Balanced Score Card

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By Barbara Semeniuk

What does a worm have to do with your company’s bottom line?

Keep reading to find out.

Maybe you can relate to this:  Some Companies struggle defining how well they perform and how well they wish they could perform.  Prior to the 1990’s the best way these Companies determined overall performance was by measuring the tangible. That meant measuring with financial reports. A Company’s financial statement, considered the best predicator of its survival, told the whole story.

Hence, the worm theory emerged.

The problem with determining Company success through financial statements was that management ignored key intangibles. Profitable companies were loosing market share and didn’t know why. What they missed were key intangibles:  How innovative were they?  How adept were they at customer service and gaining new customers?   Were they competent in what they were doing and maintaining this competency through training and innovation?  An example: in 1910, a mediocre car manufacturing company would usurp the best buggy producing Company. It was time to find out why.  Measuring only the tangible was no longer a precursor to success.

What does this mean for you? Let’s take a closer look.

In 1992, Robert Kaplan and David Norton developed their “Balanced Score Card Initiative.” This initiative, meant to address the problem of measuring the intangibles that were essential to a Companies success, addressed a Company’s very survival. The Balanced Score Card Initiative, a strategic management and measurement system, measures performance and links the performance to strategic indicators that provide a comprehensive view of how well a Company is doing.

Here’s how the balanced scorecard includes soft quantifiable operational measures.  Soft measures show how well the Company is performing from a Customer Perspective.  Internal measurements or metrics determine what areas the company must excel in to remain competitive.  The last set of measurements taken from an innovation and learning perspective, shows where the corporation can improve. The corporation learns where it can add more value to what it does whether these are products, services, operations or departments like safety and/or quality. 

In short, the Balanced Scorecard helps Management focus on the really important indictors of success rather than short term financial gain. 

How does one implement the process?  Basically this is a 6 step process which covers four categories. Measurements from these four categories create a balanced perspective of how the Company is performing in real time.  In each of these categories, measurements must be selected (no more than 15 or 20) and tied to the goals or Critical Success Factors.  Let’s examine the process:

1. Decide What to Measure

There are four measurable categories in the Balanced Score Card Initiative.  Let’s go over each in turn.

First, there is the Financial area (shareholder’s perspective):  Reviewing Financial Statements shows which goals were met. Was there increased profitability and growth? If not, what types of measures are needed to meet the set goals?  For example, if the Financial goal is increased profitability how does the company measure this?  Goals are linked to the measures.  For example, achieving increased profitability through cost reduction, revenue growth, sales, increased margins, and increased cash flow, becomes the proof.

The next area of measurement is in the Customer Perspective:  Here a company sets goals which may include meeting new customer acquisitions, increase customer satisfaction, and increase customer contacts.  Customer Perspective also measures increasing market share and customer loyalty. Customer Perspective determines how well customer service is doing, measuring the number of new, retained and lost customers,  and the number of  customer complaints  generated.  Set targets and strive to achieve them….20% increase in market share, 10% decrease in customer complaints through improved customer service training.

Another measurement area is through an Internal Perspective:  Again, the company sets goals in this area.  Do you want to improve core competencies, streamline the process, enhance the use of technology, and achieve better employee morale?  If so what is management prepared to do to improve the quality of our operating processes?

How do you set about measuring this?  For one, you can achieve quality operations by efficiency improvements, internal audit standards, more employee suggestions, and more sales per employee.  These measures can translate into streamlining a manufacturing or service process, enhancing the technology available to workers and their ability to use it….resulting in more sales per worker.

Finally, look at Innovation and Learning Perspective:  Once again set goals like continuous improvement, new product development, and improved employee training. These goals measure indicators like the number of new products, percentage of sales from these, alignment of personal goals with the scorecard. What you want is a climate that supports innovation and growth.

What’s more, the balanced scorecard, adjusted to fit your company’s own requirements, represent key performance indicators.  For example public companies may not be as concerned about customer perspective but may wish to incorporate client’s or user’s perspectives of the non profit service they receive. They then measure their own intangibles that will drive performance and value to their clients. They customize and develop their own critical success factors.

2. Implement the Plan

Mobilize change through Senior Management so your leaders will actively support the Balanced Score Card Initiative.  Senior Management must be aware that it is a long ranging plan of action: affecting the way the Company strategically measures objectives, management systems and corporate performance.  Change may take three or four years to implement, so be prepared.

Next, your Senior Management team mobilizes the organization to affect the change. Once the key metrics and goals are established for each of the four areas of the balanced scorecard further interviews and meetings need to be held to fine tune the initiative and determine the best way to implement it within the organization. Consider Critical Success factors, record and define how, when and where targets are set for each factor.

3. Process

The created plan will only succeed when effectively managed.  The Senior Management team shifts towards governance: to install the new performance model. Employee participation is important so everyone feels involved in the process and has ownership.  Thus, employees will be less resistant to change and more willing to support the implementation of the Balanced Score Card Initiative.  Their own objectives can be used to set personal scorecards.

4. Analysis

Much like behavioural based safety programs, analyzing the results of the measures on a regular basis creates qualified data: daily, weekly, monthly, yearly and distributed to all employees.  The data may be complicated on graphs or held discussions with department heads. Any distributing information on a need to know basis is critical to the Balanced Score Cards success.

5. Use and Analyze the Results

Put the gathered information into practice.  The information must be continually refined and adjusted and the results used to improve the organization’s performance.  What you’ll find is that your very large organization acts and responds nimbly… like a  smaller company.  Management follow up becomes critical to ensuring this occurs.

6. Feedback

Does this system work? Use the data gained from the use and analyze stage…apply the information and publicize the results to as many employees as possible.  Find out the truth. The feedback alone is a powerful mechanism improving any current business system. This process is akin to Deming’s:  Plan, Do, Check cycle.

It’s here that the worms disappear. A clear picture of your company emerges through this process. And here’s another important point.

As your team puts the scorecard into action, the feedback systems begin to generate and report actual results. Your organization tests the hypotheses underlying its strategy to determine if it is working.  Movement occurs and rather than waiting for next year’s budget cycle the priorities and the scorecards are updated immediately.  Much like aircraft navigating towards a city, the flight is continually adjusted for wind speed, air currents, and the vagaries of the weather in order to reach their destination…. What better way to reach your goals than with the Balanced Score Card Initiative.

There you have it. The Balanced Score Card Initiative becomes the heart and soul of your Company’s strategy….the jet engine of your Company driving it towards long term growth and prosperity…….and your Health and Safety people can use this initiative to drive down injuries, speak to management in metrics they understand and become part of the overall strategy of a company…..rather than a reactive, knee jerk response to injuries, losses, and death.  But that is next month’s article!

About the Author:  Barbara Semeniuk specializes in industrial and high-tech safety and loss management: she delivers workshops and writes articles about how to improve the safety policies and safety management systems in your company. To receive details on how you can prepare your company to pass audits and safety inspections, contact Barbara at (780) 431-1284 or visit her at http://www.purcellenterprises.ca