Evaluate the right indicators having the greatest impact on total persormance

Business owners and top managers started feeling the necessity to evaluate business performance and develop strategic goals when it became understood that greater production output and high quality products do not guarantee survival in the markets.  Customers became very picky as they almost always have multiple choices.  This resulted in a very tough competition.  That’s why it became necessary to plan everything ahead.  Strategic vision of the company and its strategic goals attempt to foresee possible problems and obstacles the company may face in future.  If the problem is solved even before it has appeared then this problem represents no jeopardy for the company.

The four BSC perspectives

The four BSC perspectives

But it is not reasonable to evaluate performance of a company apart from its strategic goals.  In other words the company may do certain things that have nothing to do with its strategic vision.  So, why evaluate such performance?  There is no sense in it.  But with appearance of Balanced Scorecard System this problem has been solved.  BSC is not only an extremely effective tool to evaluate current, past and future performance of the company, but also an excellent way to communicate strategic and operational management.

It has been estimated that about 80% of managers do not directly participate in strategic planning.  Moreover, some of them do not understand the concept of the strategy on may have own interpretation of strategic vision which may not coincide with a genuine strategy of the company.  This is where Balanced Scorecard helps.  It visualizes the strategy and makes it clear even to the lowest level of company management.

What the choice of wrong goals results in

What the choice of wrong goals results in

Balanced Scorecard consists of four categories of indicators called perspectives: financial, customer, internal processes, of learning and growth.  These perspectives consist of indicators that represent most important key success factors for the company.  Moreover, every indicator has a direct impact on the company total performance evaluation.  Thus, by looking at the scorecard a top manager can see what prevents the company from implementation of strategic goals.  Balanced Scorecard is a great tool to find weak points.

However, very often companies failed to implement Balanced Scorecard, and one of the most common reasons for that is lack of comprehensive strategy.  It’s impossible to drive to the right destination if the wrong goals were set.  Also, it is unacceptable to confuse Balanced Scorecard and the strategy, since BSC does not substitute the strategy.  That means that strategy development must be still performed by people.