Had the unique opportunity of sharing my thoughts on the Balanced Scorecard with the Top Management Team of The BLISS Group of companies. Mr. Lawrence H.R Head at Jumbo Bags, a company in the group had invited me over. The interaction was superb. They were all good listeners and highly business savvy. So, I think our deliberations were practical. I did my best to take the framework designed by Kaplan and Norton and make it relevant for them.
What I appreciated most about the meeting was the practical, 'no-nonsense' approach they brought to the meeting. The atmosphere was collaborative and solution oriented. Seniors and juniors were discussing issues on the level with no blame shifting or hang ups. I am sure the group would emerge as a great Mid-cap player in the market in the near future.
A brief note on the Balanced Scorecard
Robert S. Kaplan, a professor of Accounting at the Harvard Business School and David P. Norton, a Management Consultant, worked together on a year-long research project with 12 companies at the leading edge of performance measurement to devise what is today known as “The Balanced Scorecard”.
This compilation seeks to provide background material culled out from various published articles written by Kaplan, Norton and others on The Balanced Scorecard.
What is the Balanced Scorecard?
The balanced scorecard allows managers to look at the business from four important perspectives. It provides answers to four basic questions:
How do customers see us? (customer perspective)
What must we excel at? (internal perspective)
Can we continue to improve and create value? (innovation and learning perspective)
How do we look to shareholder? (financial perspective)
While giving senior managers information from four different perspectives, the balanced scorecard minimizes information overload by limiting the number of measures used.
The balanced scorecard forces managers to focus on the handful of measures that are most critical. The scorecard brings together, in a single management report, many of the seemingly disparate elements of a company’s competitive agenda; becoming customer oriented, shortening response time, improving quality, emphasizing teamwork, reducing new product launch times, and managing for the long term. The scorecard guards against sub optimization. By forcing senior managers to consider all the important operational measures together, the balanced scorecard lets them see whether improvement in one area may have been achieved at the expense of another. Even the best objective can be achieved badly.
Companies can reduce time to market, for example, in two very different ways: by improving the management of new product introductions or by releasing only products that are incrementally different from existing products.
Similarly, Production output can rise, but the increases may be due to a shift in the product mix to more standard, easy-to-produce but lower-margin products.
How is the Balanced Scorecard Different?
The balanced scorecard represents a fundamental change in the underlying assumptions about performance measurement. It requires total involvement from the senior managers who have the most complete picture of the company’s vision and priorities.
The scorecard represents a fundamental change in the underlying assumptions about performance measurement. Probably because traditional measurement systems have sprung from the finance function, the systems have a control bias. That is, traditional performance measurement systems specify the particular actions they want employees to take and then measure to see whether the employees have in fact taken those actions. In that way, the systems try to control behaviour. Such measurement systems fit with the engineering mentality of the Industrial Age.
The balanced scorecard, on the other hand, is well suited to the kind of organization many companies are trying to become. The scorecard puts strategy and vision, not control, at the center. It establishes goals but assumes that people will adopt whatever behaviors and take whatever actions are necessary to arrive at those goals. The measures are designed to pull people toward the overall vision. Senior managers may know what the end result should be, but they cannot tell employees exactly how to achieve that result, if only because the conditions in which employees operate are constantly changing.
By combining the financial, customer, internal process and innovation and organizational learning perspectives, the balanced scorecard helps managers understand, at least implicitly many interrelationships. This understanding can help managers transcend traditional notions about functional barriers and ultimately lead to improved decision making and problem solving. The balanced scorecard keeps companies looking – and moving – forward instead of backward.
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