Not so long ago careers seemed so straightforward. We found a job, went to work, undertook some training, did our job as well as we could and then we went home. In those misty eyed nostalgic days we did not have to worry about corporate targets, annual assessments, metric-driven incentives and complex operational methodologies etc. Instead life, and work, was so much simpler – or so it seemed!
And then, somewhere along the line two guys called Kaplan and Norton’s invented an organizational performance management tool called a ‘Balanced Scorecard’ and nothing has ever been the same since.
The concept seems to have evolved from some early “Metric-Driven Incentives” or ‘MDI’s’ which were generally focused on the financial aspects of an organization by either claiming to increase profit margins or reduce costs. They were not always successful however. For instance, driving down costs could sometimes be at the expense of quality, staff (lost expertise) or even losing some of the customer base. So MDIs were useful but unfortunately flawed.
Then along came two eminent doctors (Robert S Kaplan and David P Norton) who evolved their Balanced Scorecard system from these early MDIs and jointly produced their ground-breaking book in 1996. Since then many other ‘gurus’ have jumped on the Balanced Scorecard wagon and produced a plethora of books all purporting to be the ‘definitive’ book on Balanced Scorecards. Today, for example, Amazon offers over 4,000 books listed under ‘Balanced Scorecards’ not all of which are to be recommended.
So what exactly is a ‘Balanced Scorecard’? One definition often quoted is: ‘A strategic planning and management system used to align business activities to the vision statement of an organization’. More cynically however, and in some cases realistically, a Balanced Scorecard attempts to translate the sometimes vague, pious hopes of a company’s vision/mission statement into the practicalities of managing the business more optimally at every level. In other words a Balanced Scorecard approach is to take a holistic view of an organization and co-ordinate MDIs so that efficiencies are experienced across all departments in a joined-up fashion.
If an organisation wishes to embark on the Balanced Scorecard path it must first know (and understand) the following:
– The company’s mission statement
– The company’s strategic plan/vision
– The financial status of the organization
– How the organization is currently structured and operating
– The level of expertise of their employees
– Customer satisfaction level
Once these elements are known the next step is to determine which areas of the business require improvement. For example:
– Return On Investment
– Cash Flow
– Return on Capital Employed
– Financial Results (Quarterly/Yearly)
B) Internal Business Processes
– Number of activities per function
– Duplicate activities across functions
– Process alignment (is the right process in the right department?)
– Process bottlenecks
– Process automation
C) Learning & Growth
– Is there the correct level of expertise for the job?
– Employee turnover
– Job satisfaction
– Training/Learning opportunities
– Delivery performance to customer
– Quality performance for customer
– Customer satisfaction rate
– Customer percentage of market
– Customer retention rate
Once an organization has analysed the specific and quantifiable results of these types of criteria they should be ready to utilise the Balanced Scorecard approach to improve the areas where there are deficiencies. In addition the metrics set up must be SMART (Specific, Measurable, Achievable, Realistic and Timely) and also be aligned with the company’s strategic plan.
Each of the four perspectives (Finance, Process, Learning and Customer) is inter-dependent as improvement in just one area is not necessarily a recipe for success in the other areas.
Implementing a Balanced Scorecard system company-wide should be the key to the successful realisation of the strategic plan/vision and, applied correctly, should result in:
– Improved processes
– Motivated/educated employees
– Enhanced information systems
– Monitored progress
– Greater customer satisfaction
– Increased financial usage
Although some managers believe that the Balanced Scorecard approach is the ‘holy grail’ for benchmarking it should not be the only tool in the management toolbox. It does not, for example, necessarily enable better decision-making or solve every corporate problem.
Used effectively though, and in the right hands, it can be a powerful measurement tool for improving overall efficiencies and levels of quality.