BUSINESS MANAGEMENT THROUGH BALANCED SCORECARD (BSC)
The Balanced Scorecard (BSC) was originally developed by Dr. Robert Kaplan of Harvard University and Dr. David Norton as a framework for measuring organizational performance using a more BALANCED set of performance measures. Traditionally companies used only short-term financial performance as measure of success. The “balanced scorecard” added additional non-financial strategic measures to the mix in order to better focus on long-term success. The system has evolved over the years and is now considered a fully integrated strategic management system.
Kaplan and Norton describe the innovation of the balanced scorecard as follows:
“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.”
The balanced scorecard (BSC) is a strategic planning and management system that organizations use to:
- Communicate what they are trying to accomplish
- Align the day-to-day work that everyone is doing with strategy
- Prioritize projects, products, and services
- Measure and monitor progress towards strategic targets
The system connects the dots between big picture strategy elements such as mission (our purpose), vision (what we aspire for), core values (what we believe in), strategic focus areas (themes, results and/or goals) and the more operational elements such as objectives (continuous improvement activities), measures (or key performance indicators, or KPIs, which track strategic performance), targets (our desired level of performance), and initiatives (projects that help you reach your targets).
The BSC suggests that we view the organization from four perspectives, and to develop objectives, measures (KPIs), targets, and initiatives (actions) relative to each of these points of view:
- Financial : this perspective views organizational financial performance and the use of financial resources
- Customer/Stakeholder : this perspective views organizational performance from the point of view the customer or other key stakeholders that the organization is designed to serve
- Internal Process : views organizational performance through the lenses of the quality and efficiency related to our product or services or other key business processes
- Organizational Capacity (originally called Learning and Growth) : views organizational performance through the lenses of human capital, infrastructure, technology, culture and other capacities that are key to breakthrough performance
BSC Terminologies :
- Strategic Objectives are the continuous improvement activities that we must do to implement strategy. The break down the more abstract concepts like mission and vision into actionable steps. Actions that your organization take should be helping you achieve your strategic objectives. Examples might include: Increase Revenue, Improve the Customer or Stakeholder Experience, or Improve the Cost-Effectiveness of Our Programs.
- Strategy Map is one of the most powerful elements in the BSC methodology to visualize and communicate how value is created by the organization. A strategy map is a simple graphic that shows a logical, cause-and-effect connection between strategic objectives. Generally speaking, improving performance in the objectives found in the Organizational Capacity perspective (the bottom row) enables the organization to improve its Internal Process perspective (the next row up), which, in turn, enables the organization to create desirable results in the Customer and Financial perspectives (the top two rows).
- KPI: For each objective on the strategy map, at least one measure or Key Performance Indicator (KPI) will be identified and tracked over time. KPI’s indicate progress toward a desirable outcome. Strategic KPIs monitor the implementation and effectiveness of an organization’s strategies, determine the gap between actual and targeted performance and determine organization effectiveness and operational efficiency. Good KPIs Provide an objective way to see if strategy is working, Offer a comparison that gauges the degree of performance change over time, Focus employees’ attention on what matters most to success, Allow measurement of accomplishments, not just of the work that is performed, Provide a common language for communication, and Help reduce intangible uncertainty
- Strategic Initiatives are projects (new or existing) that are designed to help the organization achieve Strategic Objectives and have significant organization-wide impact. They are managed formally like any other project, meaning they are explicitly defined in terms of owner, schedule, resources needed, action steps, progress, and expected results. Some Strategic Initiatives are short-term (taking only a few days to implement) while others can take years to fully implement. Strategic Project Management is the process of managing projects to achieve strategic success.
STEPUP has certified experts who have deployed BSC across various organizations and are ready to take up BSC implementation as Turnkey project at your organization.