Orientation on

Balanced Scorecard
(BSC)

June 2022
National Bank of Ethiopia
Purpose:
To create awareness of the Bank's
Management and Output managers
about Balanced Scorecard approach
and how it can be build and
implemented in the National Bank of
Ethiopia.
 Intended Results:
   To have given some idea to participants about
BSC and able them to communicate each other.
   To have informed each participant what is
expected from them as an individual and a team
in building & implementing the BSC.
  To have increased the commitment on
organizational change and performance
management among the Management & output
managers .
  To have given each participant the opportunity to
introduce themselves to a new Performance
Management System (BSC)
 2. The Development Process
2.1 About the assignment
   The assignment given by the Management
•   IT consists of both theory and practice

Theory - based on presentation prepared

by Balanced Scorecard Institution

Practice - example of NBE's BSC extracted

from Draft proposal
 2.2 Scope:
• According to Balanced Scorecard
Collaborators, BSC must be developed for
three tiers.
• Tier-1 is a corporate level BSC
• Tier- 2 is a department (business and
support units) level BSC.
• Tier- 3 is a Team/individual level BSC
• This NBEs BSC exercise is made on Tier -1
level ( Bank wide BSC) only.
 2.3 Limitations:
The development process of NBE's BSC has the
following limitations:
1.It is recommended to develop a BSC by cross-
functional teams namely
 Executive level Team - which is sponsor
 Middle management Team - which builds
the scorecard
 Lower level Team - which delivers critical
data such as measures.

But this proposal is not a product of a team.

2. Step two of the development process demands to
define the major Strategic Areas /Themes of the
Bank. In the process we assume strategic areas
based on the 7 goals of NBE.

3. The proposal is not exhaustive and comprehensive,

as the requirements in each step are not fulfilled. It
is just to give high lights to the participants on the
topic.

4. The BSC developed with limited knowledge, as there

was no training given to the developer.
5. The BSC doesn't contain targets, as the process of
target setting needs a baseline.
6. There is no practical experience found that can be
shared.
 3. What is a Balanced Scorecard
3.1 Emergence of Balanced Scorecard
Doing things right
Doing the right things
 
There should be a Balancing act between:
        Development of good business strategy
        Efficient operations
 
Organizations continually worry about
        Executing good strategy
        Running business operations efficiently
because:
 
Business organization -Face competitive pressure
 
Public-sector organizations:
        Need performance improvement
        Face reform pressure
 
Today's organizations need to be both
strategically and operationally excellent to
survive & meet tomorrow's challenge.

One framework that helps achieve the required

balance between Strategy & Operations is BSC.
• BSC originally developed (by Robert Kaplan and David
Norton in the early 1990 ) as a framework to measure private
industry non-financial performance.

• BSC equally applicable to public sector organizations - but

only after changes are made to account for the government
mission and mandates.
 
• Emphasis has shifted from measurement of financial and
non-financial performance to the management (execution of
business strategy).
• BSC System gives us the ability to view three different
dimension of organization performance: -
 
1. Results (Finance and Customer)
2. Operations
3. Capacity
 3.2 The basic Design of a Balanced
Score card Performance System
The design incorporates both private and public-
sector organizations.
1. For Private Organization (Figure )
There is an integrated relationship among the key
parts of a scorecard system- Vision, Strategy, and
perspectives.

Balance is achieved through the four perspectives,

through the decomposition of an organization's vision
into business strategy and then into operations.
 2. For Public- Sector (Figure )
    Mission is key driver
    Customer perspective changed to Customers
and Stakeholders perspectives
    Financial perspective positioned next
Customers perspectives and some times called
Budget perspective- it is about public
accountability funds
   Innovation and learning perspective changed to
Employees & Organization Capacity - to reflect
the importance of the Human System & capacity
building
In the balance scorecard language, vision, mission,
and strategy at the corporate level are
decomposed into different views, or perspectives,
as seen through the eyes of:
1. Business owners - represented by the Financial
Perspective
2. Customers and other stakeholders (customers are
a subset of the larger universe of stake holders) -
represented by the Customer Perspective
3. Managers and process owners- represented by the
Internal Business Processes Perspective
4. Employees and infra structure (capacity) -
represented by the Learning & Growth Perspective
Balance is achieved through the four perspectives
 3.3 The four common perspectives

1. The Financial Perspective

• For private sector financial objectives represent
targets for profit- maximization.
• Financial considerations for public-sector
organizations have enabling or a constraining
role.
• Success for public organizations should be
measured by how effectively and efficiently they
meet the needs of their constituencies.
• Therefore, in the government, the financial
perspective emphasizes cost efficiency, i.e. the
ability to deliver maximum value to the customer.
 2. The Customer perspective
• This perspective captures the ability of the
organization to provide quality goods and services,
the effectiveness of their delivery, and overall
customer service and satisfaction.
• In the government model the principal driver of
performance is different than in the strictly
commercial environment: namely, customer and
stakeholders take preeminence over financial results.
• In general public organizations have a different,
perhaps greater stewardship /fiduciary responsibility
and focus than do private sector entities.
 3. The Internal Business process
Perspective

This perspectives focus on the internal business

results that lead to financial success and satisfied
customers. To meet organizational objectives
and customers' expectations organizations must
identify the key business processes at which they
must excel. Key processes are monitored to
ensure that outcomes will be satisfactory. Internal
business processes are the mechanisms through
which performance expectations are achieved.
 4. The Learning and Growth Perspective
• This perspective looks at the ability of employees,
the quality of information systems, and the effects of
organizational alignment in supporting
accomplishment of organization goals.
• Processes will only succeed if adequately skilled
and motivated employees, supplied with accurate and
timely information, are driving them.
• This perspective takes on increased importance in
organizations that are undergoing radical change. In
order to meet changing requirements and customer
expectations, employees may be asked to take
dramatically new responsibilities, technologies, and
organizational designs that were not available before.
 3.4 Balanced Scorecard Logic

The figure shows the logic of scorecard development.

 
   Customer requirements drive the way organization responds with
Goods and Services;

   Mission, vision and values shape the culture of the organization

and lead to a set of strategic goals that outline expected performance;

   Strategy gives us the approach chosen to meet customer needs

and attain the desired goals;
   Strategies are made up of building blocks that can be mapped and
measured with performance measures;
  Targets give us the expected levels of performance that are desired;
and
• New initiatives provide new information to successfully meet
challenges and test strategy assumptions.
 4. Benefits of Balanced Scorecard

Introducing a balanced scorecard approach can:

  Help to improve understanding of and focus on
organizations' strategies amongst employees at all
levels.
 Help to develop a limited number of appropriate
numbers of performance measure and align them with
strategy.
  Provide management with a comprehensive view of
organizations' performance.
  Facilitate communication and understanding of
strategies and objectives through out the organization.
 Assist with allocating resources to deliver against
particular objectives and targets.
   
   Highlight interdependencies of key drivers and
measures of success and relationships between
enablers and results.
  Help to rationalize objectives, obtain consensus and
expose any conflicts between them.
  Provide a mechanism that encourages system
thinking, enhancing understanding of cause and effect
relationships and long-term impacts.
  Help to drive improvements in management
information systems and procedures.
  Provide a focus on results and a focus for
management processes such as departmental and
individual goal setting, business planning, resource
allocations, improvement initiatives, monitoring,
reviewing, and organization learning.
 5. Building and Implementing a Balanced
Scorecard
(A nine Steps Process - detailed )

The Scorecard journey has two phases:

        Building The Scorecard
        Implementing The Scorecard
5.1 Building the Scorecard - ( Step 1 to Step 6 )

Step 1- Organizational Assessment

Involves Strategic Planning process - the Bank
completed this process.
     SWOT Analysis
     Stakeholders Analysis
Values:
     Core values
     Individual values
     Organizational values
Vision: Be one of strongest and most reputable central
banks in Africa.
Mission: Maintain price and exchange rate stability and
foster sound financial system.
 
Goals/Outcomes:
 
1. Carry out extensive and sound institutional
transformation tasks
2. Maintain price and exchange rate stability.
3. Maintain adequate international reserves.
4. Improve the soundness of the financial
system.
5. Play a decisive role in economic research and
policy advice to the government.
6. Create efficient Payment System.
7. Improve the currency management of the
Bank.
 Clear strategy consist of :
Specific Objectives - the Bank has developed
40 objectives
Set of Targets - Some objective lack Target (clear
Targets)
Important aspects of self-assessment steps are:
1. Choose a champion
2. Choose the core Balanced Scorecard team
3. Set schedule for the development step
4. Secure resource commitments necessary for
the development and sustain the scorecard
system .
5. Develop a roll-out Communication Plan
 Step 2- Define Strategic
Areas/Themes
Strategic areas will provide the "scope" we need
for building a set of balanced scorecards.

By reviewing strategic goals of the Bank the

following Strategies are taken as major strategic
areas/Themes:
     Stakeholders value
     Customer service
     Operational efficiency and
     Growth and transformation
 Step 3- Objectives (a Strategic Grid
process)

It is a decomposition of business strategy into

smaller components, called Objectives.
Objectives are the basic building blocks of
strategy.
 Following the recommendations to have no
more than 20 to 25 objectives, out of the 40
objectives of the Bank, 21 objectives are taken to
develop bank wide Balanced Scorecard.
 Selected NBE's Objectives
1.     Establish fair and quick currency distribution
2.     Conduct proactive research
3.     Maintain good customer relationship
4.     Provide effective and reliable advice
5.     Issue clear directives
6.     Submit high quality and comprehensive
analytical report
7.     Provide great service
8.     Increase cost efficiency
9.     Reduce operational costs
10. Implemented improved business process
11. Prepared timely and accurate analytical report
12. Established effective performance Monitoring and
Evaluation system
13. Conducted timely inspection and examination of financial
institutions
14. Increased efficiency in research and reporting
15. Implemented improved Payment system
16. Implemented Improved currency Management
system
17. Implemented Improved Performance
Management system
18. Enhanced Capacity
19. Motivated and Satisfied staff
20. Automated processes
21. Increase IT supported analytical & forecasting
tools use
 Step 4- Strategic Map ( a Strategic Grid Process)
( Build a Strategic Grid - Step 3 in Course 11
material )

• In this step a strategic Map of the organization's

overall business strategy is created.
• Using cause - effect linkages(if-then logic
connections ), the components (objectives) of strategy
are connected and placed in appropriate scorecard
perspective categories.
• Using the above 21 objectives the Strategic Map of
NBE constructed .
• The four perspectives taken for the strategic map are
the following:
1.   Customer/Stakeholders Perspective
2.   Financial/Budget Perspective
3.   Internal Business Perspective
4. Employees & organizations Capacity perspective
 Figure -1 Strategic Map -1
Perspective
Goal
Customer Internal B. Learning and Finance
Process Growth
1. Carry out Provide great •Improved Enhanced  Cost efficiency

  
institutional
transformation
service business process
•. Implemented
Capacity Cost avoidance
through the use of
tasks Performance Mgt. other alternative cost
•Effective saving mechanisms
monitoring and
reporting system
2. Maintain price High quality and Timely and •Automating •Cost efficiency
and exchange comprehensive accurate analytical processes •Cost avoidance
rate stability analytical report to reports •Use of IT through the use of
council of ministers supported other alternative cost
analytical tool saving mechanism
3. Maintain Deliver great service Effective Introduce of LAN •Cost efficiency
adequate monitoring and and Wan •Cost avoidance
international reporting system connections through the use of
reserve other alternative cost
saving mechanism
4. Improve the Issues clear Timely inspection Automation of •Cost efficiency
soundness of the directives and and examination of business •Cost avoidance
financial system maintain good financial process through the use of
customer institutions other alternative cost
 Figure -1 Strategic Map -1
Perspective
Goal
Customer Internal B. Learning and Finance
Process Growth

5. Play a Effective advice •Efficiency in Using IT  Cost efficiency

decisive role in research and supported Cost avoidance
economic reporting analytical and through the use of
research and forecasting other alternative
policy advice to tools cost saving
the Government mechanisms

6. Create Provide great Improved Extent of IT use •Cost efficiency

efficient payment service payment system for the system •Cost avoidance
systme through the use of
other alternative
cost saving
mechanism
7. Improved the Fair and quick Improved IT supported •Cost efficiency
currency distribution of currency currency •Cost avoidance
management currency distribution management through the use of
system of the system other alternative
bank. cost saving
mechanism
 Step 5- Performance
Measures (Targets)
Performance Measures are developed to track both
strategic and operational progress. measurements
provide the feedback on whether or not we are meeting
our strategic objectives. It is advisable to use three
different models to get the measures that matter most.
1.   The Logic Model
This model allow us to explore the relationship among
the four types of performance measure: inputs (what
we use to produce value), processes (how we
transform inputs into products and services), outputs
(what we produce ), and outcomes (what we
accomplish).
1.   Process flow Model
Flow-charting has been around for a long time, and has been a
favorite tool of systems engineers, and process designers, among
others. We apply the technique to build a better scorecard
performance system, as flow charting processes helps identify the
activities (and measure) that matter most to produce good outcome.
2.   Causal Analysis Model
Causal analysis identifies the causes and effects of good
performance. We start with the result ( the effect ) we want to achieve
and then identify all the causes that contribute to the desired result.
 
In this step Targets for objectives also set.
Although the Bank's strategic document set some indicators,
measures that can be used for the Balanced Scorecard are not
identified. In this proposal possible measures are identified for each
objective.
With regard targets , the strategic document doesn't show targets
separately. In this development process targets are not set, as it
requires a baseline.
 Step 6- Initiatives (Launch Programs)

• In this step new Initiatives are identified that

need to be funded and implemented to ensure
that our strategies are successful.

• Although initiatives are designed and being

used by the Bank, they are not clearly put in
the strategic document.
 NBE’s Balanced Scorecard for FY 2006/07 – 2008/09
Customer/Stakeholders Perspective
Objectives Measures Target Initiative
Provide great service •Customers satisfaction
about the service rendered
Submit high quality and •Satisfaction of members of
comprehensive analytical the council
report council of Ministers
Issue clear directives and •Complaints of financial
maintain good customer Institutions about clarity of
relationship directives and relationships
Provide effective and reliable • Effectiveness of provided
advice advises
Provide effective and reliable • Stakeholders training
advise
Prepare and submit timely •Stakeholders rating
report
Conduct proactive research •Number of research
papers
Establish fair and quick •Percent of satisfied
 Financial/Budget Perspective

Financial/Budget Perspective
Objectives Measures Target Initiative

Increase cost efficiency •Percent of cost to spend

ratio

Reduce operation costs •Percentage of

cost/budget saving
 Internal Business Perspective
Internal Business Perspective
Objectives Measures Target Initiative
Implemented improved business •Number of BPR processes
process implemented and revised
Prepared and submitted timely and •Number of timely submitted report
accurate analytical report •Extent of Govt. inflation rate
maintained

Established effective performance •Rating effectiveness of the system.

monitoring and reporting system

Conduct timely inspection and •Number of timely inspected and

examination of financial institutions examined financial institutions
•Extent of non compliance
Increased efficiency in research and •Extent of IT supported analytical
reporting tools used.
•Number of proactive researches
conducted
Implement improved payment system •Extent of gained advantages
•Proportion of implementation
Implemented improved Currency •Extent of gained advantages
Management System •Proportion of implementation
Implemented improved performance •Extent of gained advantages
 Learning and Growth Perspective

Learning and Growth Perspective

Objectives Measures Target Initiative

Enhanced capacity •Percentage of HR budget

spent on staff development
•Number of cross trained
multi skilled staff
•Percentage of employees
trained and passed.

Motivated and satisfied staff •Staff satisfaction index in

staff perception survey.

Automated processes •Extent of automation on

process

IT supported analytical and •Number of analytical tools

forecasting tools used software used
5.2 Implementing the Scorecard - ( Step 7 to Step 9 )
Step 7- Automating the Balanced Scorecard
Step seven involves automating the Balanced score card
system.
 
 Step 8- Cascading the Corporate Scorecard
(Step 7 in the Course 11 material)
Step eight involves cascading the corporate scorecard
through the organization to business and support units, and
ultimately to teams and individuals.

Step 9- Evaluating the success of chosen business

strategy
Step nine involves evaluating the success of chosen
business strategies.
 6. Good Practices
Although the balanced scorecard is relatively
straightforward concept, putting theory in practice
can be a different matter.
Many organizations using balanced scorecards may
not be obtaining breakthrough results.
The main reasons for this include:
   lack of 'buy in' by senior management;
   staff perceive the scorecard as a
measurement project; and
   Scorecards not integrated with management
system.
 Success factors and things to avoid are listed
below.
Success factors Things to avoid

Ensure that there is senior management Embark on balanced scorecard

commitment and support at the outset without a clear idea of what is to
  be achieved by introducing it.

Involve all layers of management in the  Lacking appreciation of the

development of scorecards. radical nature of the balanced
scorecard approach and the
changes that will be needed in
leadership and behavior.

Tailor scorecard for individual organizations Developing too many

by thinking about the things that have to be performance measures or
done well to achieve key goals. collecting them for the sake of it.
 Success factors and things to avoid are listed
below

Success factors Things to avoid

Encourage feedback and learning from Underestimating the time and

those involved with the implementation effort needed for
at all levels of organizations especially implementation and the
about changes in cause and effect resources and systems
relationships between key performance needed for producing
drivers. management information

Communicate the approach down

through organizations.

Use the approach in conjunction with

other tools such as benchmarking and
knowledge management.