Metrics, Scorecard, KPIs

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.

We all know how important the concept of the balanced scorecard is, especially if you are aiming for the success of your business or enterprise. And what businessman would not want for his or her business to be successful in every endeavor? Thus, there is certainly a need to know how to incorporate and implement proper balanced scorecard development.

But before we go into that, let us look at the primary reason behind the development of the balanced scorecard, which is also referred to the BSC at times. Just why is there a need to develop the BSC? When you were just starting out, you probably had a number of goals and objectives that you wanted your business to achieve. These goals and objectives – both short-term and long-term – become inevitably easy to forget when you are concentrating on the present status of your business. When this happens, you no longer have a clear gauge of where your business is presently at, especially when pitted against corporate goals and objectives – the very ones you once implemented during the formative years of your business. This is where the importance of the BSC enters the picture. The BSC is that tool that serves as a constant reminder of your business’s present state and progress. This way, you have quantifiable aspects to look at when determining just where you are at in terms of achieving long-term and short-term goals and objectives.

With that said, let us now move on to the development of the BSC itself. There are actually four perspectives to consider when you are developing your BSC. These perspectives are Customers, Financial, Internal Processes, and Learning and Growth. These four serve as “buckets”, wherein objectives of the same nature would fall into that particular bucket. For instance, the goal of customer satisfaction would inevitably fall into the bucket of Customers. Conducting a SWOT Analysis could greatly help in the process of filling these buckets.

The next thing to do is to identify the quantifiable measures to use in determining the present state of the company. These quantifiable measures are known as KPIs or Key Performance Indicators. Using KPIs makes the process of measuring the present state of the company easier, since you will have a quantifiable means of doing so already.

For instance, you want to measure the performance of your company when it comes to Customer Retention – this being one of your goals. The following KPIs can be checked to measure customer retention: Customer Satisfaction, Number of Customer Complaints, and Product Return Rate. When you have these figures at hand, you will find it much easier to determine how far along your business is towards achieving customer retention.

Pretty easy, right? Yes, but the process of balanced scorecard development does not end there at all. After determining the present state, you should then identify initiatives to use when you move to address the areas in which the company is underperforming. This way, you can formulate the right courses of action to deal with the underperformance accordingly.

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It is a normal venture for a company to have experts who will be in charge of the balanced scorecard development for the benefit of the organization. At first, this may seem a very taxing undertaking or task because there is a lot to do in developing a set of standards and targets. One big mistake that management may commit is to copy someone else’s scorecard. This is wrong because even if two companies are of the same industry, they do not really have the same types of targets or metrics. Each attribute that is measured is correspondent to a result. Managers should know the basic framework of developing metric-based scorecards if they want to successfully manage operations and the financial benefits of the organization.

The reason companies need a balanced scorecard is to effectively manage a process. Ideally, one should not focus too much on managing people. Instead, they should manage the process. Micro-management is really something that a lot of corporate executives frown upon. Not just because it is old but because it is also ineffective. Without a balanced scorecard, one manager cannot effectively gauge the effectiveness of someone else’s performance. Without this strategy, one is prone to judging performance based on perspective or observation. This is not fair, especially for the employees who may be deemed unproductive even if they are. Measurement should always be based and supported by numbers.

A balanced scorecard is s tool that is now very common in many industries. This is a metric-based approach in managing performance down to the employee level. This is a great tool to set proper expectations to the employees. This aligns the personal goals of the employees with the organizational goals of the company. To develop a scorecard, one should first understand what the company needs to attain its goals. In many businesses, attendance is of importance, especially if they deliver real time service like fast food chains. This means that attendance is included in the performance measurement of the employee. This is also a good way of validating data and using these data to come up with action plans that will definitely help the company or organization achieve its goals.

Next, the manager should also be able to identify the key areas of financial needs of the organization. In certain companies, logging a product as waste or substandard is going to result to financial loss. This should also be a part of what is being measured so that employees would not deliberately waste raw materials. The problem with many organizations is that they do not address employee behavior right away until such time that they come to the realization that they are not being productive anymore and instead, they are causing more harm and damage than good to the company.

All in all, balanced scorecard development should be handled by individuals who know the needs of the organization and people who can drive performance across the floor. This is because developing a scorecard is one banana, and yet implementing it as a solution to problems is also altogether a different banana.
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