Balanced Scorecard
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The Balanced
Scorecard is a management tool to mobilize employees
to fulfill the mission of the organization. It is founded on principles
developed by Robert S. Kaplan and David P. Norton, and published in their book,
The Balanced Scorecard: Translating Strategy into Action.
The scorecard is a method of designing, organizing and communicating performance measures across
multiple perspectives (i.e. customer, financial, business process and
learning and growth), utilizing both short and long term time horizons. The scorecard conveys the strategic plan to organization
members, and it monitors each perspective simultaneously so that each
perspective continuously supports the strategic plan.
The scorecard is an
analysis technique to translate an organization's mission statement and overall
business strategy into specific, quantifiable goals and to monitor the
organization's performance in terms of achieving these goals. The
Balanced Scorecard is an integral part of
OPX.
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| Measures |
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At its
simplest, measures are the quantification of an action or activity. Different
measurements occur at different organizational levels.
Some measurements are lagging, and some measurements are leading: A good
scorecard has a balance of both. Both outcomes and performance drivers
should be included in each business unit's balanced scorecard.
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Outcomes are lagging indicators, and are
the final results of all of an organization's products and services.
Examples would be: enhanced mobility, safe drinking water, and increasing the
quantity and quality of open space.
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Performance drivers, also known as leading indicators or inputs, are
measures that are unique to each organization or business unit.
Performance drivers and inputs measure the employee and unit activities, which
in turn, result in outcomes. |
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Perspectives
of the Balanced Scorecard |
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Businesses too frequently use only financial and
process measures to
evaluate their performance. The balanced
scorecard approach broadens the measurement of performance by
looking at work from multiple perspectives:
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| Best
practices of the Balanced Scorecard include |
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- Measure performance of all strategic
goals
- Maintain a balanced set of measures
- People are held
personally accountable for results
- Develop solid baseline data
- Match resources to goals
and objectives
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Effective
Measures Should be |
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Aligned with
enterprise strategy.
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Supported by
leadership.
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Clear and understandable.
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A balance of lagging and leading
indicators.
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Linked to
individuals and/or teams, with organizational goals in-sight.
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A centerpiece of the
management process.
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Barriers
to Successful Measurement Include |
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Inability to
reach consensus on goals or measures.
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Insufficient
involvement of end users of the measurement system.
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Routine habits,
inflexible processes, cherished systems, and static culture are all
obstacles to successful measurement.
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Fear or unwillingness to change.
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Measuring what is easy
or known, rather than identifying what needs to be measured.
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Cause-and-Effect Relationships |
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"Every measure selected
for a Balanced Scorecard should be an element of a chain of cause-and-effect
relationships that communicates the meaning of the business unit's strategy to
the organization."
-- The
Balanced Scorecard, Kaplan and Norton (p. 149)
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| Learning
more about the Balanced
Scorecard |
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The book, The Balanced Scorecard: Translating Strategy into
Action, by Robert S. Kaplan and David P. Norton is a great starting point to
learn more about perspectives and measures.
Other sources for learning may be found on the internet.
Click this link for more information about on-line
learning opportunities.
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The Customer Perspective |
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Who is your customer?
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What services or products do they expect
from you?
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How do you listen to and learn from your customer?
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How do you retain and acquire new customers?
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How do you meet your
customers needs?
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How do you measure customer satisfaction and dis-satisfaction
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The Financial Perspective |
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There is a broad range of
traditional financial questions that can be asked. The questions
can address short and long-term time horizons. Depending upon the
standards in your industry, return on investment (ROI), revenue
enhancement and growth, risk, and improved productivity are all
reasonable financial measures. The measures from other scorecard
perspectives should be linked in a cause-and-effect relationship towards
achieving the desired financial outcomes.
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The Business Process Perspective |
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- What products or services
will your customers value in the future?
- What processes best
deliver the outcomes desired by the customers?
- Looking into the
future, what are the new business processes that you must excel at?
- What will be valued in the future, and how will innovation deliver
future values?
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The Learning and Growth Perspective |
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The learning and growth
perspective supports the other three perspectives. Ultimately, if
the workforce is not enabled with knowledge, innovation and advanced
skill sets, the workforce will be unable to build and enhance innovative
business processes, that in-turn will help retain and acquire new
customers, and ultimately achieve financial objectives.
"A core group of three employee-based
measures--satisfaction, productivity and retention--provide outcome measures
from investments in employees, systems and organizational alignment."
--
The Balanced Scorecard, Kaplan and Norton (p. 146)
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