Balanced Scorecard OD Assignment

ORGANIZATIONAL DESIGN
ASSIGNMENT- 03
BALANCED SCORECARD
Topics :
 Introduction To Balanced Scorecard.
 Balance Scorecard of Philips Electronics.
 Successes And Challenges.
Submitted By:
S . Rishab Rineesh
1st year, “F” section
BALANCED SCORE CARD
The balanced scorecard is a strategy performance management tool a semi-

standard structured report, that can be used by managers to keep track of the
execution of activities by the staff within their control and to monitor the
consequences arising from these actions. The balanced scorecard (BSC) is
a strategic planning and management system that organizations use to:
 Communicate what they are trying to accomplish

 Align the day-to-day work that everyone is doing with strategy
 Prioritize projects, products, and services
 Measure and monitor progress towards strategic targets
The system connects the dots between big picture strategy elements such as
mission (our purpose), vision (what we aspire for), core values (what we
believe in), strategic focus areas (themes, results and/or goals) and the more
operational elements such as objectives (continuous improvement activities),
measures (or key performance indicators, or KPIs, which track strategic
performance), targets (our desired level of performance), and initiatives
(projects that help you reach your targets).
The Balanced Scorecard of Philips Electronics
Philips’ underlying belief in creating their balanced scorecard is that

understanding what drives present performance is the basis for determining
how to achieve future results. With this understanding in mind, Philips
designed the scorecard to provide a shared understanding of the
organization’s strategic policies and vision of the future. Their operating
principle in the design was to determine factors that were critical for
achieving the company’s strategic goals.
The tool has helped Philips Electronics focus on factors critical for their
business success and align hundreds of indicators that measure their
markets, operations, and laboratories. The business variables crucial for
creating value, which are known as the four critical success factors (CSFs)
on the Philips Electronics BSC, are:
 Competence (knowledge, technology, leadership, and teamwork),

 Processes (drivers for performance),
 Customers (value propositions), and
 Financial (value, growth, and productivity).
Here’s how these critical success factors came to life at the company.
Top-level scorecard criteria are the driving determinant for lower-level

scorecard criteria. Philips wanted to make implicit assumptions about the
way the business creates value explicitly through CSFs. In other words, the
goal was to translate assumed relationships such as customer satisfaction and
product sales into critical success factors to measure performance. To do so,
they identified which financial and customer CSFs give a competitive edge,
and then they determined the process CSFs that have the greatest impact on
the financial and customer CSFs giving the company that edge. Competence
CSFs deliver required process, customer, and financial results.
To express the strategy in measurable objectives, the team established a

performance management system that measures progress toward the
corporate vision. This system links short-term actions with long-term
strategy so employees understand how their day-to-day activities help
achieve the company’s stated goals.
In order to focus employees on the few vital goals and business priorities,
the BSC cascades down throughout the organization. Top management
initially deployed the BSC by setting annual operational targets, which were
brought down through organizational layers as goals for the divisions
worldwide and objectives at the business unit level. By deploying top-level
CSFs throughout the organization, goals can be clearly linked to the business
strategy as well as to all employees.
The Philips Electronics balanced scorecard has three levels. The highest is
the strategy review card, next is the operations review card, and the third is
the business unit card. In addition, the plan is to implement another level of
the card the individual employee card in 2003.
The corporate quality department created specific guidelines for metric

linkage for the entire company. These guidelines state that all top-level
scorecard critical success factors for which the department is responsible
must link metrically to lower-level cards. Three criteria were established to
accomplish this. The first is inclusion: Top-level CSFs must be addressed by
lower-level CSFs to achieve top-level metric goals. The second is continuity:
Critical success factors must be connected through all levels, and lower-level
measurements shouldn’t have longer cycle times than higher-level
measurements. The third criterion is robustness: Meeting lower-level CSF
goals must assure that higher-level CSF goals will be met or surpassed.
Goals in all card levels align with goals in the next level above, and goals
become fewer and less complex as you drill down through the organization.
The BSC at Work in the Business Units

At the business unit level, critical success factors were developed for each of
the four perspectives of the card—competence, processes, customers, and
financial. They established guidelines for the deployment of CSFs at lower
levels in the company, stating that departments must select CSFs for which
the department has a major control responsibility. These CSFs key BSC
indicators monitor the implementation of the business strategy.
The management team of each business unit reached consensus on which
CSFs distinguish the business unit from the competition. They used a value
map to derive customer critical success factors by analyzing customer
survey data that reflected perceived performance relative to the price for
competing products. Process CSFs were derived by determining how
process improvements can deliver customer requirements. Competence
CSFs were identified by determining what human resources and
competencies were required to deliver the other three perspectives of the
card. Standard financial reporting metrics were used as financial CSFs.
The next step was for each business unit to determine key indicators at the
business unit level that measure critical success factors. Assumptions about
relationships between processes and results were quantified and performance
drivers determined.
Targets were then set based on the gap between present performance and
desired performance for the current year plus two and four years in the
future. The criteria: Targets must be specific, measurable, ambitious,
realistic, and time-phased. Targets are derived from an analysis of market
size, customer base, brand equity, innovation capability, and world-class
performance.
Examples of indicators at the business unit level include:
In cascading the card down from the organizational level to the business unit
level, six key indicators consistently came to the forefront for all business
units:
 Profitable revenue growth,

 Customer delight,
 Employee satisfaction,
 Drive to operational excellence,
 Organizational development,
 IT support.
These six key drivers relate to each other as well as to the balanced
scorecard’s four critical success factors. Organizational development and IT
support drive the competence perspective; customer delight and employee
satisfaction drive the customer perspective; operational excellence drives the
process perspective; and profitable revenue growth drives the financial
perspective. And each quarter the BSC metrics are used as the reporting
format for the review of each business unit’s performance.
Successes and Challenges :
Although there are many successful implementations at the Philips

companies, let’s look at the implementation of the balanced scorecard at
Philips Medical Systems North America (PMSNA). It served as an
alignment tool to focus on their strategic intent to become a $1 billion
company by the year 2001.
It simultaneously guided a cultural change effort to increase accountability

for results. Eventually the BSC is expected to replace the monthly
accountability calls to the field office where sales are reported against
forecasted numbers. Another success for the card within this division is the
creation of an operational scorecard for action planning and tracking results
in real-time: Data are automatically transferred from internal reporting
systems and fed into the online BSC report, which is immediately accessible
and contains the new results. An upcoming enhancement to customer service
and satisfaction reporting will be the automatic feed of data gathered by the
Gallup Organization into the online BSC report in a similar fashion.
Finally, implementing the card responded to common questions raised in the

annual employee motivation survey, such as “How does what I do every day
fit into the bigger picture of the company?” The balanced scorecard enables
employees to understand exactly what they need to do on a daily basis in
order to impact results.
Chris Farr, former vice president of quality and regulatory at PMSNA and
who was responsible for the BSC, says that companies must get buy-in to
the metrics and share measures quarterly with all employees in order to
succeed. “Management must give full access to their employees,” Farr says.
“The metrics must be shared and visible.”
To share the metrics with employees, Philips Electronics uses traffic-light
reporting to indicate how the actual performance compares with the target.
Green indicates meeting target, yellow indicates in-line performance, and
red warns that performance is below target. The visibility of results using a
traffic-light model means ease-of-use with quick, easily recognizable
metrics.
Farr said the balanced scorecard’s primary strength is gaining the

commitment and participation of management and employees regarding
company objectives. “Employees have helped to create measures that are
meaningful to customers and to the business,” he says. “In this process,
employees have analyzed what makes the business successful and gained a
greater understanding of the business enterprise.”
Other strengths include:

The BSC promotes the sharing of best practices and creates a
communication system worldwide. Each element of the card has an owner
whom employees can contact to share success strategies and product fixes.
BSC fosters communication, collaboration, and problem solving.
The BSC supports a company’s cultural change to a learning organization by
creating a common knowledge base. If a metric is in the red zone, the
employee can quickly access how to fix potential problems and avoid
repeating others’ mistakes, saving time and money in problem solving.
The BSC represents an enhancement to the current “Yellow Pages” in use at
Philips. Out of a total workforce of more than 250,000, roughly 22,000
employees have chosen to share project knowledge and interests on a
voluntary basis using the Philips Yellow Pages. Employees working on
similar projects can communicate successes and pitfalls using the Yellow
Pages on the employee intranet. The BSC takes the concept further with a
defined owner accountable for each element on the card.
Other lessons Philips Electronics learned include:
Software for use in capturing and transferring data to a BSC in real time
should be selected carefully and researched fully prior to implementing the
balanced scorecard.
A balance must be reached to maintain visibility for employee access while
maintaining confidentiality of company results that are sensitive and
proprietary.
In trying to determine employee-level performance indicators, the team
learned that many critical success factors can’t be directly impacted by
employees.
Fad or Future
The use of a balanced scorecard as a strategic tool represents an opportunity
for an executive team to align their company to the strategic intent. Since the
BSC represents a fundamental change in how an organization is measured
and held accountable for results, it also poses threats to an established
corporate culture and has potential weaknesses if it isn’t executed properly.
Yet the balanced scorecard is a powerful strategic tool—not the latest
management fad—for strategic planning, goal setting, goal alignment, and
measurement. No other tool provides the ability to balance all aspects crucial
to business performance in 2002 and beyond.

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ORGANIZATIONAL DESIGN

The balanced scorecard is a strategy performance management tool a semi-

 Communicate what they are trying to accomplish

The Balanced Scorecard of Philips Electronics

Philips’ underlying belief in creating their balanced scorecard is that

 Competence (knowledge, technology, leadership, and teamwork),

Top-level scorecard criteria are the driving determinant for lower-level

To express the strategy in measurable objectives, the team established a

The corporate quality department created specific guidelines for metric

The BSC at Work in the Business Units

 Profitable revenue growth,

Successes and Challenges :

Although there are many successful implementations at the Philips

It simultaneously guided a cultural change effort to increase accountability

Finally, implementing the card responded to common questions raised in the

Farr said the balanced scorecard’s primary strength is gaining the

Other strengths include:

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