Balanced Scorecard

Wed, Dec 10, 2008


Businesses typically fail not because of poor strategy, but because of poor execution. According to Fortune Magazine, “Less than 10% of strategies effectively formulated are effectively executed.” To assure execution, companies need to manage performance.

The goals of performance management are to:

* define strategy and the methods for achieving that strategy
* provide an objective method for assessing success
* communicate strategy and progress to staff, partners, and board members

A performance management system assures that once a company decides on a strategy, that strategy can be executed and its performance tracked.

While there are many types of performance management systems, we advocate a system loosely adapted from The Balanced Scorecard (BSC). The BSC has an excellent track record in companies large and small and the process has been well documented in books and articles.

The BSC enables an organization to translate their strategy into specific actions that the organization will take to achieve their objectives. Metrics are then attached to the actions so that management can continually monitor progress and make changes as needed. This type of objective information is as vital to running a company as a dashboard is to a pilot. Used properly the BSC will help managers:

* align individual actions to the strategy
* develop critical metrics that objectively evaluate performance
* communicate strategy and progress

The basic steps to complete a BSC are to:

* Articulate strategy
* Develop actions plans that will realize the strategy
* Identify the metrics that are most relevant to monitoring success
* Communicate the BSC

Once management approves the BSC, it should then be the focal point of executive meetings. This keeps meetings objective and focused entirely on results. It helps managers avoid ambiguous conversations as the group has far more facts at their disposal. It aligns the interests of managers to the company’s goals.

It typically takes about three months to develop a scorecard. It requires the support of the company’s senior management. After the initial scorecard is developed for the company, it can be translated into goals for divisions and people.

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