Balanced Scorecard for a Balanced Business
Balanced Scorecard for Balanced Business
We are reminded on a daily basis to keep ourselves in balance; follow a balanced diet, do a balanced workout, have a balanced attitude. So it really comes as no surprise that we should keep our business in balance as well. Lucky for us, we live in a world that is post 1950s.
It was in the 1950s that General Electric did their pioneer work in performance measurement reporting. The basic roots can be traced back even further to the work of French process engineers in the early years of the 20th century. Many might not be aware of how far back the roots of balanced scorecards can be traced, because the term was not actually used until the 1990s. Dr. Robert Kaplan and Dr. David Norton are the originators of the “balanced scorecard” due to their extensive work. They created a performance measurement framework that combines non-financial performance measures to tradition financial measures, thus giving management a balanced view of the business’ organizational performance.
Today, the balanced scorecard has evolved and taken on an even bigger role. It is no longer just a single performance measurement, but now can be used as an entire strategic management and planning tool. The strategic plans mapped out on the new balanced scorecard can be easily translated into daily orders for the organization. It provides a framework that is easy for planners to follow along with, as well as help executives implement their strategies effectively. The balanced scorecard clearly shows what organizations need to see in order to recognize weaknesses and focus in on what needs to be measured to balance out the financials. It has evolved by being able to provide feedback for both the internal business processes, and external outcomes from those. Today, the balanced scorecard is more than the simple performance measurement framework it started out as; it can be considered both a measurement system and a management system.
To be as helpful and innovative as the balanced scorecard is, the framework must be clearly defined and quite intricate in detail. The balanced scorecard requires an organization to view itself from 4 perspectives. Each perspective requires development, data collection, and analysis.
The first perspective to be looked at is the Learning and Growth Perspective. This perspective focuses significantly on the employee. Employee training is imperative for any organization to survive. Since we are in a great technological wave, continuous training and learning are common, and really the best way to stay current with business practices. By using a balanced scorecard, managers can create and develop a metric that will help them plan and place money into training funds that will best suit the employees and the organization. Dr. Kaplan and Dr. Norton also wanted to use this perspective as a chance to stress the importance of having mentors and tutors within an organization that will assist employees in the training process. This perspective goes beyond the employee training slightly by also focusing on corporate cultural attitude learning that is held by both individuals, and the corporation.
Next is the Business Process Perspective. This perspective focuses on the internal business processes. It is best to have the metrics developed by those who know these business processes very well, since the results it gives allow managers to see how well the business is running and how well the products and services are meeting the needs of the customers and the mission statement of the organization. So, to read those results clearly, one must be very familiar with the mission statement as well as what the standards are for proper business procedures.
The third perspective, or the Customer Perspective, focuses on the customer. The needs of the different customers and the kinds of processes the organization provides to meet those needs are the basis of developing the metrics for this particular perspective. Customer satisfaction and focus are essential for future business growth and prosperity. If this perspective yields negative results it is a warning sign for future business decline.
Final, the balance scorecard requires the analysis of the financial perspective. While there may be an overload of financial data in numerous places throughout the organization, it must also be included in the balanced scorecard to fully gain a balanced view in regard to the other perspectives.
The balanced scorecard truly is so much more than a simple performance measurement framework. Used correctly, the balanced scorecard can tell a story. It is a strategic map that allows managers to follow along and improve business plans in a clear, easy course.
With a balanced scorecard comes a balanced business.
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