The Balanced Scorecard

Have you developed a Balanced Scorecard to deliver strategic outcomes?

A. No. We haven’t.
B. We are working strategically … … but do not use a Balanced Scorecard.
C. Our strategic plan contains some elements of a Balanced Scorecard.
D. We have commenced using a Balanced Scorecard … it is, however work-in-progress.
E. We have developed a Balanced Scorecard of targets, measures, and required actions to deliver strategic outcomes.
[Score:  A=0, B=1, C=2, D=3 and E=4]

Why is this question important?

If you want success in business you need an achievable coherent STRATEGY …

  • Ultimately you need to measure this in term of Financial outcomes …
  • If you want strong financial results you must have great Customer relationships and service …
  • If you want great customer service, you must have excellent Internal Processes in place …
  • If you want great internal processes, you need Learning and Growth which will deliver competent motivated people (the human capital), excellent systems (the information and technology capital), and a climate for action (the organisational capital) which are required to execute the strategy and support the internal processes which will deliver delighted customers and therefore generate the financial outcomes which will achieve your strategy … this is the ‘game-changer’ for successful companies.

The above is the ‘essence’ of the Balanced Scorecard – underlining the cause-and-effect inter-connectivity / interrelationship between the four perspectives – Financial, Customer, Internal Process and Learning & Growth.

The Balanced Scorecard is a framework that enables organisations to identify, manage and measure its strategic objectives.

Like most great ideas, the scorecard is conceptually simple.  The scorecard identifies four generic perspectives that cover the main strategic focus areas of a company.

 

Adapted from:
The Balanced Scorecard: Translating Strategy into Action, Robert S. Kaplan and David P. Norton.

The idea therefore is to use this model as a template for designing strategic objectives, measures, targets and initiatives within each of the following perspectives:

  • The Financial Perspective covers the financial objectives of an organisation and enables managers to track financial success and value.
  • The Customer Perspective covers the customer objectives such as customer retention, satisfaction, acquisition, market share goals as well as product and service attributes.
  • The Internal Process Perspective covers internal operational goals and outlines the key processes necessary to deliver the customer objectives, including operations processes, CRM processes and innovation processes
  • The Learning and Growth Perspective covers the intangible drivers of future success such as human capital – strategic competencies – the availability of people skills, talent, and know-how required to support the strategy, information capital – strategic technologies –  the availability of information systems, databases, networks, and infrastructure to support the strategy, and organisational capital – ‘Climate for Action’ – the ability of the organisation to mobilise and sustain the process of change required to execute the strategy.

We can rephrase all of this quite simply as follows:

Where does success come from in business?

Strategy.  A written, achievable coherent strategic plan.

How do you measure a successful strategic plan?

A healthy bottom line.  Strong financial results. [Financial Perspective]

What is the key to a healthy bottom line?

Customer satisfaction.  Deliver excellent customer value, impeccable customer service, and build enduring customer relations. [Customer Perspective]

How do you keep your customers satisfied?

Organisational processes.  Excel at ‘value-creation’ for your customers through outstanding operations management processes, customer management processes, and innovation management processes. [Internal Process Perspective]

How do you achieve all of this?

Continually invest in training, learning and up-skilling to enhance your team’s capabilities and motivation; foster a culture that constantly inspires positive action and keeps everyone focused, always driving the business towards success; implement excellent, smooth-running systems, policies and procedures that are consistently client-centred. [Learning & Growth Perspective]

The following diagrams clearly show the all-important “cause and effect” inter-relatedness between the four perspectives … they show how the objectives support each other and that delivering the right performance in the lower perspectives (Learning and Growth and Internal Processes) will causally lead to the delivery of the outcome objectives in the upper perspectives (Customer and Financial).

 

 

Adapted from:
The Balanced Scorecard: Translating Strategy into Action, Robert S. Kaplan and David P. Norton.

The objectives in the Learning and Growth Perspective underpin the objectives in the Internal Process Perspective, which in turn underpin the objectives in the Customer Perspective.  Delivering the customer objectives should then lead to the achievement of the financial objectives in the Financial Perspective.  This causal logic is one of the most important elements of a modern Balanced Scorecard as it enables companies to create a truly integrated set of strategic objectives.

An example of a ‘generic’ Balanced Scorecard …

Adapted from:
The Balanced Scorecard: Translating Strategy into Action, Robert S. Kaplan and David P. Norton.

A Key Benefit of the Balanced Scorecard “Strategy Map” – highlighting the all-important “cause-and-effect” inter-relationships through the various perspectives:

The “cause-and-effect” rationale of the above example Strategy Map…

If you want excellent service revenue growth … …

  • the driver of this measure could be repeat and expanded sales from existing customers, the result of a high degree of customer loyalty and focus on customer satisfaction … …
  • how will you achieve customer loyalty and thereby increase customer retention? (which in turn helps customer acquisition, increasing customer profitability and market share) … …
  • analysis of customer preferences may show you need excellent internal processes which ensure the entire team deliver excellent, on-time service to the customer and superior value through optimised cost effective processes, excellent service division management systems and service delivery innovations … …
  • to achieve these improvements in internal processes you need a pervasive customer care and service culture, motivated focused highly skilled staff, efficient leveraging of ICT infrastructure to underpin the delivery of top-end customer care … …

Better Strategic Planning

The Balanced Scorecard provides a powerful framework for building and communicating strategy. The business model is visualised in a Strategy Map which forces managers to think about cause-and-effect relationships. The process of creating a Strategy Map ensures that consensus is reached over a set of interrelated strategic objectives. It means that performance outcomes as well as key enablers or drivers of future performance (such as the intangibles in the Learning and Growth Perspective) are identified to create a complete picture of the strategy.

Improved Strategy Communication & Execution

The fact that the strategy with all its interrelated objectives is mapped on one page allows companies to easily communicate strategy internally and externally. As they say a picture is worth a thousand words.  This “plan on a page” facilities the understanding of the strategy, and helps to engage staff in the delivery and review of strategy.  In the end it is impossible to execute a strategy that is not understood by everybody.

Better Management Information

The Balanced Scorecard approach forces organisations to design key performance indicators (KPI’s) for their various strategic objectives. This ensures that companies are measuring what actually matters. Research shows that companies with a BSC approach tend to report higher quality management information and gain increasing benefits from the way this information is used to guide management and decision making.

Improved Performance Reporting

Companies using a Balanced Scorecard approach tend to produce better performance reports than organisations without such a structured approach to performance management. Increasing needs and requirements for openness can be met if companies create meaningful management reports to measure and communicate performance.

Better Strategic Alignment

Organisations with a Balanced Scorecard are able to better align their organisation with the strategic objectives. In order to execute a plan well, organisations need to ensure that all elements are working towards the same goals.

The idea of the Balanced Scorecard is simple but is extremely powerful if implemented well.  An organisation will almost certainly experience improved performance as long as management use the key ideas of the Balanced Scorecard to:

  • create a unique strategy and visualise it in a cause-and-effect map
  • align the organisation and its processes to the objectives identified in the Strategy Map
  • design meaningful key performance indicators and
  • use these indicators to facilitate learning and improved decision making, and improved performance.

Strategy Mapping

Strategy mapping is simply one of the most powerful management tools in use today. Amongst its many benefits is that it enables a summary one-page description of the key value drivers the organization must deliver on to achieve its strategic goals.  By getting the map right it becomes possible to select the appropriate critical key performance indicators (KPIs) and supporting action programmes that together complete the performance management or scorecard framework.

Strategy Maps provides focus and direction, showing at a glance what the intended outcomes are, as well as the core activities and underpinning enablers that will lead to their achievement.  One of the great strengths of a Strategy Map is that it enables the visualization of causality – the value creation chain is clear and understandable.

Execution Processes

Adapted from:
The Balanced Scorecard: Translating Strategy into Action, Robert S. Kaplan and David P. Norton.

Critical in the process of strategic execution processes:

Clarify & Translate the Strategy to Operational Terms

  • You can’t implement Strategy if you can’t describe it
  • Describe and communicate the strategy in a consistent and insightful way
  • Use a Strategy Map – a logical and comprehensive visual way to describe strategy
  • Achieve consensus on the key objectives and how they inter-relate
  • The KPI measurement of ‘cause-and-effect’ linkage relationships show how intangible assets are transformed into tangible outcomes

Align the Organisation to the Strategy to Create Synergy

  • Synergy throughout the organisation  – the overriding goal
  • Create ‘stretch targets’ which are achievable
  • Replace formal reporting structures with strategic programs, priorities, measurement and feedback
  • Managers need feedback on whether the planned strategy remains a viable and successful strategy (the ‘double-loop’ learning process)

Make Strategy Everyone’s Everyday Job

  • Management cannot implement strategy on their own
  • It requires the active participation of everyone in the organisation
  • Move strategy from the boardroom to the backroom and to the front lines of daily operations and customer service
  • Every employee is capable of finding improved ways of doing business that will contribute to achieving strategic objectives
  • Communicate and educate
  • You have no chance of executing strategy unless your employees know it
  • Everybody must be motivated to execute strategy and they must be empowered to do so

Make Strategy a Continual Process

  • Have regular management meetings to discuss, review and progress strategy (sounds obvious – but they are a rarity)
  • Review priorities and update scorecards in real-time
  • Constantly fine-tune strategies
  • Instead of being an annual one-off event, make strategy a continual daily / weekly process
  • Ensure the BSC seeks to protect long-term initiatives from short-term sub-optimisation

Mobilise Change through Leadership, Feedback and Learning

  • The single and most important condition for success is the ownership and involvement of the top team
  • Everyone learns from their performance and improves their future decision-making
  • Strategy requires change from virtually every part of the organisation
  • Strategy requires teamwork to coordinate these changes
  • Mobilisation begins at the top – establish a sense of urgency, create the guiding ‘coalitions’ and develop a vision and strategy
  • The BSC is not a ‘metrics’ project – it’s a “change” project
  • Remember that strategies must continuously improve performance and constantly evolve to reflect shifts in opportunities and threats.