Practical Strategy - Business Strategy and Balanced Scorecard

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In 1992, Robert S. Kaplan and David Norton introduced the balanced scorecard (BSC), a concept for measuring a company's activities in terms of its vision and strategies. It gives managers a comprehensive view of the performance of a business. It is a strategic management system that forces managers to focus on the important performance metrics that drive success. It balances a financial perspective with customer, internal process, and learning & growth perspectives. The system consists of four processes: 1. Translating the vision into operational goals; 2. Communicate the vision and link it to individual performance; 3. Business planning; 4. Feedback and learning and adjusting the strategy accordingly. Contents * 1 A Comprehensive View of Business Performance * 2 Public Sector Balanced Scorecard * 3 Purpose of the Balanced Scorecard * 4 Evolution of the Balanced Scorecard * 5 See also * 6 References * 7 External links [edit] A Comprehensive View of Business Performance The scorecard seeks to measure a business from the following perspectives: * Financial Perspective - measures reflecting financial performance, for example number of debtors, cash flow or return on investment. The financial performance of an organization is fundamental to its success. Even non-profit organizations must make the books balance. Financial figures suffer from two major drawbacks: o They are historical. Whilst they tell us what has happened to the organization they may not tell us what is currently happening, or be a good indicator of future performance. o It is common for the current market value of an organization to exceed the market value of its assets. Tobin's-q measures the ratio of the value of a company's assets to its market value. The excess value can be thought of as intangible assets. These figures are not measured by normal financial reporting. * Customer Perspective - measures having a direct impact on customers, for example time taken to process a phone call, results of customer surveys, number of complaints or competitive rankings. * Business Process Perspective - measures reflecting the performance of key business processes, for example the time spent prospecting, number of units that required rework or process cost. * Learning and Growth Perspective - measures describing the company's learning curve -- for example, number of employee suggestions or total hours spent on staff training. The specific measures within each of the perspectives will be chosen to reflect the drivers of the particular business. The method can facilitate the separation of strategic policymaking from the implementation, so that organizational goals can be broken into task oriented objectives which can be managed by front-line staff. It can also help detect correlation between activities. For example, we might find that the internal business objective of implementing a new telephone system can help the customer objective of reducing response time to telephone calls, leading to increased sales from repeat business. In many senses, the objectives chosen are leading indicators of future performance. Effort we make today is reflected in the future profits of the company. In this way, current expenditure can be viewed as investment in the future of the company. [edit] Public Sector Balanced Scorecard Originally introduced as a tool intended for commercial organizations (which typically focus on financial performance), the Balanced Scorecard has found considerable support and is widely used in the public sector. It is particularly popular as a public sector performance management tool in the United States, the United Kingdom, Australia and Scandinavia. [edit] Purpose of the Balanced Scorecard Kaplan and Norton found that companies are using the scorecard to: * Clarify and update strategy * Communicate strategy throughout the company * Align unit and individual goals with strategy * Link strategic objectives to long term targets and annual budgets * Identify and align strategic initiatives * Conduct periodic performance reviews to learn about and improve strategy [edit] Evolution of the Balanced Scorecard In 1992, an article by Robert Kaplan and David Norton entitled "The Balanced Scorecard - Measures that Drive Performance" in the Harvard Business Review drew a great deal of attention to their method, and led to their business bestseller, "The Balanced Scorecard: Translating Strategy into Action", published in 1996. The financial performance of an organization is essential for its success. Even non-profit organizations must deal in a sensible way with funds they receive. However, a pure financial approach for managing organizations suffers from two drawbacks: he Balanced Scorecard provides training and consulting services to commercial, government, and non-profit organizations in applying best practices in balanced scorecard (BSC), strategic performance management and measurement, and transformation and change management. We provide public and on-site courses, facilitation services, consulting, and information and tools to executives, managers and analysts as they use strategic management concepts to transform their organizations into "performance excellence" organizations. This Web site serves as a resource to obtain information, ideas and lessons learned in building strategic management and performance measurement systems using our award-winning Nine Steps to Success® balanced scorecard methodology. Training Public Courses Balanced Scorecard Hands-on Training Short courses to get you up to speed quickly! Advanced Balanced Scorecard Dec. 5-7, 2006 The Brookings Institution, Washington, DC Strategic Management with the Balanced Scorecard: Focus on Public and Not-for-Profit Organizations Georgia State University Atlanta, GA Dec. 13-14, 2006 Balanced Scorecard resources Certificate Program Certificate Program New Certificate Program Announcing the Certificate Program of the Balanced Scorecard Institute, offered in association with the George Washington University College of Professional Studies. This program is designed for managers and consultants who wish to learn the full range of skills needed to implement an effective strategic management system: * Organizational Assessment * Strategy Mapping * Performance Measures * Strategic Initiatives * Automating the BSC * Cascading * Evaluation Program Dates: Spring Session, Feb. 5 - 16, 2007 (10 days) Comments from our participants: "On a personal note, the BSC program was one of the best professional development experiences I’ve ever had." "Case study very supportive of understanding the process of developing and mapping strategy." "Very useful charts and checklists to evaluate the process of developing performance measures." "...the methodologies in this presentation are a powerful medium for achievement of the right strategic objectives." "...good information on what we need to do at our respective workplaces to effectively cascade the balanced scorecard." 1. It is historical. Whilst it tells us what has happened to the organization, it may not tell us what is currently happening. Nor is it a good indicator of future performance. 2. It is too low. It is common for the current market value of an organization to exceed the market value of its assets. Tobin's-q measures the ratio of the value of a company's assets to its market value. The excess value is resulting from intangible assets. This kind of value is not measured by normal financial reporting. The Four Perspectives of the Balanced Scorecard The Balanced Scorecard method of Kaplan and Norton is a strategic approach, and performance management system, that enables organizations to translate a company's vision and strategy into implementation, working from 4 perspectives: * Financial perspective. * Customer perspective. * Business process perspective. * Learning and growth perspective. This allows the monitoring of present performance, but the method also tries to capture information about how well the organization is positioned to perform in the future. In 1997, Kurtzman found that 64% of the companies questioned were measuring performance from a number of perspectives in a similar way to the balanced scorecard. [edit] See also * Performance Prism * Strategic management * Strategy Execution * Chief Performance Officer * Strategy map * Digital dashboard, also known as business dashboard, enterprise dashboard or executive dashboard [edit] References * Cobbold, I. and Lawrie, G. (2002a). “Classification of Balanced Scorecards based on their effectiveness as strategic control or management control tools”. Performance Measurement Association 2002 * Cobbold, I and Lawrie, G (2002b). “The Development of the Balanced Scorecard as a Strategic Management Tool”. Performance Measurement Association 2002. * Kaplan R S and Norton D P (1992) "The balanced scorecard: measures that drive performance", Harvard Business Review Jan – Feb pp71-80. * Kaplan R S and Norton D P (1993) "Putting the Balanced Scorecard to Work", Harvard Business Review Sep – Oct pp2-16. * Kaplan R S and Norton D P (1996) "Using the balanced scorecard as a strategic management system", Harvard Business Review Jan – Feb pp75-85. * Kurtzman J (1997) "Is your company off course? Now you can find out why", Fortune Feb 17 pp128- 30 [edit] External links * Balanced Scorecard Online User Group