Metrics, Scorecard, KPIs

Evaluation of business is quite a lengthy and complex process.  It is imperative to take into account all aspects and key success factors influencing performance of the company.  At the same time many people are making mistake of evaluation of financial/material indicators only.  But the reality is that intangible assets matter so much in today’s business.  Intellectual potential of the company cannot be measured in dollars but that does not make it less valuable.  Very often top managers are too concentrated on financial indicators.  They forget that their business is run by people.  Those companies who failed due attention to human resource management appeared to be very vulnerable to the recent financial meltdown.  They simply had no competent and creative employees who would offer breakthrough solutions to existing problems.  Even huge investments will not work of the company has people who know how to efficiently use this money.

What is HR about?

That’s why in measuring business evaluation of HR performance is a must.  Even if the company allocates sufficient funds to human resource management it does not mean that HR campaigns and actions are effective.  The problem is that human resource department can not earn money.  Just to the contrary it spends money the company earns.  If the money spent in an inefficient way such money is wasted.  Evaluation of human resource department will make it possible to find strong and weak points in HR policy of the company.  Besides, it often happens that human resource management conflicts with the company strategy.  For example, the company needs experienced personnel while human resource department hires college graduates, and the company needs to spend huge money to educate them and make them stay in the company.

HR evaluation process

Balanced Scorecard System will surely be helpful for those who want to evaluate HR performance in the company and align HR goals with company strategy.  This is a very efficient way to find rooms of the problems by establishing cause and effect ties.  For example, employee lateness may be the cause of poor job performance, or the company may simply spend too much to provide personnel with transportation means.  There may be negative organization climate or employees may be not satisfied with the working conditions or a compensation system.  All this will negatively influence employee performance which results in failure to achieve strategic goals and follow company mission and values.  BSC will visualize HR strategy and helped everybody in the company understand what needs to be done to improve HR performance in order to achieve strategic goals.

Balanced Scorecard is not just another managerial tool.  This system has gained tremendous popularity among top managers and business owners in various business areas.  Balanced scorecard concept is all about strategic development of the company.  It is impossible to be idle in the business world.  Once the company stops development or fails to adopt growth and development plan such a company is doomed to fail.  It is impossible to drive a car with your eyes closed, and so it is impossible to run a business without understanding of where you’re going to.

Major characteristics of winning KPIs

The greatest advantage of balanced scorecard is its ability to connect strategic management and operational management.  In other words, balanced scorecard puts strategy into action.  Strategic plans are intentions and expectations of the company.  But in order to achieve goals certain actions need to be taken.  Balanced Scorecard is the kind of system that makes it possible to measure progress of the company on its way to implementation of strategic goals.  This is possible you evaluation of key performance indicators.  KPIs are those indicators that are most important for a company and that make key success factors.

The right choice of key performance indicators predetermines success in implementation of BSC.  This is like building a house with a poorly built basement and foundation.  Sooner or later, such house will collapse.  The same implies to Balanced Scorecard.  The wrong choice of indicators would lead to wrong conclusions and decisions.  Besides, the wrong indicators would make balanced scorecard very difficult to use.

How BSC works

What a general tips to choosing indicators?  Of course, every company every business has and individuals set of key performance indicators.  The choice of KPIs primarily depends on company strategy and company success factors in particular business area.  However, the wrong some universal tips for creation of key performance indicators applicable in many business areas.

1. Key performance indicators should be not great in number.  Up to a dozen of indicators each level will be enough.
2. Key performance indicators should be measurable.  One should clearly understand how to evaluate indicator or change its value.
3. KPIs should be clear and comprehensive for the personnel.  Complex system requires more time and effort and money.
4. Key performance indicators should be up to date.  It is necessary to review some indicators from time to time as business environment and internal processes may change.

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Many business owners consider Balanced Scorecard as a treatment for all problems and obstacles.  However, use of balanced scorecard is only then effective when a company has a comprehensive strategy.  Sure thing, balance scorecard helps correctly formulate this strategy but it doesn’t substitute strategic vision.  Development of a company strategy is perhaps the most important step in implementation of balanced scorecard.  Of course, other implementation stages are equally important but if one begins doing something wrong from the very beginning there are no reasons to expect positive results.  The same applies to balanced scorecard implementation.  Without a proper and realistic strategy it is impossible to achieve any positive results.

What is strategy?

Strategic vision of the company is often confused with some short-term financial goals.  Of course, the ultimate goal of gaining commercial business is making money.  But this is achieved through improvements in internal and external environment.  That’s why balanced scorecard became so popular because it combined indicators representing financial and nonfinancial aspects of running business.

It is equally important to choose the right measures, i.e. indicators that represent co performance as well as aspects influencing it.  In other words it is imperative to find the right things to measure.  If the company management evaluates secondary indicators they lose focus of major things.  For instance, company management can concentrate on customer relationships totally forget and about innovation, learning and education of personnel.  So, company employees we’ll be actively working with existing and potential customers without having relevant offers and necessary skills to turn customers into regular ones.

Key BSC mistakes

In large companies different departments may have different goals.  One of the most common mistakes is strategic goals of departments conflict with the company strategic goals.  Balanced Scorecard makes it possible to build strategy tree or strategy maps with cause and effect relationships between different perspectives and different goals.  Visual representation of strategic goals contributes to understanding of company strategic vision for employees at all levels.  It is equally important for top manager and a front line manager to understand what company strategic goals are.  For example, top management may have one concept of strategic vision, head of department has his own opinion, while ordinary managers interpret strategic goals in their own way.

Thus, before making a decision to implement balanced scorecard company management should consider all pros and cons, and find out whether or not the company is ready to use this system.

One of the greatest disadvantages of performance management was that this system paid attention to financial indicators only.  Obsession with financial figure’s distracted business managers from such issues as relation to customers, optimization of internal processes in the company, analysis of employee performance, employee satisfaction, organization climate and many other important issues.  It is very difficult to make correct plans and predictions as to the future situation in the market and development of the company.  Financial indicators are the focus and the goal of the other factors that directly influence performance of a company.

Emergence of balanced scorecard system revived performance management by the inclusion of three other perspectives.  Thus, the traditional set of categories consists of financial, customer, internal processes, learning and growth perspectives.  These four perspectives aim to cover all processes is and things happening inside and outside the company and influencing co performance in the direct or indirect way.

The four BSC perspectives

Why is it important to measure business?  In the modern business world stagnation means death.  In the business stop developing it will be sown wiped out by competitors.  But in order to develop one should know the plans.  Operating a business without strategic plan is like running at night with your eyes closed. But it is especially important to link a strategy to the operational management. This is what Balanced Scorecard is especially good at.

So, what are the most important stages of BSC implementation?  First and foremost, it is very important to find out whether or not the company is ready to implement balanced scorecard.  It should be noted that BSC implementation is a lengthy process which requires considerable monetary and human resource investments.  So, if a company does not have the personnel which will implement and work with balanced scorecard it is useless to start the entire process.

Implementation stages of BSC

When the decision to implement BSC is made the company should select key performance indicators to be evaluated.  This will help measure progress and efficiency of strategic goals implementation.  There should be a certain number of key performance indicators that each management of operational level.  Balanced scorecard organizes these measures into a strategic map or strategy tree which visualizes company strategic goals and makes them easy to understand.

It is imperative to decide in what way the information will be collected, submit it, analyzed and in what way response actions will be taken.  Only in such a way balanced scorecard will optimize performance of a company and approach it to strategic goals.

Every business comes to a serious question that a certain time of its development.  This question is “What is next?” This means that the company should know what it will do in future and in what direction it will move?  There are many factors influencing well being of the company, both inside the company and outside.  Markets are volatile, and any changes in the market conditions should necessarily result in changes inside the company, of course if the company wants to be successful.  Strategic vision helps the company allocate Financial Resources in an efficient way.  As a rule, strategic goals cover global projects.  Earning a certain amount of money may not necessarily be a strategic goal.  For example, gaining and a larger market share or proper positioning of the company in the market may be considered typical examples of strategic goals.

Balanced Scorecard cycle

Any company should control and monitor the process of implementing strategic goals.  If the company management looks only at financial indicators it doesn’t get the full view.  Financial success he’s gained through effective production and operational management.  That’s why there are special systems to measure business performance and link strategic and operational management.

Balanced scorecard is known as one of the most effective systems that connects strategic goals with operational management, evaluates business performance and key performance indicators, visualizes strategic goals and creates strategy maps.  Balanced scorecard is an effective tool that helps company management and personnel better understand strategic goals.  However, there is often and misconception that balanced scorecard is a magic tool that can turn any business into a successful company.  This is not so.

When a company needs BSC

It is very important to understand whether not the company needs balanced scorecard.  There are several factors pointing to the necessity of using balanced scorecard, namely:

1. The company doesn’t have a comprehensive strategy
2. The company management does not the dissipating strategic planning of is a poor understanding of strategic plans
3. There is no operational control in the company
4. There is a poor communication system between departments of the company or between companies belonging to one holding

Of course this is not the full list of these factors vividly demonstrate that the company needs balanced scorecard.  It should be noted that implementation of balanced scorecard is an expensive and lengthy process.  So, any mistake may cause the entire system fail which will make balanced scorecard be useless pile of documents, datasheets, maps and graphs.

It is very important to run business in an efficient way in a highly competitive business environment.  In the post crisis economy, customers are unwilling to buy.  It is becoming increasingly difficult to attract new customers and satisfied high demands of the existing ones.  That’s why business performance needs to be constantly measured and evaluated.  Performance evaluation looks like an easy process at a first glance.  One should only select a number of indicators that represent performance of the company and communicate them with the strategic goals.  But in fact, the entire process is much complex as it seems.

4 perspectives of Balanced Scorecard system

Before introduction of Balanced Scorecard System performance management evaluated only financial indicators.  Company strategy and operational indicators were often ignored.  But how a company can achieve financial success?  Of course, through improvements in performance.  Thus, operational indicators are equally important for any business.

Balanced scorecard evaluates KPIs (key performance indicators) that can be split into four perspectives: financial, customer, internal processes, learning and growth.  Each perspective represents certain aspects in the work of the company.  In fact all these four perspectives cover all possible processes things happening to the company.

Moreover, these perspectives up interrelated.  For example, improvement in customer satisfaction is possible through learning and coaching of the company personnel.  Another example is gaining financial success through improvement of internal process is in the company (like saving, use of more efficient methods and techniques).  Of course, there are many more examples of how these perspectives are interrelated.

Key requirement for successful implementation of BSC

It should be noted that key performance indicators differ from business to business.  They also directly depend on the company strategy.  It is imperative for a company to have a comprehensive strategy otherwise balanced scorecard will appear useless.

It’s also very important to have a well educated and professional staff to work with balanced scorecard.  One of the main reasons why BSC implementation fails is lack of professional personnel.  Sometimes managers do not the dissipating strategic planning and thus are unaware of the company strategic goals.  In such a way implementation of balanced scorecard turns into a waste of money and time.

Before making the final decision on BSC implementation the company owners and top management need to agree on strategic goals.  Balanced scorecard communicates strategic goals with operational management.  This means that every employee in the company should be aware of his or her role in contribution to reaching of strategic goals.  In other words, the company personnel needs to understand why they need balanced scorecard.

Optimization of business Processes and linking operational management and strategic goals is one of the key tasks of Balanced Scorecard System.  This system has become extremely popular among companies working in various business spheres.  BSC is known as an effective tool.  However, it is very important that the system is properly implemented.  Indeed, there are many examples of companies failing to make an effective use of balanced scorecard just because company management or personnel does not understand company mission, the way balanced scorecard works or is just reluctant to properly implement BSC.

There are two main questions the company management should answer before using BSC.  The first one is “whether or not the company needs balanced scorecard”, and the second is “weather on not the company is ready to use BSC”.  Both questions are very important since if the company doesn’t need balanced scorecard and still uses it without proper knowledge, this may hurt company well being.  As known, balanced scorecard requires investments and human resources.

So, how can one determine if the company needs implementation of balanced scorecard?  There are four main points:

• The company management is not involved in strategic planning
• The company personnel does not understand strategic goals and mission of the company
• Companies belonging to holdings have poor communication and feedback system
• There is no operational control in the company

Thus, if the company still needs balanced scorecard its personnel and especially top management should be ready to use it.  How can one find out if he or she is ready to use balanced scorecard?  This is where experts from AKS-LABS can help.  Developers of BSC designer of our regularly releasing free and bait products aimed at educating users on balanced scorecard.

From now on, anyone can download free questionnaire on balanced scorecard.  With the help of this questionnaire it is possible to find out if the company top management or individual employees are ready to use balanced scorecard.  In other words, this is knowledge evaluation tool.

Benefits of BSC questionnaire

Questionnaire covers most important issues on balanced scorecard, starting from general knowledge on BSC and ending with strategic issues like strategy maps and strategic goals.  Having concert the questions, it is possible to evaluate knowledge on balanced scorecard and thus readiness to use this system in real business.

The questionnaire will certainly help both top management and ordinary employees to evaluate balanced scorecard knowledge.

Check your BSC knowledge

Download questionnaire here

Read more on BSC questionnaire here

The popularity of balanced scorecard is increasing with every coming day.  Indeed there is no other tool that can combine in so many perspectives in development of a company.  Balanced scorecard aims at designing a strategy maps and evaluation of KPIs in order to reach the company strategic goals.

The system seems simple at a first glance.  But this is the most common misconception.  Balanced scorecard is a complex system that requires systemic approach, clear management structure, comprehensive compensation and bomber system for employees and commitment from the entire personnel.  It is also very important to get a proper education and general knowledge on balanced scorecard.  The statistics shows that only 1/3 of managers are satisfied with the work of balanced scorecard when the system is implemented without professional assistance.

Developers of BSC designer know this perfectly well.  That’s why they offer a user’s continuous support.  AKS-LABS releases training courses and freed study materials from time to time.  This time, users can download free templates on balanced scorecard.

Download free templates on Balanced Scorecard

What will you find inside templates?  Having unpacked archive you will see several power find and pdf files with templates on balanced scorecard and KPIs.  First of all you will have at template for the company four perspectives.  The only thing you should do is to fill in the scheme with strategic goals of your company.

You’ll find the tables with objectives, measures, targets and initiatives for every of the four perspectives: financial, customer, internal processes, learning and growth.  Besides, there are cracks and tables for a set of KPIs for each perspective.

Free templates will make it possible to visualize company strategy goals and specify measures to be evaluated.  You’ll also find screen-shots from BSC designer and excel reports.

Templates are available for download from this page.

Enjoy free BSC templates from AKS-LABS

Implementation and maintain ends of balanced scorecard system is not as easy process as it might seem at a first glance.  If one fails to properly implement balanced scorecard, find relevant metrics and adequate response actions Balanced Scorecard System will turn out helpless, and thus it will be a waste of time and what is more important money.  Some users and businessmen view balanced scorecard as a magic tool that turns a mediocre company into a prosperous international business.  In fact, balanced scorecard is the tool that helps communicate company strategic goals and strategic vision with methods of implementing such a strategy.

Even creators of balanced scorecard note that only about 27% of managers and business owners are satisfied with implementation results of balanced scorecard without professional assistant and special training.  This is to say that balanced scorecard requires professional approach and commitment.

Learn more about BSC system

To assist business owners and top managers, developers of BSC Designer from AKS-LABS have released an audio course which covers the most controversial and difficult issues about implementation and maintenance of balanced scorecard.  The audio course is presented as a number of mp3 files grouped according to the stages of balanced scorecard implementation.

So, what will you learn from this course?  As set above, these files address issues and problems related to certain stages of balanced scorecard implementation.  Thus, you will learn general information on balanced scorecard, the design process, selection of KPIs, implementation of balanced scorecard, finding relevant response measures and establishment of a well organized management system.

You will learn how to choose the right key performance indicators for particular business.  It is also important to use the right number of KPIs.  How many KPIs is enough?  You can learn that from the course.

This training program also covers the issues of strategic maps and cascading balanced scorecard.  If you are to use balanced scorecard in a big company you’ll certainly come across the issues of cascading balanced scorecard and designing of strategy maps.

Of course, every user of the Balanced Scorecard System was to know how effectively this system was implemented in the organization.  It should be noted that such evaluation is also evaluation of the system itself as well as professional level of managers who participated in this process.

The training course is very easy to follow at the speaker uses very clear language, at the same time trying to explain complex things in simple terms.

Stages of BSC implementation