The Balanced Scorecard is a strategic planning and management system that organizations use to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals. It was originated by Drs. Robert Kaplan (Harvard Business School) and David Norton as a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics to give managers and executives a more 'balanced' view of organizational performance. While the phrase Balanced Scorecard was coined in the early 1990s, the roots of this type of approach are deep, and include the pioneering work of General Electric on performance measurement reporting in the 1950s and the work of French process engineers (who created the Tableau de Bord – literally, a "dashboard" of performance measures) in the early part of the 20th century.
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The Balanced Scorecard suggests that we view the organization from four perspectives, and to develop metrics, collect data and analyze it relative to each of these perspectives:
The Learning & Growth Perspective, The Business Process Perspective, The Customer Perspective, and The Financial Perspective.
This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In the current climate of rapid technological change, it is becoming necessary for knowledge workers to be in a continuous learning mode. Metrics can be put into place to guide managers in focusing training funds where they can help the most. In any case, learning and growth constitute the essential foundation for success of any knowledge-worker organization.
Kaplan and Norton emphasize that 'learning' is more than 'training'; it also includes things like mentors and tutors within the organization, as well as that ease of communication among workers that allows them to readily get help on a problem when it is needed. It also includes technological tools; what the Baldrige criteria call "high performance work systems."
This perspective refers to internal business processes. Metrics based on this perspective allow the managers to know how well their business is running, and whether its products and services conform to customer requirements (the mission). These metrics have to be carefully designed by those who know these processes most intimately; with our unique missions these are not something that can be developed by outside consultants.
In addition to the strategic management process, two kinds of business processes may be identified: a) mission-oriented processes, and b) support processes. Mission-oriented processes are the special functions of government offices, and many unique problems are encountered in these processes. The support processes are more repetitive in nature, and hence easier to measure and benchmark using generic metrics.
Recent management philosophy has shown an increasing realization of the importance of customer focus and customer satisfaction in any business. These are leading indicators: if customers are not satisfied, they will eventually find other suppliers that will meet their needs. Poor performance from this perspective is thus a leading indicator of future decline, even though the current financial picture may look good.
In developing metrics for satisfaction, customers should be analyzed in terms of kinds of customers and the kinds of processes for which we are providing a product or service to those customer groups.
Timely and accurate funding data will always be a priority, and managers will do whatever necessary to provide it. In fact, often there is more than enough handling and processing of financial data. With the implementation of a corporate database, it is hoped that more of the processing can be centralized and automated. But the point is that the current emphasis on financials leads to the "unbalanced" situation with regard to other perspectives.
There is perhaps a need to include additional financial-related data, such as risk assessment and cost-benefit data, in this category.
Implementing the Balanced Scorecard in an organization, to reap its many benefits, involves a systematic approach. The organization needs to start by defining its strategic objectives, then move on to the development of a strategy map. Following this, the organization needs to define strategic measures and targets, and finally, it needs to automate the scorecard using a suitable software tool.
Each of these steps is critical and requires careful thought and planning. The implementation process is iterative and may need to be revisited several times before the scorecard is fully operational.
The first step in implementing the Balanced Scorecard is to define the organization's strategic objectives. These are the high-level goals that the organization wants to achieve. They should be aligned with the organization's mission and vision, and should be clear, concise, and measurable.
Strategic objectives should cover all four perspectives of the Balanced Scorecard - financial, customer, internal process, and learning and growth. They should also be balanced in terms of short-term and long-term objectives.
Once the strategic objectives have been defined, the next step is to develop a strategy map. A strategy map is a visual representation of the organization's strategy and how it plans to achieve its objectives. It shows the cause-and-effect relationships between the strategic objectives across the four perspectives.
The strategy map helps to communicate the strategy to all levels of the organization and ensures that everyone understands how their work contributes to the achievement of the strategic objectives.
After the strategy map has been developed, the next step is to define strategic measures and targets. These are the specific metrics that will be used to track the progress of the strategic objectives. They should be SMART - Specific, Measurable, Achievable, Relevant, and Time-bound.
Each strategic objective should have at least one measure and target. The measures should be balanced between lag indicators (which show the results of past actions) and lead indicators (which predict future performance).
The final step in implementing the Balanced Scorecard is to automate it using a suitable software tool. This tool should be able to capture the data for the strategic measures, calculate the scores for the strategic objectives, and generate reports and dashboards for management review.
The tool should also support the management review process, by providing features for tracking actions, assigning responsibilities, and recording decisions. It should be easy to use and should integrate with the organization's existing systems and processes.
The Balanced Scorecard provides several benefits to organizations that implement it. It helps to align the organization's activities with its strategy, improves communication of the strategy, and provides a framework for performance measurement and management.
The Balanced Scorecard also helps to balance the focus on financial measures with other important aspects of performance, such as customer satisfaction, internal process efficiency, and learning and growth. This leads to a more holistic view of performance and a better understanding of the drivers of financial results.
One of the key benefits of the Balanced Scorecard is that it helps to align the organization's activities with its strategy. By defining strategic objectives and measures, and linking them to the organization's activities, the Balanced Scorecard ensures that everyone in the organization is working towards the same goals.
This alignment helps to focus the organization's resources on the most important activities, and reduces the risk of wasted effort and resources. It also helps to ensure that the organization's strategy is implemented effectively and efficiently.
The Balanced Scorecard also helps to improve the communication of the organization's strategy. The strategy map provides a visual representation of the strategy, which makes it easier to understand and communicate. The strategic measures and targets provide a clear and measurable definition of what the organization is trying to achieve.
This improved communication helps to ensure that everyone in the organization understands the strategy and their role in implementing it. It also helps to build commitment and engagement with the strategy, which is critical for its success.
The Balanced Scorecard provides a framework for performance measurement and management. It defines the key performance indicators (KPIs) that the organization needs to track, and provides a structure for reporting and reviewing performance.
This framework helps to ensure that performance is measured in a consistent and meaningful way, and that performance data is used effectively for decision making. It also helps to identify performance gaps and areas for improvement, and to track the progress of improvement initiatives.
While the Balanced Scorecard provides many benefits, implementing it is not without its challenges. These include the difficulty of defining strategic objectives and measures, the need for cultural change, and the need for ongoing commitment and support from top management.
However, with careful planning and execution, these challenges can be overcome, and the benefits of the Balanced Scorecard can be realized.
One of the main challenges in implementing the Balanced Scorecard is defining the strategic objectives and measures. This requires a clear understanding of the organization's strategy and the key drivers of performance. It also requires a balance between financial and non-financial measures, and between short-term and long-term objectives.
This challenge can be overcome by involving a wide range of stakeholders in the process, and by using a structured approach to strategy formulation and performance measurement. It may also be helpful to use a facilitator or consultant with experience in the Balanced Scorecard methodology.
Implementing the Balanced Scorecard often requires a significant cultural change. This includes a shift from a focus on financial measures to a more balanced view of performance, and from a short-term focus to a longer-term perspective. It also requires a commitment to transparency and accountability, and a willingness to use performance data for decision making.
This cultural change can be facilitated by strong leadership, effective communication, and training and development. It is also important to involve employees in the process, and to recognize and reward their contributions to the implementation of the Balanced Scorecard.
The successful implementation of the Balanced Scorecard requires ongoing commitment and support from top management. This includes a commitment to the Balanced Scorecard methodology, and a willingness to invest the necessary resources in its implementation.
Top management also needs to lead by example, by using the Balanced Scorecard for their own performance management, and by demonstrating a commitment to transparency and accountability. They also need to provide ongoing support and encouragement to the teams and individuals involved in the implementation of the Balanced Scorecard.
The Balanced Scorecard is a powerful tool for strategic management, that can help organizations to align their activities with their strategy, improve communication of the strategy, and provide a framework for performance measurement and management. However, implementing the Balanced Scorecard is not without its challenges, and requires careful planning, cultural change, and ongoing commitment and support from top management.
Despite these challenges, the benefits of the Balanced Scorecard are substantial, and can lead to improved performance, better decision making, and a more sustainable and successful organization. Therefore, it is a tool that is well worth considering for any organization that is serious about improving its strategic management and performance.
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