The balanced scorecard
Matthew is currently assisting the Independent Projects Trust (IPT) in their initiative to make the Public Prosecution Authority in KwaZulu-Natal more efficient and effective. In this article, Iole Matthews from IPT and Matthew explain the system they are using to manage and monitor the two-year programme in KZN.
What is the balanced scorecard?
A new approach to stategic management was developed in the early 1990s
by Drs. Robert Kaplan (Harvard Business School) and David Norton (Balanced
Scorecard Collaborative). They named this system the ‘balanced scorecard’.
Recognising some of the weaknesses and vagueness of previous management
approaches, the balanced scorecard approach provides a clear prescription
as to what companies should measure in order to ‘balance’
the financial perspective.
The balanced scorecard is a management system (not only a measurement
system) that enables organisations to clarify their vision and strategy
and translate them into action. It provides feedback around both the internal
business processes and external outcomes in order to continuously improve
strategic performance and results. When fully deployed, the balanced scorecard
transforms strategic planning from an academic exercise into the nerve
centre of an enterprise.
Historically, in business the financial results of the organisation
was the only thing that mattered. Kaplan and Norton argued that this traditional
focus on only financial results was inadequate for companies striving
to succeed in the information age. There was a need to ‘balance’
the financial aspect with other aspects of the business such as investment
in suppliers, employees, processes, technology and innovation. Kaplan
and Norton describe the innovation of the balanced scorecard as follows:
‘The balanced scorecard retains traditional financial measures.
But financial measures tell the story of past events, an adequate story
for industrial age companies for which investments in long-term capabilities
and customer relationships were not critical for success. These financial
measures are inadequate, however, for guiding and evaluating the journey
that information age companies must make to create future value through
investment in customers, suppliers, employees, processes, technology,
This resulted in the development of a balanced scorecard which suggests
that organisations are best viewed, and measured, from four perspectives:
- The learning and growth perspective
- The business process perspective
- The customer perspective
- The financial perspective
The learning and growth perspective
This perspective includes employee training and corporate cultural attitudes
related to both individual and corporate self-improvement. In a knowledge-worker
organisation, people — the only repository of knowledge —
are the main resource. In the current climate of rapid technological change,
it is becoming necessary for knowledge workers to be in a continuous learning
mode. 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. This is a leading indicator of ‘brain drain’ that
must be reversed. Metrics can be put into place to guide managers in focusing
training funds where they can help the most. In any case, learning and
growth constitute the essential foundation for success of any knowledge-worker
Kaplan and Norton emphasise that ‘learning’ is more than
‘training’; it also includes things like mentors and tutors
within the organisation, as well as the ease of communication among workers
that allows them to readily get help on a problem when it is needed.
The business process perspective
This perspective refers to internal business processes. Metrics based
on this perspective allow the managers to know how well their business
is running, and whether its products and services conform to customer
requirements (the mission). These metrics have to be carefully designed
by those who know these processes most intimately; with our unique missions
these are not something that can be developed by outside consultants.
The customer perspective
Recent management philosophy has shown an increasing realisation of
the importance of customer focus and customer satisfaction in any business.
These are 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 look good.
In developing metrics for satisfaction, customers should be analysed
in terms of kinds of customers and the kinds of processes for which we
are providing a product or service to those customer groups.
The financial perspective
Kaplan and Norton do not disregard the traditional need for financial
data. Timely and accurate funding data will always be a priority, and
managers will do whatever necessary to provide it. In fact, often there
is more than enough handling and processing of financial data. With the
implementation of a corporate database, it is hoped that more of the processing
can be centralised and automated. But the point is that the current emphasis
on financials leads to the ‘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.
You can’t improve what you can’t measure. So measures or
indicators must be developed based on the priorities of the strategic
plan, which provides the key business drivers and criteria for managers
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
So the value of indicators is in their ability to provide a factual
basis for defining:
- strategic feedback to show the present status of the organisation
from many perspectives for decision makers;
- diagnostic feedback into various processes to guide improvements
on a continuous basis;
- trends in performance over time as the metrics are tracked;
- feedback around the measurement methods themselves, and which metrics
should be tracked;
- quantitative inputs to forecasting methods and models for decision
The Baldrige Criteria (1997) booklet reiterates this concept of using
indicators in this manner to assist managers:
"A major consideration in performance improvement involves the
creation and use of performance measures or indicators. Performance measures
or indicators are measurable characteristics of products, services, processes,
and operations the company uses to track and improve performance. The
measures or indicators should be selected to best represent the factors
that lead to improved customer, operational, and financial performance.
A comprehensive set of measures or indicators tied to customer and/or
company performance requirements represents a clear basis for aligning
all activities with the company’s goals. Through the analysis of
data from the tracking processes, the measures or indicators themselves
may be evaluated and changed to better support such goals."
Linking the balanced scorecard to strategy
The balanced scorecard is therefore a descriptive rather than prescriptive
framework for implementing a strategy which can be shown like this:
Strategy does not (or should not) stand alone as a management process.
A continuum exists that begins in the broadest sense with the mission
of the organisation. The mission must be translated so that the actions
of individuals are aligned and supportive of the mission. A management
system should ensure that this translation is effectively made. Strategy
is one step in a logical continuum that moves an organisation from a high
level mission statement to the work performed by frontline and back office