Balanced Scorecard
Over a million managers and consultants are working together on management issues via 12manage each month...
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Balanced Scorecard |
Over a million managers and consultants are working together on management issues via 12manage each month... |
Clarifying and communicating vision and strategy into action. Explanation of Balanced Scorecard of Kaplan and Norton. ('92) |
History of the Balanced ScorecardIn 1992, an article by Robert Kaplan and David Norton entitled "The Balanced Scorecard - Measures that Drive Performance" in the Harvard Business Review caused a lot of attention for their method, and led to their business bestseller, "The Balanced Scorecard: Translating Strategy into Action", published in 1996.
The financial performance of an organization is essential for its success. Even non-profit organizations must deal in a sensible way with funds they receive. However, a pure financial approach for managing organizations suffers from two drawbacks:
The 4 perspectives of the Balanced ScorecardThe Balanced Scorecard method of Kaplan and Norton is a strategic approach, and performance management system, that enables organizations to translate a company's vision and strategy into implementation, working from 4 perspectives:
This allows the monitoring of present performance, but the method also
tries to capture information about how well the organization is positioned
to perform in the future. Benefits of the Balanced ScorecardKaplan and Norton cite the following benefits of the usage of the Balanced Scorecard:
1. The Financial PerspectiveKaplan and Norton do not disregard the traditional need for financial data. Timely and accurate funding data will always be a priority, and managers will make sure to provide it. In fact, there is often more than sufficient handling and processing of financial data. With the implementation of a corporate database, it is hoped that more of the processing can be centralized and automated. But the point is that the current emphasis on financial issues leads to an unbalanced situation with regard to other perspectives. There is perhaps a need to include additional financial related data, such as risk assessment and cost-benefit data, in this category.
2. The customer perspectiveRecent management philosophy has shown an increasing realization of the importance of customer focus and customer satisfaction in any company. These are called leading indicators: if customers are not satisfied, they will eventually find other suppliers that will meet their needs. Poor performance from this perspective is thus a leading indicator of future decline. Even though the current financial picture may seem (still) good. In developing metrics for satisfaction, customers should be analyzed. In terms of kinds of customers, and of the kinds of processes for which we are providing a product or service to those customer groups.
3. The Business Process perspective
4. Learning and Growth perspectiveThis perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement. In a knowledge worker organization, people are the main resource. In the current climate of rapid technological change, it is becoming necessary for knowledge workers to learn continuously. Government agencies often find themselves unable to hire new technical workers and at the same time is showing a decline in training of existing employees. Kaplan and Norton emphasize that 'learning' is something more than 'training'; it also includes things like mentors and tutors within the organization, as well as that ease of communication among workers that allows them to readily get help on a problem when it is needed. It also includes technological tools such as an Intranet.
The integration of these four perspectives into a one graphical appealing picture, has made the Balanced Scorecard method very successful as a management methodology.
Objectives, Measures, Targets, and InitiativesFor each perspective of the Balanced Scorecard four things are monitored (scored):
Double-Loop FeedbackIn traditional industrial activity, "quality control" and "zero defects"
were important words. To shield the customer from receiving poor quality products,
aggressive efforts were focused on inspection and testing at the end of the
production line. A problem with these approaches - as pointed out by Deming
- is that the true causes of defects could never be identified, and there
would always be inefficiencies because products with a defect are rejected.
Deming understood that variation is created at every step in a production
process, and the causes of variation need to be identified and repaired. If
this can be done, then there is a way to reduce the defects and improve product
quality indefinitely. To establish such a process, Deming emphasized that
all business processes should be part of a system, with feedback loops. The
feedback data should be examined by managers to determine the causes of variation,
and what are the processes with significant problems. Then they can focus
their attention on repairing that subset of processes.
Outcome MetricsYou can't improve what you can't measure. Therefore metrics must be developed
based on the priorities of the strategic plan, which provides the key business
drivers and criteria for metrics managers most desire to watch. Processes
are then designed to collect information relevant to these metrics and reduce
it to numerical form for storage, display, and analysis. Decision makers examine
the outcomes of various measured processes and strategies and track the results
to guide the company and provide feedback.
Management by FactThe goal of measuring is to permit managers to see their company more clearly
- from many perspectives - and hence to make wiser long-term decisions. A
1997 booklet on the Baldrige Criteria
summarizes this concept of fact-based management: Cautionary note on using the Balanced ScorecardYou tend to get what you measure. People will work to achieve the explicit
targets which are set. For example, emphasizing traditional financial measures
may encourage short-term thinking. The
Core Group Theory by Kleiner
provides further clues on the mechanisms behind this. Kaplan and Norton recognize
this, and urge for a more balanced set of measurements. But still, people
will work to achieve their scorecard goals, and may ignore important things
which have no place on their scorecard. Evolution of the Balanced ScorecardIn 2002, Cobbold and Lawrie developed a classification of Balanced Scorecard designs based upon the intended method of use within an organization. They describe how the Balanced Scorecard can be used to support three distinct management activities, the first two being management control and strategic control. They assert that due to differences in the performance data requirements of these applications, planned use should influence the type of BSC design adopted. Later that year the same authors reviewed the evolution of the Balanced Scorecard as shown through the use of Strategy Maps as a strategic management tool, recognizing three distinct generations of Balanced Scorecard design.
Book: Robert S.
Kaplan, David P. Norton - The BSC: Translating Strategy into Action -
Book: Paul R. Niven
- BSC Step-by-Step: Maximizing Performance and Maintaining Results -
Book: Paul R. Niven
- BSC Step-by-Step for Government and Nonprofit Agencies -
Balanced Scorecard Special Interest Group
Balanced Scorecard Forum
 Comment on this PageBalanced Scorecard Education & Events
Compare with the Balanced Scorecard: Strategy Maps | Office of Strategy Management | Performance Prism | CSFs and KPIs | Hoshin Kanri - Policy Deployment | Intangible Assets Monitor | People CMM | MSP | Beyond Budgeting | Strategy Dynamics | IC Rating | TQM | Value Profit Chain | Scientific Management
Return to Management Hub: Change & Organization | Communication & Skills | Decision-making & Valuation | Finance & Investing | Human Resources | Knowledge & Intangibles | Strategy
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| └► Marcel Van Der Heever (RSA) | BSC in Healthcare | "The internal processes relate to all the key business processes that you would need to ensure are functioning efficiently to achieve financial and customer related objectives. So, if your financial management and quality management processes are vital to making sure the customer and financial objectives are achieved, make sure you measure them. In terms of HR strategy, this is a requirement for the business processes to function effectively (i.e. an input into the outputs that processes produce) - if viewed from a high level of the entire organisation. If you are cascading the scorecard to a specific HR level, the internal process of that scorecard may well need to focus on the key processes surrounding the defined HR strategy. So, I suggest you separate the high level business strategy from the tactical level strategies for each of the functions of your organisation." |
| └► Rafiudeen (Qatar) | BSC - in Projects | "Yes I think, it will give you multiple benefits: - During the planning phase, you will set objectives in all perspectives & identify the measures/ targets / initiatives. - Throughout the project you will monitor the progress along the set objectives (targets). - At the end you will see that, you have achieved / improved in many areas. Basically, this will support your commitment to continual improvement. Good luck" |
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| └► Kartik Patel (India) | Project Management - BSC | "Key performance requirements are: - Resource utilization - Resource efficiency - Project and resource timeline efficiency - Cost achievements Above are key factors, and then other objectives or measures have to be derived based on your specific needs. With well planned objectives and measures, this will give you very good monitoring, control and actionable items over the period. Your project management system ( clarity or ms project etc., ) can also be integrated straight away to fetch periodic measure values... In fact, such implementations can add tremendous value. I have experienced that first hand!" |
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| └► Hoving (Netherlands) | Reaction to BSC | "Thanks for your reactions. It supports my first thoughts that a BSC can help measuring and controlling the progress of projects. Identifying the key performance req. Seems to be easy in the way you mention them (they are rather obvious when mentioning them), though a lot of people don't care to look at them during the project life cycle. I'll try to fit in a BSC in my research in a companies project control system. I hope it'll be beneficial." |
| └► Gayatri Hela (India) | Re: How Can I Apply a Balance Scorecard in a School Environment | "BSC basically focuses on vision and strategy. Your customer would be the students and parents. How do you project yourself to the students and parents in showing how well your internal processes are defined to give the best to the student? You need to have some innovative processes and ideas in your internal processes which should show a good sustainable finances to the shareholders. New ways of teaching or innovative activities which differentiate the school from others and helps the student in his growth would be involved in the learning and growth." | |
| └► Dorothy Lapira (Malta) | BSC in a School Environment | "I would like to know if Mukisa Simon Peter managed to apply the BSC in a school environment. I am a head of school and am looking of new ways to ensure that as service providers we are all working towards achieving our school's vision." | |
| └► Gayatri Hela (India) | I Have a Model for the BSC in School Environment | "Hi, I have one model for the BSC in school environment. Please contact me via my personal page and I can share with you." | |
| └► Kartik Patel (India) | Education KPIs and Monitoring Through BSC | "Standard KPIs for education are available, which have to be tailored to meet the objectives and emphasis for the performance completed by the specific education system (IB etc.) or other stakeholders (e.g. Govt. for the public sector), and then to be divided in to perspectives. I have done good ground work here, as we deal with both BI / BSC and school management systems. Can discuss more..." |
| └► Shamin Assimi (Iran) | Balanced Scorecard in Insurance | "First of all, you need to know your vision and your strategy. Then, based on cause-effect relationship among different perspectives of BSC you should start moving from up to down (from financial perspective to learning/innovation perspective). In this level you should set your objectives. Then when you reached to the learning and innovation perspective it is now the turn to indicate your metrics which each affects the next perspective (this time down to up). You can read further information in detail in Paul R. Niven's book (Step-by-Step: Maximizing Performance and Maintaining Results). I can propose some metrics in your industry if you need." |
| └► lancy cyril dsouza (UAE) | Balanced Score Card | "Hi Can you share some of your experiences" | |
| └► Amey Deshpande (India) | Implementation aspects of BSC | "I am doing my research on the Performance measurement systems with a focus on balanced scorecard. part of it necessitates doing it for some case study companies. could u share some of your thoughts on the implementation aspects." | |
| └► Mohammad (UAE) | BSC | "I have implemented the BSC to my organization and we won many strategy related awards. There is a very simple trick about BSC that you have to think of, in order to achieve, just think of Management by Objective (MBO) and measure it by the BSC and you will achieve really break-through results, cause BSC can not stand alone if you forget your functions and processes." | |
| └► dawit (Ethiopia) | Measuring Team and Individual Performance | "My Organization had Conducted a BSC and goes to Impementation, however we do face a problem: how to measure Team and Individual performance? Can you give us an advise? thankyou. dawit" | |
| └► Dimonekene Ditutala (Angola) | About Team and Individual Performance Measurement | "In my opinion, you must first translate the corporate strategy map into ones adapted to team and individuals. Then proceed on evaluating the achievement of their goals and targets." |
| └► Alan (UK) | BSC best practice | "6. Don't over-measure (Use no more than 3 to 4 Critical Success Factors per strategic objective or goal; use only a manageable number of measures per Critical Success Factor)" | |
| └► Paula (Italy) | Ownership & Accountability | "7. Every objective should be assigned to a specific member of the management team, who “owns” this objective, indicator or measure." | |
| └► David (Iceland) | KISS | "8. Keep It Simple and Stupid. Simplicity is crucial, especially in the first period. Don't assume all employees will learn in one meeting what cost you six months to prepare with your consultant :-) Allow everybody to see the big picture first. So start very simple and let it grow slowly." | |
| └► Mark Pym (UK) | My Balanced Scorecard advice | "8. Ensure that any measures built into a BSC are aligned and that their impact/effect on other measures is closely considered and thought through. 9. Get underneath the surface of the measures and ask youself what behaviour will these measures really drive. Discuss this with Focus Groups. 10. Ensure your underlying policies and procedures support and promote the measures, especially your reward, benefits and HR policies." |
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| └► Randy Retherford (USA) | Provide Support, Money, and People | "11. Leaders must provide the necessary support, money, and people to successfully implement a Balanced Scorecard process/system. Otherwise, this will become just another under-powered implementation, that will eventually be cancelled due to lack of seeing any real benefits." | |
| └► Elia (Namibia) | BSC | "Perfect" | |
| └► Mohanned (Tunisia) | Balanced Scorecard Best Practices: Strategy Map | "12. Use a strategy map to identify links and synergy between KPI's. That's necessary to study the effects between KPI's." |
| └► Danish Noor (USA) | Change Implementation | "Suggest to use the technique of "change implementation", the strategy based on Unfreeze, Intervene and Refreeze. You have to unfreeze the existing classical business process, plan for intervention, and Refreeze after implementation and validation. You must understand thoroughly the Ends that are required to achieve, the existing organizational and business structure and Means at your disposal. A good understanding and knowledge of what you are trying to ACHIEVE, what your are trying to AVOID, what you are trying to ELIMINATE & what you are trying to PRESERVE will aid in the intervention process." | |
| └► Bernard Chakeredza (Zimbabwe) | Auditing Internal | "I am new to this measure how does it fit in Internal Auditing" |
| └► Midas Sekgabo (Botswana) | Sound Budgeting: a Must for Any Successful Strategy | "For any strategy to see the light of the day and bring benefits to the shareholders, it must be accompanied by a competitive budget. Translating the strategy into operational terms, cascading, is useful in that it identifies the necessary activities/initiatives to move the company to the expected vision. These activities/initiatives are then costed to come up with an estimate budget of the strategy (plan). One may want to go further an even cost the monitoring of the strategy including but not limited to data collection and analysis - studies, and monitoring software. At the end of the day, a good strategy should be within reasonable budget of a company. One may need to do some trade-offs to get that pocket-sensitive, competitive strategy." |
| └► Jesper (Danmark) | BSC Implementation Steps | "Suggested Balanced Scorecard Implementation steps: 1. Preparation (Create Strategy, Key Goals, For each goal 3 CSFs) 2. Decide what to measure in each of the 4 perspectives (max 20 in total !) 3. Create Implementation Plan 4. Implement the BSC system 5. Publicise the results 6. Use the results to improve performance 7. Review, revise or fine tune the system." |
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| └► Edison Wazoel Lubua (Tanzania) | BSC Implementation Steps | "- Translating the vision into operational goals at all levels - Communicating the vision and linking it to individual performance - Business planning - Index setting and feedback - Adjusting the strategy accordingly." |
| └► Chico Lam (Canada) | Works for Canada | "TD Bank Financial Group has balanced scorecards for its corporate operations, retail operations and support functions. Works pretty well for us!" |
| └► Francois Aye (Switzerland) | Data generation | "By experience, financial / cost-related data are the easiest to generate ... although they are seldom readily available. Qualitative type of data - e.g. measuring customer satisfaction, process effectiveness, employee competencies or engagement - are even more complex and costly to generate for they frequently require to develop specific measurement tools. Such performance indicators however are critical to collect because they are lead indicators (financial ones generally are lag indicators. ie watching the past) and they provide input from the perspective of a wide variety of stakeholders. Considering one to two years to develop such indicators and their tools, plus two years to start to have an historical background and allow some fine-tuning of indicators/tools, it takes some three to five years to obtain something meaningful ! Top teams not ready to invest four years ahead should not start such a process - but their business will not be strategically driven." |
| └► Siwicki (UK) | HR Use of Balanced Scorecard | "Take a look at the K and N book 'strategy maps'. It outlines the place of Human Capital within the BSC framework. It outlines approaches including Human Capital such as the use of 'Strategic Job Roles'. Essentially, the BSC is designed to create alignment, so without fitting the HR approach within the entire organisational or business unit strategy, you've just created an isolated; perhaps, tactical not strategic scorecard/dashboard." |
| └► Richard (UK) | A 6-perspective BSC? | "I think what you have developed is a Performance Prism, which a BSC with stakeholder measures - good luck - it should work well" |
| └► Ashok A Kella (India) | BSC in Public Sector: Social and State Welfare Aspects | "The BSC in public sector is equally useful for performance recording. However, the criteria for standardizing the measurement unit are indeed different, with reduced importance to financial performance and more room for social as well as state welfare aspects." | |
| └► Daniel Briones (Argentina) | Public Sector BSC: Collecting the Data | "I worked with the BSC at a Department of Housing and Urban Development in my country. The main trouble that we had was collecting the data from the various sources, but not to define the units of measure." | |
| └► Ana (Brazil) | Dimensions of BSC in Public Sector | "A unit of measurement is not just used for financial issues. When we talk about performance in government we have to remember the following dimensions: financial, operational, political and social besides of the perspectives (employee, operational, financial,citizens). The BSC is a good methodology for the Public Sector too, even in the developing countries." |
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| └► Fraoua (France) | BSC Measurements in Public Sector | "It depends on the sector the measurement is done. In some cases it can be purely financial, and in some case the performance must be measured by a social indicator." | |
| └► Ian Black (UK) | Balance | "The whole point of "balance" is to remove the emphasis from financial matters, so achievement of training, coaching, staff development etc are just as relevant as say revenue. Even though the units of measurement may be brought back to a financial base, the underlying performance is the critical element. So there is no problem with the Public Sector...." |
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| └► Owen Skae (Switzerland) | Mitigate this Challenge by Keeping It Simple | "It is important to note that the the BSC can be applied wherever a strategy has been formulated & has to be implemented. As Norton and Kaplan say, "you can't manage what you can't measure and measure what you can't describe". I have seen the BSC being used for National Strategies incorporating a multi-institutional approach. The difficulty of data collection and institutional buy-in can be mitigated by keeping the measures simple. E.g. in working with a number of service providers who assist exporters to find export markets, I applied a three step approach: 1. Is the service available? (as expressed as a need by the exporter) e.g. directory of contacts, web-based or face to face client adviser 2. Is the service being used? e.g. how many clients have accessed the service? What frequency? 3. What is the impact of the usage? e.g. Has there been an increase in sales? Over what time horizon? Once a simple baseline is established, then you could build upon it." |
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| └► Marcel van der Heever (South Africa) | BSC Challenges in the Public Sector | "The BSC framework can be applied to any organisation, whether private or public sector based. The problem in the public sector is that leadership at senior level changes as often as the political order changes, so, continuity of strategy and commitment to measurement becomes a much greater challenge than within the private sector. Another key problem in the public sector is the assumption that legal compliance is more important than operational output. or service delivery. Operational output, in turn, is often severly affected by inefficient, non-standardized and undocumented business processes - all affecting the ability communicate effectively about performance and for everyone to learn/innovate. Even if all of these challenges are overcome, one still has to find reliable data." |
| └► Beben (Indonesia) | Determining the Efficiency of BSC | "How to evaluate the efficiency of BSC? Simply from your company achievements.. Does your company fulfill the target in all areas (Financial, Business process, Customer and Learning & Growth)?" | |
| └► T.P Malatje (South Africa) | Balanced Scorecard Training is important | "Proper training is an important prerequisite to predict what the future can be of the balanced scorecard in an organization." |
| └► Ranjiv Kurup (India) | Time Lining the BSC | "When I introduce the BSC to an audience for the first time, I find it useful, at times, to drop the framework anti-clockwise onto the time line so that the "today" (or y-) axis becomes the line separating the financial perspective (with its lag indicators) and the customer perspective. The "today" axis could also be a band covering the customer perspective in some instances. The x-axis, of course, represents the time line. And as we crystallize the structure (using the Socratic method) the location of the various initiatives with respect to the time line, gives the audience a better grasp of its utility and makes the transition to project Gantts more intuitive. I have not come across any limitation in terms of its flexibility to adapt to any type of organization, except of course, when I start to evaluate various CPM software packages." | |
| └► Amresh (India) | Balanced Scorecard in Airlines | "Can some one share the information and experience of implementing Balanced Scorecard applications in Airlines Marketing and Sales (Passenger and Cargo Sales). How can performance measurement of an individual and group be carried out when there is multiplicity/overlapping of job assignments." |
| └► Steve Balogun (Nigeria) | Historical Financial Reporting > BSC | "I agree with S. Ramannathan from India- He summarized the whole concept of the Balanced Scorecard. But i will also add that the present historical financial reporting should totally give way to BSC in a serious minded organisation." |
| └► Cosmina Druica (Netherlands) | BS in banks | "I think there is a need for more details in order to make a recommendation about how to improve effectiveness of the existing system. I have concrete examples of KPI's and strategy maps implemented in banks, if you are interested I can share the information with you." |
| └► Prince Segun (Nigeria) | Challenges from production | "Actually we intend to introduce the use of balanced scorecard into the production unit, and we hope it works because we've tried it in other units and it improved the work effecience there. One can't introduce what he has no idea of." |
| └► Parthasarthy (India) | Spiritual elements in BSC | "Dear Dr, Can you pls explain what do you mean by "Spiritual Elements", is a very interesting topic which you have raised here. Rgds, Partha." | |
| └► Emmanuel Duru (Nigeria) | Spiritual Element in Balanced Scorecard. | "Dear Dr, The Spiritual Element in Balance Score card is the inbuilt and internalised character, will Power, duggeredness, the drive, to execute all the chosen perspectives and defined KPIs without prejudice to achieve desired corporate goal." | |
| └► Bakkri Ahmed (KSA) | Spiritual Elements in BSC | "Spiritual elements are included in the Learning & Growth Perspective. This perspective of the Balanced Scorecard contains Human Capital, Organization Capital & Information Capital. Organization Capital includes (Culture, Leadership, Alignments & Teamwork). Spiritual Elements comes under culture. And as you know the core value is a shared statement of the culture that will prevail through the enterprise." |
| └► Earle S. Taylor (Namibia) | Balanced Scorecard for Government and Not-for-profit Organizations | "I am not sure what is your particular field or interest. but if your involvement is in a public sector institution, I find the book entitled "Balanced Scorecard : Step-by-Step for Government and Nonprofit Agencies", written by Paul R. Niven quite instructive with easy language. You might want to check this out." | |
| └► Thapelo (South Africa) | The BSC is Now Being Stretched Beyond Its Optimality | "I find the comment by Earle to be interesting because definitely some organisations stretch the BSC to the extend that it actually deviate from what the actual org wants to achieve. The best practice would be to have your CSF and KPIs very specific and concise otherwise you ll find yourself wanting to be too many things to too many people . The more concise an org can get its BSC the more focused and likely the desired outcomes will be achieved. Word of caution would be to keep the tool up to date as often as possible." |
