Strategic Management Insights

Balanced Scorecards for the Rest of Us

The Balanced Scorecard is a powerful organizational framework used by many large businesses to manage strategy implementations for breakthrough results.  It was first introduced in 1992 by Robert Kaplan, a Harvard Business School Professor, and David Norton, a Massachusetts-based IT consultant.  Since then Balanced Scorecard has been further developed and widely deployed in large companies and in a growing number of public sector organizations

If you’re familiar with the term “Balanced Scorecard,” chances are you work for a Fortune 500 company like Glaxo, Citicorp, or Mobil Oil.  If you work for a smaller company, it’s less likely that you have heard of this world-class management approach.   

The Balanced Scorecard deserves its broad popularity among the “big boys” because it forms a simple, focused, and highly effective strategy implementation tool into which all other “change programs” (e.g. TQM, Best of Breed, and Benchmarking) can be integrated.  It is based on three premises:

1. What gets measured gets focused on, and therefore gets done.
2. Watching just a few key measures is more productive than looking at many.
3. A balanced enterprise-wide focus ensures that no one area is successful at the expense of another.

The balance is achieved by linking an organization’s strategy to a relatively small number of top-priority goals contained within four defined perspectives.  Each perspective represents a critical area of the business that integrates with the other areas to form a balance.  They are:

1. Customer.  All organizations talk about focus on the customer.  With the Scorecard, customer satisfaction is carefully measured as are sales activities, results etc.

2. Internal Processes.  To meet customer and financial objectives, an organization must focus on the processes, competencies, and activities that have the most impact.

3. Innovation and Learning.  Success in this area generates ongoing overall success through improved processes, innovative products, and better-educated workers.

4. Financial/Shareholder.  More traditional and historically oriented.  This indicates whether the activities and results in the other areas are correct and are having the expected impact.

The implementation process follows a predetermined and logical path.  It usually begins with an exercise that encourages senior management to dream a bit and describe where they would really like to see the company in five years.  It’s important to reach high initially and then use the organizational focus generated by the Scorecard system to find a way to get there.  After that, it’s a matter of refining the strategy and aligning it with intermediate goals and measurements.

The implementation steps therefore are as follows:

• Create an ambitious vision for five years down the road: a new reality.  Describe it as precisely and vividly as possible so that everyone is able to “see” it clearly and be excited about it.
• Develop and/or reaffirm the strategy that will take the organization from its present circumstance to the new reality.
• Define a handful of interim goals in each of the four Balanced Scorecard perspectives that represent six to twelve month progress points along the way.
• Create measures for each goal and a tracking system to collect and report results.
• Communicate the goals and measures throughout the organization.
• Manage at every level using the Balanced Scorecard to focus attention on the organization’s top priorities.  Ask: “What can I do today to take the greatest step towards our goals?”

As you can imagine, implementing this program in a big organization on a corporate-wide basis and then within each division and business unit can be an overwhelming challenge requiring countless hours in planning sessions and IT dollars for system integration.  But for companies with fewer than 500 employees, the process can be much more manageable and the desired outcome much more assured.  Participation and buy-in are more readily achieved, communication is easier, and reports can be generated with existing office productivity tools (e.g. Excel, PowerPoint).

A Balanced Scorecard approach puts strategy in action to achieve breakthrough results.  Its simple and practical design focuses the entire organization on balanced and measured priorities making it a powerful management framework for companies of all sizes.  To learn more, I recommend you take a look at the original Balanced Scorecard book by Kaplan and Norton.

- Brian Kinahan

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Read the case study: Southlight: Using the BSC approach to further sharpen its
service delivery model and improve financial performance.