Strategic Performance Management with Balanced Scorecards

A Balanced Scorecard (BSC) provides a comprehensive framework for understanding the knowledge, skills, and systems employees need (Learning and Growth) to innovate and build the right strategic capabilities and efficiencies (Internal Processes). These capabilities then deliver specific value to the market (Customer), ultimately leading to higher shareholder value (Financial).

Core Perspectives of the Balanced Scorecard

The Balanced Scorecard is built upon four fundamental cornerstones, each addressing a critical question for organizational success:

Strategy Mapping and Objective Setting

A strategy map for a Balanced Scorecard makes explicit the strategy’s hypotheses. Each measure of a Balanced Scorecard becomes embedded in a chain of cause-and-effect logic that connects the desired outcomes from the strategy with the drivers that will lead to the strategic outcomes.

Importance of Quantifiable Objectives

To effectively map strategy, we need to set quantifiable objectives. These objectives must have a direct relationship to your goals, and your goals must, in turn, have a direct relationship to your mission and values. Quantifiable goals are crucial for:

• Achieving a common understanding of the desired results.
• Enabling a clear relation to the firm’s mission and strategies by quantifying outcomes.
• Reducing the chance of misinterpreting desired outcomes.

Why Measures Matter

Measures are vital tools for strategic management:

• To determine how effectively and efficiently a process or service satisfies stakeholders.
• To identify opportunities for improvement.
• To make informed decisions based on facts and data.

SMART Objectives Framework

When setting objectives, ensure they are SMART:

• Specific: Who is involved? What do I want to accomplish? Where does this take place? When does it need to be achieved? Why is this important?
• Measurable: How much? How many? How will I know when it is accomplished?
• Attainable: Do you have the attitudes, abilities, skills, and financial capacity to reach them?
• Realistic: Is the organization both willing and able to work towards the goal?
• Timely: A goal should be grounded within a defined time frame.
• Tangible: Can the goal be experienced with the five senses?

Key Performance Indicators by Perspective

Effective Balanced Scorecards utilize specific measurements for each perspective to track progress and performance:

Implementing and Sustaining Balanced Scorecards

• Once measures and targets are established, it is the responsibility of management to determine how the organization will achieve its goals.
• Measures are used to determine the effectiveness of initiatives.

Characteristics of an Effective Balanced Scorecard

A good Balanced Scorecard will “tell the story” of your strategy in actionable terms. Key indicators of an effective BSC include:

1. Executive Involvement: Strategic decision-makers must validate and own the strategy and related measures.
2. Cause-and-Effect Relationships: Every objective selected should be part of a chain of cause-and-effect linkages that represent the strategy.
3. Balance Between Outcome and Leading Measures: There should be a balance of outcome measures and leading measures to facilitate anticipatory management.
4. Financial Linkage: Every objective can ultimately be related to financial results.
5. Linkage of Initiatives and Measures: Each initiative should be based on a gap between baseline and target.

The Power of a Balanced Approach

The term "Balanced" in Balanced Scorecard refers to a wider range of performance variables and a broader assessment of the firm’s ability to implement its mission and strategies, moving beyond purely financial metrics.