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Enabling Javascript in your browser is easy. Please see: How to enable JavaScript in your browser. The field of strategy is undoubtedly the most chronicled subject in the world of business.

An additional challenge to discussing strategy is the fact that it has relevant connections with numerous other areas of study. Of course military strategy has been with us for thousands of years, but historians, physicists, biologists, psychologists, and anthropologists, to name but a few, have also made significant contributions to the field of strategy.

From the huge mountain of information that exists we must distill what is most critical to the discussion at hand. Developing a comprehensive strategy for your organization is beyond the scope of this book. Many well written and cogent texts are available on the subject and during the section some will be referenced. In this section I will focus on the review the common elements of strategy, and most importantly for us, will outline why strategy and the Balanced Scorecard must be woven together to get the maximum benefit from both.

A prolific writer on the subject of strategy, Henry Mintzberg, provides this excellent synopsis of the subject to begin our discussion. Some feel strategy is represented by the high-level plans management devises to lead the organization into the future. To others still, strategy is tantamount to best practices. Finally, some may consider strategy a pattern of consistency of action over time. If everyone were to pursue the same activities, then differentiation would be based purely on operational effectiveness.

Focusing on key strengths, differentiating yourself from competitors on typical industry dimensions, and offering a memorable tagline. Strategy is more about the choice of what not to do than what to do. Organizations cannot compete effectively by attempting to be everything to everybody. The entire organization must be aligned around what you choose to do and create value from that strategic position.

Activities are the same, they must produce an integrated whole. The strategy crystallizes your thinking on basic issues such as how you will offer customer value, and to what customers. This direction needs to be clear to both internal employees and external customers constituents. Changes may bring about new opportunities which can be assimilated into the current strategy — new technologies for example.

As the Mintzberg quote at the outset of this section reminds us, strategy involves not only the detailed analysis of complex data, but also broad conceptual knowledge of the company, industry, market, etc. Using the elements discussed above as ingredients, an organization could literally cook up innumerable types of strategies, and over the years they have. I recently read an article discussing the execution of strategy in organizations. Question 1: three frogs are sitting on a log. One decides to jump off.

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How many are left? You might think two, but the answer is three. One has decided to jump off. Question 2: three companies have poor earnings. One decides to revitalize key product lines, strengthen distribution channels, and become customer intimate.

The variations appeared to be part of an evolution of the balanced scorecard concept, and so the paper refers to these distinct types as "generations". Variants that feature adaptations of the structure of balanced scorecard to suit better a particular viewpoint or agenda are numerous. Examples of the focus of such adaptations include the triple bottom line, [25] decision support, [32] public sector management, [33] and health care management.

Balanced scorecard is also linked to quality management tools and activities. Balanced scorecard is also used to support the payments of incentives to individuals, [1] even though it was not designed for this purpose and is not particularly suited to it. Design of a balanced scorecard is about the identification of a small number of financial and non-financial measures and attaching targets to them, so that when they are reviewed it is possible to determine whether current performance 'meets expectations'.

By alerting managers to areas where performance deviates from expectations, they can be encouraged to focus their attention on these areas, and hopefully as a result trigger improved performance within the part of the organization they lead. The original thinking behind a balanced scorecard was for it to be focused on information relating to the implementation of a strategy, and over time there has been a blurring of the boundaries between conventional strategic planning and control activities and those required to design a balanced scorecard.

These steps go far beyond the simple task of identifying a small number of financial and non-financial measures, but illustrate the requirement for whatever design process is used to fit within broader thinking about how the resulting balanced scorecard will integrate with the wider business management process. Although it helps focus managers' attention on strategic issues and the management of the implementation of strategy, it is important to remember that the balanced scorecard itself has no role in the formation of strategy.

The first generation of balanced scorecard designs used a "four perspective" approach to identify what measures to use to track the implementation of strategy. The idea was that managers used these perspective headings to prompt the selection of a small number of measures that informed on that aspect of the organisation's strategic performance.

These categories were not so relevant to public sector or non-profit organisations, [21] or units within complex organizations which might have high degrees of internal specialization , and much of the early literature on balanced scorecard focused on suggestions of alternative 'perspectives' that might have more relevance to these groups e. These suggestions were notably triggered by a recognition that different but equivalent headings would yield alternative sets of measures, and this represents the major design challenge faced with this type of balanced scorecard design: justifying the choice of measures made.

Although less common, these early-style balanced scorecards are still designed and used today. In short, first generation balanced scorecards are hard to design in a way that builds confidence that they are well designed. Because of this, many are abandoned soon after completion. In the mids, an improved design method emerged.

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With this modified approach, the strategic objectives are distributed across the four measurement perspectives, so as to "connect the dots" to form a visual presentation of strategy and measures. In this modified version of balanced scorecard design, managers select a few strategic objectives within each of the perspectives, and then define the cause-effect chain among these objectives by drawing links between them to create a "strategic linkage model".

A balanced scorecard of strategic performance measures is then derived directly by selecting one or two measures for each strategic objective. This style of balanced scorecard has been commonly used since or so: it is significantly different in approach to the methods originally proposed, and so can be thought of as representing the "2nd generation" of design approach adopted for the balanced scorecard since its introduction. In the late s, the design approach had evolved yet again. One problem with the "second generation" design approach described above was that the plotting of causal links amongst twenty or so medium-term strategic goals was still a relatively abstract activity.

In practice it ignored the fact that opportunities to intervene, to influence strategic goals are, and need to be, anchored in current and real management activity.

Recommendation

Secondly, the need to "roll forward" and test the impact of these goals necessitated the creation of an additional design instrument: the Vision or Destination Statement. This device was a statement of what "strategic success", or the "strategic end-state", looked like. It was quickly realized that if a Destination Statement was created at the beginning of the design process, then it was easier to select strategic activity and outcome objectives to respond to it.

Measures and targets could then be selected to track the achievement of these objectives. Design methods that incorporate a Destination Statement or equivalent e. Design methods for balanced scorecards continue to evolve and adapt to reflect the deficiencies in the currently used methods, and the particular needs of communities of interest e. NGO's and government departments have found the third generation methods embedded in results-based management more useful than first or second generation design methods. This generation refined the second generation of balanced scorecards to give more relevance and functionality to strategic objectives.

The major difference is the incorporation of Destination Statements.


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Other key components are strategic objectives, strategic linkage model and perspectives, measures and initiatives. In , Kurtzman [43] found that 64 percent of the companies questioned were measuring performance from a number of perspectives in a similar way to the balanced scorecard.

Balanced scorecards have been implemented by government agencies, military units, business units and corporations as a whole, non-profit organizations, and schools. Balanced scorecard has been widely adopted, and consistently has been found to be the most popular performance management framework in a widely respected annual survey e.

Theorists have argued from the earliest days of discussion of Balanced Scorecard usage that much of the benefit of the balanced scorecard comes from the design process itself. Academic criticism of the balanced scorecard can be broken into three distinct but overlapping areas of concern. In response to these concerns there have been many studies seeking to provide retrospective academic underpinnings for the Balanced Scorecard concept, [8] [9] [46] and to provide case study and validation information for the various design generations. Broadcast surveys of usage have difficulties in this respect, due to the wide variations in definition of 'what a balanced scorecard is' making it hard to work out in a survey if you are comparing like with like.

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However, such studies as have been done have typically found balanced scorecard to be useful. Consideration has been given to the effect of organisation size on Balanced Scorecard effectiveness:. It is important to recognize that the balanced scorecard by definition is not a complex thing — typically no more than about 20 measures spread across a mix of financial and non-financial topics, and easily reported manually on paper, or using simple office software. The processes of collecting, reporting, and distributing balanced scorecard information can be labor-intensive and prone to procedural problems for example, getting all relevant people to return the information required by the required date.

The simplest mechanism to use is to delegate these activities to an individual, and many Balanced Scorecards are reported via ad-hoc methods based around email, phone calls and office software. Where these conditions apply, organizations use balanced scorecard reporting software to automate the production and distribution of these reports.

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From Wikipedia, the free encyclopedia. Part of a series on Strategy Major dimensions. Major thinkers. Frameworks and tools.

Main article: Third-generation balanced scorecard. Retrieved 11 July International Journal of Productivity and Performance Management. Administrative Science Quarterly. Arthur M. Archived from the original on 25 December Retrieved 28 May Harvard Business Review January—February : 71— Archived from the original on 1 May Management Accounting. Journal of Cost Management. Harvard Business Review. Boston, MA.