The Balanced Scorecard; BSC

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The Balanced Scorecard (Page 2 of 2)

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Every company exists to make money. The financial 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 measure themselves solely in terms of their financial bottom lines, which is what most traditional companies 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.

Good metrics 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, follow-through becomes imperative. 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 environment (government regulations, economic cycles, politics, natural calamities, etc.); 2) the organization itself (company strategy, company policies, employee compensation, systems/processes/procedures, etc.); 3) a department or group of individuals (work loads and processes, group relationships, group morale, etc.); and 4) an individual (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.

According to Kaplan and Norton, organizations that are successful in implementing the balanced scorecard approach follow five (5) principles 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.

Lastly, 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."

<Back to Page 1 - Balanced Scorecard Definition / BSC Perspectives>

References: www.balancedscorecard.org; www.valuebasedmanagement.net;

www.quickmba.com; www.organizedchange.com; www.dmreview.com;

www.darwinmag.com

See Also: TPM / TQM; Kaizen; 6-Sigma; Poka-Yoke; 5S Process

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