Thursday, October 14, 2004

Balanced Scorecard (BSC): An overview

Business Times p.B1
Thursday, October 14, 2004

By Moje Ramos-Aquino
Balanced Scorecard (BSC): An overview

Peter Senge observes that many leaders have personal visions that never get translated into shared visions that galvanize an organization. He asserts that what has been lacking is the discipline for translating individual vision into shared vision.

Now there is the BSC used by many successful organizations (private and government) around the world as a tool that translates an organization's VMVG and strategy into a comprehensive set of performance measures that provides the framework for a strategic measurement and management system.

The BSC can be used to deal with many of the barriers to effective cascade of shared visions and successful implementation of strategy such as:

* Vision, Mission, Values and Strategic Goals (VMVG), which are not known, actionable and understood
* Strategy is not linked to departmental, team and individual objectives
* Strategy is not linked to resource allocation
* Feedback is tactical, not strategic

The Balanced Scorecard Collaborative, a global network to support organizations implementing BSC, reports that the origins of BSC can be traced back to 1990, when the Nolan Norton Institute sponsored a one-year multicompany study: "Measuring Performance in the Organization of the Future."

The study team was led by Nolan Norton as project leader and Robert Kaplan as academic consultant. Dr. David Norton was CEO of the Nolan Norton Institute, a consulting firm he confounded, which became the research arm of the KPMG, and he now serves as the president with the Balanced Scorecard Collaborative. Robert S. Kaplan is the Marvin Bower Professor of Leadership Development at Harvard Business School.

Messrs. Norton and Kaplan believed that reliance on summary financial-performance measures was hindering organizations' abilities to create future economics values. Therefore, study participants shifted to focus on the multidimensional scorecard and expanded to "Balanced Scorecard" concepts in 1992.

So what is a Balanced Scorecard?
The author Nils Goran Olve defines BSC as a format for describing the activities of an organization through a number of measures for each of these (usually) four perspectives. The description may refer to the business's current performance, or to its goals for the next period.

A BSC measures the performance of organizations from the following perspectives:
* Financial: How do we look to shareholders?
* Customers: How do customers see us?
* Internal process: What must we excel at?
* Innovation and Learning: Can we continue to improve and create value?
Why use BSC when you already went through your annual goal setting and budget setting exercises. You also have regular feedback mechanism to discuss the bottom line and total quality initiatives, e.g. ISO, ESH, others. Three major reasons to migrate your strategy into the BSC framework:

* The traditional financial performance measures (i.e. ROI, EPS) can give misleading signals for continuous improvement and innovation.

* Financial Measures alone are not enough because they may not capture all of a company's strategic objectives, bottom-line measures are after the fact and they are not very diagnostic.

* Balanced Scorecard aligns organizations to new strategies: away from the historic, short-term focus on cost reduction and low-price competition, and toward generating growth opportunities by offering customized, value-added products and services to customers.

The name "Balanced Scorecard" reflects the Balance between:
* short-term and long-term objectives
* financial and non-financial measures
* lagging and leading indicators
* external and internal performance perspectives.

For this segment of our continuing Journey on Entrepreneurship, we shall heavily lean on these books from John Wiley & Sons, Inc. for the case studies and experience of the authors:

Balanced Scorecard Step-by-Step: Maximizing Performance and Maintaining Results by Paul R. Niven
Making Scorecards Actionable: Balancing Strategy and Control by Nils-Goran Olve, Carl-Johan Petri, Jan Roy and Sofie Roy.

We shall also use notes from materials I bought at the ASTD 2004 International Conference.

If you are already using BSC or about to use BSC, let's exchange notes, ideas, feelings and insights from our experience. I shall endeavor to answer your questions.

(Moje, president of Paradigms & Paradoxes Corp., facilitates and consults on Strategic Thinking, Planning and Balanced Scorecard. Her e-mail address is

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