The Balanced Scorecard Approach

What is a Balanced Scorecard? The Balanced Scorecard is a strategic planning and management system used to align business activities to the vision and strategy of the organization by monitoring performance against strategic goals.

Was first published in 1992 by Kaplan and Norton, a book followed in 1996.

The approach is to provide

'balance' to the financial

perspective

Why Use a Balanced Scorecard? Improve organizational performance by

measuring what matters Increase focus on strategy and results Align organization strategy with workers on a

day-to-day basis Focus on the drivers key to future performance Improve communication of the organization’s

Vision and Strategy Prioritize Projects / Initiatives

4 Original Business Perspectives

Adapted from The Balanced Scorecard by Kaplan & Norton

The Balanced Scorecard model suggests that we view the organization from 4 perspectives.

Then Develop metrics, collect data and analyze it relative to each of these perspectives

4 Business Perspectives

Financial What must we do to create sustainable economic value?

Internal Business Process To satisfy our stakeholders, what must be our levels of

productivity, efficiency, and quality? Learning and Growth

How does our employee performance management system, including feedback to employees, support high performance?

Customer What do our customers require from us and how are we

doing according to those requirements?

Balanced Scorecard Measurements

4 Business Perspectives 1)The Financial Perspective

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.

2)The Business Process PerspectiveThis 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.

4 Business Perspectives 3) The Learning & Growth Perspective This perspective includes employee training and corporate cultural attitudes

related to both individual and corporate self-improvement. In a knowledge-worker organization, people -- the only repository of knowledge -- are the main resource. 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."

4 Business Perspectives 4)The Customer Perspective

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.

PROCESS OF BALANCED SCORECARDPhase 1: Corporate Scorecard

Step One: Organizational AssessmentStep One of the scorecard building process is about a number of things: to finalise the Balanced Scorecard Plan which will detail, among others, all the teams that will be involved in the designing of the scorecard and the training they will require. 

Secondly, Step One involves conducting the organization assessment of the strategic elements: the mission and vision, SWOT and organization values. 

Thirdly, Step One is also about preparing a change management plan for the organization, which will entail conducting a change readiness review to determine how ready the organization is in embarking on such a journey and what needs to be put in place to make it ready, as well as defining communications strategy which will identify the target audience, key messages, media channels, timing, and messengers of the communication. The change management activities will take place throughout each step.

Step Two: StrategyStep Two (Strategy) is about determining the strategic themes, including strategic results, strategic themes, and perspectives, which are developed to focus attention on the customer needs and their value proposition. The most important element of this step is to ensure that you have unpacked what your customers are looking for from your organisation in terms of function, relationship and image to determine whether you are providing value to your customers.

PROCESS OF BALANCED SCORECARD StepThree: Objectivess

Step Three (Objectives) is about determining your organisation’s objectives – that is your organisation’s continuous improvement activities, which should link to your strategic themes, perspectives and strategic results.

Step Four: Strategy Maps The objectives designed in Step Three are linked in cause-effect relationships to produce a strategy map for each strategic theme. The theme strategy maps are then merged into an overall corporate strategy map that shows how the organisation creates value for its customers and stakeholders.

Step Five: Performance Measures In Step Five, the performance measures are developed for strategic objectives. Performance measures should be defined clearly, differentiating the outcome and output measures, as well as the leading measures (future expected performance) and lagging measures (past performance history). In this step, you will also design your performance targets. This might be perceived as the most difficult and confusing step, so it is important that a bit of time is apportioned so that the performance measures will be meaningful.

Step Six: Strategic InitiativesIn Step Six, the strategic initiatives are developed that support the strategic objectives. This is where the projects that have to be undertaken to ensure the success of the organisation (the extent to which the organisation fulfills its mandate or vision) are drafted and assigned. To build accountability throughout the organization, performance measures and strategic initiatives are assigned to owners and documented in data definition tables

PROCESS OF BALANCED SCORECARD Step Seven: Software and Automation

Step Seven (Software and Automation) involves automating the Balanced Scorecard system, and consists of analysing software options and user requirements to make the most cost-effective software choice for today and to meet enterprise performance information requirements in the future

Step 8: EvaluationStep 9 (Evaluation) involves evaluating the success of chosen business strategies. The key question asked is: Were the expected results achieved? 

The evaluation step includes the following:   Ensuring that organisational learning and knowledge building are incorporated into planning Making adjustments to existing service programmes Adding new programmes if they are more cost effective Eliminating programmes that are not delivering cost effective services or meeting customer

needs Linking planning to budgeting

Phase 2: Business Unit or Departmental and Individual Scorecards

Implementation Score card:

In this phase, the organisation’s balance scorecard is further broken in to departmental level scorecard, so that each department can focus on the elements of the complete organization scorecard. This helps in micromanaging the activities and their monitoring at lower level at intervals best suited to specific goals. The overall scorecard of the organization reports data from departmental scorecard and is viewed by higher management on monthly quarterly meetings

Balanced Scorecard Strategy Map

Department Level Scorecard Example

ADVANTAGES OF BALANCE SCORE CARD

1)Consensus on the strategy at executive level:

Building a balanced scorecard requires brain storming at Board/Higher level where discussion are held on organization’ s vision and its core values. This helps in everyone getting aligned about these basics and helps executives look for growth strategies clearly. Balanced scorecard sets the priorities for the organization and senior executives can visualize the future more clearly

2) Communicate Strategy to the Organization:

It clearly defines the steps the organization would take to achieve its goals through well planned strategy. The working of the strategy,setting priorities in line with various internal and external constraints helps the leader to appreciate the chosen strategy and its need.

3)Translates Strategy into meaningful goals:

It gives clear instruction to the organization about the clear vision what is to be done to achieve it goals. With the priorities and the game plan clearly defined, every one now focuses to achieve the goals.

4)Employee identify themselves with Goals:

It helps the employees to clearly identify themselves with how they are helping the organization to achieve its growth. It is very important that employees are explained the balance score card at each possible opportunity to help them understand the way their achievements are paving path for the organization future. Employees then feel proud to be involved in the efforts they put in on day to day basis. This further

ADVANTAGES OF BALANCE SCORE CARD

helps employees getting aligned to company’s goals and vision.

5) Processes Focus to Achieve Strategic Goals:

It focuses on various process to modify the key processes of the organization’s to achieve identified goals. Since the key processes directly affect the organization performance , more importance should be given to key processes which also in turn helps to meet the customer expectations more efficiently and helps make the organization more competitive.

6) Periodic Reporting Of Status of Strategic Goals:

It is keypart of the management system and therefore is discussed periodically. This helps keeping everyone in the organization aligned and achieve growth through balanced score card.

DISADVANTAGES OF BALANCE SCORE CARD

1) Distracts from Achieving Actual goals:

It can add a new type of reporting without improving quality, so it seems to be additional set of non value added reporting or worse, distracting from achieving goals.

2) Performance is Subjective:

Since performance is on one own feelings and not on facts the data collected will not be accurate.

3) A Scorecard and not Decision making tool:

Since it helps only in assessing performance it cannot be used as a tool for decision making

4)Leads to Lack of Focus:

It leads to lack of focus on the underlying actions that produce a good score.

5)Ignores bottom up perspective:

It only focus on top down perspective and not bottom line

6)Leads to Reluctance to Change:

7) Produces Measures form Diversified Divisions:

It produces measures from diversified divisions that cannot be aggregated at the corporate level

8)Does not give timely information

9)High Initial Cost:

Implementing a balanced scorecard system can cost a lot of money in training time and additional money for any consultants that are needed during the process