Chapter II conceptual framework shipping Industry 1 Environment

2.3. The Balanced Scorecard Overview

The collision between the irresistible force to build long-range competitive capabilities and the immovable of the object of the historical-cost financial accounting model has created a new synthesis: Balanced Scorecard. (Kaplan & Norton, 1996, pp 7).

The balanced scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise (bsc.org), They are using the measurement of scorecard to accomplish critical management process (figure 2-3): (Kaplan & Norton, 1996, pp 10).

• Clarify and translate mission and strategy

• Communicate and link strategic objectives and measures
• Plan, set targets, and align strategic initiatives
• Enhance strategic feedback and learning

Clarifying and translating mission and strategy

• Clarifying the vision

• Gaining consensus


Communicating and linking

• Communicating

and educating

• Setting goals

• Linking rewards to performance measures

BALANCED SCORECARD

Planning and target setting

• Setting targets

• Align strategic initiatives

• Allocating resources

• Establishing milestone

Strategic Planning and learning

• Articulating the

shared vision

• Supplying strategic feedback

• Facilitating

strategy review and learning

Figure 2-3 The Balanced Scorecard as a strategic framework for action

Kaplan and Norton describe the innovation of the balanced scorecard as follows:
"The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation."

Figure 2-4 The Balanced Scorecard Framework
Kaplan and Norton identify generic measures that show up in most organization’s scorecards, such as the following: (Kaplan & Norton, 1996, pp 4).
Table 2-1 Generic Measures

Perspective	Generic Measures
Financial	Return on Investment and economic value- added
Customer	Satisfaction, retention, market, and account share
Internal	Quality, response time, cost, and new product introductions,
Learning and growth	Employee satisfaction and information system availability

2.3.1. Financial Perspective
Financial objectives represent the long-term goal of the organization: to provide superior returns based on the capital invested in the unit. BSC can make the financial objective explicit, and customize financial objectives to business units in different stages of their life cycle.

There are some strategic themes for the financial perspective:
• Revenue growth and mix, refer to expanding product and service offering, reaching new customers and markets, changing the product and service mix toward higher-value added offering, re-pricing, products and services

• Cost reduction/productivity improvement, refer to efforts to lower direct cost of products and services, reduces indirect cost, and share common resources with other business units.

• Asset utilization/investment strategy, managers attempt to reduce the working capital levels required to support a given volume and mix business such as by directing new business to resources currently not used to capacity, using scarce resources more efficiently, and disposing of assets that provide inadequate return on their market value.

Eventually, all objectives and measures in the other scorecard perspectives should be linked to achieving one or more objectives in the financial perspective. This linkage to financial objectives explicitly recognizes that the long-run goal for the business is to generate financial return to investors, and all the strategies, programs, and initiatives should enable the business to achieve its financial objectives.


3.1.2. Customer perspectives

In formulating the customer perspective, managers should have a clear idea of their targeted customer and business segments, and selected a set of core outcome measurements-share, retention, acquisition, measures represent the targets for company marketing, operational, logistics, and product and service development processes.


_{Market Share}


Customer

_Acquisition

Customer

_{Profitability}

Customer

_Retention

Customer

_Satisfaction

Figure 2-5 The Customer Perspective-Core measures
Managers must also identify what customers in targeted segments value and chooses the value preposition they will deliver to these customers. They can then select objectives and measures from among three classes of attributes that, if satisfied, will enable the company to retain and expand its business with these targeted customers. The three classes of attributes are:

• Product and services attributes: functionality, quality, and price

• Customer relationship: quality of purchasing experience and personal relationships

• Image and reputation.

By selecting specific objectives and measures across those these three classes, managers can focus their organization on delivering a superior value proposition to their targeted customer segments
3.1.3. Internal Process Perspective (Kaplan & Norton, 2000, pp 8)
The internal process perspective captures these critical organizational activities, which fall into four high-level processes: build the franchise by innovating with new products and services and by penetrating new markets and customer segments; increase customer value by deepening relationships with existing customers; achieve operational excellence by improving supply chain management, the cost, quality, and cycle time of internal processes, asset utilization, and capacity management; and become a good corporate citizen by establishing effective relationships with external stakeholders.
3.1.4. Learning and Growth Perspective (Kaplan & Norton, 1996, pp
127).
The enablers for learning and growth come primarily from three sources: employees, systems, and organizational alignment. Strategies for superior performance will generally require significant investments in people, systems, and processes that build organizational capabilities. Consequently, objectives and measures for these enablers of superior performance in the future should be an integral part of any organizational Balanced Scorecard.

A core group of three employee-based measures-satisfaction, productivity, and retention-provide outcome measures from investments in employees, systems, and


organizational alignment. The drivers of these outcomes are to date, somewhat generic and less developed than those of the other three balanced scorecard perspectives. These drivers include summary indices of strategic job coverage, strategic information availability, and degree of personal, team, and departmental alignment with strategic objectives. The absence of company-specific measures indicate the opportunity for future development of customized employee, systems, and organizational metrics that can be more closely linked to a business unit’s strategy