07 Nov The Balanced Score Card
From the pioneering work of French process engineers in the 1950s, who called it the Tableau de Bord or ‘dashboard’, comes Kaplan and Norton’s, Balanced Score Card.
What is great about the balanced score card is that it is designed to give a ‘balanced’ perspective to business performance management. That means not just looking at financial metrics, which can lead to myopic and dysfunctional decision making.
It also works to fundamentally align strategy with operations and initiatives and serves as a communications vehicle to integrate all levels of an organisation, which can be extremely difficult.
Although it was first released in 1996, it’s still highly relevant today. In fact, changes to the way business is emerging makes the BSC more valuable than ever. Today’s business environment is one in which team need to be cross-functional to be truly market-oriented and deliver solutions to the market place quickly and effectively. Logistics and supply chain partners are extremely important.
We now call the supply chain ‘the value chain’ and it can contain its own sources of competitive advantages. Operations are increasingly global and online, and along with an online marketspace, we see disintermediation (the removal of internediaries) and the addition of new intermediaries ‘ (such as infomediaries e.g. comparison shopping sites, which aim to aid consumers decision making). We are drowning in information and statistics, and live in a knowledge economy in which knowledge workers and knowledge management are key to out success. So how do we measure our performance as an organisation and escape ‘paralysis by analysis’?
What is the Balanced Score Card?
Essentially, it synthesises Strategy into a document that aids in planning, management and control. The score card measures four facets of business performance.
- Financial Metrics
- Customer Relationships
- Business Processes
- Learning and Growth
How it can be used
There are vast advantages in using a BSC and various ways that it can be used.
Business Planning
The score card closely takes strategic goals and puts specific goals, targets and measurements in place. In effect, it synthesises strategy into operational items and initiatives, each with their own metric for performance assessment. These are the ‘needle movers’ meaning there is less paralysis by analysis. Information included is reviewed and analysed at the implementation stage and only that which is absolutely pertinent is included.
Communications
Getting everyone on board across various initiatives, tctics, departments, markets, supplier relationships and so on is no mean feat for any organisation. The BSC allows every party to see what the strategy is and take ownership for their role in the execution.
Monitoring and Control
The card will highlight areas that are struggling so that resources can be allocated or teams can be supported in other ways.
Example
Financial Metrics
- Gross Profit Margin
- Profit on Sales
- Net Profit Margin
- Return on Assets
- Cashflow
- Quick Assets Ratio
- Inventory Turnover
- Debtors Turnover
- Creditors Turnover
- Debt to Equity Ratio
Customer Relationships
- Market Share
- Net Promoter Score
- Brand Image
- Complaints
- Conversion Rates
- Staff Turnover
- Customer Growth Rate
Learning & Growth
- New Product Development
- Average Days to Market
- Staff Development
- Mentees Program metric
Business Processes
- Customer – Supplier evaluation score
- Quality
- Efficiency
- Preparation time
As mentioned above, the specific items will be decided by each individual organisation on the basis of their strategic aims.
Implementing a Balanced Score Card
Kaplan and Norton recommend a four stage implemenattion process:
1. Translating the Vision. You must clarify and crystallise the organisation’s mission and vision and this must be communicated with all staff at all levels.
2. Communicating and Linking. The vision needs to be communicated and linked to the strategy in components that operationalise the strategy and can be measured.
3. Business Planning. From here we are essentially creating a Business Plan (or a Marketing Plan) in which finance, marketing, production, IT, HR all inform their contribution to the strategy.
4. Feedback and Learning. When at first we don’t succeed, try and try again.
Who can use it?
The Balanced Score Card is still widely used across all sorts of organisations, from very small to very large, including Mobil Oil, British Airways Cargo, not-for-profits, schools, and small consulting firms.
One very good thing about the BSC is that it infuses marketing performance across all activities rather than treating it as a standalone function.
Lastly, the balanced score card can be used to integrate the goals of alliance partners. With a prevalence of strategic ventures and partnerships, managing multi-partner affairs is not easy. The BSC can help if implemented well in sharing common goals and metrics that advance both organisations.
Drawbacks and Practicalities
A few writers have criticised aspects of the BSC for various reasons. Certainly there are many instances in which it would be difficult to implement this, however, there are no obvious examples of industries which would not benefit. The issues are more concerned with the time necessary to install the system and the impost it would have on the existing systems and strategy execution.
- Time
- Commitment of senior managers and staff
- Consistent data and compatible information (this could require IT investment or a method of flattening data into ‘norms’)
- Top-Down
The first two drawbacks are symptomatic of the workplace cultural and communication issues this very tool can work to improve and, therefore, how much credence you give them really depends on you.
The technology and data systems indicate that a resources may need to be allocated to creating an integrated database for suppliers and customers and other stakeholders from which accurate and convenient data can be found.
In terms of the prescriptive top-down nature, Customer Relationships might be better considered as Stakeholder Relationships in which Staff Satisfaction measures are included. There is a large amount of academic literature and research correlaying Staff Satisfaction with Customer Satisfaction, so having good staff who are well trained is critical.
Herein some regular qualitative employee engagement activities can inform some components in the Learning and Growth facet (e.g. time for volunteering, personal projects, innovation etc). As employees are boundary spanning, they are great sources of market sensing data which can also assist with the operational items and initiatives included in business processes as well.