Balanced Scorecard Fundamentals
A Performance Management Building Block
Research suggests that world-class companies are 159% more likely to have mature Balanced Scorecards in place than less successful organizations. And a 2008 study published in Advances in Accounting found that among 164 publicly-traded companies, those with well-deployed Balanced Scorecards outperformed the control group by nearly 30%.
So what exactly is a Balanced Scorecard, and why do best-in-class companies use them so widely?
A Framework – Not a Report
An effective Balanced Scorecard is really much more than a single entity; it’s a framework of linked, aligned scorecards that – when deployed well – is at the heart of successful Strategy and Performance Management.
The framework was designed to help organizations clarify their strategy, communicate it, and then align employees throughout the business to leverage that strategy and create measurable action.
A Balanced Scorecard framework can provide:
- Focus – Ensures an organization is doing the right things – not simply doing things right (helps avoid concentrating on perfecting a process that has little impact on critical outcomes).
- Alignment – Creates links between and across levels of your organization (particularly helpful to improve an issue that cuts across functional silos).
- Accountability – Spans departments and individuals (identifies what is strategically important, what performance level is needed, and who is responsible).
- Communication – Translates your high-level strategy into words that are meaningful and relevant throughout the organization.
Perspectives on Performance
Balanced Scorecards offer a more holistic and detailed view of an organization’s performance by framing strategic objectives within a balanced set of areas that contribute to success. These areas are called perspectives, and most often include Financial, Customers, Internal Processes, and Learning and Growth. These perspectives can and should be modified, if necessary, to align the scorecards to the strategic “stakeholders” for your own business.
Objectives and Measures
Grouped under each perspective should be your “critical few” objectives – the 8-10 most important organizational goals (in short, verb-noun format) from this year’s strategic plan. These articulate what you want to achieve, so it is important to determine these before proceeding to the measures. Too many businesses jump into the measures without first framing the objectives.
After determining your organization’s objectives, select performance measures that will best determine if you are on track to achieve each objective. These are also called KPIs (Key Performance Indicators) or metrics. As with objectives, focus is key. You should select no more than three measures per objective, which should be the best indicators of achievement for that strategic goal.
Software to Drive Deployment & Sustained Results
ActiveStrategy software automates and coordinates the deployment of a comprehensive, cascaded scorecard framework. Built by a team with decades of hands-on experience deploying manual scorecards (and understanding how cumbersome that can be), ActiveStrategy Enterprise helps organizations achieve the most successful deployments, ensuring results in your most important business areas.