Balanced Scorecards tell you the knowledge, skills and systems that your employees will need (learning and growth) to innovate and build the right strategic capabilities and efficiencies (internal processes) that deliver specific value to the market (customer) which will eventually lead to higher shareholder value (financial). –– Robert Kaplan & David Norton
In 1990, Art Schneiderman participated in a research study by Robert S. Kaplan and David P. Norton, and during this study described his work on Balanced Scorecards. Subsequently, Kaplan and Norton included anonymous details of this use of Balanced Scorecard in their 1992 article “The Balanced Scorecard – Measures that Drive Performance,” Harvard Business Review, February 1992.
While traditional goal setting often focuses on financial, and thus lagging, measures, the Balanced Scorecard approach broadens the scope of indicators to include leading performance indicators from the following four key areas or perspectives.
- How do you want to look to your shareholders?
- Indicators focus on whether your strategic and operational plan contributes to your top-line, bottom-line and/or market share.
- How do you want to look to your Customers?
- Indicators focus on the specific measures that matter the most to your Customers.
Internal Business Processes
- At which internal processes and capabilities do you want to excel?
- Indicators focus on internal operations that enable Customer satisfaction, growth and profitability.
Learning and Growth
- What skills and competencies do you need to implement your strategic and operational plan?
- Indicators focus on your organization’s ability to innovate, improve and execute.
Emphasizing these four key areas, the Balanced Scorecard approach not only monitors present performance (lagging indicators), but also leading indicators about how well the organization is positioned to perform and compete well in the future.
The Balanced Scorecard is a strategic planning and performance management system that is used extensively in business, government, and nonprofit organizations to align business activities to the vision and strategy of the organization.
Some of the benefits of utilizing Balanced Scorecards as part of the strategy development and deployment process are:
- Help the management team focus on the execution of their business strategy.
- Focus and align an organization towards common goals and objectives.
- Enable an organization to understand the relationship between measures and performance.
- Improve communication of organizational priorities across an organization.
- Help employees to understand and focus on organizational priorities and realize relevant results.
- Reduce the number of metrics to the few vital key performance indicators.
- Strengthen and formalizing the project selection process to focus on key capabilities and enablers.
Operational Excellence Consulting uses a three phase approach to facilitate the effective development and deployment of Balanced Scorecards and to ensure that the resulting scorecards adequately reflect an organization’s strategic initiatives, objectives and goals.
Please review our presentation material Operational Excellence – Balanced Scorecard Deployment for more details about Balanced Scorecards and how you can deploy them in your organization effectively.