1/21/04
Philips Electronics'
Balanced
Scorecard
Compiled
by:
Scott Hudson, SCRC |
|
In
the early 1990s, researchers Robert Kaplan and
David Norton developed the “balanced scorecard
(1).” Their concept was to expand the focus
of managers to a more diverse set of financial
and non-financial measures. A properly implemented
and timely used balanced scorecard will “aid
some organizations in better articulating and
communicating their strategy, measuring the drivers
of their performance, and detecting the superiority
of one strategy over another (1).” Studies
show that more than 50 percent of the Fortune
1000 companies use a version of Kaplan and Norton’s
balanced scorecard (1).
Their scorecard aligns performance measures under
four main categories: financial performance, customer
relations, internal business practices, and learning
and growth activities. The measures on the scorecard
are designed to reflect cause and effect relationships
between outcome (lag measures) and critical drivers
(lead measures) (1).
A recent study
shows that organizations that realize significant
benefits from their scorecard systems have the
following characteristics (2):
| • |
Activity-based
costing is in place with recognized value
to the organization. |
| • |
A
primary impetus for deploying the system is
to communicate strategy and align employees
with strategy. |
| • |
Formal
ties exist between strategy and the scorecard
system. |
| • |
The
system is comprehensive, utilizing scorecards
on many levels. |
| • |
Compensation
and reward systems are linked to measures
used in the scorecard system. |
| • |
Employees
accept and use the scorecard system. |
Philips Electronics has implemented a scorecard
system to align company views, to focus employees
on how they fit into the big picture, and to educate
employees on what drives the business. Philips
management uses the scorecard as a guide at quarterly
business reviews worldwide to promote organizational
learning and continuous improvement (3).
Philips created its balanced scorecard with the
belief that understanding what drives present
performance is the basis to determine future results.
Philips uses the scorecard as a basis for employees
to understand management’s strategic policies
and vision for the future. Philips created four
critical success factors (CSFs) to align indicators
that measure markets, operations and laboratories
with business success (3). At the business unit
level, six key indicators are also included under
each CSF. These CSFs and key indicators are:
| • |
Competence
(knowledge, technology, leadership, and teamwork)
> Indicators: Organizational development
and IT support |
| • |
Processes
(drivers for performance)
> Indicator: Operational excellence |
| • |
Customers
(value propositions)
> Indicators: Customer delight and employee
satisfaction |
| • |
Financial
(value, growth, and productivity)
> Indicator: Profitable revenue growth |
Philips
uses these CSFs to link short-term actions with
long-term strategy so that employees can link
their actions to stated company goals (3). The
Philips balanced scorecard has four card levels.
The levels, in decreasing order, are the strategy
review card, the operations review card, the business
unit card, and the individual employee card (3).
To achieve successful results, scorecard goals
in lower card levels must align with scorecard
goals in upper card levels and be fewer and less
complex than the overall organizational goals.
In Philips Medical Systems North American (PMSNA),
the balanced scorecard is being used to increase
accountability for results. The scorecard is compiled
using an automatic data transferring system that
transfers data from internal reporting systems
to the scorecard (3). This system allows employees
to quickly see results each month, reduces the
compilation time, and eliminates possible human
error. Employees are able to understand exactly
what they need to do on a daily basis to impact
results. Chris Farr, former Philips Vice President
of Quality and Regulatory at PMSNA, says that
scorecard metrics must be shared and visible so
employees can succeed (3).
Farr says a strength of the scorecard is that
“employees have analyzed what makes the business
succeed and gained a greater understanding of
the business enterprise (3).” Philips has
also seen that the scorecard promotes the sharing
of best practices and creates a worldwide communication
system where employees can share success practices,
product fixes, project knowledge, interests, and
pitfalls. This communication prevents employees
from repeating fellow employees’ mistakes,
saving time and money (3).
Philips has realized significant benefits due
to implementing a worldwide scorecard system.
Employees embrace and use the scorecard to improve
results. Management uses the scorecard to communicate
strategy and align employees with strategy. The
scorecard is also used at all levels of the organization.
Philips has implemented a balanced scorecard and
succeeded in focusing the company on a diverse
set of business measures.
References:
(1) Salterio, Steven and Webb, Alan. The Balanced
Scorecard. CA Magazine, August 2003.
(2 )Lawson, Raef and Stratton, William. A new
North American study explains how balanced scorecard
users get their money’s worth. CMA Management,
June/July 2003.
(3) Gumbus, Andra and Lyons, Bridget. The Balanced
Scorecard at Philips Electronics. Strategic Finance,
November 2002.
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