Balanced Scorecard

Balanced Scorecard Approach

The balanced scorecard suggests that we view the organisation from 4 perspectives, and to develop metrics, collect data and analyse it relative to each of these perspectives:
• The Learning and Growth Perspective
• The Business Process Perspective
• The Customer Perspective
• The Financial Perspective

Balanced Scorecard Framework Model 

Balanced Scorecard Learning and Growth Perspective

This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In a knowledge-worker organisation, people — the only repository of knowledge – are the main resource. In the current climate of rapid technological change, it is becoming necessary for knowledge workers to be in a continuous learning mode. Government agencies often find themselves unable to hire new technical workers, and at the same time there is a decline in training of existing employees. This is a leading indicator of ‘brain drain’ that must be reversed. Metrics can be put into place to guide managers in focusing training funds where they can help the most. In any case, learning and growth constitute the essential foundation for success of any knowledge-worker organisation.

Kaplan and Norton emphasize that ‘learning’ is more than ‘training’; it also includes things like mentors and tutors within the organisation, as well as that ease of communication among workers that allows them to readily get help on a problem when it is needed. It also includes technological tools; what the Baldrige criteria call “high performance work systems.”

Balanced Scorecard Business Process Perspective

This perspective refers to internal business processes. Metrics based on this perspective allow the managers to know how well their business is running, and whether its products and services conform to customer requirements (the mission). These metrics have to be carefully designed by those who know these processes most intimately; with our unique missions these are not something that can be developed by outside consultants.

In addition to the strategic management process, two kinds of business processes may be identified: a) mission-oriented processes, and b) support processes. Mission-oriented processes are the special functions of government offices, and many unique problems are encountered in these processes. The support processes are more repetitive in nature, and hence easier to measure and benchmark using generic metrics.

Balanced Scorecard Customer Perspective

Recent management philosophy has shown an increasing realisation of the importance of customer focus and customer satisfaction in any business. These are leading indicators: if customers are not satisfied, they will eventually find other suppliers that will meet their needs. Poor performance from this perspective is thus a leading indicator of future decline, even though the current financial picture may look good.
In developing metrics for satisfaction, customers should be analysed in terms of kinds of customers and the kinds of processes for which we are providing a product or service to those customer groups.

Balanced Scorecard Financial Perspective

Kaplan and Norton do not disregard the traditional need for financial data. Timely and accurate funding data will always be a priority, and managers will do whatever necessary to provide it. In fact, often there is more than enough handling and processing of financial data. With the implementation of a corporate database, it is hoped that more of the processing can be centralized and automated. But the point is that the current emphasis on financials leads to the “unbalanced” situation with regard to other perspectives.

There is perhaps a need to include additional financial-related data, such as risk assessment and cost-benefit data, in this category.

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Introduction to Balanced Scorecard
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Check out our Balanced Scorecard Training,  or the full range of Training Courses for relevant courses on how to streamline & improve your business processes.

Kaplan Norton Balanced Scorecard

Balanced Scorecard Approach

History

In 1990, the Nolan Norton Institute, the research arm of KPMG, sponsored a one-year multi company study, “Measuring Performance in the Organization of the Future.” The study was motivated by a belief that existing performance measurement approaches, primarily relying on financial accounting measures, were becoming obsolete.

The study participants believed that reliance on summary financial-performance measures were hindering organizations’ abilities to create future economic value. David Norton, CEO of Nolan Norton, served as the study leader and Robert Kaplan as an academic consultant. Representatives from a dozen companies-manufacturing and service, heavy industry and high-tech met bimonthly throughout 1990 to develop a new performance-measurement model.

A mid-sized semiconductor company called Analog Devices was used as a case study. The company was using a newly created “Corporate Scorecard” that contained, in addition to several traditional financial measures, performance measures relating to customer delivery times, quality and cycle times of manufacturing processes, and effectiveness of new product developments.

Art Schneiderman, then vice president of quality improvement and productivity at Analog Devices, came to one meeting to share his company’s experiences with the scorecard. A variety of other ideas were presented during the first half of the study, including shareholder value, productivity and quality measurements, and new compensation plans, but the participants soon focused on the multidimensional scorecard as offering the most promise for their needs. The group discussions led to an expansion of the scorecard to what was labelled a “Balanced Scorecard,” organized around four distinct perspectives-financial, customer, internal, and innovation and learning.

The name reflected the balance provided between short- and long-term objectives, between financial and non financial measures, between lagging and leading indicators, and between external and internal performance perspectives. Several participants experimented with building prototype Balanced Scorecards at pilot sites in their companies. They reported back to the study group on the acceptance, the barriers, and the opportunities of the Balanced Scorecard.

The conclusion of the study, in December 1990, documented the feasibility and the benefits from such a balanced measurement system. The findings of the study group were summarized in an article, “The Balanced Scorecard-Measures That Drive Performance,” Harvard Business Review (January-February 1992).

Related Articles:

Introduction to Balanced Scorecard
History of Balanced Scorecard
Four Perspectives of Balanced Scorecard
Why Balanced Scorecard is one the most used management tool

Related Page:

Check out our Balanced Scorecard Training, or the full range of Training Courses for relevant courses on how to streamline & improve your business processes.

Kaplan and Norton Balanced Scorecard

A new approach to strategic management was developed in the early 1990s by Drs. Robert Kaplan (Harvard Business School) and David Norton. They named this system the ‘balanced scorecard’.

The Balanced scorecard is a conceptual framework for translating an organisation’s vision into a set of performance indicators distributed among four perspectives: Financial, Customer, Internal Business Processes, and Learning and Growth.

Balanced scorecard indicators are maintained to measure an organisation’s progress toward achieving its vision; other indicators are maintained to measure the long term drivers of success.

Through the Balanced scorecard, an organisation monitors both its current performance (finances, customer satisfaction, and business process results) and its efforts to improve processes, motivate and educate employees, and enhance information systems – its ability to learn and improve.

Balanced Scorecard Approach 

• Translates vision and strategy
• Defines the strategic linkages to integrate performance across organisations
• Communicates objectives and measures to a business unit, joint venture, or shared service
• Aligns strategic initiatives
• Aligns everyone within an organisation so that all employees understand how what they do supports the strategy
• Provides a basis for compensation
• Provides feedback to senior management if the strategy is working

Related Articles:

Introduction to Balanced Scorecard
History of Balanced Scorecard
Four Perspectives of Balanced Scorecard
Why Balanced Scorecard is one the most used management tool

Related Page:

Check out our Balanced Scorecard Training, or the full range of Training Courses for relevant courses on how to streamline & improve your business processes.