What You Need to Know About Balanced Scorecards
In improvement projects there are a million methods to choose from, and every method is not appropriate for every situation. To be effective you need to know what the method is, what it tells you and the appropriate situation to use it in. The first method I want to tackle is the Balanced Scorecard method.
What is a Balanced Scorecard?
The Balanced Scorecard is a strategic planning and management system used by organizations to align business activities to the organizations long term strategies, improve communications and monitor improvement. Basically it is a check and balance system for the initiatives that you put in place making sure that your projects mirror your organizations business strategies, highlights where your internal and external communication plans can improve and grades improvement projects against strategic goals. For improvement projects being graded against strategic goals is a great way to measure success, it is also a metric that everyone in the organization can understand. The trick is to make that strategic goal specific; otherwise the metric won’t accurately measure progress.
What does a Balanced Scorecard look like?
*picture adapted from Kaplan, R. and Norten, D (1996). The Balanced Scorecard
In the figure pulled from Kaplan and Norten’s book, the balanced score card has 4 key parts:
- Internal Business Processes
- Learning and Growth
These four parts all relate to a central vision or strategy and have four criteria:
All that sounds well and good by how do you really use it? Well Kaplan & Norton expected that and included some samples of how companies are using it. This is one of my favorite examples because it shows specific and measurable methods; there is nothing ambiguous about it.
|How do customers see us?||New products.||Percent of sales from new products.|
|Responsive supply.||On-time delivery as defined by the customer.|
|Preferred supplier.||Share of key account’s purchases.|
|Customer partnership.||Number of cooperative engineering efforts.|
|What must we excel at?||Technology capability.||Manufacturing geometry versus the competition.|
|Manufacturing excellence.||Cycle time, Unit cost and Yield.|
|Design productivity.||Silicon efficiency and Engineering efficiency.|
|New product introduction.||Actual introduction schedule versus planned introduction.|
Innovation & learning
|Can we continue to improve & create value?||Technology leadership.||Time to develop the next generation.|
|Manufacturing learning.||Process time to maturity.|
|Product focus.||Percent of products that equal 80% of sales.|
|Time to market.||New product introduction versus the competition.|
|How do we look to shareholders?||Survive.||Cash flow.|
|Succeed.||Quarterly sales growth and operating income by division.|
|Prosper.||Increased market share and Return on Equity.|
When Do I use a Balanced Scorecard?
You use a Balanced Scorecard when you have a specific goal or strategy that you need to implement. The scorecard helps you determine specific ways to measure the success of that strategy and puts the strategy into a tangible form. The Balanced Scorecard is not a good method for brainstorming, it is not a good method to create strategies, and it is not most effectively utilized in creating goals. All of these things should be decided on before you put the balanced scorecard to use. A Balance Scorecard is a great tool and understanding how to use it is the key benefitting from it.