Balanced scorecards for the busy business person
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A balanced scorecard is a strategic planning and management system used to align business activities with an organization's vision and strategy. It measures performance across four perspectives: learning and growth, business processes, customers, and financials. This allows companies to track both financial indicators and the drivers of future financial performance, including employee training, internal business processes, customer satisfaction, and innovation. The balanced scorecard provides a framework for setting objectives, measures, targets, and initiatives and helps improve communication, collaboration, and accountability towards achieving an organization's strategic goals.
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Balanced scorecards for the busy business person
- 1. Balanced Scorecards for the Busy Business Person Presented by Warren J. Rutherford The Executive Suite
Editor's Notes
- Simply put – It is a planning and management system that we use to ALIGN your business activities – think about that – ALIGNMENT – Are your strategies, your communications, your goals, your performance – your employees in ALIGNMENT? In the new economy that we will experience in the next several years it will become more important for us to pay more attention to workforce alignment – how we connect the dots between who we are, where we want to go, and who we need to get us there. We need to pay more attention to how we can effectively increase our productivity and our profit.
- In 1978 the Stern School of Business identified that there was a 95% correlation between a company’s balance sheet and it’s business value – shares x stock price, . P&L = Company Value
- In 2005 Stern redid the study, and found that there was now only a 28% correlation. Today’s performance drivers include your - Intellectual Property, Strategy, Brand, Systems, Processes, Access to Capital, Off balance sheet items, Customer reputation, and the Executive Team We are in a globally competitive and intellectual economy. In other words, what a company is worth today is much more dependent on non-traditional assets and things not measured on the P&L and Balance Sheet. Obviously some things have changed behind what truly drives company value in today’s intellectual economy. Net Profit Margins / COGS / ROE / Net Income / Sales / Total Asset Turnover Cash / A/R / Inventory / Equipment
- Balanced scorecards measure the 28%, and the remaining 72% - those knowledge-centric activities and perspectives
- There are 4 perspectives the Balanced Scorecard measures Learning and Growth – Employee focused Business processes – process focused Customer relationships – customer and client focused, and, of course, Financial performance.
- David Norton, one of the originators of the Balanced Scorecard found some interesting data in his corporate research – As you review this list, ask yourself – where is your company on each of these 4 bullets – What % of your workforce understands your strategy? How many of your senior managers spend how much time monthly on strategy – operations alignment efforts? What % of your operations are aligned to your corporate strategy? What % of your budget is aligned to your corporate strategy?
- W hat is it that makes us valuable and profitable? How can we identify, quantify, and measure the intangible assets so that we can increase value and our performance ? Balance scorecards focus on that performance in a practical, workable way.
- Let’s review some of the 4 perspectives First Learning and Growth Employee training – what type, kind and frequency do we provide? Company cultural attitudes toward individual & corporate self-improvement – how do we address that in each of our companies that can help us be more productive and profitable? Workforce alignment – Research performed at Cornell University has found these 3 factors improve alignment Person/future fit (selecting for the long-term contributions of a person to the business’ long-term strategy). Formal processes and procedures and professional standards created the best, long-term workforce alignment Family-like community created the best, long-term workforce alignment.
- Next, Business Processes – we use these to track and measure how well we manage our tasks, time, and costs, usually decreasing the level of time and cost in each and every instance. Internal processes w/ metrics looking at - How well is the business running? Do products conform to customer requirements (mission)? What are your major processes? Are they optimized – tasks, time, money? Who has participated in their review?
- Next, the often-overlooked Customer Perspective looks at areas such as Customer focus. Customer satisfaction. Analyze by kinds of customers. Analyze the kinds of processes that we use to provide our products & services to those different customer groups.
- And, finally, the financial perspective looks at traditional financial measurements.
- So, what gets put on a scorecard? Objectives, Measures, Targets, & Initiatives.
- There are many ways to start, and there are programs available to assist, we suggest that you Develop a multi year vision Align your mission with customer needs. Make sure your strategies complement your vision and mission.
- You can also Develop annual objectives. Develop annual action plans to set and track targets. Develop these at the appropriate company level to allow for accountability and Report and discuss these monthly.
- I have listed several examples from the One Page Business Plan to illustrate. These scorecards are embedded into the One Page Planning system, available online. Strategy Objectives and Action Plans I can provide more information after the presentation.
- This is the template for creating strategies It allows for strategies in each of the 4 perspectives – read across the top tabs, there are at least 8 sample strategies for each perspective. Customer Business Process Learning and Growth, and Financial.
- This is the template for creating objectives In a similar manner, it allows for objectives in each of the 4 perspectives Customer Business Process Learning and Growth, and Financial. Once objectives are established, you are then able to develop the Balanced Scorecard for each of your objectives, entering data from the prior year, entering forecasted, budgeted, and actual data, that can be updated monthly, and reviewed by each manager prior to your monthly meetings. With this format, and its online accessibility, there is accountability, a true results focus, and, more productive monthly staff meetings – the focus shifts from reporting results to a discussion on improving results.
- Finally, this is the Action Plan Template It is organized by fiscal quarter What is helpful for the Action Plans is the ability to update each action target 2 x monthly.
- A couple of final pointers on the use of Balanced Scorecards Make your benchmarks MANAGEABLE. Manage the data – don’t let the data manage you! Use the data to Improve collaboration, communication, & accountability toward your vision, mission, and strategy. Seek to improve your alignment.