What is the Balanced Scorecard?
A balanced scorecard is an organisation's strategic plan and its financial plan rolled into one document. It provides a framework for measuring organisational success by integrating strategy with operations. The Balanced Scorecard was developed at Harvard Business School in 1996 by Michael Hammer and James Champy. They were inspired by the work of Peter Drucker who had been advocating this approach since the 1970s. In fact, it has become so popular that there are now many different versions of the Balanced Scorecard around the world. It provides an overarching view of the key performance indicators, goals, objectives, metrics, targets, etc., that are important to drive success at any given time.
What are the problems with Implementing the Balanced Scorecard?
The truth is that a Balanced Scorecard is an excellent tool that when properly implemented, will likely benefit most organisations. Many of the problems with implementing the Balanced Scorecard come from the fact that it is so often viewed as a mere reporting framework rather than a true way of managing your business.
One problem with the Balanced Scorecard is that it requires you to spend quite some amount of time setting up. This can be both frustrating and costly if done incorrectly. For example, many organisations have found themselves spending more money on consultants just trying to get their scorecards set up correctly. In addition, there is also the issue of having to train people how to use this new system.
A lot of people look at the Balanced Scorecard as 4 simple perspectives (Financial, Customer, Internal Process, Learning and Growth) that you simply 'slot your goals' into. Another way to think about the Balanced Scorecard is as a series of leading and lagging steps. There are two mistakes that most people make when trying to implement the Balanced Scorecard. They either focus too much on just the first few perspectives or they don't take enough time to get all four perspectives right before moving onto the next stage.
What are the Benefits of Implementing the Balanced Scorecard?
We see a high level of popularity with the Balanced Scorecard as it is easy to understand. It provides a simple way to communicate what you do to others. You can easily explain why you're measuring something or where you want to go by simply stating which one of four perspectives you're focusing on. This makes it easier than ever before to get buy-in from all levels within your organisation. By assigning specific numbers to each of the four perspectives, you increase accountability throughout your organization. Other key benefits include:
- Better Strategic Planning - The Balanced Scorecard provides a powerful framework for building and communicating strategy.
- Improved Strategy Communication - The fact that the strategy with all its interrelated objectives is mapped on one piece of paper allows companies to easily communicate strategy internally and externally.
- Better Management Information - The Balanced Scorecard approach forces organisations to design key performance indicators for their various strategic objectives. This ensures that companies are measuring what actually matters.
- Improved Performance Reporting - organisations using a Balanced Scorecard tend to report performance and communicate performance better than organisations without such a structured approach to performance management.
Strategy Execution and the Balanced Scorecard
Organisations often manage strategy periodically, with a continual process for strategy execution lost along the way. An excellent strategy process is implemented across the entire organisation when it remains uppermost in the minds of staff as the organisation undertakes business-as-usual operational plan actions, always aligned to their strategy. Executive leadership teams meet regularly to focus on integrating strategy and operations, a central theme where integrated planning and reporting (IP&R) is a core functionality feature of the system.
Leadership is both necessary and sufficient for successful strategy execution. It is the role of the chief executive to lead the IP&R case for change and to communicate the vision and strategy to every employee. Strong leadership at the highest level combined with a structured yet flexible system will deliver outstanding performance.
How has Balanced Scorecard evolved along the way?
A Balanced Scorecard is more than just an improved performance measurement system. It is the basis for a new strategic management system implemented through empowered employees across the organisation. Increased transparency and accountability along with managerial support has seen improved levels of planning maturity. In areas such as Local Government where there is a multitude of strategic, operational, master and governance plans, it has been difficult to align all plans and have data stored in one, multi-relationship database.
There are good examples of mature planning methodologies and modern cloud software that has evolved in the last 2-3 years to address these efficiency and reporting challenges where multiple plans are in place. Integrations into state-of-the-art interactive visualisations have improved reporting outcomes at all levels within the organisation.
Balanced Scorecard objectives and measures now focus more on strategic implementation activities and outcomes using evolved design methods to support more rapid cascading of Balanced Scorecards in complex multi-unit organisations. There is a refocus of Balanced Scorecard usage on enabling managers to have strategically focused performance conversations with their team leaders.
A Balanced Scorecard is a powerful and effective tool for helping organisations implement their strategy. In near 25 years since it was introduced, it has continued to evolve and become even better suited to this task across a broadening range of organisational types.
Horizon2Technologies can help you implement a Balanced Scorecard. Get in touch today for a confidential chat on (08) 8311 3948 or alternatively send an email enquiry to email@example.com and we’ll get back to you.