Business System:

Performance Measurement

Balanced Scorecard (BSC)

Measuring the Key Drivers of Your Business

By: Vadim Kotelnikov

Founder, Ten3 Business e-Coach Inspiration and Innovation Unlimited!

"What gets measured gets done."

The Four Perspectives Are Designed To Balance

  • the internal and external

  • the financial and non financial

  • past performance with the future

Main Applications1

Implementing a balanced performance measurement system can have far-reaching effects on your organization. It can be used for:

  • deciding what the key drivers of performance are

  • refocusing and stimulating activity on these key business drivers

  • drawing attention to goals and targets

  • creating a culture of achievement

  • noticing in advance any trends affecting the business so that changes can be made in good time

 

 

Shortcomings of the Balanced Scorecard1

As the Balanced Scorecard (BSC) is not a multiple stakeholder framework:

  • Suppliers are excluded: through suppliers may be considered within the Process Perspective, this approach does not give suppliers the visibility they now deserve, especially in new business models characterized by outsourcing of almost all non-core functions and vertical integration

  • Regulators are ignored: many non-negotiable standards have to be met, but they do not fit into the Balanced Scorecard's framework.

  • Community and environmental issues are missing: nowadays environmental issues and local communities are closely linked and companies need to measure and monitor the impact they are having. If they don't, they may find themselves subject to attack by pressure groups who can damage the companies' reputation and ultimately destroy the business.

  • Competitors are ignored: Besides shareholders and customers, companies need to monitor the business environment to track the competitor activity and technology. BSC is designed to answer the efficiency question, 'Is the chosen strategy being implemented?' but fails to ask the effectiveness question, 'Is the chosen strategy the right strategy for our business?' It does not monitor threats from non-traditional or future competitors.

What is Balanced Scorecard?

The balanced scorecard advocates a top-down approach to business performance management, starting with business strategic intent expressed through the organization down to operationally relevant targets. The focus with Balance Scorecard approach is on the link and/or influences between it various components, which include business strategy, perspectives, objectives, measures, initiatives and milestones as well as softer contextual information.

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Why Balanced Scorecard?

 

To survive and prosper in today's world, companies can no longer manage using financial measures alone. You have to track non-financial measures such as speed of response and product quality; externally focused measures, such as customer satisfaction and brand preference; and forward looking measures, such as idea management and employee satisfaction.

The Balanced Scorecard is an important tool of your strategic management system. It uses performance measurements within a framework of strategic hypotheses that enables you to learn what works best in your organization.

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Organizational Balanced Scorecard

The organizational balanced scorecard encompasses the organizational vision, mission, core values, critical success factors, objectives, performance measures, targets and improvement actions. This corporate scorecard is communicated and translated into all business unit balanced scorecards, team balanced scorecards and the performance plans of individual employees and their personal balanced scorecards. In connection with this policy deployment, each employee is stimulated to contribute to the shared organizational strategy.

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A Range of Strategic and Operational Measures

The measures used to manage the performance of a business comprise a range of strategic measures. The include the following:

Depending on the emphasis placed on different measures in an organization, its information and performance measures can vary between operational fixed (for example, the 99% replenishment rate on the shelves of a Sainsbury's store) and strategic flexible (for example, Microsoft's goal of standards ownership on the information superhighway).2

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A Framework for Designing a Set of Measures

The Balanced Scorecard provides a framework for designing a set of measures for activities chosen by you as being the key drivers of your business. By having four distinct perspectives (financial, customer, internal process and innovation and learning) it promotes a more holistic balanced view of any organization. By creating your own measures under each of these headings, no important area would be missed.

The Balanced Scorecards itself is just a framework and it doesn't say what the specific measures should be. "That is a matter for people within the organization to decide, and the set of measures for each organization (or even sections within the same organization) will be different. Much of the success of the scorecard depends on how the measures are agreed, the way they are implemented and how they are acted upon. So, the process of designing the scorecard is just as important as the scorecard itself."1

SMART Business Architect (Ten3 Mini-course)