Managers rarely think of measurements as part of their strategy even though they recognize their importance for evaluating performance. New strategies and processes are being introduced to improve performance without examining whether old measures of performance are relevant or whether new ones are necessary.
The balanced scorecard combines an effective measurement system that helps solidify a company’s strategic objectives with a management system that can help drive change in key areas such as product, process, customer, and market development. The scorecard gives managers four different perspectives to choose measures from (financial, customers, internal processes, and innovation and improvement activities). The measures of the balanced scorecard helps to focus a company’s strategic vision, encourages thinking about current and future success, and helps provide a balance between external and internal measures. This broad view helps managers see what trade offs they are making among their key success factors. Looking at the scorecard measures of a company, which should be different for every company, it should be clear what that company’s competitive strategy is.
Several companies that have used the balanced scorecard are given as examples in this article. Rockwater, a global engineering and construction company, used the balanced scorecard to respond to their changing industry. The CEO and senior management of Rockwater developed a vision and strategy then transformed them into the balanced scorecard’s four perspectives.
The measures used by Rockwater included:
Profit Forecast Reliability,
2. Customer Perspective
Customer Ranking Survey,
Customer Satisfaction Index,
3. Internal Processes
Hours with Customers on New Work,
Tender Success Rate,
Safety Incident Index,
Project Performance Index,
Project Closeout Cycle.
4. Innovation and Learning Perspective
Percentage of Revenue from
Rate of Improvement Index,
Staff Attitude Survey,
Number of Employee Suggestions,
Revenue per Employee.
The balanced scorecard helped Rockwater’s management implement changes to make it a leader in its industry.
A few examples of other companies are given to show how each uses the balanced scorecard differently. Apple Computer uses the balanced scorecard as a planning tool rather than a control tool. Advanced Micro Devices (AMD) made an easy transition to the use of the balanced scorecard because it already had a clearly defined mission and performance measures. The balanced scorecard helped AMD bring everything together in a more coherent fashion but did not cause any major changes. The examples are used to illustrate that the balanced scorecard is most successful when used to drive change.
Building a Balanced Scorecard
In a section separate from the article an outline is given for building a balanced scorecard. A typical process has the following steps:
1. Preparation: Define the business unit that a top- level scorecard is appropriate.
2. Interviews: First Round-facilitator interviews executives too get input on strategic objectives and possible scorecard measures.
3. Executive Workshop: First Round-group debates proposed mission and strategy statements until a consensus is reached.
4.Interviews: Second Round-facilitator compiles information and interviews executives about the tentative balanced scorecard.
5. Executive Workshop: Second Round-more debate vision, strategy, and tentative scorecard. Start to develop implementation plan and objectives.
6. Executive Workshop: Third Round-come to final agreement on vision, objectives, and measurements developed in the first two workshops. Agree on implementation plan.
7. Implementation: Team develops implementation plan for the scorecard.
8. Periodic Reviews: Used on a monthly or quarterly basis and reviewed annually.
At the end of the article Kaplan interviews Larry D. Brady, executive vice-president of FMC Corporation, who discusses his company’s implementation of the balanced scorecard. The balanced scorecard helped managers focus on the company’s strategy. The types of measures included in the scorecard, implementation, benchmarking, problems encountered, and the involvement of management are all discussed in the interview.
See the Summary of Balanced Scorecard Concepts for related article summaries.