Continue...

   THE BALANCING ACT
Achieving Breakthrough Performance Using the Balanced Scorecard Four barriers to strategy implementation How the Balanced Scorecard Framework to deal with these barriers Three Steps in Building a Balanced Scorecard Benefits of using the Balanced Scorecard

The Balanced Scorecard (BSC) framework successfully addresses these problems. It is a framework that focuses on shareholder, customer, internal and learning requirements of a business in order to create a system of linked objectives, measures, targets and projects which collectively describe the strategy of an organization and how that strategy can be achieved. In the process of creating a BSC, four perspectives – financial, customer, internal process and learning and growth – capture the roles, tasks and priorities of the various divisions and individuals.

Three Steps in Building a Balanced Scorecard

1. Build a strategy map: The first output of a BSC project is a strategy map. It shows the top 15-20 objectives that the organization needs to focus on to deliver its strategy. Financial objectives are critical to the existence of all organizations. However, to deliver these financial outcomes, the organization must determine what customer needs have to be met, and what internal processes are critical for delivering their expectations. Finally, managers need to work out what the organization must learn in order to carry out the core processes efficiently and effectively. Even though the concept of the BSC is simple, it’s difficult to develop. This is because managers are used to thinking operationally and for the short-term rather than strategically. The development of a BSC usually reveals gaps in strategy. An illustrative strategy map would look like:

2. Create a BSC: The next step is to define the metrics needed to measure the success of a strategy. Both financial and non-financial measures are identified. Approximately 30-40 lead and lag measures are identified, and a significant effort is made to ensure that there are enough lead measures so that the BSC created allows the organization to actively manage the delivery of the strategy. Owners are identified within the management team so that there is collective ownership and responsibility in delivering the strategy. Actual performance is computed, and the targets for delivering the strategies are set. Care is taken to set breakthrough and stretch targets in select areas where benefits could be significant, balancing it out with more realistic targets for other objectives. Lastly, internal projects that tend to often lose sight of what business objectives they need to achieve are identified, prioritized and aligned to the business objectives they will help deliver. BSCs are created at the corporate/ group level but many organizations that want to ensure that the corporate strategy is detailed at the operational level will build cascaded scorecards for all business units, and some or all support functions.

3. Use the BSC: Once a scorecard is designed, it takes about 60-90 days to take it ‘live’. Actuals and targets need to be set, and internal Balanced Scorecard Co-ordinators need to get organized for monthly reporting of the scorecards. The BSC is then used actively in the monthly management committee / operational committee meetings to find solutions and improve performance in areas where the BSC identifies where business targets are not being met.

In some cases, scorecard automation software is purchased to improve the ease and quality of reporting, but in many cases, for the initial period, companies use simple excel formats. Abbreviated versions can also be created for quarterly reports to the board of directors, and key themes can be identified for communication across the organization. The BSC should be reviewed yearly, in the third quarter of the financial year.

So what’s in it for your organisation?
The Balanced Scorecard will benefit your organisation in more ways than one. First and foremost, it will make the Vision and Mission of your organisation operational. The BSC then has a dual role to play in helping your organisation.

l As a Strategy Management / Implementation Tool it will help your organisation in validation / enhancement of Strategy and Business Plan and help evolve clear consensus on the same. It will also allow articulation and communication of the Vision and Mission into key strategic objectives and creation of Strategy Maps at Corporate and Departmental levels, thereby aligning the entire organization to the strategy. This ensures clarity and transparency in understanding and realization of implications of the Vision on the key operating and support departments.

Experience has shown that this will ensure that your organisation remains a Customer Focused Organization, which is so very important especially in today’s competitive world. It has also helped organisations in identification of new customer segments and articulation of their expectations, as a part of their customer service strategy. This helped in prioritization and alignment of all strategic action plans that would help implement the strategy and made Strategic Planning a continual process.

l As a Performance Management Tool it will help your organisation remain pro-active by ensuring an adequate balance between “lead” and “lag” measures (Performance Drivers vis-à-vis Outcome Measures). Adopting a BSC framework also ensures that the senior management no longer works in their own functional “silos” thereby giving a “macro” perspective to them. BSC also provides clear linkage and alignment of individual performance with enterprise performance and provides flexibility in Key Result Areas (KRAs) depending on the business needs of the organisation. Most importantly, it helps deliver financial measures by managing non-financial measures.

Sanjiv Anand is Regional Director, Asia/Middle East and Global Head for Strategy—Cedar Consulting

To read further SUBSCRIBE to General Management Review