home
the team
newsletters
about
cape town
stnews
downloads
links
 
   

This article is taken from the April 2003 Phatlalatsa newsletter

 

The balanced scorecard

The balanced scorecard imageMatthew 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.

Why ‘balanced’

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, and innovation.’

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 organisation.

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.

Outcome measures

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 provide feedback.

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 support systems.

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 employees.

 

[top] [to ] [Previous page]
     
home
the team
newsletters
about
contact
stnews
downloads
links