Implementing the balanced scorecard. (Checklist 154).

* Traditionally, managers have used a series of indicators to measure how well their organisations are performing. These measures relate essentially to financial issues such as business ratios, productivity, unit costs, growth and profitability. While useful in themselves, they provide only a narrowly focused snapshot of how an organisation performed in the past and give little indication of likely future performance.

During the early 1980s, the rapidly changing business environment prompted managers to take a broader view of performance, and a range of other factors started to be taken into account, exemplified by the McKinsey 7-S model and popularised by In Search of Excellence by Peters and Waterman. These provide a broader assessment of corporate health in both the immediate and longer term. This checklist focuses on the Balanced Scorecard, which was developed by Robert Kaplan and David Norton in the early 1990s with the aim of providing a balanced view of an organisation's performance.

Management Standards

This checklist has relevance to the MSC National Occupational Standards for Management: Key Role A--Manage Activities.

Definition

The Balanced Scorecard is defined as a strategic management and measurement system that links strategic objectives to comprehensive indicators. The key to the success of the system is that it must be a unified, integrated set of indicators that measure key activities and processes at the core of an organisation's operating environment.

It takes into account not only the traditional `hard' financial measures but three additional categories of `soft' quantifiable operational measures. These include:

* customer perspective--how an organisation is perceived by its customers

* internal perspective--in which issues an organisation must excel

* innovation and learning perspective--in which areas an organisation must improve and add value to its products or services or operations.

Measurements taken across these four categories are seen to provide a rounded Balanced Scorecard that reflects organisation performance more accurately and which helps managers to focus on their mission, rather than merely on short-term financial gain. It also helps to motivate staff to achieve the strategic objectives.

Action checklist

Kaplan and Norton have identified a number of stages for the implementation of the Scorecard. These are a mix of planning, interviews, workshops and reviews. The type, size and structure of an organisation will determine the detail of the implementation process and the number of stages adopted.

The main steps include:

1. Preparation

As the Scorecard is inextricably linked to strategy, the first requirement is to clearly define that strategy and ensure that senior staff in particular are familiar with the key issues. Before any other action can be planned, it is essential to have understanding of:

* the strategy

* the key objectives or goals to achieve that strategy

* the three or four critical success factors (CSFs) that are fundamental to the achievement of each major objective or goal.

2. Decide what to measure

Managers should identify the organisation's major strategic goals. As a guide, there should be a total limit of 15 to 20 key measures linked to those specific goals--significantly fewer measures may not achieve a balanced view and significantly more may become unwieldy and deal with non-critical issues.

Based on the four main perspectives suggested by Kaplan and Norton, a list of goals and measures may include some of the following:

Financial (shareholder) perspective

* Goals--increased profitability, growth, increased returns on assets

* Measures--cash flows, cost reduction, economic value added, gross margins, profitability, return on capital/equity/investments/sales, revenue growth, working capital, turnover Customer perspective

* Goals--new customer acquisition, retention, satisfaction

* Measures--market share, customer service, customer satisfaction, number of new/retained/lost customers, customer profitability, number of complaints, delivery times, quality performance, response time

Internal perspective

* Goals--improved core competencies, improved critical technologies, streamlined processes, better employee morale

* Measures--efficiency improvements, development/lead/cycle times, reduced unit costs, reduced waste, amount of recycled waste, improved sourcing/supplier delivery, employee morale and satisfaction, internal audit standards, number of employee suggestions, sales per employee

Innovation and learning perspective

* Goals--new product development, continuous improvement, training of employees

* Measures--number of new products and percentage of sales from these, number of employees receiving training, training hours per employee, number of strategic skills learned, alignment of personal goals with the scorecard.

Each organisation must determine its own strategic goals and activities to be measured. Several organisations have seen Kaplan and Norton's template as not meeting their particular needs and have either modified it or have devised their own Scorecard. Public sector organisations, for example, may have different aims and objectives and may have to tailor the Scorecard to reflect this.

3. Finalise the implementation plan

Further discussions, interviews and workshops may be required to fine-tune the detail, and agree strategy, goals and activities to be measured, ensuring that the measures selected focus on the critical success factors. Other important issues that must be resolved before implementation include setting targets or rates or other criteria for each of the measures, and defining how, when and where they should be recorded.

4. Implement the system

An implementation plan should be produced and the whole project communicated to staff. This should not come as a surprise to anyone, as staff should be informed at the beginning of the project and kept up to date on progress. The way in which the purpose of the Scorecard is communicated is vital. Staff should be made to feel that they have an important part to play in achieving corporate goals. Conversely they should not feel threatened by the measures.

The system for recording and monitoring the metrics should be in place and tested well before the start date, and training in its use should be given to all users as far as possible. The system should automatically record all the data required, though some of the measurements may have to be logged manually.

5. Publicise the results

The results of all measurements should be collated on a regular basis--daily, weekly, monthly, quarterly or as appropriate--and may eventually comprise a substantial amount of possibly complicated data. It will be necessary to decide whether to make the full data available to senior management only, to divisional or departmental heads, or to all staff, or whether to provide partial information on a need-to-know basis. Determine the method of publicising the results--through meetings, newsletters, the organisation's intranet or other means.

6. Utilise the results

Any form of business appraisal is not an end in itself, but is a guide to organisation performance and may point to areas (management, operational, procedural, processural) that require strengthening. Action on the information obtained is as important as the data itself. Indeed, management follow-up action should be seen as an essential part of the process of appraisal.

7. Review and revise the system

After the first cycle has been completed, a review should be undertaken to assess the success or otherwise of the information gathered and action taken, and whether modification is required to any part of the process.

Dos and don'ts for implementing the Balanced Scorecard

Do

* Define your goals clearly.

* Select measures that focus on the critical success factors of each goal.

* Select a manageable number of measures.

* Reassure staff on the purpose of the Scorecard.

Don't

* Over-measure your organisation.

* Allow the measurement process to interfere with employees' ability to get on with the job.

* Adopt an off-the-shelf system not suited to your organisation.

Useful reading

Books The balanced scorecard: translating strategy into action, Robert S Kaplan and David P Norton Boston Mass.: Harvard Business School Press, 1996 Performance management textbook, Jeff Coates ed London: CIMA Publishing, 1997

Journal articles Implementing corporate strategy from tableaux de bord to balanced scorecards, Marc Epstein and Jean-Francois Manzoni European Management Journal, vol 16 no 2, 1998, pp190-203 The new balancing act, Anita van de Vliet Management Today, July 1997, pp78, 80 Linking the balanced scorecard to strategy, Alan Butler, Steve R Letza and Bill Neale Long Range Planning, vol 30 no 2, April 1997, pp242-253

Thought starters

* Do you know what measurements are currently taken in your organisation?

* Do the measurements in place give a holistic view of performance?

* Does the organisation try to measure the `softer' aspects of performance such as learning, innovation and creativity?

* What might be the consequences of not getting a balanced view of your organisation's performance?

Further information

Checklists are available in the following formats:

* Individual checklists.

* A complete set of 195 on CD-ROM or in hard copy.

* Checklists with permission to photocopy.