Performance Management and the Balanced Scorecard

Your company’s performance management system is not just about annual reviews and bonuses, it is essential to implementing your corporate strategy.

With many organizations currently tightening their belts and demanding high performance, how can you make sure that your system is optimized for results? An answer lies in using the balanced scorecard.

Many organizations struggle with performance management because their system consists of little more than a form managers use to conduct annual employee evaluations. This doesn’t work because performance management should be an ongoing conversation between supervisors and employees that supports the accomplishment of strategic objectives. Rather than only considering the process once a year, managers should be using it year-long to set clear objectives, evaluate results and deliver continual feedback to employees about their performance.

What a great performance management system does:

• Illustrate how employee’s job contributes to the success of the organization by linking work efforts with company’s mission, vision and objectives
• Helps employee know what needs to be done to be successful on the job by focusing attention on setting clear performance expectations (results + actions & behaviors)
• Focuses department on what needs to get done and provides a solid rationale for eliminating unnecessary work though the use of objectives, standards, and performance metrics
• Gives employees a clear path for growth by defining job-mastery and career development goals as part of the process
• Enables employees to quickly identify problems and change course of project or work assignment through regular check-in discussions, which include status updates, coaching and feedback
• Shifts focus from performance as an annual event and sets it as an ongoing process by basing performance evaluations on the summary of check-ins & status updates

Check out how UC Berkeley conducts their own performance management process.

So, how do you make sure that’s happening in your organization?

First, an organization’s strategic plan must give high priority to performance management, since their employees are the ones actually implementing the tactics necessary to achieve corporate objectives. A powerful tool for crafting a strategy that takes this into account is the Strategy Map, part of the Balanced Scorecard concept.

Popularized by Robert S. Kaplan and David P. Norton through a series of articles in the Harvard Business Review as well as their popular 1996 book by the same name, The Balanced Scorecard is a strategic planning and reporting methodology that takes a company’s objectives and splits them between 4 equally important perspectives: Financial, Customer, Operational, People. Organizational objectives then cascade down those four perspectives, giving the company a clear path of implementation.

Following the strategy map, the financial perspective is at the top and contains objectives that contribute to the bottom line. Next, the customer perspective supports those goals with objectives that lead to meeting customer needs which drive increased sales. Operational goals are needed in place to better meet the customer needs, and finally the people perspective contains the objectives that support the operational goals.

For example, a lawn care business may have a corporate vision to become the most sought after landscaper in their region. That could lead to a financial objective to increase sales. In order to increase sales, an objective must be placed in their customer perspective that includes being seen as providing the most superior customer service. This would cascade down to creating an operational objective to grow their customer service department by 6 employees. Their people perspective would then need an objective to train an additional 4 reps.

How the Balanced Scorecard Keeps you on Track

With objectives cascading down throughout the four perspectives of the map, a strategy is considered “balanced.” The Scorecard portion consists of leading and lagging metrics that the company, or even departments and individuals can be evaluated on to determine whether they are on track. By forcing executives to put as much thought into performance management as the financial objectives of the organization and tying performance management goals all the way up to the mission and vision of the company the strategy map solves the performance dilemma.

Once a scorecard is in place to manage performance, employees see how their job makes a difference to your company by illustrating how their tasks contribute to departmental goals, which drive financial accomplishments that push the company closer to its vision. This lays the foundation for clear performance expectations and the elimination of ambiguity concerning employee priorities. With a complete scorecard in place, employees know where they stand, and can easily determine what areas they can contribute to the success of an organization’s strategy. Employee evaluations and status reports, now focused on the results of the scorecard give supervisors and employees structure for evaluation and coaching, and help keep everyone informed.

A tool that brings strategy and performance management all together

Based on the balanced scorecard and strategy map, OnStrategy enables any organization, regardless of size and budget, to build their comprehensive plan in a matter of weeks (or even days) and monitor implementation all year long.