THE MANILA TIMES
Business Times p.B1
Thursday, October 07, 2004
LEARNING & INNOVATION
By Moje Ramos-Aquino, FPM
Balanced Scorecard: Common language for business
Mimes communicate using their body, gestures and facial expressions. Accountants communicate with financial statements. Scientists communicate with formulas, models and prototypes. Business communicates in various forms, styles, buzzwords, jargons and acronyms that differ industry to industry, company to company that makes everything very confusing.
Harvard professors Robert S. Kaplan and David P. Norton have jointly devised an easily understandable language for business that could be readily used to communicate top down, laterally and bottom up. In this interesting leg of our Journey on Entrepreneurship, we shall learn about the Balanced Scorecard (BSC). It is a communication, management and performance measurement system in one simple framework.
First let us define a few terms to help us build and implement a BSC:
Cause effect relationship: The natural flow of business performance from a lower level to an upper level within or between perspectives. For example, training employees on customer relations leads to better customer service which in turn leads to improved financial results. One side is the leader or driver, producing an end result or effect on the other side.
Goal: An overall achievement that is considered critical to the future success of the organization. Goals express where the organization wants to be.
Measurement: A way of monitoring and tracking the progress of strategic objectives. Measurements can be leading indicators of performance (leads to an end result) or lagging indicators (the end results).
Objective: What specifically must be done to execute the strategy; i.e. what is critical to the future success of our strategy? What the organization must do to reach its goals!
Perspectives: Four or five different views of what drives the organization. Perspectives provide a framework for measurement. The four most common perspectives are: financial (final outcomes), customer, internal processes, and learning and growth.
Programs: Major initiatives or projects that must be undertaken in order to meet one or more strategic objectives.
Strategic area: A major strategic thrust for the organization, such as maximizing shareholder value or improving the efficiency of operations. Strategic areas define the scope for building the balanced scorecard system.
Strategic grid: A logical framework for organizing a collection of strategic objectives over four or more perspectives. Everything is linked to capture a cause and effect relationship. Strategic grids are the foundation for building the Balanced Scorecard.
Strategic model: The combination of all strategic objectives over a strategic grid, well connected and complete, providing one single model or structure for managing the strategic area.
Strategy: An expression of what the organization must do to get from one reference point to another reference point. Strategy is often expressed in terms of a mission statement, vision, goals and objectives. Strategy is usually developed at the top levels of the organization, but executed by lower levels within the organization.
Target: An expected level of performance or improvement required in the future.
Templates: Visual tools for assisting people with building a balanced scorecard, typically used for capturing and comparing data within the four components of the Balanced Scorecard: strategic grids, measurements, targets and programs.
Vision: An overall statement of how the organization wants to be perceived over the long term (3 years to 5 years).
Our references are mainly:
Making Scorecards Actionable: balancing strategy and control (John Wiley and Sons) Nils-Goran Olve,Carl-Johan Petri, Jan Roy and Sofie Roy
Balanced Scorecard Step-by-Step: maximizing performance and maintaining results (G.P. Putnam’s Sons) By Paul R. Niven
If you have extra budget, you may also want to get the books of Mssrs. Kaplan and Norton (Harvard Business School Press): The Strategy-Focused Organizations: How Balanced Scorecard companies thrive int he new business environment The Balanced Scorecard: Translating strategy into action and Strategy Maps: Converting intangible assets into tangible outcomes.
(Moje, president of Paradigms & Paradoxes Corp., facilitates Strategic Thinking, Planning and Balanced Scorecard initiatives. Her e-mail address is firstname.lastname@example.org)