In the 1990’s one of the revolutionary business concepts, The Balanced Scorecard, was developed by Kaplan & Norton. Since then thousands of organizations, large, medium and small have implemented this as one of their foundations to improved performance.
The Balanced Scorecard asked companies to view their performance from more than a financial perspective. Prior to the work by Kaplan & Norton a company’s Business Scorecard was basically its Income Statement. The Business Balanced Scorecard asks managers to evaluate their business’ performance holistically, based on financial and non-financial measures that are both leading and lagging. Performance Measure Categories include:
- Operational Excellence
- Customer Success
- Employee Satisfaction
To implement The Business Balanced Scorecard you must start at the top. Scorecards are hierarchical, they flow down from the highest level of the organization. Each scorecard must support the scorecard above. You should use the measurement categories as guidelines to choose measures. After you decide on the measures that define great performance, you must “weight” the measures based on importance. (The total “weight” is 100%.) Weighting is an opportunity to create alignment amongst the team. These weights are decided and debated until consensus is achieved.
The final step in creating the scorecard is determining your performance targets. This is another of Kaplan & Norton’s innovations. Instead of having a single target, they suggested a red-target, a level at which performance is unacceptable and a green-target, a level at which performance is outstanding. The yellow zone is between red and green and can be considered acceptable.
The final phase of implementing a Business Balanced Scorecard is using the scorecard. We recommend weekly or monthly meetings by each department to review its scorecard. This meeting should be 15 minutes in duration. Each measure is briefly discussed relative to its performance targets for the prior period (week or month) and the trailing 52 weeks or 12 months. You can also make graphs of each measure to follow the trends.
After each measure is discussed, it is time to put the scorecard to action. Specifically, for every measure in the red, there should be an accompanying short-term action item to improve this performance measure. An example of an action item list that is joined to the scorecard is shown below.