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Balanced Scorecard

 

Balanced Scorecard is a management system that enables an organization to set, track and achieve its key business strategies and objectives. Once the business strategies are developed, they are tracked through relevant metrics in the four legs of a balanced scorecard - Customer, Financial, Internal Business Process, Learning and Growth.

 

 

An application oriented question on the topic along with responses can be seen below. The best answer was provided by R Rajesh on 12th October 2018. 

 

Applause for all the respondents - Bhupendra, Vastupal Vashisth, Raguram

Question

Q. 100  There are four sections in a Balanced Scorecard - Customer, Internal Business Processes, Financial, Learning and Growth.

 

These sections contain both lagging and leading indicators. Explain the differences between lagging and leading indicators providing relevant metrics for both under each of the four sections. 

 

Note for website visitors - Two questions are asked every week on this platform. One on Tuesday and the other on Friday.

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The Balanced ScoreCard (BSC) is a performance management framework for appraising an Organisation of its capabilities based on four sections/quadrants. Those 4 sections or quadrants are Financial,Customer,Internal Business Processes , Learning and Growth,


Having a Strategy is the key for the success of an Organisation. Say for instance, for Customer Satisfaction, we need to understand the pain points of the customer and address their concerns in the best possible manner.  

 

Let us see which of the quadrants of BSC , we need to address first. We will have a hypothetical case, which is though is fast becoming the order of the day in IT world.

 

As we are in this fast-paced world, Customers need to take their products to the market at the shortest possible time. So from an IT perspective ,  they would like to

have frequent releases of their software applications featuring their products and therefore frequent deliveries of the software, with high quality & error-free ones , would be required. Then the Customers would be really happy and satisfied.  For this to happen, an organisation has to move away from some of the traditional project management methodologies(such as waterfall) and adopt methodologies like Agile, Kanban... which quite naturally provides a setting(a way) for reducing the marketing time of a product(Time to Market), in their own way. Agile methodologies, coupled with some good engineering practices such as 'DevOps', 'Continuous Integration(CI)'

and 'Continuous Delivery and Continuous Deployment(CD)' and with the advent of Cloud Computing, exponentially make a product(S/w application - could also be web-based

application) to the market(read Production), in no time. Seamlessly changes made in your development can goto production without any glitch, in no time, thanks to DevOps and CICD approaches. Now the questions that an organisation should ask itself is that how is it going to transform itself from traditional project methodologies(like waterfall) to Agile methodologies and how its employees are going to have the cultural mindset to transfer themselves from working in silos to DevOps approach (Where multiple teams would get involved). What should be done to bridge the gaps? What kind of learning do the teams require ? Then how can the team improve upon, once the basics knowledge are obtained. This is where BSC quadrants would come into picture. Learning and growth is the important quadrant to start with since you want the employees to be aware of the Agile Process and the engineering practices. Once that is done, you want to see if any business processes can be improved so that you can leverage your learning with that. If those two are done, then the next quadrant, the customer - half the battle won as you would have a sound board to launch that quadrant which can provide customers as what they want (Say Customer needs/demands met and they are satisfied) and for the final Quadrant, if the organisation is using Clouding Computing, then say, there is chance for infrastructure cost to get reduced. So, in nutshell, its very important that we shape the Learning and Growth and

Internal Business Processes quadrants. Let us create the lag and lead indicators for this case for all the quadrants.          


Learning and Growth Quadrant:

Lag Indicators :

1. The number of projects(which produces service/product-s/w application) that were 100% Agile Compliant last year (in 2017), across the Organisation


Lead Indicators :

Setting up awareness sessions to say that Organisation is gearing towards Agile and become Agile oriented and then ensuring the employees/staff of the organisation

getting their knowlegde/skills upgraded with proper training levels.

The lead indicators would be
1. The number of employees who were Scrum Master Certified.
2. The number of employees who are Agile Aware (novice).
3. The number of employees who are Agile Exposed(Beginner).
4. The number of employees who are Agile Experienced(Advanced).
5. The number of employees who are Agile Experts(Coaches who can do Agile transformation in customer environment)  .


Internal Business Processes Quadrant:

Lag Indicators:

1. The number of projects that were automated last year(in 2017) - in terms of technology
2. The number of processes that were automated last year(in 2017) - in terms of business process using BPM (specific mentioning - with usage of any open source tools ,

for cost effectiveness)

Lead Indicators:

1. No.of projects that will implement Unit Testing automation for Java, J2EE and . Net applications(scope for unit testing identified for those projects).
2. No. of projects that will implement Functional testing using Selenium tool .
3. No. of projects that will implement the DevOps, CICD engineering practices/approaches.

 

Customer Quadrant:

Lag Indicators:
1. Customer Satisfaction Index.
   a). On Time Delivery.
   b). Faster Time to Market.
   c). Defect-Free Delivery.

Lead Indicators:
1. No. of On time deliveries made across portfolio with 100% compliance.
2. Minimal No.(how much) of processes(read transition state) to undergo from Development to Production.
3. No.of defect free deliveries meeting the SLA compliance of 98% defect-free s/w product.   

 

Finance Quadrant:
Lag Indicator:
1. Revenue.
2. Year on Year Growth.
3. Profit.

Lead Indicators:
1. Demonstrate the no. of Success Stories(Projects) done with the customers. Highlight the customer top brass, with the achievements of the Organisation.
   - for getting new and more businesses
   - for developing the Brand image
   - for invoking customer confidence on the organisation's capability/speciality on a related business.
2. Providing a road map on the future on the customer'line of business, thereby getting an opportunity for making continuous business with the customer.
3. Providing an end-to-end solution map (Architectural view at Enterprise level) for any prospective new business so that the Organisation can provide the IT service

for all aspects of the solution . Thereby it can also have the maintenance of that IT service for that business as well.


Conclusion:
Thus we have seen how important the strategy of an organisation, plays an important role in shaping up its Balanced Scorecard. Remember we discussed here an hypothetical case and we took some sample lead and lag indicators. But the lag and lead indicators entirely depend on the strategy used by an Organisation, based on its Objectives and Vision.  Lagging Indicators can give pointers to lead indicators as how they can be better shaped. Therefore the aforementioned lagging and leading indicators are put as samples to the given case. Whichever best suits an organisation, the indicators would vary accordingly.

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Balanced scorecard is the performance management reporting system through which the performance of the team is evaluated. It is a right tool to check what the employees are lagging behind and whst are the leading indicators in which the team is performing well. It helps to monitor and increase the financial position of the company.  Thos tool is also used to decide in the training requirements of the employee which can lead to the company growth as well as employees growth.

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Balanced score card is a term coined by Kaplan and Norton, 1996 in the early 1990's, separates organizational metrics into four prospective. 

1. Financial perspective : this provides the Organization with insight into how well its goals, objectives, and strategies are contributing to shareholders.

2. Customer Perspective : it defined that how effective the organisation is in creating value for its customers through its goals, objectives and strategies.

3. Internal business processes perspective : it includes all processes designed to create and deliver the customer value proposition. 

4. Learning and growth perspective :

It includes the capability and skills of an organisation and how it is focused and channeled to support the internal processes used to create value. 

 

Lagging indicators are those which follows an event and it is reported after the fact. 

Leading indicators are those which predicts or infers a future event. 

 

Depending upon how it is viewed an indicator can be both leading and lagging. 

 

For example :

If we consider spotlight example, the yellow light is both leading indicator of the red light and lagging indicators of the green light. 

Another example we can say that customer visits, demonstration, proposals and order are considered leading indicators for sales and sales when reported after the fact is considered a lagging indicator. 

 

Same like market share, revenue growth, and margin are all lagging indicators. So may of the fact or indicators in balance sheet are lagging indicators since they are reported after the fact. 

 

 

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Balanced score card is a effective management tool which can be used to measure metrics which can help in the company to evolve strategies and develop action plans.

This score card consists of both Lagging and Leading indicators

 

Lagging Indicators show how the company has been performing and capture measures of events already happened.

 

Financial Metrics: Last Quarter Sales performance, PAT, Year on year growth trends  etc can be called as lagging indicators.

 

Customer Metrics: Sales achieved from existing customers, New customers added during the last quarter , Profitability achieved from each product group etc.

 

Internal Business Process : Current productivity measures, Inventory levels, Throughput times, wastage percentages etc.

 

Learning and Growth  Metrics: Training programs conducted, Current competency mapping etc.

 

Leading Indicators show how the company have planned to perform in line with the strategies and the plans for achieving them

 

Financial Metrics: Plans for the next quarter, estimated PAT, New investments etc

 

Customer Metrics: Plans for adding new customers, new markets , launch of new products, new business strategies etc.

 

Internal Business Process : Improvement plans for  productivity measures, Inventory levels, Throughput times, wastage percentages etc.

 

Learning and Growth  Metrics: Training programs to be conducted, Skill and Knowledge assessment improvement plans etc.

 

Only by looking at the lagging indicators it would be difficult to asses the performance of the company and coupled with the leading indicators gives a better picture and enables the company to undertake relevant improvement projects.

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The chosen best answer is that of R Rajesh as he has defined the terms lagging and leading indicators and quoted multiple examples for each segment. The spotlight example in Vastupal's answer is a great way of explaining what the difference in both could mean. Raghuram's answer is also a must read.

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