| The
approach involves assessing performance in terms of |
 |
Financial
perspective
(How do we look to shareholders?) |
Internal
business perspective
(What must we excel at?) |
Innovation
and learning perspective
(Can we continue to improve and create value?) |
Customer
perspective
(How do customers see us?) |
"What you measure is what you get."
(Kaplan and Norton, HBR 1992)
In the past, performance measurement in most
companies has focused primarily on indicators of operational performance,
generally in the form of quantitative financial measures. Most measures
gauge the past and tell little about the future. Often they do not
point to important indicators of strategic improvement or how the
company may be creating or hurting future value. The Balanced Scorecard
approach to strategic evaluation was developed by Kaplan and Norton
in the early 1990s to address these issues. With the Balanced Scorecard
approach, Kaplan and Norton recommend development of indicators
which provide managers with feedback from a financial perspective,
internal business perspective, innovation and learning perspective
and customer perspective.
The Balanced Scorecard is designed to help evaluate the company’s
strategy at all levels. Without a balanced set of indicators, performance
improvements in one area may be at the expense of performance in other
areas or short term improvements may degrade long term value. The
Scorecard forms a framework for achieving agreement about strategy
within the organization, communicating that strategy to employees
and assessing its validity and usefulness.
The key to implementing the balanced scorecard, as with any other
evaluation method, is to recognize that it is important to measure
those things which are of strategic importance to the company. Meaningful
indicators can only be arrived at by working from a strategic framework.
The following is an example from Kaplan, R.S. Linking the Balanced
Scorecard to Strategy, California Management Review, Vol
39, No 1 1996, which demonstrates differences between "leading"
and "lagging" indicators. Leading indicators are those
that are more immediately measurable, lagging indicators are those
that are a result of implementing and continuously monitoring the
activities which impact leading indicators.
| |
Strategic
Objectives |
Lag
Indicators |
Lead
Indicators |
| Financial
Perspective |
- Improve returns
- Broaden revenue mix
|
- Return on investment
- Revenue mix
- Revenue growth
|
|
| Customer
Perspective |
- Increase
Customer satisfaction
- knowledgeable
people
- convenient
access
- superior
service
|
- Customer
retention
- Depth
of relation
|
- Customer
satisfied survey
|
| Internal
Perspective |
- Understand customers
- Create
innovative products
- Cross-sell
products
|
- Share
of segment
- Revenue
from new products
- Cross-sell
ratio
|
- Product
development cycle
- Hours
with customers
|
| Learning
Perspective |
- Build strategic information
- Develop
strategic skills
- Focus
resources
- Employee
effectiveness
|
- Revenue
per employee
- Employee
satisfaction
|
- Strategic
information availability
- Strategic
job coverage
- Personal
goal alignment
|
A good scorecard will emerge over time, this is a dynamic tool
and should be regularly revisited and adjusted to accommodate increasing
understanding of the influence of factors effecting strategy.
Wolf Management Consultants have extensive experience assisting
companies develop balanced scorecards at the strategic, business
and operational levels. We focus on building a process that enables
your company to measure key indicators of performance and enables
you to manage that process over time. The balanced scorecard process
is much more than a set of measures; it is a method of management
that engages all employees and aids strategy implementation at all
levels. |
