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Balanced Scorecard + TDABC

A Balanced Scorecard measures the strategy. TDABC tells you what it costs.

Four perspectives and a strategy map that links them by cause and effect. But two of those perspectives, financial and internal process, run on estimates, allocations and averages until they have real cost. TDABC supplies it.

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Cost and Profitability Consulting · TDABC since 2010 · CostCtrl platform
Financial Runs on cost Customer Internal process Runs on cost Learning & growth Real cost · TDABC
01The four perspectives

The scorecard measures strategy across four perspectives, linked in cause and effect.

Kaplan and Norton introduced the Balanced Scorecard in Harvard Business Review in 1992 and in the 1996 book. The strategy map, from 2004, linked the four perspectives by cause and effect.

Depends on cost

Financial

How we create value for shareholders. Profitability, revenue, return.

 

Customer

How customers see us. Satisfaction, retention, market share.

Depends on cost

Internal process

Which processes we must excel at. Cost, quality and time of each process.

 

Learning and growth

How we sustain the ability to change. People, systems and culture.

Two perspectives depend on cost. The financial and internal-process perspectives only work if you know what things actually cost. Most scorecards measure them with allocations, averages and proxies. That is where TDABC comes in.

VISION & STRATEGY TDABC REINFORCES Financial How do we look to shareholders? NON-FINANCIAL Customer How do customers see us? TDABC REINFORCES Internal process What must we excel at? NON-FINANCIAL Learning & growth How do we keep improving? Balanced Scorecard - Kaplan & Norton, HBR 1992 / book 1996 VISION & STRATEGY TDABC REINFORCES Financial How do we look to shareholders? NON-FINANCIAL Customer How do customers see us? TDABC REINFORCES Internal process What must we excel at? NON-FINANCIAL Learning & growth How do we keep improving? Balanced Scorecard - Kaplan & Norton, HBR1992 / book 1996
02Where the scorecard breaks

A scorecard without real cost is half a scorecard.

Most scorecards measure KPIs carefully, but cost the financial and process perspectives with allocations and averages. The profitability KPI ends up being revenue minus a cost smeared across the whole organisation.

Financial perspective on proxy cost

The profitability KPI rests on costs spread by allocation keys. It shows you revenue by product, not real margin by product and customer.

Process perspective with no activity cost

The process perspective measures time and quality, but rarely the real cost and capacity of each process. It does not know what each activity consumes or what is idle.

Strategy map without numbers

The strategy map links causes to effects, but without real cost those arrows cannot be quantified in money. It stays a narrative, not a model.

This is the gap TDABC closes: it gives real cost and margin to the two perspectives that silently depend on them.

03How TDABC completes the scorecard

TDABC supplies the missing number. Real cost by activity, product and customer.

Kaplan and Anderson created Time-Driven Activity-Based Costing in 2004. With two parameters, the capacity cost rate and the time equations, it attributes real cost to each activity, product and customer. Wired to the scorecard, it feeds the two perspectives that depend on cost.

Financial perspective

With real margin

The financial perspective starts to show true margin by product and customer, and the whale curve that reveals where margin is won and where it is lost. It stops being just revenue.

Internal-process perspective

With real cost and capacity

The internal-process perspective starts to show the real cost of each process and the unused capacity that averages hide. The strategy map arrows become quantified in euros.

04The strategy map, costed

TDABC puts a number on each arrow of the map.

The strategy map shows cause and effect: better learning leads to better processes, which lower cost-to-serve, which improves customer profitability, which delivers the financial result. TDABC is what quantifies each link in this chain.

+€1.2M true margin uplift TDABC QUANTIFIES −€0.80 per order to serve TDABC QUANTIFIES +€420k capacity freed TDABC QUANTIFIES Financial Grow customer profitability +€1.2MTRUE MARGIN Customer Lower cost to serve, keep value Internal process Excel at the high-cost activities Learning & growth Build the capabilities behind it Strategy map - Kaplan & Norton, 2004. Euro values illustrative. Financial Grow customer profitability +€1.2M TRUE MARGIN +€1.2M true margin uplift TDABC QUANTIFIES Customer Lower cost to serve, keep value −€0.80 per order to serve TDABC QUANTIFIES Internal process Excel at the high-cost activities +€420k capacity freed TDABC QUANTIFIES Learning & growth Build the capabilities behind it Strategy map - Kaplan & Norton, 2004. Eurovalues illustrative.
01
Learning and growth
People, systems and skills that make improvement possible. It is the base of the cause-and-effect chain.
TDABC quantifies
Capacity cost
02
Internal process
The processes the organisation must excel at. Better processes lower the time and cost of each activity.
TDABC quantifies
Cost per processUnused capacity
03
Customer
What the customer receives and what it costs to serve them. A lower cost-to-serve improves each customer profitability.
TDABC quantifies
Cost-to-serveMargin by customer
04
Financial
The result of the whole chain. More profitable customers and products deliver the profitability the financial perspective measures.
TDABC quantifies
Real marginWhale curve
05What we deliver

Real cost wired to your scorecard financial and process perspectives.

01

Wired TDABC model

A TDABC model wired to your scorecard financial and process perspectives.

02

Margin by product and customer

True margin by product and customer for the financial perspective, with whale curve.

03

Cost and capacity per process

Real cost and unused capacity per process, for the internal-process perspective.

04

A costed strategy map

A strategy map where each cause-and-effect arrow carries a number in euros.

05

CostCtrl platform

CostCtrl to keep the scorecard cost layer live as the data changes.

Independent, fixed-scope, 6 to 10 weeks. We do not sell scorecard software or KPIs. We give real cost to the perspectives that depend on it, and your team learns the method as it goes.

06Who it is for

For those whose scorecard cost side needs to be real.

  • 01
    CFOs and strategy or PMO leaders running a Balanced Scorecard or an Office of Strategy Management who need the cost side to be real.
  • 02
    Organisations whose scorecard financial KPIs are revenue proxies, not real margin.
  • 03
    Anyone whose strategy map cannot be quantified in money.
  • 04
    Teams refreshing the internal-process perspective who need the real cost of each process.
Function
CFO / FinanceStrategy / PMOManagement control
System
Balanced ScorecardStrategy mapOffice of Strategy Mgmt
07Frequently asked questions

What people ask before starting.

How does TDABC relate to the Balanced Scorecard?
The Balanced Scorecard measures strategy across four perspectives. Two of them, financial and internal process, depend on knowing what things cost. TDABC supplies that number: real cost and margin by activity, product and customer. Without it, the scorecard measures half of what it claims to measure.
Which BSC perspectives does TDABC strengthen?
The two that depend on cost: the financial perspective and the internal-process perspective. The financial perspective starts to show true margin by product and customer, not just revenue. The internal-process perspective starts to show the real cost and capacity of each process, not averages.
Do we replace our scorecard?
No. TDABC completes it. You keep your Balanced Scorecard, its perspectives and its strategy map. What we do is give real cost to the financial and internal-process perspectives, so the KPIs stop resting on estimates.
What is a strategy map and how does cost fit?
The strategy map (Kaplan and Norton, 2004) shows cause-and-effect links between the four perspectives: better learning leads to better processes, which lower cost-to-serve, which improves customer profitability, which delivers the financial result. TDABC is what puts a number in euros on each of those arrows.
Who created the Balanced Scorecard?
Robert Kaplan and David Norton. They introduced it in a Harvard Business Review article in 1992 and developed it in the book The Balanced Scorecard in 1996. The strategy map came later, in Strategy Maps, in 2004.
Is this the same as the Execution Premium?
It is related. The Execution Premium (Kaplan and Norton, 2008) is the management system that links strategy to execution, and the Balanced Scorecard is one of its pieces. We work the cost side of both. See the sibling page on strategy and execution with TDABC.
How long does it take?
We deliver a TDABC model wired to your scorecard financial and process perspectives in 6 to 10 weeks, at a fixed scope. Your team receives the process map, the time equations and margin by product and customer, and learns the method as it goes.
Do we need CostCtrl?
Not to start. We deliver the TDABC model and the results independently. CostCtrl, our platform, is what keeps the scorecard cost layer live: it recomputes margins and cost per process as the data changes, instead of the model dying in a spreadsheet.

Related reading: Strategy and execution with TDABC · Cost-to-serve · Lean Six Sigma + TDABC · Free Profit Check

References

Sources

Canonical works behind this method. Each opens in a new tab.

  1. Paper
    The Balanced Scorecard: Measures That Drive PerformanceKaplan, R. S. & Norton, D. P. (1992). Harvard Business Review 70(1).
    Foundational article introducing the four-perspective Balanced Scorecard.
  2. Paper
    Having Trouble with Your Strategy? Then Map ItKaplan, R. S. & Norton, D. P. (2000). Harvard Business Review 78(5).
    Introduces strategy maps linking scorecard perspectives into cause-and-effect chains.
  3. Book
    The Strategy-Focused OrganizationKaplan, R. S. & Norton, D. P. (2001). Harvard Business School Press.
    Implementing the scorecard to align an organization around strategy.
  4. Paper
    Time-Driven Activity-Based CostingKaplan, R. S. & Anderson, S. R. (2004). Harvard Business Review 82(11).
    The founding article defining TDABC and its two-parameter model.
Bring your scorecard

Bring your scorecard. We will give its financial and process perspectives a real cost.

No deck, no follow-up sequence. A senior partner. Thirty minutes. Free. NDA on request.

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Proof

A distributor in New Zealand. €1.335M of cost-to-serve made visible, then halved, and 830 loss-making customers brought down to 295.

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Who you would be talking to

Miguel Guimarães, Founding Partner

Cost and profitability practitioner for 25+ years. Presented the Damco cost-to-serve case at Managing for Profit (Amsterdam RAI, December 2009), on the same programme as Robert S. Kaplan.

Call +351 910 313 731

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Miguel Guimarães

Reviewed by

Miguel Guimarães

Founding Partner, Cost and Profitability Consulting

More than 150 Time-Driven ABC engagements across 11 sectors since 2010, working within the Kaplan and Anderson framework.

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