The organisational focus on strategic vision is achieved by having a restricted number of key performance measures – a balanced system – the link between long-term strategy and short-term actions. Traditional financial measures are supplemented and are usually grouped into the following perspective categories:  

1. Financial performance – how is the organisation performing?
   Revenue, earnings, cash flow, return on investment, and economic value added 
   
2. Customer – how do customers see the organisation?
   Customer relations, market share, customer satisfaction measures, retention and customer loyalty.
   
3. Internal business processes – what must the organisation excel at?
   How well your core processes produce value – productivity rates, quality measures, timeliness and costs
   
4. Innovation, learning and growth – can the company continue to improve and create value? 
   
   (a) Employee performance – satisfaction or morale, retention, training and skills
   
   (b) Innovation performance – % revenue from new products, employee suggestions, rate of improvement index

However, these must be aligned to focus on YOUR ORGANISATION’S vision and strategy.  

How does it work? 

The Balanced Scorecard works best in strategic business units – those who control activities through the full value chain from innovation, operations, marketing, distribution through to selling and service – an Integrated Product Team (IPT) environment. So it will be a cost centre with responsibility for income, sales and business performance and its own well-defined strategy.  

Once a Balanced Scorecard has been established for this business unit it can then form the basis for departments etc within the business unit. Managers within these departments create their own scorecards including for individual employees. These will be consistent with the business unit’s scorecard and strategy so that the Balanced Scorecard is cascaded down through the organisation. 

It is more than a set of key performance indicators – there must be a chain of cause and effect between the various objectives and measures through all four perspectives.

You need a balanced mix across the four perspective categories.  For example, operational improvements (internal process perspective) such as improved quality and reduced time won’t always mean improved financial measures unless a cause and effect chain through the customer perspective to these measures links them. In fact, a failure here will be because the chain of cause and effect has not been established correctly and you need to go back and revise the organisation’s strategy implementation. 

The Balanced Scorecard is even more effective when integrated with an Analytic Hierarchy Process (AHP). The AHP allows true decision makers to see a complex problem in a hierarchical structure showing relationships between the goal, objectives (criteria), sub-objectives, and alternatives. Other influential factors, such as risks and uncertainties can be factored in. 

How do we do it?  

There are 3 basic key steps: 

Step 1 – Balanced Scorecard development 

The design, development - strategic identification, selecting and defining measure selection 

• Determine the organisation’s vision and strategy
• Identify the performance perspectives that can best link those organisation’s vision and strategy and strategy to its results – i.e. the 4 perspectives
• Adjust the 4 perspectives to your organisation 
• Establish objectives that support your organisation’s vision and strategy – link operational and strategic objectives
• Develop effective measures and meaningful standards, establishing short-term and long-term targets goals 

Step 2 – Roles & responsibilities charting 

• Allocate ownership and accountability for measures and targets with a responsibilities chart process
• Create appropriate budgeting, tracking, and reward systems 

Step 3 – Management processes 

• Must be accepted and embedded throughout the organisation to be effective
• Integrate the Balance Scorecard with other existing measurement techniques
• Collect and analyse performance data comparing actual results to desired performance
• Monitor & review  

Key benefits 

• Unlike sophisticated financial reporting techniques such as analysis of ratios and comparisons, keeping the measures simple and relevant to strategic business issues is reliable and valuable
• Cross-functional integration - balance traditional financial measures with other important perspectives
• Increase the understanding of how the operational success factors mix with the financial
• Provide everyone with clear objectives by linking performance measures directly to the business strategy – cascades
• Focus attention on actions that will affect the future 
• A focus on team-based performance yet with clear ownership of targets / activities
• A culture of continuous improvement
• Improved performance and monitoring
• Improved internal relationship management
• Improved decision-making and problem-solving
• Performance matched to identified customer needs so improved customer satisfaction  

Potential problems  

Not so much of a problem but if you are setting up Balanced Scorecard you need to be aware of how challenging it is. It can only work with: 

• Proper planning
• Proper change management
• Means – new objectives will reveal “gaps” in existing capabilities of the systems, procedures and people. Consequently organisations will need to invest in up-skilling employees, enhancing IT etc and need the means to do this.  

Most common uses  

• Clarify or update an organisation’s strategy
• Link strategic objectives to long-term targets and annual budgets
• Track the key elements of the business strategy
• Incorporate strategic objectives into resource allocation processes
• Facilitate change

Conclusion

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