Balanced Scorecard Framework is one of the pre-eminent tools to measure, monitor, and control business performance. CIOs must familiarize themselves with BSC if it is used on their organization and evaluate its applicability in the IT Organization to measure IT Performance.
This chapter provides resources for CIOs to understand the balanced scorecard framework and implement it in the enterprise. It explains the key concepts of the balanced scorecard framework from both business and IT perspectives and lays the foundation for the implementation of this approach by providing primers, examples, case studies, and current trends and thinking for important concepts. Essentially, this chapter provides a one-stop-shop for information on “how-to” implement the balanced scorecard in your organization.
What is a Balanced Scorecard?
A Balanced Scorecard is a strategic planning and management system that measures the performance of an organization from four perspectives: financial, customer, internal business process, and learning and growth. The Balanced Scorecard helps organizations to identify which areas need improvement and how to improve them.
The name “balanced scorecard” comes from the idea of looking at strategic measures in addition to traditional financial measures to get a more “balanced” view of performance. The goal of a Balanced Scorecard is to help organizations improve their performance over time by setting measurable goals and implementing strategies to achieve them.
The balanced scorecard has been used by a variety of organizations for different purposes. Originally created as a performance measurement tool, it has since evolved into a holistic system for managing strategy. By using a disciplined framework, organizations can better connect the various components of strategic planning and management. This allows for a more visible connection between projects and programs, key performance indicators, strategic objectives, and the mission, vision, and strategy of the organization.
The BSC has been selected by the editors of Harvard Business Review as one of the most influential business ideas of the past 75 years.
Who Uses the Balanced Scorecard (BSC)?
The Balanced Scorecard was originally developed in the early 1990s by two professors at Harvard Business School, David Norton and Robert Kaplan. The purpose of the Balanced Scorecard was to provide a framework for measuring organizational performance that could be used by for-profit companies. However, over time the Balanced Scorecard has been adapted for use by nonprofits and government agencies. Today, it is one of the most popular performance management tools in use.
The Balanced Scorecard is becoming an increasingly popular tool for companies of all sizes around the world. A recent global study by Bain & Co listed balanced scorecard fifth on its top ten most widely used management tools. More than half of major companies in the US, Europe, and Asia are using the BSC, with use growing in those areas as well as in the Middle East and Africa.
What are the Components of Balanced Scorecard (BSC Perspectives)?
Balanced scorecard perspectives are a way of looking at the performance of your company through four different lenses: financial, customer, internal business process, and organizational capacity or learning and growth. Each perspective provides a different view of how your company is performing and can help you identify areas where you need to make changes.
Financial perspective: The financial perspective of a Balanced Scorecard is focused on ensuring that the company earns a return on the investments made. This can be done by satisfying the needs of all players involved with the business, such as shareholders, customers, and suppliers. The goals under this perspective are typically measured in terms of revenue and profits.
Customer Perspective: The customer perspective collects data about customer satisfaction with the quality, price, and availability of products or services. Customers provide feedback about their satisfaction with current products as well as their interest in new products or services.
Internal Business Process: Streamlined internal business processes make it possible to achieve good quality of products and services and lead to innovation. Understanding the cause of delays, impediments, blockages, shortages and waste of resources helps in averting these issues.
Organizational Capacity (or Learning & Growth): In order for the organization to optimize on its goals and objectives, attention must be given to organizational capacity. Proper infrastructure, personnel, capacity and culture are imperative to achieve positive results. Employees must be given training with the latest technologies and methods to improve their skillset and opportunities of growth must be provided to demonstrate those technical and leadership skills.
By bringing together these four primary perspectives, senior leadership can create clear strategies that align across the organization.
Understanding some key concepts in Balance Scorecard
What Are Strategic Objectives?
Strategic objectives are the goals that a company sets for itself in order to achieve its vision. They are usually long-term goals that impact all aspects of the company. Some common strategic objectives include increasing market share, becoming the market leader, and achieving profitability.
Strategic objectives are actions that must be implemented in order to achieve success. Strategic objectives should start with an action word and have a long-term focus. Strategic objectives should be relevant to the organization’s mission and vision.
Strategic objectives should be actionable, measurable, and relevant to the business. Strategic objectives should be chosen based on the company’s strengths and weaknesses.
What Is a Strategy Map?
One of the most powerful elements in the balanced scorecard methodology. a strategy map is a visual representation of how a company plans to achieve its strategic objectives. The map illustrates the relationship between the company’s objectives, strategies, and tactics. It can be used to help guide decision-making and track progress. It can be used to capture and communicate your strategy.
The benefits of strategy maps include the ability to manage team performance, pinpoint company focus, and create better BSCs.
What Are Performance Measures (KPIs)?
Performance Measures, or KPIs, are quantifiable values that are used to track and assess the progress of a particular goal or objective. KPIs can be used in a variety of different ways, such as measuring the success of a marketing campaign or assessing the performance of a team.
A KPI provides information an organization requires to determine whether it is performing well or not. Organizations frequently take the view that everything should be measured and reported on.
Unfortunately, in some organizations, KPIs have often become indistinguishable from operational measures.
When using KPIs, it is important to ensure that they are relevant to the organization’s goals and objectives. There are a number of factors to consider when selecting KPIs. The selection of the right KPIs is important for ensuring that an organization’s performance is accurately measured and monitored.
Performance measures (KPIs) are essential for monitoring an organization’s performance. It is also important to periodically review and update the selection of KPIs to reflect changes in the business environment or in how the organization operates.
Performance measurement can help identify areas where improvements can be made and help guide strategic decision-making.”
What Are Strategic Initiatives?
Strategic initiatives are a company’s plan for growth. They are the steps that a company will take in order to expand their business and reach new markets. Strategic initiatives can be anything from developing new products to expanding into new markets.
Strategic Initiatives are projects that help an organization achieve its strategic objectives. Strategic Project Management is the process of managing these projects to achieve success.
Initiatives are the key variable in the Balanced Scorecard’s cause-and-effect relationships and often reveal key disagreements around how the organization will accomplish its goals.
What is Cascading?
Cascading is the process of translating a corporate-wide scorecard down to first business units, support units or departments, and then teams or individuals.
Cascading strategy focuses the entire organization on strategy and creating line-of-sight between the work people do and high level desired results.
As the management system is cascaded down through the organization, objectives become more operational and tactical, as do the performance measures. Accountability follows the objectives and measures, as ownership is defined at each level.
Balanced Scorecard History
The balanced scorecard was first introduced in 1992 by Robert S Kaplan and David P Norton in the Harvard Business Review. The paper argued that businesses should focus on more than just financial measures of success and look at a wider range of performance indicators. Since then, the concept has been widely adopted by businesses all over the world.
By the mid-1990s, other organizational theorists had picked up their work and modified the balanced scorecard method. In 1996, Kaplan and Norton published their ideas in full in The Balanced Scorecard: Translating Strategy into Action. And it became a business bestseller.
The balanced scorecard has a long and textured history, spawning variations like the “performance prism”, “results-based management” and the “third-generation balanced scorecard”. The three generations of balanced scorecards were further developed in Cobbold and Lawrie’s work of 2002, which described how the BSC can support three distinct management activities – operational control, strategic planning, and resource allocation – as well as evolve into the use of strategy maps as a strategic management tool.
Balanced scorecards and their corresponding management theories have been around for a long time. Balanced scorecards are now being used by businesses of all sizes as well as charities, government agencies, and sports teams. They are seen as a profitable tool by an increasingly diverse range of organizations.
How to Create the Balanced Scorecard?
The balanced scorecard is a framework that helps organizations connect the different aspects of strategic planning and management. It provides a way to track progress and ensure that all aspects of the organization are working together towards common objectives. The balanced scorecard has been shown to be an effective tool for businesses of all sizes and can be tailored to meet the specific needs of your organization.
BSI’s Nine Steps to Success™ framework is an award-winning approach that can help organizations implement a successful balanced scorecard system.
Program Launch: Once the program is launched, the next step is to create the balanced scorecard. In order to do this, the project champion and key stakeholders will need to examine existing strategic material and results. They will also need to complete a strategic gap analysis in order to identify what aspects of the strategy still need work. This information will then be used to customize workshops so that they incorporate all of the work that has been done up until this point.
Step 1: Assessment: An organization’s ability to create a Balanced Scorecard is highly dependent on the accuracy of its internal and external assessments. The Assessment step is critical in that it allows the organization to develop or re-validate high-level strategic elements, such as mission, vision, values, market assessments, enablers & challenges, primary and secondary customer / stakeholder needs analysis. This information will provide context for the formulation of strategy.
Once the strategy is developed, organizations use the Balanced Scorecard to translate it into operational terms. The Balanced Scorecard approach starts with selecting a small number of measures (typically four) for each of the four Perspectives: Financial, Customer, Internal Processes, and Learning and Growth. The measures should be aligned with the Strategic Themes and drivers of success in those areas.
Step 2: Strategy: Formulation and Clarification of the strategy follows the assessment. The development of the strategy includes developing or clarifying your customer value proposition, visualizing strategy using a Strategy Profile and decomposing the high-level strategic direction into three to four Strategic Themes (areas where the organization must excel to accomplish its mission and achieve its vision) This includes understanding your customer value proposition, the enablers you have at your disposal, the challenges you face, and how you will deliver value to your customers. With this information in hand, you can then formulate or clarify your strategy and begin developing your Balanced Scorecard.
Step 3: Strategic Objectives: Strategic Objectives are the qualitative outcomes critical to the success of an organization’s strategy. These objectives are then translated into measurable goals and actions, which form the basis for developing a dashboard of performance metrics.
Step 4: Strategy Mapping: Strategy maps are helpful in visually representing a company’s overall critical objectives and how each objective is interconnected. This allows organizations to easily track their progress and determine which objectives need more attention. Secondly, creating balanced scorecards with strategy maps can help businesses focus on pursuing profitable growth. Lastly, it highlights the importance of innovation, customer value, and human capital in order for an organization to achieve its goals.
Step 5: Performance Measures: Performance measures (KPIs) track progress and help to ensure that the organization is moving in the right direction. Operational measures focus on the use of resources, processes and production (output). These measures “drive” the outcomes a business desires, with some outcomes being more intermediate than other, more final, outcomes. Performance measures are developed for each of the objectives on the strategy map. The emphasis in this step is on helping you develop the critical leading and lagging measures needed to manage strategy execution.
Step 6: Strategic Initiatives: Strategic initiatives are the means through which an organization translates its goals and visions into practice. To stay ahead of the competition, companies need to systematically build a portfolio of strategic initiatives. In this step companies translate their strategic initiatives into tangible objectives and measures. Additionally, it allows managers to track the progress of these initiatives over time and make necessary adjustments. It is important to prioritize the initiatives that will have the biggest impact on success and focus the organization on executing these projects. Without this focus, organizations struggle to execute their strategy.
Scorecard Rollout: Integrating Steps 1 through 6: At this point the company level scorecard is ready to be presented to employees. The purpose of this phase is to get the buy-in of staff and create a coalition of personnel to begin thinking strategically about using the system for better decision-making. The Balanced Scorecard graphic, an easy to understand illustration of how the the strategic elements of the company’s strategy formulation and planning come together, is what is used to communicate the organization’s strategy to key personnel.
Step 7: Performance Analysis This step entails transforming data into evidence-based knowledge and understanding. People can then use this information to make better decisions that will ultimately lead to improved strategic outcomes. The focus of this step is on measuring and evaluating performance so as to identify what works well and what doesn’t. From there, corrective action can be taken in order to become a high-performance organization.
Step 8: Alignment: In the Alignment step, which transforms strategy from something that is only the domain of executives to something that is supported by everyone in the company. In this step, high-level enterprise strategy is cascaded down to first business and support units, and then to individual employees or teams. This allows employees at every level of the organization to understand how they contribute to overall strategy and makes them more accountable for their actions. The step gives a scorecard to not only the business and support units but also each team and employee, Cascading is used to communicate strategy at each level from Tier 1 (organization level) to Tier 2 (business unit level) is supported and how Tier 3 (employees/teams) contribute to the overall strategy with specific action and/or projects.
Step 9: Evaluation: Leaders and managers use the balanced scorecard evaluation to review organization performance. They ask themselves if they have accomplished their desired results, how well the strategic management system has improved communication and alignment, and if the system is dynamic and incorporates continuous improvement into day-to-day operations.
The Two Methods of Implementing the Balanced Scorecard
The balanced scorecard provides a framework to translate an organization’s strategy into operational terms by linking objectives to measures that demonstrate how well those objectives are being achieved.
Given the importance the strategic planning process in setting the foundation for an organization’s forward movement, it is arguably, the most important step in the implementation of a Balanced Scorecard methodology.
Implementing the Balance Scorecard using the ‘Focus Area’ Method: This method involves orienting the strategic plan around the Balanced Scorecard. So you will set your focus areas as each of the perspectives assigning objectives, projects and KPIs to each perspective. The simplicity of this method and the total commitment to the Balanced Scorecard methodology will drive a better understanding of the methodology within the organization. Those organizations who wish too keep their strategic planning process simple and less complex should consider using this method for implementing the Balanced Scorecard.
Implementing the Balanced Scorecard using the ‘Goal Types’ Method: This method allows you the flexibility to define your focus areas away from the Balanced Scorecard but you need to categorizes activities using a custom field for each of the objectives, projects and KPIs. This method works well for organizations that are more mature with their strategic planning process.
Balance Scorecard Examples
Below are two Balance Scorecard examples in the form of Strategic maps.
Example 1 – Strategic Map of an e-Business Company
Example 2 – Strategic Map of a financial institution
What are the Benefits of Using Balanced Scorecard (BSC)?
A number of studies have shown that organizations who use a Balanced Scorecard approach tend to outperform those who do not have a formalized approach to strategic performance management.
The following are the benefits of using a BSC:
Better Strategic Planning: A Balanced Scorecard provides a comprehensive and concise way to build and communicate your business strategy. By visualizing the business model in a Strategy Map, you can easily see how the different strategic objectives are related and how they impact performance outcomes. This process also helps to ensure that consensus is reached over the company’s strategic objectives. This way, you have a complete understanding of your strategy and all its key components.
Improved Strategy Communication & Execution: By having a one-page picture of the strategy, it becomes much easier for companies to communicate their strategy internally and externally. Staff and external stakeholders will be able to better understand the strategy and be more engaged in its delivery and review.
Better Alignment of Projects and Initiatives: BSC helps organizations map their projects and initiatives to the different strategic objectives, which in turn ensures that the projects and initiatives are tightly focused on delivering the most strategic objectives.
Better Management Information: The BSC approach helps organizations design key performance indicators (KPIs) for their various strategic objectives, which ensures that they are measuring what is important. Studies have shown that companies with a BSC approach tend to report higher quality management information and better decision-making.
Improved Performance Reporting: BSC can be used to guide the design of performance reports and dashboards. This ensures that the management reporting focuses on the most important strategic issues and helps companies monitor the execution of their plan. In other words, the Balanced Scorecard can help you track your progress and make sure you’re staying on track to reach your goals.
Better Organizational Alignment: A Balanced Scorecard facilitates the alignment of a company’s organizational structure with their strategic objectives. By cascading the Balanced Scorecard into business units and support functions, companies can ensure that all parts of the organization are working towards the same goals. This will help to improve execution and link strategy to operations.
Better Process Alignment: When implemented well, the Balanced Scorecard can bolster the alignment of organizational processes such as budgeting, risk management and analytics with the strategic priorities.
What are the Challenges in Implementing Balanced Scorecard
Resistance to Change: In order to successfully implement Balanced Scorecard in an organization, one must take into account the social and psychological factors that influence employee behavior. Resistance to change is natural and must be acknowledged and dealt with before any changes can be made.
Management Style: The balanced scorecard could fail if the management style is highly centralized with a top-down style of management. In this case, the workers who are at the ground level do not have any say in decision making and are just following orders from above. For it to succeed, the management should decentralize the management style and allow participation of workers who are at the ground. This will make sure that there is communication between managers and workers, and that everyone understands what is expected from them. One of the main challenges in implementing a balanced scorecard is getting management on board. Many times, managers are more concerned with their own roles and responsibilities within the organization and do not see the value in changing how things are done. It is important for leaders to emphasize the importance of change and how it will benefit everyone within the company.
Lack of Integration: Another challenge is that the Balanced Scorecard methodology is often not well integrated into the organization’s business processes. People do not understand how to use it, and as a result, it fails to have the desired impact. When this occurs, people often revert back to their old ways of doing things, defeating the entire purpose of using a Balanced Scorecard in the first place.
Lack of Consensus and Clarity: Balanced Scorecard is a performance management system that integrates different systems and measures. However, its successful implementation requires the entire organization to work together cohesively. This is often difficult due to different groups working after their own agendas and not being integrated or cumulative.
Criticism of Balanced Scorecard
There are a number of criticisms that have been levied against Balanced Scorecard. The most common criticisms target different theories which have developed surrounding the BSC concept. To begin with, it is argued that the concept is not new. The notion that BSC is a new management System is contemptuous. French for example used the tableau de Bord which is widely considered to be a similar concept to BSC long before the BSC was introduced .Also, the idea that BSC could be used in all type of businesses is disputed too. This means that it may not be suitable for every company or industry.
The Balanced Scorecard Professional Certification
The Balanced Scorecard Professional Certification Program is designed to provide participants with the tools they need to build, implement, and sustain a balanced scorecard planning and management system within their organization. The certification program was created by the Balanced Scorecard Institute in collaboration with the George Washington University Center for Excellence in Public Leadership – part of the College of Professional Studies. The program is fully consistent with basic balanced scorecard concepts and terminology developed by Kaplan & Norton.
