The balanced scorecard is a business analysis method used to translate an organization's mission statement and business strategy into specific, actionable, measurable goals. It takes the vision and provides a pathway for the vision to become reality.
Born from a research study conducted in 1990, the Balanced Scorecard has since become a critical business tool for thousands of organizations around the globe. In fact, recent estimates suggest a whopping 60 percent of the Fortune 1000 has a Balanced Scorecard in place. Further evidence of the ubiquity of the Balanced Scorecard is provided by The Hackett Group, which discovered in 2002 that 96 percent of the nearly 2,000 global companies it surveyed had either implemented or planned to implement the tool.
What is a Balanced Scorecard?
Most organizations establish financial goals, and then work toward achieving those goals. A balanced scorecard does what its name implies – it takes a more balanced approach to strategic planning by looking at more than financial goals. The results of using a balanced scorecard include:
- Business activities are in alignment with the organization's vision and strategy.
- Both internal and external communication are improved.
- Actual performance is measured and feedback provided on the progress being made towards meeting strategic goals.
The balanced scorecard accomplishes this by adding the measurement and tracking of non-financial objectives, giving managers a balanced view of how well the organization is achieving its overall goals. The result is that the tactical planning focus is placed on the right areas, and the strategic plan is transformed into an action plan.
How Does the Balanced Scorecard Improve the Bottom Line?
By establishing quantifiable goals in non-financial areas, the balanced scorecard puts the focus on a wider range of goals. If the focus is just on financial goals, other considerations like quality, employee turnover, and safety may be sacrificed along the way – causing finances to suffer as well. Using the balanced scorecard ensures that:
- Goals are in alignment with the organization's vision and strategic plans.
- The organization's vision and strategy are effectively communicated.
- Employees understand what needs to be done to achieve the organization's strategic goals.
- Daily activities and performance are linked to achieving the strategic goals through short-term milestones and goals.
- The goals are understood and accepted throughout the organization.
- Budgeting and rewards are in alignment with strategic goals.
- Data is collected and employees informed about progress toward goals.
- Progress in key areas is tracked and reported.
- Deviations from the plan can be quickly identified and corrected.
- Geographically diverse business units can be compared using common goals and a common means of measurement.
Overall, using a balanced scorecard will help to turn a broad company vision into individual departmental goals, tactical activities, and specific metrics.
As an example of how the balanced scorecard works, an organization might include in its mission statement a goal of maintaining employee satisfaction. This is part of the organization's vision. Strategies for achieving that vision might include increasing employee-management communication. A tactical activity used to implement the strategy might be regularly scheduled employee meetings. Finally, metrics could include tracking employee turn-over, collecting employee suggestions, or conducting employee surveys.
What Does a Balanced Scorecard Measure?
Specifically, what does a balanced scorecard measure? It typically includes:
- Financial Performance: These are the normal financial performance goals, such as gross profit margin, operating profit, net profit, return on investment, and cash flow.
- Customer Value Performance: These goals include marketing goals such as market share and customer satisfaction goals. In some cases these may also include political and social goals such as meeting green energy goals or ensuring suppliers met certain working condition standards.
- Production Process Performance: These are goals related to creating and delivering a product or service to customers. They include productivity, quality, lead-times, and on-time delivery.
- Employee Performance: Goals in this area include hiring the right people, training, safety, motivation and morale, and the employee turnover rate.
Other areas that might be measured on a balanced scorecard include: innovation performance, environmental performance, and brand performance. All of the goals must be quantifiable and measurable.
Steps to Creating a Balanced Scorecard
The first step is to translate the organization's vision into a strategy. A common vision is to be “the best in our class and deliver excellent returns to our shareholders.” But what does this mean? What do your customers value as “best?” How is shareholder value generated on a long-term basis? For people to act on a vision, there must be measurable objectives, agreed upon by senior management, and these objectives must drive the organization toward success in achieving its vision.
Next the vision, corporate strategy, and associated objectives must be clearly communicated, so that departmental objectives are linked to the overall corporate strategy. Clear communication of the vision and corporate strategy will give managers the information they need to establish appropriate objectives within their departments. Each level of the organization should understands the overall goals, and the parts they play in achieving those goals.
The third step is the planning stage. Now that everyone knows where they are going, they need to determine how to get there. Since the goals have already been linked to the overall strategic objectives, department managers can focus on plans for meeting their departmental goals. They can be confident that those plans will align with the overall goals of the organization's strategic objectives.
The last step is feedback and learning. In other words, the last step brings everything back to the first step by providing corrections or confirmations. The objective here is to identify problems and deviations from the plan as early as possible so that corrective measures can be taken.
The Balanced Scorecard and Safety
With automation introducing new hazards into the workplace, and OSHA's growing focus on inspections and citations, safety should be a part of your balanced scorecard. The Facility Safety and Identification Workbook from Graphic Products is a handy tool that helps evaluate facilities to identify areas where improvement is needed. Get your free copy today!