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Balanced Scorecard (BSC)
The BSC is based on the premise that what gets measured gets
done and that financial performance is not the only measure
of business success. You must also measure performance with
respect to customers, people, and processes.
Instrumentation for competitive success.
Overview
In 1992 Robert S. Kaplan and David P. Norton wrote an article
in the Harvard Business Review called "The Balanced Scorecard
- Measures that Drive Performance." The article stressed
the importance of not relying solely on financial measures
to measure organizational success. It stressed the need for
balance between short-term and long-term objectives, between
financial and nonfinancial measures, between leading and lagging
indicators, and between internal and external performance
measures. The article was short on specific application, but
its concepts struck a cord with many senior managers.
The popularity of the article forced Kaplan and Norton to
write a couple of other articles in the HBR and two books
on the subject (refer to the list of references at the bottom
of this page). Each article and book attempted to provide
more "how to" instructions but the majority of the
content continued to focus on describing the concepts and
philosophy. There are two key components of the Balanced Scorecard
(BSC). The first is "what gets measured gets done."
The second is that financial measures are not sufficient to
manage the organization. The BSC creates a dashboard of indicators
from all aspects of the organization's activities. It identifies
measures from the perspectives of financial performance, customers,
internal business processes, and people growth and learning.
The expectation is that when these measures are linked to
the organization's strategy people will naturally adopt appropriate
behaviors to achieve the goals.
The basic concepts of the BSC are not new! The BSC is very
similar to the concepts of Management by Objectives introduced
by Peter Drucker back in the '50s. The concept of balancing
focus on the multiple aspects of running a successful organization
has been around since people began to work together. Every
leader of an organization knows that you cannot treat employees
poorly and expect success. You cannot ignore customers and
then expect them to purchase additional products and services.
You cannot continue to use the same processes and equipment
and expect productivity gains. You cannot sell products and
services for less than it costs to deliver them. These are
basic organizational truths! Unfortunately in their rush to
increase short-term shareholder value, many senior executives
have forgotten these basic concepts. The primary benefit of
the articles and books by Kaplan and Norton is that they have
helped executives rediscover the basic concepts.
There are now many accounts of organizations adopting the
concepts of the BSC with excellent results. There are also
other organizations that tried to implement the BSC and failed
miserably. The problem is that the successful organizations
(and the consultants that helped them) claim that the BSC
was the cause of their success. The organizations that failed
(their consultants can't be contacted) claim that the complexity
of the BSC caused its failure. In reality neither statement
is true. The concepts of the BSC are excellent. It is a great
tool to identify a balanced set of measures that organizations
can use to manage their efforts, but it is just one piece
of the total management system. It is not a silver bullet
that will cure all problems. Just like any other good process
it requires management investment and nurturing for success.
The biggest downside of the BSC is that while the concepts
are great, actual implementation is left to the consultant's
whim.
Balanced Scorecards are part of the
measurement system element of a management system that is used
to focus, align, and balance the organization on goals and
actions to accomplish long-term strategic objectives.
While Balanced Scorecards are an effective measurement
strategy, many organizations struggle deciding what to measure
and how to measure it.
When Balanced Scorecards are deployed through the
organization, they can provide line-of-sight for individual
employees to align with organizational goals the departmental
or process goals they are working on improving.
Balanced Scorecard measures are developed during the strategic
planning process. The organizational level Scorecard contains
primarily outcome or lagging measures.
Departmental or process level Scorecards contain both in
process (leading) and outcome (lagging) measures that are
aligned with the Organizational level objectives and goals.
These are linked to supervisors’ performance agreements.
For individuals, we use a planning tool that connects what
employees are working on improving with departmental or
process goals, which are aligned with organizational goals.
The tool is a folding card that can be carried in the
employee’s pocket.
This alignment helps assure the organization is working on the
vital areas of improvement for the organization. Individual
employees are motivated because it helps them see where they
fit into the big picture and they enjoy knowing that what they
are working on is important.
However, Balanced Scorecards only work when they are part of a
larger
Measurement System that is part of your Performance
Improvement System.
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