Strategy Performance 07 December, 2010

After strategies have been created and a direction has been set, a company must perform well to see the desired results. One popular way to measure strategy performance is by using a Balanced Scorecard (BSC).

The BSC was popularized by Robert Kaplan and David Nortan in 1992. It is similar to a dashboard, but with a focus on company and consumer trade-offs. Stress is placed on an informing purpose rather than a controlling one. It can be thought of as a way to measure strategy because it links a company's actions to its mission and vision.

Balanced Scorecards are created based on four quadrants:
  • Internal Processes (how efficient are you at satisfying customers?)
  • Customers (how do customers see you?)
  • Finances (how do shareholders see you?)
  • Internal Learning and Innovation (how can you create more value?)

Each of these quadrants are further broken down into:
  • Goals
  • Measurements

Goals should be specific, but cover many parts of each quadrant such as:
  • Short/Long Term
  • Financial/Non-Financial
  • Leading/Lagging Indicators
  • Internal/External Indicators

The following flow shows how the BSC connects strategy to action.

There are many benefits to the BSC which include:
  • Showing the impact one change has on other quadrants
  • The ability to measure intangible assets
  • People are pulled towards the company mission and vision
  • Areas that seem disjoint, but are linked, are identified
  • Everyone in the company is involved
  • Cause and effect relationships between BSC goals and outcomes are identified
  • It shows which changes are reflected in the bottom line
Although there are many benefits to the BSC and the framework is fairly straightforward, there are several pitfalls that should be avoided:
  • Goals should always be linked to the strategy
  • Cause and effect relationships between goals and outcomes should be validated
  • Measurements must be valid and statistically significant
  • The goals should be communicated throughout the entire company
  • Time should be taken to understand how quadrants and quadrant goals are related
The BSC can be a valuable tool to any company. This being said, there are three critical ideas that companies must practice when using a balanced scorecard. First, goals must be reviewed regularly. Second, goals and measurements should not be changed unless the company mission and strategy change, or unless faulty cause and effect relationships in current goals are found. Third, the balanced scorecard is not about completing the goals, it is about continuously improving strategy performance.

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