Examples of Companies using
the Balanced Scorecard
Introduction
Historically, traditional
financial reporting systems provided information about past
performance and were incapable of offering information about
future performance [11]. In recent years academic scholars
have given increasing attention to the importance of
strategic measurement systems including both non-financial
and financial measures. Increased attention stems from the
realization that traditional measurement systems and markers
of success (financial reports, annual reports, etc.) were
not providing a complete and accurate picture of a
businesses level of success and interaction amongst the
management process itself. The balanced scorecard answered
the call for a multi-source business performance management
system by including both financial and non-financial markers
in it framework. The theory behind utilizing more than one
source of measurement is that you have the opportunity to
paint a more realistic picture of the present and are better
enabled to achieve desired future results.
Successful businesses monitor
their operations, human capital and finances; but also
continuously survey the industry state of affairs and
monitor competitors. The balanced scorecard provides a
framework to manage that process. “The balanced scorecard
lets executives see whether they have improved in one area
at the expense of another [4].” Essentially the balanced
scorecard is a framework of the four most important aspects
of an organization (financial, customer, learning & growth
and internal business process) that enable predictions to be
made about performance on a number of levels.
History
Since the concept of the
balanced scorecard was introduced in the early 1990’s,
balanced scorecards have become a fertile field of theory,
research and consulting practice. The rapid growth of
consulting offerings linked to Balanced Scorecards solely at
the branding level alone is indicative of the success of the
tool as a function of buzzword recognition and successful
marketing strategies [9]. “While the underlying principles
were sound, many aspects of Kaplan & Norton's original
approach were unworkable in practice [9].” However, the
balanced scorecard has evolved from its birth as a measure
selection framework to a check and balance strategic
management measurement tool. After a number of iterations
second and third generation BSC’s address some of the early
identified short-comings.
What is the balanced
scorecard (BSC)
“The balanced scorecard is a
strategic planning and management system that is used
extensively in business and industry, government, and
nonprofit organizations worldwide to align business
activities to the vision and strategy of the organization,
improve internal and external communications, and monitor
organization performance against strategic goals [10].”
Plainly stated, the BSC is a multi-source business
performance management system based upon the most important
organizational measures [2] [3]. These major components
(measurement categories) are termed ‘key performance
indicators’ (KPI’s)
and include: Financial, Customer, Internal Business
Processes, and Learning & Growth measures.
Financial
– includes measures such as operating income, return on
capital employed, and economic value added [11].
Customer
– includes measures such as customer satisfaction, customer
retention, and market share target segments [11].
Internal
Business Process – includes measures such as cost
throughout, and quality. These are for business processes
such as procurement, production, and order fulfillment [11].
Learning
& Growth – includes measures such as employee satisfaction,
employee retention, skill sets, etc. [11].
Each measurement category
provides either a concurrent, lagging, or predictive
indication of success [5]. Concurrent measures provide a
real-time indication of the organizations success; whilst
lagging and predictive measures respectively speak to the
historical and future success.
BSC Journey
The balanced scorecard
suggests that an organization be viewed with respect to each
key performance indicator (KPI) [10]. Furthermore, that
within each measurement category five key factors be
selected in order to
develop metrics, collect data and allow for analysis
relative to each KPI [10]. “A decision to undertake
development of a Balanced Scorecard is a decision to
undertake a journey, not work on a project [7]”. The journey
involves two phases: building and implementation.
Essentially, the balanced scorecard answers four basic
questions [4]:
How do customers see us? (customer perspective)
Can we continue to improve our corporate value? (learning
and growth perspective)
What must we excel at? (internal business perspective)
How do our shareholders view us? (financial perspective)
The balanced scorecard has
three basic assumptions: (1) a cause-and-effect relationship
exist amongst measurement categories, (2) a strategic plan
and/or business strategy exist and is in place, and (3) the
most important drivers (measures of success) have been
correctly identified. Essentially by answering the four
basic questions a company creates the benchmarks to which
their strategic goals are set. Once the goals have been
defined, and KPI metrics are articulated a strategic process
map is drawn (see figure below [4]).
BSC Variations
BSC variations seen are
typically born from slight modifications in order to apply
the performance management system in a setting that it was
not originally designed for (i.e. public, or government
sector). The BSC can be successfully developed and
implemented outside the private sector following a few minor
modifications of the KPI’s included as indicated by figures
below [8]. Although adoption of the BSC was slower in the
nonprofits, government, and health care provider entities
the use within these sectors has grown substantially over
the years [12].
More recent iterations to the
original BSC have yielded 2nd and 3rd
generation BSC’s. The second generation BSC modified the
original model to include a graphical representation of the
strategic linkages and objective across the KPI’s [8]. Third
generation BSC’s made a further refinement to include
‘Destination Statements’ at the end of the design process.
Destination statements are defined to check the objectives,
measures, and selected targets [8]. Culture has also been
suggested and successfully incorporated as a fifth KPI [7,
14]. The adaptability of the BSC across sectors and
industries gives it greater utility [12].
BSC applied
Traditionally, health care
providers tend to view their organizations as being
mission-centered and driven. Based upon that perspective
health care providers have often mistaken their commitment
to vision as an application of the BSC; falling short on
aligning their goals and strategies back to their mission
[12]. Additionally, hospitals also shied away from financial
measures in order to refrain from placing a numeric value on
life [12]. In 2001, Crandon hospital began utilizing the BSC
in order to provide better financial reporting and more
comprehensive information to its shareholders and board of
directors. The hospital adapted the four BSC perspectives
for their organizational purposes to include: customer
satisfaction, clinical quality, operations, and financial.
Following the implementation of the BSC the hospital Vice
President stated ‘while dashboards simply reported collected
information in a summary format, the BSC actually indicated
how the hospital was doing’ as a business [12]. Major
challenges faced during the building and implementation
process reported were: selecting indicators, timely data
collection, and stakeholder continued education. The major
benefits resulting from the implementation of the BSC were:
being able to identify and respond negative trends in a
timely fashion, a decrease in the rate of patient falls and
board appreciation of how the BSC framework perspectives
clearly highlight the correlations between customer, clinic
and operation. The organization was able to successfully
apply the BSC framework to their business by adapting the
perspectives and gaining buy-in from the leaders of the
company and staff inclusion. Most importantly, Crandon tied
all actions, objectives, and goals to the strategy, mission
and vision of the company.
BIOCO, a mid-sized
biopharmaceutical company successfully implemented the BSC
at the corporate level and adapted it all the down to the
individual employee level. This success was possible because
they secured commitment from the top management, invested in
training, defined strategy maps and articulated how progress
would be tracked [13]. Implementation and development
started at the corporate level and successfully cascaded to
the departmental and individual employee levels. Eventually,
BIOCO also added culture as a fifth perspective in order to
allow for continued positive relations and communications
with the IT department as a function of embracing the
cultural differences that existed between the IT department
and the rest of the organization.
Company P undertook the BSC
journey in order to enable quick responses to bad company
decisions and to emerge from the one hundred million NTD
debt they held from June of 1989 to 2004. The BSC’s ability
to integrate strategy, organizational framework, mission and
vision into strategic management systems that included
customer value as an operational value led to their success.
While Company P had an excellent technical team and over 30
years of experience they needed a way to reduce costs,
continue to provide quality products, and initiate client
profit-sharing. Company P took six steps to define and
implement their BSC: define a vision, company and
competitor analysis, addition of a technical perspective,
objective setting, action plans, plan execution, and
performance evaluation; and in 2005 following BSC
implementation Company P achieved earnings in the tens of
millions [14].
Conclusions
The balanced scorecard (BSC)
was first developed in the 1990’s in order to allow
businesses to utilize both non-financial and financial
measures in order to align business strategies and goals
with the strategic plan. The goal of the balanced scorecard
is to integrate the main organizational measures of success
into a plan or framework if you will; a plan that is in
alignment with the organizational mission, goals, strategic
plan, and allows for modification in response to
unanticipated change. Historically the balanced scorecard
consisted of three components and was originally designed
for private sector business application. To date the core
aspects of the balanced scorecard are referred to by a
number of things (perspectives, key performance indicators,
drivers, measures, indices, etc.); and the original model
has undergone several variations. It is important to
continue to think critically about the KPI’s utilized.
Incorrect KPI identification may result in costly and
ineffective goals and strategies that prevent or deter
organizational success [1]. The balanced scorecard is now
successfully utilized in the public, private, and
not-for-profit sectors after only few minor industry
specific modifications to the overall framework are made.
References
[1] Chaudron, D. (2003). No
more darn buzzwords: Keys to successful organizational
change. Chapter 10: Performance measurement and the balanced
scorecard. Pp.95-98.
