How to Make the Balanced Scorecard Work for your Business

Managers need information to judge the effectiveness of their policies by tracking performance. Modern managers understand that past performance is not necessarily a guarantee of success moving forward. If you’re a manager in today’s economy, you’ll be left behind if you treat statistical information as nothing more than a yardstick to see how your strategic vision is being implemented after the fact. The concept of the balanced scorecard integrates measurement as an integral part of strategic management, not simply a way to keep score.

This form of real-time informational management wasn’t possible until quite recently. Only the development of computers and the Internet made gathering and processing data in the amounts needed to be useful a reality. The benefits of gathering massive amounts of data can be offset by an inability to use it for any practical purpose. Academics at the Harvard Business School came up with the scorecard management plan that gave executives a system that integrated coherent strategic objectives and performance measurements into one tool for market development, instead of one approach for planning and a second for measuring results.

A properly designed scorecard gives managers four separate ways to look at the progress and performance of their companies. A scorecard allows managers to look at traditional measurements of performance like revenue and profits. It also measures performance from the point of view of the customer. It analyzes the effectiveness and efficiency of in-house processes. It further measures whether innovations are being made and if daily activities are being carried out more efficiently over time.

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The normal financial measurements of a company represent only 25 percent of the total measurements of a scorecard. Companies like Corporate Technologies that offer business intelligence services draw up scorecards that cover the other 75 percent of available measurements to give executives a picture of how the company will perform going forward, instead of how it performed financially in the last quarter. An effective scorecard is like being able to look at statistical information from the future.

Getting Away From Bottom-Up Reporting

Modern information systems make it possible to collect operational measurements for any activity that a company engages in. Most of these measurements are done on the fly, and are generated from the bottom up. One example is careful tracking of buying habits from point of sale numbers. A manager can read a printout that indicates what items customers purchased last month. That can’t be the last word in what customers will want to buy next month. The information is often too granular and tied to a certain point in time to be of much use in strategic planning if it’s used in isolation. One example of this phenomenon is a purchasing agent from a retailer looking at a sales summary from February that reports that people really wanted to buy snow shovels. That’s not an indication that there will be a continuing demand for snow shovels in April. Scorecard management takes current performance into account, but it’s just as interested in future performance. It’s a top-down, not a bottom-up management system.

Defining Priorities With Scorecard Management

If your company is attempting total quality management initiatives, or other programs that require intensive real-time monitoring, scorecard management can give employees a focal point to help guide their efforts continuously, instead of simply receiving a pass or fail assessment based on performance data after the fact.

Because there are four different ways to view the information on a scorecard, managers can see the trade-offs that are being made to improve performance that could be missed by conventional metrics. If personnel are told to concentrate on only one metric, strange and undesirable outcome can appear. One example is a strategy that attempts to measure progress solely on an increase in gross receipts. If employees are instructed to increase gross receipts at all costs, they might begin to make unprofitable deals in order to raise the revenue number. They might run machinery into the ground, not worrying about the long-term strategy that the company might have. Scorecard management would tell a manager the downstream effects of an unbalanced, short-term policy right away. Regular statistics would simply say receipts were up last quarter, but you’re out of business because you’re not profitable and you have no working machinery left.

Scorecard Management Is Not a Yardstick, It’s a Slide Rule

You can’t simply buy a scorecard management template that comes out of a box and fixes your company. One scorecard template won’t even work for multiple companies in the same industry. Different companies aren’t in the same market situations. They have different strategies for bringing products or services to the market, and have different mission statements. A scorecard must be fitted to the corporate culture, mission, product line, and competitive strategy of a particular company.

It’s sometimes difficult for a company’s management to be able to come up with the information necessary to draw up a workable scorecard management program because the workings of their own business are too opaque. One of the most telling attributes of good scorecard management is transparency. A person from outside the company should be able to see and understand exactly what a company’s competitive strategy entails. That’s why scorecard management programs are almost always drawn up using the help of consultants that are highly skilled in scorecard management systems, along with important satellite functions like data management and analytics. A consultant isn’t engaged to tell you what to do. Their expertise is to help you determine how to most effectively do what you’re trying to accomplish.

Understanding Customer Satisfaction Properly

One benefit of balanced scorecard management is to allow a company to break down their clients into tier’s, and measure each tier’s satisfaction based on their particular needs. An example would be a company that had some customers that needed high-dollar, value-added services, while also having customers that purchased based on price alone. Strategic plans that didn’t take the needs of these two client bases separately would be unable to measure client satisfaction properly, and management initiatives that addressed the needs of one set of customers would ignore the needs of others. In today’s competitive marketplace, managers that are prepared to look at information in different ways will survive and prosper, and scorecard management can be a big help.