Database Reference
In-Depth Information
Financial
Customer
Operating income growth
Same store sales growth
Inventory turns
Expense/sales growth ratio
Frequency of purchases
Units per transaction
Transaction size
Customer feedback
Internal
Learning and growth
Category market shape
Category margin
Sales psf
Quality/returns
Out of stock
Employee climate survey
Turnover
Strategic skill coverage
Systems versus plan
Figure 15.3
the Balance Scorecard (BSC) framework.
BSC retains the financial perspective of the company's performance that is essentially based on
past performance and is valid for short-term performance in the immediate future. However, it
supplements this traditional perspective with those of the customer and the internal system, pro-
cess, and people that determine the company's value-generating potential and hence long-term
financial performance in the future.
The customer's perspective ensures the continual relevance of the products and services pro-
vided by the company. The internal perspective of business processes and the people ensures that
the company surpasses the customer's expectations on critical value determinants like quality,
timeliness, innovation, and service. It is in this sense that the BSC represents a balance between
the external value determinants of the customers and shareholders and the corresponding internal
value drivers of the critical systems, business processes, and people.
Two kinds of value drivers exist: outcome and performance. Outcome drivers are lagging indi-
cators like financial measures that are objective, quantifiable, and past facing. On the other hand,
performance drivers are leading indicators that link with the company's strategy and provide
the rationale for achievements of the outcome drivers. Although performance drivers are future
facing, the impact and effectiveness of performance drivers on the outcome drivers are highly
subjective. This is compensated by the dynamic nature of the BSC system that treats evaluation
and feedback as important elements of the framework. The value drivers are constantly under
tests for continued relevance in the market, and any deviations observed in the customer's value
determinants are immediately cascaded in terms of the changes in the value drivers' measures or
the value drivers themselves. This corresponds to the learning and growth perspective of the BSC
framework. It represents the capability of institutional learning, which is the powerful concept of
double-loop
learning that we spoke about in Chapter 1, Section 1.3.6 “Learning Enterprise,” which
gives tremendous advantages to companies in these times of rapidly changing markets.
In fact, the whole BSC framework is based on a perceived cause-and-effect relationship between
the various strategies, organizational elements, and processes of the enterprise. It is in the context
of these assumptions that the BSC also incorporates the cause-and-effect relationships in terms of
the relationships between the various outcome and performance drivers. For instance, the ROCE
driver (in the financial perspective) is dependent on customer loyalty (in the customer's perspective).
