Balanced Scorecard

What is the balanced scorecard?

Perhaps it is best to turn to the experts at the Balanced Scorecard Institute for a definition: "The balanced scorecard is a management system (not only a measurement system) that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When fully deployed, the balanced scorecard transforms strategic planning from an academic exercise into the nerve center of an enterprise."

Dr. Robert Kaplan and Dr. David Norton, who recognized the weakness and vagaries of other management systems and sought to correct them, developed the balanced scorecard in the early 1990's. It incorporates the financial data that used to be the sole criterion for successful organizational planning, but also brings into play other less-tangible aspects of a successful organization, thus creating a balance with the financial perspective.

How does it work?

The balanced scorecard measures success from four different perspectives: learning and growth, business processes, customer and financial. Financial information is a benchmark of past performance, but is not always adequate in determining the future of an organization in a constantly changing world.

Making measurements in different non-financial areas enables management to see the whole more clearly, to see the relationships among components and to make better decisions for the long-term health and growth of the organization.

The Learning and Growth Perspective measures employee training and corporate cultural attitudes and includes initiatives like improving employee skills, mentoring and tutoring within the organization, and lowering attrition rates. The Business Process perspective focuses on internal business processes, examining how the organization operates, whether the organization is meeting client needs, and finding solutions to streamline and improve procedures. The Customer perspective measures the satisfaction of the customers and clients with an organization. A low measurement in this category can be a portent of a doom for an organization: dissatisfied customers will look elsewhere for their products and services. Finally, while it may not be the "be all and end all" of performance tracking, financial information has an important role to play in measuring performance.

To reflect the overall goals of the organization, the four perspectives can be given value equally or given different weighting. The City of Charlotte, which employs the balanced scorecard approach for all 13 of its business units, values the customer perspective highest, at 38%, followed by internal processes at 27%, growth and learning at 21% and financial at 13%. The emphasis on the customer perspective and internal processes reflects the city's desire to provide efficient and beneficial services and government to city residents, while attention is still be paid to the bottom-line.

How can I implement it?

Because it measures a range of different outcomes, the balanced scorecard can be used effectively by for-profit and not-for-profit organizations.

There are several key milestones to "properly lay the groundwork for a successful implementation", as defined by Eric Berkman in an article on CIO.com. Though his article approaches the scorecard from an Information Technology perspective, it is equally applicable to any scenario.

Prepare the organization for change - Before starting the process, an organization must define an overall strategy and broad strategic goals, and preferably, designate a scorecard champion.

Devise the right metrics - Identify what you want to measure, and how you will measure it. What are you financial goals? How will you know if you are meeting the needs of your customers/clients? What training programs will be most beneficial to employees? By defining appropriate metrics, an organization can set our measurable short- and long-term goals, and put in place the systems to achieve them.

Get buy-in at all levels - The balanced scorecard only works if everyone is onboard. It represents a change from the way many organizations operate, which in turn can lead to paranoia and discomfort. Through training, workshops and strong communication, everyone from CEOs and Directors down to entry-level employees can be united in the balanced scorecard process, rather than one manager announcing the scorecard like Moses atop Mount Sinai.

Follow through to completion - The balanced scorecard is a marathon, not a sprint. Stay with the process, keep everyone motivated to achieve their individual and organizational goals, and results will follow.

While is not a panacea for success, with proper planning, implementation and follow-up, the balanced scorecard can be a highly effective and useful tool for focusing all parts of the organization on the same vision and objectives and for charting the accomplishments and planning the future of an organization.

Further reading

Balanced Scorecard Institute - www.balancedscorecard.org
Balanced Scorecard Collaborative - www.bscol.com
"Why Balanced Scorecards Fail?" - www.schneiderman.com/Activities/publications.htm#BS article
"How to use the Balanced Scorecard" by Eric Berkman - www.cio.com/archive/051502/scorecard_content.html