Balance Scorecard

The balanced scorecard is a strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide 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. obert !aplan "#arvard Business School$ and David %orton as a performance measurement framewor& that added strategic non'financial performance measures to traditional financial metrics to give managers and executives a more (balanced( view of organizational performance. )hile the phrase balanced scorecard was coined in the early *++,s, the roots of the this type of approach are deep, and include the pioneering wor& of -eneral .lectric on performance measurement reporting in the *+/,0s and the wor& of 1rench process engineers "who created the Tableau de Bord 2 literally, a 3dashboard3 of performance measures$ in the early part of the 4,th century. The balanced scorecard has evolved from its early use as a simple performance measurement framewor& to a full strategic planning and management system. The 5new6 balanced scorecard transforms an organization0s strategic plan from an attractive but passive document into the 3marching orders3 for the organization on a daily basis. It provides a framewor& that not only provides performance measurements, but helps planners identify what should be done and measured. It enables executives to truly execute their strategies. 3The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an ade7uate story for industrial age companies for which investments in long'term capabilities and customer relationships were not critical for success. These financial measures are inade7uate, however, for guiding and evaluating the 8ourney that information age companies must ma&e to create future value through investment in customers, suppliers, employees, processes, technology, and innovation.3

Perspectives

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 perspectives9 The Learning & Growth Perspective This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self'improvement. In a &nowledge'wor&er organization, people '' the only repository of &nowledge '' are the main resource. In the current climate of rapid technological change, it is becoming necessary for &nowledge wor&ers to be in a continuous learning mode. :etrics 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 &nowledge'wor&er organization. !aplan and %orton emphasize that (learning( is more than (training(; it also includes things li&e mentors and tutors within the organization, as well as that ease of communication among wor&ers that allows them to readily get help on a problem when it is needed. It also includes technological tools; what the Baldrige criteria call 3high performance wor& systems.3 The Business Process Perspective This perspective refers to internal business processes. :etrics based on this perspective allow the managers to &now how well their business is running, and whether its products and services conform to customer re7uirements "the mission$. These metrics have to be carefully designed by those who &now these processes most intimately; with our uni7ue missions these are not something that can be developed by outside consultants. The Customer Perspective ecent management philosophy has shown an increasing realization of the importance of customer focus and customer satisfaction in any business. These are leading indicators9 if customers are not satisfied, they will eventually find other suppliers that will meet their needs. <oor performance from this perspective is thus a leading indicator of future decline, even though the current financial picture may loo& good. In developing metrics for satisfaction, customers should be analyzed in terms of &inds of customers and the &inds of processes for which we are providing a product or service to those customer groups. The Financial Perspective !aplan and %orton 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. )ith 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 3unbalanced3 situation with regard to other perspectives. There is perhaps a need to include additional financial'related data, such as ris& assessment and cost'benefit data, in this category.

Building = Implementing a Balanced Scorecard9 %ine Steps to Success

The balanced scorecard is a strategic planning and management system that helps everyone in an organization understand and wor& towards a shared vision. > completed scorecard system aligns the organization0s picture of the future "shared vision$, with business strategy, desired employee behaviors, and day'to'day operations. Strategic performance measures are used to better inform decision'ma&ing and show progress toward desired results. The organization can then focus on the most important things that are needed to achieve its ?ision and satisfy customers, sta&eholders, and employees. @ther benefits include measuring what matters, identifying more efficient processes focused on customer needs, improving prioritization of initiatives, improving internal and external communications, improving alignment of strategy and day'to'day operations, and lin&ing budgeting and cost control processes to strategy.

"Alic& for larger image$ The components of the management system are shown in the figure above. Starting at 5high altitude6, :ission, ?ision, and Aore ?alues are translated into desired Strategic esults. The organization0s 5<illars of .xcellence6, or Strategic Themes, are selected to focus effort on the strategies that matter the most to success. Strategic @b8ectives are used to decompose strategy into actionable components that can be monitored using <erformance :easures. :easures allow the organization to trac& results against targets, and to celebrate success and identify potential problems early enough to fix them. 1inally, Strategic Initiatives translate strategy into a set of high'priority pro8ects that need to be implemented to ensure the success of strategy. .ngaged leadership and interactive, two'way communication are the cornerstones of a successful management system. @nce the strategic thin&ing and necessary actions are determined, annual program plans, pro8ects and service level agreements can be developed and translated into budget re7uests. The balanced scorecard management system is built by the organization0s leaders, managers, and other employees. 1acilitated wor&shops, led by our senior consultants, &eep

employees at all levels of the organization engaged, on trac& and on schedule. @ur award' winning balanced scorecard framewor&, %ine Steps to SuccessB , is a disciplined, practical approach to developing the management system. )e have used this framewor& to train over /,,, people and have consult with over *,, companies in */ countries.

"Alic& for larger image$ Step @ne of the scorecard building process starts with an assessment of the organization0s :ission and ?ision, challenges "pains$, enablers, and values. Step @ne also includes preparing a change management plan for the organization, and conducting a focused communications wor&shop to identify &ey messages, media outlets, timing, and messengers. In Step Two, elements of the organization0s strategy, including Strategic esults, Strategic Themes, and <erspectives, are developed by wor&shop participants to focus attention on customer needs and the organization0s value proposition. In Step Three, the strategic elements developed in Steps @ne and Two are decomposed into Strategic @b8ectives, which are the basic building bloc&s of strategy and define the organization(s strategic intent. @b8ectives are first initiated and categorized on the Strategic Theme level, categorized by <erspective, lin&ed in cause'effect lin&ages "Strategy :aps$ for each Strategic Theme, and then later merged together to produce one set of Strategic @b8ectives for the entire organization. In Step 1our, the cause and effect lin&ages between the enterprise'wide Strategic @b8ectives are formalized in an enterprise'wide Strategy :ap. The previously constructed theme Strategy :aps are merged into an overall enterprise'wide Strategy :ap that shows how the organization creates value for its customers and sta&eholders. In Step 1ive, <erformance :easures are developed for each of the enterprise'wide Strategic @b8ectives. Ceading and lagging measures are identified, expected targets and thresholds are established, and baseline and benchmar&ing data is developed. In Step Six, Strategic Initiatives are developed that support the Strategic @b8ectives. To build accountability throughout the organization, ownership of <erformance :easures and

Strategic Initiatives is assigned to the appropriate staff and documented in data definition tables. In Step Seven, the implementation process begins by applying performance measurement software to get the right performance information to the right people at the right time. >utomation adds structure and discipline to implementing the Balanced Scorecard system, helps transform disparate corporate data into information and &nowledge, and helps communicate performance information. In short, automation helps people ma&e better decisions because it offers 7uic& access to actual performance data. In Step .ight, the enterprise'level scorecard is Dcascaded0 down into business and support unit scorecards, meaning the organizational level scorecard "the first Tier$ is translated into business unit or support unit scorecards "the second Tier$ and then later to team and individual scorecards "the third Tier$. Aascading translates high'level strategy into lower' level ob8ectives, measures, and operational details. Aascading is the &ey to organization alignment around strategy. Team and individual scorecards lin& day'to'day wor& with department goals and corporate vision. Aascading is the &ey to organization alignment around strategy. <erformance measures are developed for all ob8ectives at all organization levels. >s the scorecard management system is cascaded down through the organization, ob8ectives become more operational and tactical, as do the performance measures. >ccountability follows the ob8ectives and measures, as ownership is defined at each level. >n emphasis on results and the strategies needed to produce results is communicated throughout the organization. In Step %ine, an .valuation of the completed scorecard is done. During this evaluation, the organization tries to answer 7uestions such as, D>re our strategies wor&ingE0, D>re we measuring the right thingsE0, D#as our environment changedE0 and D>re we budgeting our money strategicallyE0