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.
Kaplan and Norton describe the innovation of the balanced scorecard as follows:
"The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation."
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:
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. Government agencies often find themselves unable to hire new technical workers, and at the same time there is a decline in training of existing employees. This is a leading indicator of 'brain drain' that must be reversed. 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." One of these, the Intranet, will be examined in detail later in this document.
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.
Kaplan and Norton do not disregard the traditional need for financial data. 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.
The original Balanced Scorecard concepts were developed in the late 1980s – and were publicized by Kaplan & Norton in a 1992 Harvard Business Review paper. The early Balanced Scorecard focused on strategy and vision, but said little about how to design or use effectively. Over last decade the understanding of balanced scorecard has improved – Balanced Scorecard design and design methods have evolved to address the shortfalls inherent in the original approach. The latest version of Balanced Scorecard is “3rd generation” – it offers major benefits to users and developers over prior versions.
1st generation Balanced Scorecards broke new ground by combining financial and non-financial performance measures grouped into four perspectives.
2nd generation Balanced Scorecards defined strategic objectives, linked together using a causal “strategy map” to help identify the activities and results that needed to be measured.
3rd generation Balanced Scorecards use the creation of a “Destination Statement” as the starting point for choosing Strategic Objectives, selecting measures and setting targets.
Two common and important characteristics of Balanced Scorecard designs are the clustering of similar types of measures into groups (often called perspectives), and a focus on limiting the number of measures reported to improve clarity and utility.
The potential benefits of a balanced Scorecard are dependent on what it is to be used for. Simply having a Balanced Scorecard is not enough- the scorecard will only be useful if it is correctly applied. There are 2 distinct applications for a BSC. Although visually similar, these 2 applications require substantially different design and development processes, and provide different benefits. The 2 applications are:
Use of Balanced Scorecard to help managers monitor and control the delivery of a pre-defined set of activities- often with a view toward achieving “best practice” performance levels. The Balanced Scorecard approach offers a holistic but focused view of performance measurement. By requiring managers to identify a concise set of process measures across the four Balanced Scorecard perspectives they are challenged, for example, to find ways of reflecting the role of customer satisfaction and the impact of innovation and improvement activities on performance in addition to articulating more typical financial and operational measures.
Balanced Scorecard developed for the purpose of Management control tend to favor use of “benchmark” data- both in terms of the measures selected and in terms of the targets set. As processes can usually be defined fairly thoroughly, it is also not uncommon for some element of simulation or modeling to be used to “calibrate” the measures and targets.
Use of Balanced Scorecard to help managers monitor the performance of an organization as it implements activities associated with the implementation of a strategic plan. When used this way, the role of the Balanced Scorecard shifts from the tracking of performance of a process, to the monitoring of whether or not strategic objectives have been achieved, and the extent to which the actions required to achieve them have been undertaken and are working. Management teams using this type of Balanced Scorecard use the information it provides to support decision making about what “interventions” might be required to ensure that the organization’s strategic goals are successfully achieved.
Balanced Scorecard development for the purpose of Strategic control is underpinned by a methodology that enables managers to establish their strategic objectives across a holistic view of the business, and to identify relevant measures that allow them to control and monitor organizational performance against these objectives. However, a crucial additional benefit is that having done this, the strategic Balanced Scorecard can support the articulation and communication of strategic requirements to the wider business.
The major weakness of Balanced Scorecard, almost by dint of its very simplistic definition in the original article (Kaplan and Norton, 1992) that introduced the concept, stems from, in almost equal measure, the negative impact of poorly thought through changes to the original design that regularly appear when it is implemented, and from use of ineffective processes to select the information that appears on the Balanced Scorecard (whatever its design).
© Paul Arveson 1998
1. It improves the bottom line by reducing process cost and improving productivity and mission effectiveness.
2. A performance measurement system such as the Balanced Scorecard allows an agency to align its strategic activities to the strategic plan. It permits -- often for the first time -- real deployment and implementation of the strategy on a continuous basis. With it, an agency can get feedback needed to guide the planning efforts. Without it, an agency is 'flying blind'.
3. Measurement of process efficiency provides a rational basis for selecting what business process improvements to make first.
4. It allows managers to identify best practices in an organization and expand their usage elsewhere.
5. The visibility provided by a measurement system supports better and faster budget decisions and control of processes in the organization. This means it can reduce risk.
6. Visibility provides accountability and incentives based on real data, not anecdotes and subjective judgements. This serves for reinforcement and the motivation that comes from competition.
7. It permits benchmarking of process performance against outside organizations.
8. Collection of process cost data for many past projects allows us to learn how to estimate costs more accurately for future projects.
9. If you are in a US Federal agency, it's the law. The Government Performance and Results Act of 1993 requires a strategic plan, and a method of measuring the performance of strategic initiatives.
10. It can raise you agency's Baldrige score, which can serve to increase its long-term chances of survival
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Why? The "Balanced Scorecard" drives the success of your organization forward by making your strategy visible and compelling throughout the company. Clarity of vision leads all individuals in the organization to focus their energies on truly value-added efforts, achieving remarkable results. |
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What? The Balanced Scorecard, most eloquently outlined by Robert Kaplan and David Norton, is a way of taking your strategic vision of your organization's path to success and mapping it to a dashboard - a manageable set of metrics that tell you if you are on track. Three key elements are:
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How? Our Total Goal Management system enables complete line of sight visibility and instant communication of strategic goals organization-wide. Its design inherently fosters the use of metrics and clearly defined targets, as well as enables comprehensive alignment of goals throughout the organization. |
Information from Caro and Co