How to compile and implement the balanced scorecard
Popularised by Robert Kaplan and David Norton, the Balanced Scorecard is a performance management tool that links strategic objectives to comprehensive indicators: financial performance, the contributions of customers, internal processes, and innovation and learning. The scorecard gives a more balanced view of organisational life than traditional financial measures alone. By measuring performance under each of these perspectives, all of the important areas can be addressed. Implemented effectively, the balanced scorecard can become a valuable management system. Here’s how...
1. Be aware of these key points:
‘Balance’ refers not only to the four perspectives listed above, but also to the relationship between:
- the financial and the non-financial
- the internal and the external
- the current and future performance of the organisation.
Improvements in one area can be linked to those in another.
‘Scorecard’ is a framework. It does not say what the specific measures should be. That’s for you to decide.
2. Create the right environment.
Adopt a balanced scorecard as you would any major change. Preliminary activities will include the following:
- define the scope of the business to be measured
- link the initiative to other strategic initiatives
- identify those people whose support and commitment are required
- involve the entire senior management team
- outline the benefits of the scorecard
- time the introduction to fit in with other initiatives
- appoint a project manager whose principal responsibilities will be the day-to-day running of the project during the start-up phase and liaising with any external providers.
3. Decide what to measure.
Perhaps the most important factor for the success of the balanced scorecard is ensuring that you are measuring the right things appropriately. Adopt a two-step approach:
- First, identify the most important factors for creating success in your business. These factors may be apparent from your strategic plan. Alternatively, you might have to identify and analyse the needs of various stakeholders in your business. You must be sure of your customers’ real needs, not just your perception or interpretation of them.
- Second, with the needs of your stakeholders and the key objectives of your strategic plan in mind, draw up a set of objectives, outcomes, and measures under each of the four perspectives in the scorecard. Identify activities (no more than twenty) associated with those outcomes.
