Thanks to Robert Kaplan and David Norton who developed the framework called balanced scorecard. Balance scorecard is looking at how to translate the company’s mission statement and strategic plan/vision into a set of measurable performance objectives. This framework gained exposure into the limelight in 1992 paper published in the Harvard Business Review. This framework revealed that only financial accounting metric used by businesses is not adequate to keep the businesses growing to the future. Everyone knows the first thing the business owners look at is the financial outlook of their businesses. But having a good financial result now may not be sufficient to move your business to the next level if your result is not based on strong foundation.
Granted, business is about making money but in the words of Henry Ford, “A Business That Makes Nothing but Money Is a Poor Business”. Result is the name of the game but it’s now for us to start auditing the results so that we can sustain this success for a long time.
The gains or loss of today must have been initiated by yesterday’s actions. So also how accurately we apply the resources today will result to the gain or otherwise tomorrow. The financial status shows what you have done with the resources available to you over a period of time; which is historical but where are we headed?.
Objective of balanced scorecard
The objective of the balance scorecard is to widen the base of our result. How do we translate our strategic goals into a set of performance objectives? The ultimate objective is good result but how is this result worked out or derived. Was this result based on solid foundation or some magic that sales people perform sometimes? Sales promotion can help to achieve your sales or financial target for this period but it cannot be open ended.
The business manager surely needs a more comprehensive approach to derive his result by taking a holistic view of an organization; both internally and externally to keep winning or stop loss.
Traditionally I know many companies that will rather concentrate more on their sales force because that is where money flows into the business. Indeed some sales men have got the magic to achieve targets which is unknown to the owners of the business. What a risk? Your guess is as good as mine when these employees decide to leave.
What is business?
Business is a repeatable process that creates and delivers value to customers at an acceptable price to satisfy their expectations and makes enough money to continue the business. So in Business we have: Employees, Processes, Customers, and eventually make Money.
Balance scorecard is looking at how to translate the company’s mission statement and strategic plan/vision into a set of performance objectives are measurable.
Balanced scorecard as a management tool.
The balanced scorecard will be measuring your performance in four key area.
Financial Analysis: This looks at gauges like income, expenditures, sales growth and ROI.
Customer Analysis: shows customer satisfaction from feedback we got about our Product, Price, Availability and Retention. Are we still attractive to customers in spite of the activities of our competitors? Are we meeting the expectation of our customers?
Internal Analysis: This looks at how business processes are linked to strategic goals? Can we look at the process from end to end and which segment is giving what value to the business? Process precedes product.
Learning and Growth Analysis: looks at employee satisfaction and retention, how well they capture and utilize information to the advantage of the company.