The Balanced Scorecard - Measures That Drive Performance

What you measure is what you get!

Financial Accounting measures such as ROE, ROA and earnings per share - don't provide sufficient insight on how a company is doing with regard to customer satisfaction, innovation or continuous improvement in specific qualitative measures.

Some choose to focus primarily on quantitative metrics, such as financial accounting measures. Others, have said - forget financial measures and improve operational measures such as cycle time and defect rates, financial results will follow.

However - mangers should not have to choose between financial and operational measure - that's the whole concept of creating and maintain a balanced scorecard. The key goal being to help managers focus on a handful of critical measures.

The Balanced Scorecard complements well defined financial measures with operational measures on customer satisfaction, internal processes, organizational culture & innovation.

The balanced scorecard enables manages to look at the business from 4 impt perspectives
[Financial Perspective, Internal Business Perspective, Innovation & Learning Perspective & Customer Perspective]. We use these perspectives to answer 4 key questions about the organization.

1. How do customers see us ? - that's the customer perspective
2. What must we excel at? - Internal business perspective
3. Can we continue to improve and create value? - Innovation and learning perspective
4. How do we look to shareholders? - that's the financial perspective

The balanced scorecard helps managers consider al that important operational measures - together. This is important because even the best objective can be achieved badly. Most companies have mission statements which focus on serving customers/consumers - so the scorecard must reflect that commitment. What are the specific measures which matter to customers and how do we track them through a scorecard.

Customer Concerns: [Time, Quality, Cost (price), Performance and service]
Companies much article goals for the key customer concerns which may impact their businesses and then translate these goals into specific measures.

Some customers hire 3rd party organizations to provide customer evaluations or administer customer service surveys. Benchmarking procedures are yet another technique which companies use to compare their performance against competitors best practices.

To achieve key customer related goals, managers must devise measures which are actionable for their reports, but yet impact the critical measures on the balanced scorecard.

One concern could be that the scorecard information in the balanced scorecard is not timely, reports have to be submitted in time so that managers can analyze insights and come up with recommendations to improve overall performance.

Customer based and internal business measures on the balanced scorecard identify the parameters that the company considers most important of competitive success.

That said, targets keep changing at the external climate becomes more and more competitive. A company's ability to effectively service it's customers , innovate and improve - is key to creating sustainable value for its products, services, and improve operational efficiencies. The targets will help drive continuous improvements in csat and internal biz processes.

Financial Measures have often been criticized because they tend to be backward looking focus - and their inability to reflect contemporary - value creating actions. It's been said that operational efficiencies are much more important indications of success - thank Financial Measures. "one school of thought indicates that making fundamental improvements in operations will result in stronger financials. However, the alleged linkage between improved operating performance and financial success is actually quite tenuous & uncertain.

Operational efficiencies can certainly improve overall quality, but that doesn't necessarily translate to profits. Companies have to put a plan in place to capitalize on improvements in operational achievements. Quality and cycle time improvements can create excess capacity -and companies have to be prepared to either put the excess capacity to work or get rid of it all together. the excess capacity should be used to help boost revenues or eliminating expenses.

Increased efficiencies may result in layoffs or creating new jobs for skilled, flexible employees.

A balanced scorecard will help remind mgrs and executives that quality improvements in cost, performance of services, response times and overall productivity, only benefit the company went they're translated into improved sales and market share, reduced operating expenses or higher asset turnover. The scorecard will establish goals based on vision and strategy for the organization.

By combining the financial, customer, internal process and innovation as well as organizational learning perspectives - balanced scorecards help managers understand inter-relationships between key measures. This leads to improved decision making and problem solving - and helps companies keep looking forward, not backward.