The Balanced Scorecard

Background

• From Taylor to Skinner, through the

Quality gurus, an increasing requirement
to measure throughout business

• Led to ― the unanticipated consequences

of measurement” (Ridgway, 1956)

• Balanced set of measures first mooted by

Drucker in 1954 as a potential solution
solution to the issues raised by these
themes.

Balanced Business Scorecard
is both a process and a tool

– Thinking process

to define what constitutes

a thriving business, and what matters most to
your business

– Communications tool

to tell people what

they need to do to achieve success

– Management tool

to trace performance

problems to their cause

Measurement links the 3 areas

of Management in any business

How we manage

the work we do

How we manage

people

How we manage

capital investment

GLUE

How we measure

progress

Using the scorecard to drive a

performance culture

Team Target Setting

Linkage to Change Programmes

Team Accountability & Rewards

Bottom Up Goal Setting

Corporate Linkage: Organisation Design

The Vision

Learning

Feedback

Systems

1. The Creation Phase

Develop the scorecard.
Clarify
the vision and gain
executive
consensus

2. The Deployment Phase

Communicate the vision
to all levels of the
organisation and create
team scorecards

4. The Ongoing Improvement Phase

Integrate the scorecard into the
management process
• monthly management review
• strategic planning update

3. The Commitment Phase

Deploy the scorecard down to
individuals and embed them in
the reward system

The Four Perspectives

How do we look to

shareholders?

What must we

excel at?

Can we continue to

improve and add value?

How do customers

see us?

GOALS MEASURES

Customer

Perspective

Financial

Perspective

GOALS MEASURES

Innovation & Learning

Perspective

GOALS MEASURES

Internal Business

Perspective

GOALS MEASURES

Vision

and

Strategy

A Balanced Scorecard……..

• Provides managers with the instrumentation they need to

navigate to future competitive success

• Provides executives with a comprehensive framework

that translates a company’s vision and strategy into a
coherent set of performance measures

• The whole organisation understands how they are

contributing to the achievement of the vision of an
organisation

• Enables businesses to look and move forward rather

than backward

The Scorecard Architecture

Organization

Group/ Department

Individual

Select

group

impactable

CSFs

Identify

organisational

objectives to

reach strategy

Identify

organisational

strategy

Group/

department

measures and

metrics

Group/

department

objectives

Individual

goals

Select

individual

impactable

CSFs

Organisation

level

scorecard

Group

/department

level

scorecard

Individual

measures &

metrics

scorecard

Common questions #1:

How many measures?

•

Longevity:

– businesses

change

;

some change very fast

– focus on individual

measures also
changes

– it takes

time to

implement

performance
measurement
frameworks and tools

– better to have over-

catered than under-
catered...

– … so long as you

support this with
appropriate

technology

•

Technology:

– most

Executive

Information Systems

allow you to set
thresholds

– good management

focuses on those
measures that have
dropped below a
certain threshold

– so at any one time the

technology can

filter

out only a small
number of

critical

measures, from a pool
of

useful

measures

Accountabilities:

•

Balanced Business Score
Cards assume a

cascade

of information

•

at any one time, any one
individual, should have
only a small number of
measures to consider

•

but these measures
combine and aggregate

•

… for example

Common questions #2:

Why is it called ―balanced‖?

– Balance of measures

• at least 4 areas of measurement
• not all financial

– Balance of types of measure

• leading and lagging measures
• helps to forecast and follow through
• not just ―oh dear, haven’t we done badly last month!‖

– Balance of how measures are used

• cascade encourages teamwork
• ―detective search‖ for the causes of underperformance

Common questions #3:

So how is it used?

– Performance Dashboard

and Traffic Light Reports

• flag measures that

have gone critical/are
going critical

• focus attention on

where it matters most

• communicate why

certain action is
required

• provide feedback on

the results of past
action

– Actions are set as a result

of regular review of the
dashboard

Measure 1
Measure 2
Measure 3
Measure 4

CSF 1

CSF 2

CSF 3

CSF 4

Measure 1
Measure 2
Measure 3
Measure 4

Common questions #4:

How are targets set?

•

Targets for

Measures

...

– … are set based on the

business plan

, given the

required/desired
performance for the
business

– … are compared with

historical

data

– … are set at the start of the

year and

reviewed

regularly

•

It helps to have a part of the
dashboard that

re-forecasts

year end results given actual
performance to date

•

Targets for

People

…

– … are set with regard to

measures they can

influence

— the cascade concept

– … are normally

stretch

targets

— requiring some effort

– … relate to

reward and

appraisal

— they are the

―contract‖ a business has with
its employees

•

Actions

taken to achieve those

targets matter as much as whether
they were achieved or not

Five simple steps to

balanced measurement

1. Agree business objectives

2. Develop a strawman Balanced Scorecard

3. Discuss, debate and check how realistic it

would be to implement

– use it as a starting

point

4. Finalise it

5. Ensure operational systems and processes

can deliver the indicators

• A

thriving

business must address at least:

Can we

continue to

improve and

add value?

Innovation

What must

we excel at?

Quality

How do we

keep our

customers?

Customers

Are we

satisfying

those who

fund us?

Financial

Balanced Business

Scorecard focuses on at

least four main areas