or 'BSC', refers to a
new strategic management approach developed by Dr. Robert Kaplan and
David Norton in the early 1990's as a means of enabling an organization
to clarify its vision from different perspectives and create future
value for the organization by concretizing the metrics and actions
necessary for this vision to come true.
Scorecard is basically a methodology that defines an organization's
performance measurement system or
based on the organization's
Value drivers include everything that enhances the organization's value
- customer service, innovation, operational efficiency, financial
performance, etc. Once these metrics have been defined, they are rolled
up into a 'scorecard', which the company uses to measure, record, and
analyze its performance and determine if it is meeting its goals.
approach not only considers feedback information from the organization's
internal processes, but from various business outcomes as well to
achieve continuous improvements in all aspects that drive the
organization's over-all value. Using
from different aspects of the business (i.e., internal processes,
financial performance, customer satisfaction, human resource
development, etc.) allows the company to acquire a 'balanced' assessment
of its needs and weaknesses and develop the appropriate strategy to come
out with an improved and more balanced set of performance results.
Balanced Scorecard must cascade from the
levels of the company down to the
ranks. It goes without saying that the vision, mission, strategy, and
objectives to which the Balanced Scorecard will be aligned must be set
by no less than the company's top management. Without top management
buy-in, any scorecard defined for the company will have difficulty
getting the necessary support. It would also be a good idea to have a
champion for the Balanced Scorecard within the company.
Equally important is the
awareness of all company personnel of what the corporate goals are, how
these will be measured by the company's Balanced Scorecard, and how each
employee can contribute his or her own share towards the achievement of
This is realized by having everybody in the company keep a personal
scorecard in support of the company's Balanced Scorecard. As a
result, everyone will be driven by metrics and performance data that
toward company success.
scorecard approach works because people are
if they know that they're being measured and they know how they're being
measured. Experts say that this is true whether or not there's an
incentive given for the achievement of the goal.
Scorecard views an organization from
1) the learning and growth perspective; 2) the business process
perspective; 3) the customer perspective; and 4) the financial
perspective. A company must define metrics and collect and analyze
data for each of these perspectives.
'learning and growth'
perspective pertains to the development of the human resources of the
company, and includes the following: 1) personnel training and
improvement; 2) cultivation of corporate culture; 3) organizational
development, including the nurturing of corporate experts,
gurus, and mentors; 4) setting up of fast and efficient knowledge
transfer infrastructure; and 5) opening up of communication lines among
personnel. This perspective supports the concept that people are a
company's main resource and most valuable asset, so metrics defined for
this perspective must measure various aspects of employee improvement,
growth, and satisfaction.
the company's internal business processes. Every manager within the
company must have his or her own set of metrics that determine whether
his or her area of responsibility is performing business to expectations
set by the company's over-all Balanced Scorecard. These business
metrics, which measure various aspects (efficiency, speed, quality,
etc.) of how well the company's products and services are manufactured
to match customer expectations, must be carefully defined by people who
know the internal processes very well.
as its name implies, focuses on customer satisfaction. Keeping the
customers satisfied, if not delighted, is the best way to keep them
loyal to the company. Failure to satisfy the customers will prompt them
to look for other suppliers who can deliver what they want. Customer
satisfaction is not always easy to measure though, so ingenuity may be
needed for the establishment of the appropriate metrics and data
gathering system that will reflect the true sentiment of the customer.
exists to make money. The
perspective is about that - the
company's ability to make money. There is no need to emphasize the importance of
collecting and analyzing financial data in a timely manner, since every
company is doing this already anyway, whether under a BSC program or not.
The difference is that companies practicing the BSC concept do more than
in terms of their financial bottom lines,
which is what most
do. The BSC concept changes that traditional outlook - it ensures that
other non-financial but nonetheless just as important perspectives
influence how a company must be valuated.
The Balanced Scorecard
relies heavily on proper definition of the company's metrics. Choosing
the wrong metrics will not produce the desired results, no matter how
diligently the data are collected and analyzed. It is for this
reason that metrics need to be chosen by people who really know how
they'll impact the company's goals and vision.
will: 1) reflect the true present status of the company from many
different perspectives, allowing decision-makers to make their best
moves; 2) provide constructive feedbacks to various company processes,
leading to continuous improvement; 3) show trends in company performance
over time, facilitating adjustments to changes; and 4) quantify many
things, making analyses more accurate and solutions more effective.
Once the metrics have been
defined and implemented, and scorecard data start pouring in,
Movements in the metrics included in the balanced scorecards, whether
positive or negative, must be analyzed diligently to identify their
causes. Causes that produce positive changes must be sustained, if not
enhanced. On the other hand, causes that produce negative effects
must be eliminated.
When tracing the causes of
movements in the BSC's metrics, one must be aware of their possible
sources. Sources that affect the metrics may come from: 1) the
(government regulations, economic cycles, politics, natural calamities,
etc.); 2) the
(company strategy, company policies, employee compensation,
systems/processes/procedures, etc.); 3) a department or
of individuals (work loads and processes, group relationships, group
morale, etc.); and 4) an
(personality, management style, skills, attitude, etc.). Knowing
the causes of performance data movements and their sources will make it
easier for them to be put under control.
Kaplan and Norton, organizations that are successful in implementing the
balanced scorecard approach follow
to be able to
focus on their strategy and deliver the breakthrough results: 1)
mobilization of change through executive leadership; 2) translation of
the company strategy into operational terms; 3) alignment of the
organization to the strategy; 4) making the strategy everyone's job; and
5) making the strategy a continual process.
here's how Kaplan and Norton described their 'Balanced Scorecard'
concept (source:www.balancedscorecard.org): "The balanced scorecard retains traditional financial measures. But
financial measures tell the story of past events, an adequate story
for industrial age companies for which investments in long-term
capabilities and customer relationships were not critical for success.
These financial measures are inadequate, however, for guiding and
evaluating the journey that information age companies must make to
create future value through investment in customers, suppliers,
employees, processes, technology, and innovation."
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