Balanced Scorecard for Performance Management

About Balanced Scorecards

Today, organisations are competing in dynamic, complex environments. An accurate understanding of their objectives and the methods for quickly achieving those objectives is vital. 

The Balanced Scorecard is a revolutionary tool that motivates staff to make the organisation's vision happen. It does more than just measure performance. It is a management system that focuses the efforts of people, throughout the organisation, toward achieving strategic objectives. It gives feedback on current performance and targets future performance.

Putting it another way, The Balanced Scorecard converts an organisation's vision and strategy into a comprehensive set of performance and action measures that provides the basis for a strategic measurement and management system.

Measures are used in four broad areas - financial performance, customers, internal business processes, and learning and growth. These align individual, departmental, and organisational goals and identify entirely new processes for meeting customer and shareholder objectives.

The Balanced Scorecard can also be used to test, gain feedback on, and update the organisation's strategy. It goes beyond short term management of the bottom line to providing a management system for long term investment in customers, employees, new product development and systems.

Background

Companies are in the midst of a revolutionary transformation. The last decades have seen the emergence of the information era. This environment for both manufacturing and service organisations requires new capabilities for competitive success. The ability of an organisation to mobilise and exploit its intangible or invisible assets has become far more decisive than investing and managing physical, tangible assets. For example, intangible assets allow organisations to quickly introduce innovative products and services desired by targeted customer segments.

Todays business environment requires a better understanding of customers and their needs, streamlined internal business processes and highly skilled staff who are expert in problem solving. In order to achieve this organisations have attempted to transform themselves by turning to a variety of improvement initiatives such as total quality management, activity based costing and process re-engineering.

The traditional means of measuring results has been through financial reporting using an accounting model developed centuries ago. Unfortunately this model does not incorporate the valuation of a company's intangible and intellectual assets, such as high-quality products and services, motivated and skilled employees, responsive and robust internal processes, and satisfied and loyal customers. Yet these assets are more critical to the long term future of the organisation than traditional physical and tangible assets.

The Balanced Scorecard (BSC) complements financial measures of past performance with measures of the drivers of future performance. While many companies already have performance measurement systems that incorporate financial and non financial measures they are often only used for control and feedback of short term operations at a corporate level. The BSC emphasises that financial and non financial measures must be part of the information system for employees at all levels of the organisation. Also it is balanced between objective easily quantified outcome measures and subjective, somewhat judgmental, performance drivers of the outcome measures.

In addition it provides a strategic management system to accomplish critical management processes:

• Clarify and gain consensus about vision and strategy

• Communicate strategic objectives, performance measures and drivers at all levels

• Link strategic objectives to targets and annual budgets

• Identify and launch strategic initiatives

• Enhance periodic systematic strategic reviews

• Obtain feedback to learn about and improve strategy

The BSC fills the void that exists in most management systems - the lack of a systematic process to implement and obtain feedback about the organisation's strategy. The organisation can become aligned and focused by using the BSC to implement the long term strategy. This way the BSC forms the basis for managing information age organisations.

Setting up a Balanced Scorecard

The first task is to translate the organisations strategy into objectives and measures for each of the four perspectives. These should be specific to the organisations strategy. However there are some measures that often show up in scorecards, such as: