Introduction to the Balanced Scorecard

This is the first article in a series on implementing the Balanced Scorecard in your organization.

Though government agencies and private sector organizations only began learning about and depending upon the Balanced Scorecard as recently as the early 1990′s, the concept has been around much longer. In fact, French process engineers began developing the concept in the early 1900′s during the Industrial Revolution.

General Electric advanced Balanced Scorecard principles and heightened them to measure and improve company performance in the 1950′s. Dr. Robert Kaplan of Harvard Business School and Dr. David Norton solidified these concepts in their 1996 book, The Balanced Scorecard: Translating Strategy into Action. Kaplan and Norton’s modern interpretation of these concepts is what today’s organizations rely upon.

What is the Balanced Scorecard?

Before Kaplan and Norton’s concepts were publicized, organizations primarily focused on measuring financial performance. The Balanced Scorecard greatly extends the evaluation of performance by aligning all activities with the organizational strategies and measuring performance against those strategies. According to a recent Harvard Business School working paper, Conceptual Foundations of the Balanced Scorecard, as the Balanced Scorecard has continued to be adopted and implemented, Dr. Norton and Robert Kaplan have “extended and broadened the concept into a management tool for describing, communicating and implementing strategy.”

The Balanced Scorecard is a way to measure and improve all aspects of the organization using four unique perspectives. It is “balanced” in the sense that all perspectives are measured and analyzed, not just the financial perspective. An organizational strategy is decomposed into metrics in each of the four areas.

In order to understand how the Balanced Scorecard can help your organization, it’s first important to know these four perspectives and think about how each can be an expression of your strategic plan. The working paper by Norton and Kaplan explains, “before selecting metrics, companies should describe what they were attempting to achieve with their strategies, and, further, that the four BSC perspectives provides a robust structure for companies to express their strategic objectives.”

The Financial Perspective

The financial perspective is often the primary focus of an organization. The financial perspective is that of the shareholders, or those who stand to lose or gain financially based on the organization’s performance. In the case of government, the shareholders are inevitably the taxpayers.

What is your strategic plan attempting to achieve financially? Following are some examples of questions to help develop financial metrics:

  • Are the operating costs reasonable?
  • Is the return on those operational costs acceptable?
  • Are the current expenditures sustainable?
  • How can costs be reduced for a more solid financial future?
  • Are the shareholders seeing a suitable return on their investment?

The Customer Perspective

The customer is the group of people the organization exists to serve. Failing to serve the customer always has long-term consequences.

What is your strategic plan attempting to achieve for the customer? Following are questions an organization can use to help develop customer perspective metrics:

  • Does the customer receive excellent service?
  • Do the products meet the customer’s needs?
  • Are the customers satisfied with these products?
  • Are there other new products that could better meet the customers’ needs?
  • Does the customer receive their products or services in a timely manner?
  • Does the customer get an acceptable value for the product or service according to the money they’re spending?
  • Would your current customers recommend your products or services to other new customers?

Organizations commonly use customer satisfaction surveys to determine the answers to these questions. Surveys can be offered online, by phone, or through the mail.

The Internal Perspective

The internal perspective assesses how the organization is doing in terms of managing its own internal processes.

What is your strategic plan attempting to achieve internally? Following are questions that can be used to develop internal perspective metrics:

  • Is the organization competent in meeting its objectives?
  • Is the technology of the organization serving its purposes?
  • Are the internal processes streamlined for the greatest efficiency?
  • How is morale among the ranks of employees within the organization?
  • Is the organization turning out quality products and services?
  • How well is the organization’s inventory being managed?
  • Is the workforce motivated to do a good job in serving the organization, shareholders, and customers?
  • How many defective products or inferior services are produced by the organization?
  • How much rework is required to fix problems caused earlier in the process?

The internal perspective can be the most challenging to address, because it requires taking a long, hard look at the strengths and weaknesses of your employees and how well they are performing their jobs. Fortunately, many of these issues can be addressed and resolved as you examine the fourth perspective of the Balanced Scorecard.

The Innovation and Learning Perspective

The Innovation and Learning perspective involves measuring and assessing the training offered by the organization, but it goes far beyond that aspect. Innovation and learning also involves assessing and improving the attitude within the organization. Many organizations are successful in setting up mentoring programs and tutoring systems within the structure of their departments. Mentors and tutors are a way for training to be an ongoing process without disrupting the work flow for training sessions, seminars, and meetings.

What is your strategic plan attempting to achieve from an innovation and learning perspective? Following are questions to ask to help develop innovation and learning metrics:

  • Is the organization offering up to date products and services?
  • How can we continue to improve to offer better value?
  • Where is there room for improvement?
  • Is our technology meeting our needs?
  • Is the human resources department meeting our needs?
  • Is the training offered adequate for the employees who depend on it to do their jobs?
  • Are there ways for employees to get additional training when needed?
  • Do we offer a diverse line of products to meet the needs of the customer?
  • How valuable are the products we offer?

A well implemented Balanced Scorecard system is an effective tool for evaluating organizational performance in a comprehensive way. To find out more about implementing the Balance Scorecard in your organization, contact us.

 

Resources:

http://www.tutor2u.net/business/strategy/balanced-scorecard-perspectives.html

http://www.balancedscorecard.org/bscresources/aboutthebalancedscorecard/tabid/55/default.aspx

http://hbr.org/authors/kaplan-norton

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