The Balanced Score Card: Driving Better Performance

Whether your company is a market leader or brand new to the marketplace, all companies are constantly looking for fresh new ways to stay ahead of the competition. Although there are a wide variety of strategy and measurement tools, the balanced score card is a tool that ties these two components together.

This measurement tool was first introduced in the Harvard Business Journal in 1992. The balanced scorecard was designed to provide executives with a new formula for developing a company’s strategic objectives, while creating measurement tools. This tool quickly proved to be successful at motivating executives to come up with breakthroughs in critical areas, such as customer service and bringing new products to market.

While many companies have measurement tools, they are often disjointed and disconnected from financial initiatives. Some companies use the yearly budgeting tool to facilitate planning. However, this can leave gaps in planning and fail to address important points.

Implementing the Balanced Score Card
Introducing the balanced score card is a process that takes hard work from senior management and employees to drive success. Here’s a quick breakdown of the three steps needed to launch this planning tool:

1. Determine which Business Units Needs the Card

The first step in implementing a balanced scorecard is making a list of business units that will use the tool. According to the Harvard Business Review, a scorecard is appropriate for business units that have their own customers, production facilities, channels for distribution and financial performance measures. Once you’ve defined which business units will need their own scorecard, you’ll need to bring senior managers up to speed on the process.

2. Partner with Management Teams

Each senior manager should receive general information about how the balanced scorecard works and the benefits. Once the management team has reviewed the information, they will meet with the facilitator to discuss ideas and input for the process. In these meetings, senior managers will also accomplish the definition of success factors, the company’s mission and performance measures.

After the initial meeting, senior managers will meet for a second workshop to further define the scorecard goals. The attendees of this meeting will be more diverse including senior managers and high level and middle managers. At this meeting, an implementation plan will be developed.

Then, a final meeting will be held with the executive team only. In this meeting, the team will come up with a final plan for the company’s objectives and how they will be measured. During this process, senior management will also need to develop a strategy for rolling the process out to employees.

3. Implementing and Reviewing the Balanced Scorecard

Once all of the details of the balanced scorecard have been finalized, management will need to implement the scorecard. This process includes communication with employees and putting support in place for the new measurement systems. Once the information has been implemented, the scorecard will need to be reviewed quarterly to measure effectiveness and performance. In addition, the senior management team should evaluate the scorecard annually. In this meeting, they will need to determine if the measures still fit in terms of strategic planning and resource allocation.

Trying a Pilot Program
Some companies decide to start out slower when implementing the balanced scorecard. In these cases, a company can launch a pilot program in specific divisions to test the program’s effectiveness. During this process, many companies choose to focus on output measures to drive better success.

After the program has been launched, the company can evaluate the effectiveness of the program and determine if it should be integrated across the entire company.

External Reporting Issues
Many companies wonder if the balanced scorecard should be included in external reporting. The Stanford Business Review explains that the scorecard isn’t easily translated to the investment community. This tool is primarily useful for internal purposes that plan and shape the future of an organization. Also, the information used in the scorecard is sensitive and should be protected.

Getting Rid of Benchmarking
Although benchmarking is a common performance tool, companies often find this requires an investment without much return. If your company is using benchmarking, you’ll need to discontinue it when launching the balanced scorecard. Since the balanced scorecard focuses on output instead of process, it generally can’t be used in conjunction with benchmarking.

When adapting a balanced scorecard, remember to keep it simple. Companies that get carried away, adding hundreds or even thousands of performance goals, don’t get the full benefits. Instead, keep your goals to a dozen or less. The results of using this tool will be well worth the investment and will provide a solid foundation to grow and preserve your business.

Resource:Robert S. Kaplan and David P. Norton. “Putting the Balanced Scorecard to Work.” Harvard Business Review.

Mark Jordan is the Managing Principal of VERCOR, an investment bank that creates liquidity for middle market business owners. He is the author of “Driving Business Value in an Uncertain Economy”, “Selling Your Business the Easy Way”, “Enhancing Your Business Value…The Climb to the Top” and co-author of “The Business Sale…A Business Owner’s Most Perilous Expedition.” For more information, contact him at 770.399.9512 or click here to email Mark.