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Practical Strategy Framework > Balanced Scorecard
What is Balanced Scorecard
We came out of the fields and onto the production lines.
And the people running the factories quickly recognized that cattle, ploughs and a whole host of other agricultural tools weren’t needed quite so much in the new world that existed after the Industrial Revolution.
Unfortunately, as we hurtle out of the industrial era into the information age, many organizations haven’t recognized that once again, it’s time to leave behind the tools of a previous time.
Summarized financial measures that attempt to define an organization’s potential for success are the embodiment of this outdated approach.
A Confort Zone..
But aren’t financial measures great?
They’re just so lovely and tangible! You can have a solid, focused discussion about them. You can print them out on paper; they look great in rows and columns, and are almost unassailable in a 3D color bar chart.
In short, you’re on safe ground with financials.
But you’re not.
The Rise of Intangibles..
Is your strategy the right one?
How do your customers feel about doing business with you?
Are your employees motivated to improve things? And stay?
Does your innovative thinking apply to your processes as well as your products?
How quickly do you get your new products or services in front of your customers?
Are you effective at adopting new technology that gives you an advantage?
If you’ve been mentally answering these questions, you’ll already have a good idea how well your organization is equipped for the transition into the information age.
And if you’re thinking that your organization could do a bit better, you may also harbor a small fear that the way your senior management team goes about planning and executing strategy might need a bit of work too.
Enter the Balanced Scorecard …
A Framework that Improves Thinking and Aligns Actions
The Balanced Scorecard is the creation of Harvard University professor Robert S. Kaplan and CEO of The Nolan Norton Institute, David P. Norton.
It’s a strategic framework that helps you view your organization from four distinct perspectives.
Financial (make a profit)
Customer (satisfy needs)
Internal Processes (delivering value)
Learning & Growth (having the necessary people, tools and information)
You may, like some other organizations, also choose to include additional perspectives such as environmental or employee - if the unique particulars of your situation require it.
The Power of Cause and Effect
Strategic objectives (such as "easy to do business with") are then identified in each of your perspectives - which fit together in a unique cause-and-effect relationship that deliver the outcome you want.
A simple example of this cause-and-effect process is:
"If we hire and retain the best people (Learning and Growth), we can continually improve the way we do things (Internal Processes), which will allow us to better meet our customer’s needs (Customer), which will lead to improved profitability (Financial)."
For a public service or non-profit organization, the relationship may be:
"If we can secure funding and manage our resources well (Financial), we can ensure that we get the best people and systems (Learning and Growth), allowing us to deliver valuable services (Internal Processes), which will fulfill our stated obligation to the public (Customer)."
Many organizations have been surprised by the clarity of thought and speed of decision-making that this simple framework brings to most management discussions.
Pick your Strategic Measures
Each of your strategic objectives will have a number of performance measures that should be a mix of financial and non-financial, quantitative and qualitative, and leading and lagging. Your suite of performance measures will include both generic and industry-specific measures.
Generic measures would normally include the usual suspects:
Financial: Return on Investment, Net Profit, Economic Value Added
Customer: Satisfaction, retention, and market share
Internal Process: Quality, response time, and speed to market of new products
Learning & Growth: Employee satisfaction and information system availability
Your industry-specific measures will be derived directly from the type of strategic objectives you have - the measures you’d select for a customer intimacy focus would look very different from the measures that drive a speed-of-service focus.
The blend of generic and industry-specific measure that you choose becomes the basis for your staff alignment and motivation approach.
And most organizations overhaul and improve their monthly reporting process to accommodate this shift in focus … a good technology solution is worth its weight in gold at this stage.
In Summary...
We define Strategy as … " What you want to achieve, and How you’re going to get it. "
A Balanced Scorecard helps you identify What you want by helping you understand what your strategic objectives are.
And How do you get what you want? By achieving the performance measure targets you distilled from your strategic objectives.
Easy to talk about … but a little harder to DO.
Practical Strategy shows you HOW.
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