Twenty years ago, two gents named Robert Kaplan and David Norton introduced a way to integrate measurement and strategy that has passed the test of management fads. Their contribution to proactive organizational management has been substantial, as their Balanced Scorecard approach has pushed companies beyond relying on financial metrics alone to determine the health of their organizations. The Balanced Scorecard challenges managers to consider multiple perspectives when evaluating the health of their organization.
The essence of the scorecard is that it presents managers with four perspectives from which to choose measures: Financial, Customer, Internal Processes, and People and Learning. Traditional metrics focus only on financial measures, which are not applicable for tracking strategic objectives that go outside of the financial sandbox. With the four perspectives above, the scorecard offers a way to measure and manage from a strategic perspective. In fact, you can see the DNA of the scorecard throughout our OnStrategy platform. It also guides the way we approach our consultancy services as well.
So, how can you ensure that you are applying the Balanced Scorecard approach in developing your strategy? Here are a few things to keep in mind:
- Make sure the research into your SWOT analysis includes questions that reach into each of the perspectives of the scorecard. An example would be making certain you are capturing perspectives on employee learning (Innovation), workplace efficiencies (Internal Processes), and customer experience (Customer Satisfaction). Also ensure your perspectives are tapping into opinions of managers, employees, customers and other community stakeholders.
- Don’t shy away from creating goals that require integrated solutions across departments. Big strategic objective statements like “continuous improvement of safety” means more than having trained employees. Grand objectives to attain an organization’s vision need tangible goals and actions that many times require cross-functional, team-oriented support. With the perspectives of the scorecard, managers and planners are given a landscape that is not divided by departmental domains.
- Establish key performance indicators (KPIs) that give you a sense of how all perspectives of the Balanced Scorecard are performing. Part of making strategic execution as simple as possible is selecting key performance indicators that are representative of the general progress of your plan. This way you don’t have to track every single goal created, but just select a few that best reflect progress. Taking this exercise a step further and selecting KPIs that span all four areas of the Balanced Scorecard ensures you are focusing your attention holistically.
Congratulations to Kaplan and Norton for providing such a powerful framework that goes beyond financial measures of success. Scores of organizations have applied the principles they set forth in their initial article in Harvard Business Review (January-February 1992, “The Balanced Scorecard- Measures that Drive Performance”), including us here at OnStrategy. Enjoy more on this topic at the OnStrategy resource page.
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