Why You Need Business Scorecards to Develop Operational Excellence

The following is a guest article from slashBlue:

The balanced scorecard (BSC) has revolutionized strategic planning and management systems for business complexes large and small. Invented by Doctors Robert S. Kaplan and David P. Norton from the Harvard Business School, BSCs can be used to unite visionary goals with practical day-to-day objectives. In fact, Gartner Group suggests that 50% of major companies in the U.S., Europe and Asia are currently using scorecards to develop their businesses, and that number is on the rise. A scorecard should indicate what a company should measure in order to balance finances, customer satisfaction, internal processes, and operational capacity. Most businesses are constantly seesawing between long term strategy and daily operations, and BSCs can help them find the balance they are searching for, while simultaneously explaining it to the entire company. Strategic plans used to be passive guiding documents, but now, through BSCs, they are “marching orders” for daily business activities, providing feedback about internal processes and their external outcomes. That is – if they are designed well!

A fully developed scorecard should consist of the following elements:unnamed

  • Business vision, mission, and values.
  • Strategic maps that guide short-term actions into long-term goals.
  • Performance measures to chart actual vs. intended progress.
  • Budgets that include current initiatives as well as new initiatives to test strategic assumptions.
  • Leadership and individual development.

Now lets address 5 factors for designing better scorecards:

1. Measure what’s important, not everything else. Don’t waste valuable time and energy trying to measure the minute details of your business. Instead focus on what customers, employees, and stakeholders cherish, because ultimately those are most important. This means you need to have a strategy for how your scorecard will be used, and that strategy should begin with the end in mind. Many companies take up scorecard development because they hear it’s the thing to do, but fail to design a strategy for how and what the scorecard will develop. Ask yourself which outcomes are most important to track now, then write down what the outcome is and what difference you want to track by using a measure. To avoid becoming overwhelmed, focus on one outcome at a time.

2. Education and training make all the difference. You know the overused saying, “Haste makes waste”? Well, when it comes to scorecards, it really does! Businesses who turn out scorecards in a rush often fail to provide meaningful and detailed scorecard training to employees who are expected to use the system. It’s easy for top leaders to think the scorecard system will be intuitively used by individuals, but if they aren’t privy to the overall vision of the scorecard, this intuition fails. Awareness sessions lauding the new measuring system are not replacements for explaining the subtleties of the model to employees. Employees should aid in developing scorecard measures for each department, otherwise the whole endeavor may result in poorly designed scorecards, little use, and weak alignment throughout the company.

3. Build scorecard consistency through management and terminology. BSCs are intended to be paradigms for organizational balance, but this balance can easily be thrown off if managerial processes don’t reflect the holistic goals in the BSC. Implementing a scorecard implies a strong commitment to balancing the internal and external needs of an organization with financial and customer demands. If management practices aren’t consistent with these goals, then even a well-designed system falls apart. Consistent management also requires standard terminology. Discussing your scorecard metrics shouldn’t be like communicating in a foreign language. Define term meaning and usage to avoid confusion over the long term. As you implement new metrics and contexts shift, you don’t want to be using one word to describe two meanings. Consistency is key to guiding change through all levels of the organization.

4. Link your scorecard from top to bottom. While managers and upper level officials may have a clear view of the strategic mountaintop, often front-of-the-line employees are far removed from organizational strategy. If you want to use your BSC to its fullest potential, it should “cascade” over all levels of the business. Otherwise, front-of-the-line employees will fail to see how scorecards should guide their daily tasks and why they are important to the overall strategy. As you expand your scorecard, remember to continually add new measures. Your business’s scorecard may run on a series of standard measures needed to impart the overall strategy. But this isn’t all it takes to develop a successful BSC. New and innovative metrics should be instituted on a rotating basis to ensure that strategy is actually working.

5. Gain executive leadership support. Once your scorecard system is in place, executive support and sponsorship are necessary to translate standards into action. Leaders need to thoroughly understand how a scorecard builds upon strategy, and be able to guide and encourage employees throughout each stage of the process. Even if your scorecard is a pristine result of careful planning, the entire effort can stall without effective leadership. Leaders should also act as a sort of feedback loop for the scorecard itself, determining what is or isn’t working in the space between plan and action to make your company run as smoothly as possible.

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