STEP 1:
Create organisational alignment
A sheet of paper with numbers on it can be created by one person and implemented by sheer force of authority. However, the point of a balanced scorecard is to:
- Align all members of an organisation around common goals and strategies
- Make managers' jobs easier by clearly prioritising initiatives
- Provide effective feedback to people on the issues that count
- Be an essential decision-making tool for everyone in the organisation
If a single person tries to force a system into place, chances are it will not reflect the organisation's key strategies, goals, strengths, and weaknesses. It is also very unlikely to assure buy-in from the people who need to use it.
STEP 2:
Create a clear business model
The best process is to first create a clear business model, and then to select measurements based on that model. This increases commitment, brings more agreement on the direction of the organisation, builds accountability to company goals, and increases the speed of change.
The first part of the process is creating a model for the scorecard. First, review and clarify strategies; this often requires some facilitated arguments and discussions, so that broad disagreements can be dealt with.
Many organisations do not adequately resolve their strategic differences, so people work separately towards different visions. For example, one automaker's strategies for selling cars were split by group: the CEO believed in forming alliances with exotic makers, the sales executive leaned on rebates, and the product group, with limited budgets, souped up existing economy cars. The result was an ineffectual, expensive hodgepodge.
When one leader with a clear vision worked with others to develop strategies, they were able to transform the culture and organisational structure to produce vehicles that eventually saved the company.
STEP 3:
Agree required capabilities
The next step is agreeing on what capabilities are needed within the company to actually pursue the strategy.
At the automaker, they needed to innovate without access to capital. They created a new design process that included as many people as possible, from suppliers to factory workers and mechanics, so that everyone shared the same strategic goals, and worked together to pursue them. Lead time was cut in half, costs were slashed, and the products gained immediate critical acclaim; sales went up as costs went down.
The final part of creating a model for the balanced scorecard is making the actual model. This is where you set up a simple diagram that reflects how you think the business works - a very basic example:
STEP 4:
Select the measures for your Scorecard
Once that is done, you can move to the second step, which is designing or selecting measures for the scorecard. This is where the process and the paper come together. One way to do this is to assign teams to come up with appropriate measures. There are several benefits to this approach:
- It involves more people in the process
- It is a process check to ensure that the issues chosen are clear and well understood
- It takes away some of the time demands from the senior leaders
The measurement teams normally present their conclusions to the senior leaders, who then either use them, or ask for changes or clarifications. The measurement teams can also be used to help with implementation.
STEP 5:
Choose Champions
As with any change, champions and constant communication are essential to success. Employee surveys can be not only a source of measures, but also a tool to judge whether people understand the process and are prepared for it; and how well the scorecard is being implemented in each area.
STEP 6:
Cascading the scorecard
For larger organisations, a balanced scorecard is first installed at the top, where commitment is most vital to success. It is then cascaded throughout the organisation, to focus departments' goals with the overall company goals. For single stores or small companies, this step might be unnecessary.
It helps to run a linkage analysis on each segment of the scorecard (where possible) so that you can support its relationships and models. Linkage analysis may also point to potential improvements.
STEP 7:
Make the scorecard useful
The final step is getting people to use the scorecard as a routine matter - making it part of the culture. This is where most management initiatives go wrong, leading to this sage advice: If you want something to be a useful tool, make it the only initiative you try this quarter, give it your full attention, and don't take any shortcuts. Otherwise, an initiative becomes a fad and eventually appears in the Dilbert cartoons.
Conclusion
Commit to it - make it part of every day work!
Once created, the scorecard should become a part of your business' daily life; it should be embedded into a company's operations as a standard decision-making tool. The scorecard makes the results of changes measurable, so stores or companies can learn what business models yield the best long-term results - in short, what works and what does not work. If it is updated regularly, the scorecard can give warnings of problems ahead, or signal opportunities. It can (and should) also be used as the focus of continuous improvement.
The balanced scorecard requires a rigorous process and commitment, but its benefits are worth the costs. Even if you only adopt a few of the elements of the balanced scorecard, the research suggests you will have a competitive advantage. Best of all, much of the scorecard is simple common sense: getting agreement on strategy, strengths, and weaknesses; measuring essential business numbers; and focusing not just on financial outcomes, but also on the issues that will affect those outcomes in the future. The balanced scorecard, and all its pieces, leverages common sense into a substantial competitive advantage.