workflow 30/11 Test 1 •What is the main goal of a company? • A) Obtain the highest profit B) Find solutions that will be in the best interests of stakeholders C) Produce as many products as possible D) A and C E) None of the above B) Test 2 •Which of the following is Operations Management Technology not concerned with? • • A)Product & Service Technology B)Process Technology C) Globalization technology D)Information Technology E)All of the above C) Test 3 •Which of the following would be considered an input when converting inputs into outputs during the transformation process? •A) Land B) Capital C) Raw Materials D) Facilities E) All of the above E) Test 4 •Which of the following is not a key element of supply chain management ? •A)Purchasing B) Suppliers C) Location D) Logistics E) Managers decision E)