Balanced Scorecard

Introduction
The Balanced Scorecard (BSC) is a strategic performance management framework that allows organisations to manage and measure the delivery of their strategy. The concept was initially introduced by Robert Kaplan and David Norton in a Harvard Business Review Article in 1992 and has since then been voted one of the most influential business ideas of the past 75 years.


What exactly is a Balanced Scorecard? A definition often quoted is: 'A strategic planning and management system used to align business activities to the vision statement of an organization'. More cynically, and in some cases realistically, a Balanced Scorecard attempts to translate the sometimes vague, pious hopes of a company's vision/mission statement into the practicalities of managing the business better at every level.
A Balanced Scorecard approach is to take a holistic view of an organization and co-ordinate MDIs so that efficiencies are experienced by all departments and in a joined-up fashion.

To embark on the Balanced Scorecard path an organization first must know (and understand) the following:

• The company's mission statement
• The company's strategic plan/vision

Then

• The financial status of the organization
• How the organization is currently structured and operating
• The level of expertise of their employees
• Customer satisfaction level

The following table indicates what areas may be looked at for improvement (the areas are not exhaustive and are often company-specific):

balanced scorecard - factors examples

Department	Areas
Finance	Return On Investment Cash Flow Return on Capital Employed Financial Results (Quarterly/Yearly)
Internal Business Processes	Number of activities per function Duplicate activities across functions Process alignment (is the right process in the right department?) Process bottlenecks Process automation
Learning & Growth	Is there the correct level of expertise for the job? Employee turnover Job satisfaction Training/Learning opportunities
Customer	Delivery performance to customer Quality performance for customer Customer satisfaction rate Customer percentage of market Customer retention rate

Once an organization has analysed the specific and quantifiable results of the above, they should be ready to utilise the Balanced Scorecard approach to improve the areas where they are deficient.
The metrics set up also must be SMART (commonly, Specific, Measurable, Achievable, Realistic and Timely) - you cannot improve on what you can't measure! Metrics must also be aligned with the company's strategic plan.

A Balanced Scorecard approach generally has four perspectives:

1. The Financial Perspective covers the financial objectives of an organisation and allows managers to track financial success and shareholder value.
2. The Customer Perspective covers the customer objectives such as customer satisfaction, market share goals as well as product and service attributes.
3. The Internal Process Perspective covers internal operational goals and outlines the key processes necessary to deliver the customer objectives.
4. The Learning and Growth Perspective covers the intangible drivers of future success such as human capital, organisational capital and information capital including skills, training, organisational culture, leadership, systems and databases.

Each of the four perspectives is inter-dependent - improvement in just one area is not necessarily a recipe for success in the other areas.


When it was first introduced the Balanced Scorecard perspectives were presented in a four-box model. Early adopters created Balanced Scorecards that were primarily used as improved performance measurement systems and many organisations produced management dashboards to provide a more comprehensive at a glance view of key performance indicators in these four perspectives.

However, this four box model has now been superseded by a Strategy Map (see Figure 2 for the generic template), which is the heart of modern Balanced Scorecards. A Strategy Map places the four perspectives in relation to each other to show that the objectives support each other.

Cause-and-Effect Logic
A Strategy Map highlights that delivering the right performance in the one perspective (e.g. financial success) can only be achieved by delivering the objectives in the other perspectives (e.g. delivering what customers want). You basically create a map of interlinked objectives. For example:

• The objectives in the Learning and Growth Perspective (e.g. developing the right competencies) underpin the objectives in the Internal Process Perspective (e.g. delivering high quality business processes).
• The objectives in the Internal Process Perspective (e.g. delivering high quality business processes) underpin the objectives in the Customer Perspectives (e.g. gaining market share and repeat business).  
• Delivering the customer objectives should then lead to the achievement of the financial objectives in the Financial Perspective.

Strategy maps therefore outline what an organisations wants to accomplish (financial and customer objectives) and how it plans to accomplish it (internal process and learning and growth objectives). This cause-and-effect logic is one of the most important elements of best-practice Balanced Scorecards. It allows companies to create a truly integrated set of strategic objectives.

The danger with the initial four-box model was that companies can easily create a number of objectives and measures for each perspective without ever linking them. This can lead to silo activities as well as a strategy that is not cohesive or integrated.

What are the Key Benefits of using Balanced Scorecards?
Research has shown that organisations that use a Balanced Scorecard approach tend to outperform organisations without a formal approach to strategic performance management. The key benefits of using a BSC include:

1. Better Strategic Planning – The Balanced Scorecard provides a powerful framework for building and communicating strategy. The business model is visualised in a Strategy Map which forces managers to think about cause-and-effect relationships. The process of creating a Strategy Map ensures that consensus is reached over a set of interrelated strategic objectives. It means that performance outcomes as well as key enablers or drivers of future performance (such as the intangibles) are identified to create a complete picture of the strategy.
2. Improved Strategy Communication & Execution – The fact that the strategy with all its interrelated objectives is mapped on one piece of paper allows companies to easily communicate strategy internally and externally. We have known for a long time that a picture is worth a thousand words. This ‘plan on a page’ facilities the understanding of the strategy and helps to engage staff and external stakeholders in the delivery and review of strategy. In the end it is impossible to execute a strategy that is not understood by everybody.
3. Better Management Information – The Balanced Scorecard approach forces organisations to design key performance indicators for their various strategic objectives. This ensures that companies are measuring what actually matters. Research shows that companies with a BSC approach tend to report higher quality management information and gain increasing benefits from the way this information is used to guide management and decision making.
4. Improved Performance Reporting – companies using a Balanced Scorecard approach tend to produce better performance reports than organisations without such a structured approach to performance management. Increasing needs and requirements for transparency can be met if companies create meaningful management reports and dashboards to communicate performance both internally and externally.
5. Better Strategic Alignment – organisations with a Balanced Scorecard are able to better align their organisation with the strategic objectives. In order to execute a plan well, organisations need to ensure that all business and support units are working towards the same goals. Cascading the Balanced Scorecard into those units will help to achieve that and link strategy to operations.
6. Better Organisational Alignment – well implemented Balanced Scorecards also help to align organisational processes such as budgeting, risk management and analytics with the strategic priorities. This will help to create a truly strategy focused organisation.

Thanks to businessballs.com and api..

Value Chain Analysis

Introduction

Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business. 

Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings:

(1) Primary Activities - those that are directly concerned with creating and delivering a product (e.g. component assembly); and

(2) Support Activities, which whilst they are not directly involved in production, may increase effectiveness or efficiency (e.g. human resource management). It is rare for a business to undertake all primary and support activities.

Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others ("out sourced").

Linking Value Chain Analysis to Competitive Advantage

What activities a business undertakes is directly linked to achieving competitive advantage. For example, a business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition. 

By contrast, a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities, or a reduction in the total amount of resources used.

Primary Activities

Primary value chain activities include:

Primary Activity	Description
Inbound logistics	All those activities concerned with receiving and storing externally sourced materials
Operations	The manufacture of products and services - the way in which resource inputs (e.g. materials) are converted to outputs (e.g. products)
Outbound logistics	All those activities associated with getting finished goods and services to buyers
Marketing and sales	Essentially an information activity - informing buyers and consumers about products and services (benefits, use, price etc.)
Service	All those activities associated with maintaining product performance after the product has been sold

Support Activities

Support activities include:

Secondary Activity	Description
Procurement	This concerns how resources are acquired for a business (e.g. sourcing and negotiating with materials suppliers)
Human Resource Management	Those activities concerned with recruiting, developing, motivating and rewarding the workforce of a business
Technology Development	Activities concerned with managing information processing and the development and protection of "knowledge" in a business
Infrastructure	Concerned with a wide range of support systems and functions such as finance, planning, quality control and general senior management

Steps in Value Chain Analysis

Value chain analysis can be broken down into a three sequential steps:

(1) Break down a market/organisation into its key activities under each of the major headings in the model;

(2) Assess the potential for adding value via cost advantage or differentiation, or identify current activities where a business appears to be at a competitive disadvantage;

(3) Determine strategies built around focusing on activities where competitive advantage can be sustained

SWOT Analysis

Definition:

SWOT is an abbreviation for Strengths, Weaknesses, Opportunities and Threats

SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment.

Once key strategic issues have been identified, they feed into business objectives, particularly marketing objectives. SWOT analysis can be used in conjunction with other tools for audit and analysis, such as PEST analysis and Porter's Five-Forces analysis. It is also a very popular tool with business and marketing students because it is quick and easy to learn.

The Key Distinction - Internal and External Issues

Strengths and weaknesses are Internal factors. For example, a strength could be your specialist marketing expertise. A weakness could be the lack of a new product.

Opportunities and threats are external factors. For example, an opportunity could be a developing distribution channel such as the Internet, or changing consumer lifestyles that potentially increase demand for a company's products. A threat could be a new competitor in an important existing market or a technological change that makes existing products potentially obsolete.

it is worth pointing out that SWOT analysis can be very subjective - two people rarely come-up with the same version of a SWOT analysis even when given the same information about the same business and its environment. Accordingly, SWOT analysis is best used as a guide and not a prescription. Adding and weighting criteria to each factor increases the validity of the analysis.

Areas to Consider

Some of the key areas to consider when identifying and evaluating Strengths, Weaknesses, Opportunities and Threats are listed in the example SWOT analysis below:

Strategic Resources

"Strategy is the direction and scope of an organisation over the long-term: which achieves advantage for the organisation through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfil stakeholder expectations".

So, what are these "resources" that a business needs to put in place to pursue its chosen strategy?

Business resources can usefully be grouped under several categories:

Financial Resources

Financial resources concern the ability of the business to "finance" its chosen strategy. For example, a strategy that requires significant investment in new products, distribution channels, production capacity and working capital will place great strain on the business finances. Such a strategy needs to be very carefully managed from a finance point-of-view. An audit of financial resources would include assessment of the following factors:

Existing finance funds	- Cash balances
	- Bank overdraft
	- Bank and other loans
	- Shareholders' capital
	- Working capital (e.g. stocks, debtors) already invested in the business
	- Creditors (suppliers, government)
Ability to raise new funds	- Strength and reputation of the management team and the overall business
	- Strength of relationships with existing investors and lenders
	- Attractiveness of the market in which the business operates (i.e. is it a market that is attracting investment generally?)
	- Listing on a quoted Stock Exchange? If not, is this a realistic possibility?

Human Resources

The heart of the issue with Human Resources is the skills-base of the business. What skills does the business already possess? Are they sufficient to meet the needs of the chosen strategy? Could the skills-base be flexed / stretched to meet the new requirements? An audit of human resources would include assessment of the following factors:

Existing staffing resources	- Numbers of staff by function, location, grade, experience, qualification, remuneration
	- Existing rate of staff loss ("natural wastage")
	- Overall standard of training and specific training standards in key roles
	- Assessment of key "intangibles" - e.g. morale, business culture
Changes required to resources	- What changes to the organisation of the business are included in the strategy (e.g. change of location, new locations, new products)?
	- What incremental human resources are required?
	- How should they be sourced? (alternatives include employment, outsourcing, joint ventures etc.)

Physical Resources

The category of physical resources covers wide range of operational resources concerned with the physical capability to deliver a strategy. These include:

Production facilities	- Location of existing production facilities; capacity; investment and maintenance requirements
	- Current production processes - quality; method & organisation
	- Extent to which production requirements of the strategy can be delivered by existing facilities
Marketing facilities	- Marketing management process
	- Distribution channels
Information technology	- IT systems
	- Integration with customers and suppliers

Intangible Resources

It is easy to ignore the intangible resources of a business when assessing how to deliver a strategy - but they can be crucial. Intangibles include:

Goodwill	- The difference between the value of the tangible assets of the business and the actual value of the business (what someone would be prepared to pay for it)
Reputation	- Does the business have a track record of delivering on its strategic objectives? If so, this could help gather the necessary support from employees and suppliers
Brands	- Strong brands are often the key factor in whether a growth strategy is a success or failure
Intellectual Property	- Key commercial rights protected by patents and trademarks may be an important factor in the strategy.

Marketing Planning

Introduction

Businesses that succeed do so by creating and keeping customers. They do this by providing better value for the customer than the competition.

Marketing management constantly have to assess which customers they are trying to reach and how they can design products and services that provide better value (“competitive advantage”).

The main problem with this process is that the “environment” in which businesses operate is constantly changing. So a business must adapt to reflect changes in the environment and make decisions about how to change the marketing mix in order to succeed. This process of adapting and decision-making is known as marketing planning.

Where does marketing planning fit in with the overall strategic planning of a business?

Strategic planning is concerned about the overall direction of the business. It is concerned with marketing, of course. But it also involves decision-making about production and operations, finance, human resource management and other business issues.

The objective of a strategic plan is to set the direction of a business and create its shape so that the products and services it provides meet the overall business objectives.

Marketing has a key role to play in strategic planning, because it is the job of marketing management to understand and manage the links between the business and the “environment”.

Sometimes this is quite a straightforward task. For example, in many small businesses there is only one geographical market and a limited number of products (perhaps only one product!).

However, consider the challenge faced by marketing management in a multinational business, with hundreds of business units located around the globe, producing a wide range of products. How can such management keep control of marketing decision-making in such a complex situation? This calls for well-organised marketing planning.

What are the key issues that should be addressed in strategic and marketing planning?

The following questions lie at the heart of any marketing and strategic planning process:

• Where are we now?
• How did we get there?
• Where are we heading?
• Where would we like to be?
• How do we get there?
• Are we on course?

Why is marketing planning essential?

Businesses operate in hostile and increasingly complex environment. The ability of a business to achieve profitable sales is impacted by dozens of environmental factors, many of which are inter-connected. It makes sense to try to bring some order to this chaos by understanding the commercial environment and bringing some strategic sense to the process of marketing products and services.

A marketing plan is useful to many people in a business. It can help to:

• Identify sources of competitive advantage
• Gain commitment to a strategy
• Get resources needed to invest in and build the business
• Inform stakeholders in the business
• Set objectives and strategies
• Measure performance 

Strategic Audit

The external environment in which a business operates can create opportunities which a business can exploit, as well as threats which could damage a business. However, to be in a position to exploit opportunities or respond to threats, a business needs to have the right resources and capabilities in place.

An important part of business strategy is concerned with ensuring that these resources and competencies are understood and evaluated - a process that is often known as a "Strategic Audit".

The process of conducting a strategic audit can be summarised into the following stages:

(1) Resource Audit:

The resource audit identifies the resources available to a business. Some of these can be owned (e.g. plant and machinery, trademarks, retail outlets) whereas other resources can be obtained through partnerships, joint ventures or simply supplier arrangements with other businesses. You can read more about resources here.

(2) Value Chain Analysis:

Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business. Influential work by Michael Porter suggested that the activities of a business could be grouped under two headings: (1) Primary Activities - those that are directly concerned with creating and delivering a product (e.g. component assembly); and (2) Support Activities, which whilst they are not directly involved in production, may increase effectiveness or efficiency (e.g. human resource management). It is rare for a business to undertake all primary and support activities. Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others ("outsourced"). You can read more about Value Chain Analysis here.

(3) Core Competence Analysis:

Core competencies are those capabilities that are critical to a business achieving competitive advantage. The starting point for analysing core competencies is recognising that competition between businesses is as much a race for competence mastery as it is for market position and market power. Senior management cannot focus on all activities of a business and the competencies required to undertake them. So the goal is for management to focus attention on competencies that really affect competitive advantage. You can read more about the concept of Core Competencies here.

(4) Performance Analysis

The resource audit, value chain analysis and core competence analysis help to define the strategic capabilities of a business. After completing such analysis, questions that can be asked that evaluate the overall performance of the business. These questions include:

- How have the resources deployed in the business changed over time; this is "historical analysis"
- How do the resources and capabilities of the business compare with others in the industry - "industry norm analysis"
- How do the resources and capabilities of the business compare with "best-in-class" - wherever that is to be found- "benchmarking"
- How has the financial performance of the business changed over time and how does it compare with key competitors and the industry as a whole? - "ratio analysis"

(5) Portfolio Analysis:

Portfolio Analysis analyses the overall balance of the strategic business units of a business. Most large businesses have operations in more than one market segment, and often in different geographical markets. Larger, diversified groups often have several divisions (each containing many business units) operating in quite distinct industries.

An important objective of a strategic audit is to ensure that the business portfolio is strong and that business units requiring investment and management attention are highlighted. This is important - a business should always consider which markets are most attractive and which business units have the potential to achieve advantage in the most attractive markets.

Traditionally, two analytical models have been widely used to undertake portfolio analysis:

- The Boston Consulting Group Portfolio Matrix (the "Boston Box");

- The McKinsey/General Electric Growth Share Matrix

(6) SWOT Analysis:

SWOT is an abbreviation for Strengths, Weaknesses, Opportunities and Threats. SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment. Read more about it here.