What is the balanced scorecard ?
The balanced scorecard is a strategic planning and management system that is widely applicable to organisations regardless of size or type of business. The system, extensively used in business and industry, government, and non-profit organizations worldwide, facilitates the development and ongoing review of an organisation’s vision and strategy, provides a method of aligning the organisation’s business activities with that strategy, improves the organisation’s internal and external communications, and allows the organisation to monitor its performance against its strategic goals.
Because ‘balanced scorecard’ is a generic term, it has come to mean different things to different people. In practice, there are wide variations in understanding and implementation. In its most limited form, ‘the balanced scorecard’ is frequently seen to be a simple management dashboard of performance measures. At the other extreme, in its most developed form ‘the balanced scorecard’ is a comprehensive planning and management system designed to focus an organization on achieving its objectives as effectively as possible.
It originated in the early 1990’s by Robert Kaplan and David Norton of Harvard University, but the roots of the balanced scorecard methodology lie deep within well established management literature, including the work of the French process engineers who created the Tableau de Bord – literally, an instrument panel or dashboard of performance measures - in the early part of the 20th century in France, and the pioneering work of General Electric on performance measurement reporting in the 1950’s.
The balanced scorecard methodology has evolved a long way from its early use as a simple performance measurement framework for an organisation`s non-financial areas of activity. The “new” balanced scorecard is a full strategic planning and management system that transforms an organisation’s strategic plan from an attractive but passive document into the "marching orders" for the organization on a daily basis. It provides a framework that not only provides performance measurements, but helps planners identify what should be done and measured. It enables executives to truly execute their strategies.
What are the benefits of the balanced scorecard approach?
The benefits of the balanced scorecard have been identified by many organizations:
- Improved organisation alignment
- Improved communications, both internally and externally
- Linked strategy and operations
- More emphasis on strategy and organizational results
- Integrated strategic planning and management
What challenges will I encounter trying to develop and deploy a balanced scorecard system?
There are several major challenges to developing and sustaining the balanced scorecard:
- Engaging the organisation`s leadership
- Not using a disciplined framework to build the system
- Mistakenly thinking a scorecard system is a short-term project (it`s not….it`s a journey)
- Not involving a cross-section of the organization in developing the system
- Not thinking strategically enough
- Not providing the right incentives for motivating behaviour changes
Isn't the balanced scorecard just the latest management fad that will soon pass away?
The buzz words ‘balanced scorecard’ may change (many would like this to happen!), but not the underlying concepts which have been around as long as there have been organisations that need to be led and managed. The concepts - thinking strategically, measuring performance, evaluating results, feedback -- are the fundamental concepts of managing organisations. The balanced scorecard methodology links and gives effect to these concepts in a more effective way than any previous management system. Executives and managers who learn and use the balanced scorecard methodology will be in a better position to lead in the future. They will have the right skills to think, plan and assess the success of their organizations -- skills which will always be in demand.
I am a program manager. What's in it for me?
The balanced scorecard is intended as a strategic system for planning and managing a whole portfolio of programs within an organization. However, as a manager of one or more such programs, the balanced scorecard can help you. It raises the visibility of program performance -- not only in traditional on-time, on-budget terms, but also in terms of its strategic significance to the desired outcomes of the whole organization.
So, if you know that you are working on a program that is vital and strategic, the balanced scorecard and its measurements can help you to defend your program.
Also, since strategy is everyone's job, you can use the balanced scorecard's strategic map to guide the direction of your program to maximize outcome performance. As the de facto expert in your program's definition of performance, you have the right to define what metrics will be used to measure your program's performance -- in many cases, these metrics cannot be dictated from above. You also have the authority and responsibility to measure your own program's performance.
Is the balanced scorecard relevant to private-sector companies?
Many major corporations have adopted the balanced scorecard as their framework for executing strategy and monitoring performance. It has been found to be an effective way to achieve that most elusive of executive goals: execution.
Is the balanced scorecard relevant to nonprofit organizations?
Is the balanced scorecard relevant to nonprofit organizations?
Non-profit organisations are committed to a mission, and they need to focus their limited resources efficiently in order to achieve mission effectiveness and value for their members and sponsors. The balanced scorecard system has multiple focus on several perspectives, including financial performance. For a non-profit organization, profit is not a determining goal of strategy; but good stewardship is important, so this perspective or “lense” is used to describe the financial aspect of performance. In this case, the balanced scorecard provides a comprehensive framework that will help association directors and managers better define strategies, track performance, and provide data to show their various stakeholder groups how well they are performing in terms of mission value and outcomes.
How is the balanced scorecard developed and deployed?
Balanced Scorecard Australia normally follows the Balanced Scorecard Institute’s framework for developing and implementing a balanced scorecard system, first developed in 1997. This framework has been used successfully in over 100 organisations worldwide – organisations including business and industry, government departments and agencies, and non-profit bodies. Organizations ranging in size from six employees to over 100, 000 members have used the framework. The normal steps, in sequential order, are:
1. Assessment of the organisation
2. Confirmation or development of the organisation’s principal strategies
3. Developing Strategic Objectives for the organisation
4. Developing Strategy Maps for the organisation
5. Developing the organisation’s Performance Measures and Targets
6. Developing the organisation’s Strategic Initiatives
8. Cascading the BSC throughout the organization
9. Ongoing monitoring - the system in use.
How long does a balanced scorecard system take to develop and implement?
Typically, building and implementing an enterprise-level (Tier 1) balanced scorecard takes two to three months. Developing aligned scorecards for business and support units (Tier 2), and teams and individuals (Tier 3) takes an additional three to six months. These estimates are for a complete strategic planning and management system and includes the change management, leadership development, communications strategy and planning activities that make the scorecard system sustainable. The development process in an organisation needs to be undertaken by a cross-functional team guided by an experienced balanced scorecard facilitator.
How much does it cost to build and implement a balanced scorecard system?
Expert help is required to build and implement a scorecard system. Each organization is unique, so it is not possible to provide an estimate without knowing more about an organization.
If you would like a no commitment estimate, please contact us on 03 96078530 or at email@example.com and one of our senior associates will be happy to discuss options with you. Balanced Scorecard Australia only commences consultancies after full discussions and with a written agreement concerning fees.
How does the balanced scorecard compare to the Six Sigma management approach?
A balanced scorecard system is a strategic management system for an entire organisation. Six Sigma is a methodology for achieving improvements in internal business processes, although in some organisations it has taken on a broader role. Six Sigma is defined by Quality America as "… a quality Improvement methodology structured to reduce product or service failure rates to a negligible level (six sigma is equivalent to approximately 3.4 failures per million events). To achieve these levels of quality, Six Sigma encompasses all aspects of a business, including management, service delivery, design, production and customer satisfaction." Six Sigma was developed at Motorola, GE and Allied Signal and is widely used in many businesses. While the original concept has expanded over the years to become more strategic, most balanced scorecard organizations use Six Sigma as a methodology to improve the efficiency of internal business processes on a project by project basis.
Can you please give me a list of metrics or KPI's (key performance indicators) for my balanced scorecard?
No. The balanced scorecard is not a cookbook of performance measures. It requires creative strategic thinking and decisions by many people throughout an organisation to develop an effective balanced scorecard system. No two organizations are alike.
What are the implications of balanced scorecard on budgetary systems?
In its full development, an organisation’s balanced scorecard system provides the "front end" of performance-based budgets. Its performance measures and strategic plans provide the guidance for budget formulation and resource allocation. Some organizations have developed flexible strategy implementation and financial management systems that allow continuous reallocation of funds, without the need for major cyclical efforts in budgeting.
Where can we get training?
Please check our course schedule for a list of our upcoming training courses. Please note that on request we provide on-site courses and workshops tailored to the specific needs of particular organisations. These can be far more effective in meeting an organisation’s training needs as a large number of staff can receive balanced scorecard training and concepts at the same time. Contact us.
Where can we get software to support the balanced scorecard?
There are a large number of vendors of BSC software. Commercially available BSC software ranges from simple spreadsheet and database systems, to more complete performance information, business intelligence, and data warehouse offerings. The various software products available are becoming steadily more advanced, but all contain strengths and weaknesses. While a particular product may suit one organisation it may be totally unsuitable for another.
The balanced scorecard is not a software system. The balanced scorecard is a full strategic planning and management system, the development of which requires considerable preparation, leadership, education, and communication within the organisation. However, once an organisation has developed its balanced scorecard system, there comes a time to consider the purchase of software to support it.
How can we ensure that our balanced scorecard system is maintained in the long term?
It is important not only to build the system right, but to maintain it by continual use and re-education of personnel on its purpose and benefits. Since everything is changing in the business environment, a balanced scorecard program is never "done" -- it is an ongoing journey. So the key is to maintain strategic alignment to mission and vision and desired long-term strategic results -- these are unlikely to change much, and they provide a "pivot" around which everything else revolves. Leaders should help to clarify this vision. Use our recommended communication techniques to keep people focused on these results and the strategies for getting there.