Balanced Scorecard – SKCI Business Strategy Tool
The Balanced Scorecard was developed by Robert Kaplan and David Norton as they recognised that traditional financial measurements of a company were outdated and misleading. These were suitable in the industrial era but with the increase in skill sets of modern businesses, other key factors needed to be measured, to gain a better overall understanding of what is happening. The score card is a strategy management framework that combines the financial, customer, internal process and innovation, allowing managers to gain a better understanding of many interrelationships.
When To Use The Balanced Scorecard
The leadership team is responsible to multiple stakeholders who view the company from different perspectives. The Scorecard can be implemented at any time and answers the two most important questions:
1) How did the company perform last month, quarter, year?
2) How is the company going to perform next month, quarter, year?
As the data captured is both historic and projected the scorecard is one of the best strategic tools to see the KPIs that really matter and how they are interlinked.
How To Use The Balanced Scorecard
The Balanced Scorecard is used in conjunction with the company strategy, and it’s important for the leadership team to engage with senior managers to identify the KPIs that are meaningful. Historically the KPIs were focused towards financial goals which were controlled by CFO and possibly be disconnected from the hard working teams in the company.
To identify the key goals, it is important to look at the company from the perspectives of the shareholder, customer, employees, and the competition. Select only 3-4 goals per perspective, with no more than 15 in total. Data overload can be crippling so ensure that the goals are critical to the organisation.
Let’s look at the example of NewTechNow, an imaginary B2B software and hardware company that we have seen in previous examples.
Now that the KPIs have been selected and measured against the targets, there is plenty of work to do and very few will have any interaction with the CFO. Project teams can be allocated to develop these changes. See Kotter’s Eight Stage Change Process for change management. Come back to this scorecard on a routine basis to measure the success of change.
How Does This Fit Into The 5KQ Strategy Framework?
SKCI’s unique 5 Key Question (5KQ) strategy framework gives our clients an effective way of managing strategy development. The Balanced Scorecard answers question four, ‘How are we going to change?’ and question five, ‘How will we manage progress?’. Monitoring, recording and understanding where your organisation currently stands, and where it is going, is vital to ensure the success of your strategy.
Our framework allows you to ask the right questions at the right time and provides a clear structure for the development and maintenance of your strategy. By using the Balanced Framework you will have a clear overview of your projection against your strategy.
Additional Strategy resources, including blank worksheets in PowerPoint and Word format, are available from the SKCI website.