BSC: Internal Processes Perspective
The Balanced Scorecard (BSC) is a strategic management tool that helps organizations translate their vision and strategy into a set of performance measures. One of the four perspectives in the BSC is the Internal Processes Perspective, which focuses on the internal operational goals and identifies the key processes that the organization must excel at to achieve its financial and customer objectives.
Internal Processes Perspective Overview
Objective:
- To identify and improve the critical internal processes that have the greatest impact on customer satisfaction and achieving the organization’s financial goals.
Key Focus Areas:
- Innovation Processes: Activities involved in creating new products or services and bringing them to market.
- Operational Processes: Day-to-day operations that deliver the company’s value proposition to customers.
- Post-Sale Service Processes: Processes involved in customer support, maintenance, and additional services post-sale.
Steps to Implement the Internal Processes Perspective
Identify Key Processes:
- Determine which internal processes are crucial for delivering value to customers and achieving financial targets. This can include manufacturing, logistics, sales, service delivery, and product development.
Define Process Objectives:
- Set specific objectives for each key process. Objectives should align with overall strategic goals and be measurable.
Develop Metrics and KPIs:
- Establish Key Performance Indicators (KPIs) to measure the efficiency and effectiveness of each key process. Metrics should be quantitative and provide clear insights into performance.
Set Targets:
- Define target values for each KPI to benchmark performance. Targets should be realistic yet challenging.
Implement Improvement Initiatives:
- Identify and implement initiatives aimed at improving process performance. This could include adopting new technologies, streamlining workflows, training staff, and re-engineering processes.
Monitor and Review:
- Continuously monitor the performance of internal processes using the defined KPIs. Regularly review progress towards targets and make adjustments as necessary.
Example Metrics for the Internal Processes Perspective
Innovation Processes:
- Number of new products developed
- Time to market for new products
- R&D expenditure as a percentage of sales
Operational Processes:
- Cycle time (e.g., manufacturing cycle time, order fulfillment cycle time)
- Cost per unit of output
- Defect rates and rework rates
Post-Sale Service Processes:
- Customer satisfaction scores
- Average response time to customer inquiries
- Number of service calls resolved on first contact
Example: Implementation in a Manufacturing Company
Identify Key Processes:
- Production, Quality Control, Supply Chain Management, Customer Service
Define Process Objectives:
- Reduce production cycle time by 15%
- Improve product quality to achieve a defect rate of less than 1%
- Optimize supply chain to reduce inventory costs by 10%
- Enhance customer service to achieve a satisfaction score of 90%
Develop Metrics and KPIs:
- Production cycle time (hours)
- Defect rate (percentage)
- Inventory turnover ratio
- Customer satisfaction score (survey results)
Set Targets:
- Production cycle time: 20 hours
- Defect rate: 0.5%
- Inventory turnover ratio: 8 times per year
- Customer satisfaction score: 90%
Implement Improvement Initiatives:
- Invest in new production technology to speed up manufacturing
- Implement Six Sigma for quality improvement
- Use just-in-time inventory management
- Train customer service representatives
Monitor and Review:
- Track metrics monthly and review at quarterly management meetings
- Adjust strategies based on performance data and feedback
Conclusion
The Internal Processes Perspective of the Balanced Scorecard is essential for driving internal efficiencies and effectiveness. By focusing on key processes, setting clear objectives and targets, and continuously monitoring performance, organizations can ensure they are well-positioned to meet their financial goals and deliver value to customers.
