The Balanced Scorecard ...

Levasana Douglas, Eastern University, Sri Lanka

Continued from July 8

Balanced Scorecard Software

The balanced scorecard is not a piece of software. Unfortunately, many people believe that implementing software amounts to implementing a balanced scorecard. Once a scorecard has been developed and implemented, however, performance management software can be used to get the right performance information to the right people at the right time. Automation adds structure and discipline to implementing the Balanced Scorecard system, helps transform disparate corporate data into information and knowledge, and helps communicate performance information.

Why implement a balanced scorecard?

* Increase focus on strategy and results

* Improve organizational performance by measuring what matters

* Align organization strategy with the work people do on a day-to-day basis

* Focus on the drivers of future performance

* Improve communication of the organization's Vision and Strategy

* Prioritize Projects / Initiatives

The balanced scorecard and measurement-based management

The balanced scorecard methodology builds on some key concepts of previous management ideas such as Total Quality Management (TQM), including customer defined quality, continuous improvement, employee empowerment, and primarily measurement based management and feedback.

Double-loop feedback

In traditional industrial activity, "quality control" and "zero defects" were the watchwords.

In order to shield the customer from receiving poor quality products, aggressive efforts were focused on inspection and testing at the end of the production line.

The problem with this approach as pointed out by Deming is that the true causes of defects could never be identified, and there would always be inefficiencies due to the rejection of defects.

What Deming saw was that variation is created at every step in a production process, and the causes of variation need to be identified and fixed. If this can be done, then there is a way to reduce the defects and improve product quality indefinitely.

To establish such a process, Deming emphasized that all business processes should be part of a system with feedback loops. The feedback data should be examined by managers to determine the causes of variation, what are the processes with significant problems, and then they can focus attention on fixing that subset of processes. The balanced scorecard incorporates feedback around internal business process outputs, as in TQM, but also adds a feedback loop around the outcomes of business strategies. This creates a "double-loop feedback" process in the balanced scorecard.

Outcome metrics

You can't improve what you can't measure. So metrics must be developed based on the priorities of the strategic plan, which provides the key business drivers and criteria for metrics that managers most desire to watch.

Processes are then designed to collect information relevant to these metrics and reduce it to numerical form for storage, display, and analysis. Decision-makers examine the outcomes of various measured processes and strategies and track the results to guide the company and provide feedback.

So the value of metrics is in their ability to provide a factual basis for defining:

* Strategic feedback to show the present status of the organization from many perspectives for decision-makers

* Diagnostic feedback into various processes to guide improvements on a continuous basis

* Trends in performance over time as the metrics are tracked

* Feedback around the measurement methods themselves, and which metrics should be tracked

* Quantitative inputs to forecasting methods and models for decision support systems

Management by fact

The goal of making measurements is to permit managers to see their company more clearly from many perspectives and hence to make wiser long-term decisions. The concept of fact-based management: "Modern businesses depend upon measurement and analysis of performance.

Measurements must derive from the company's strategy and provide critical data and information about key processes, outputs and results.

Data and information needed for performance measurement and improvement are of many types, including: customer, product and service performance, operations, market, competitive comparisons, supplier, employee related, and cost and financial. Analysis entails using data to determine trends, projections, and cause and effect that might not be evident without analysis.

Data and analysis support a variety of company purposes, such as planning, reviewing company performance, improving operations, and comparing company performance with competitors' or with 'best practices' benchmarks.

A major consideration in performance improvement involves the creation and use of performance measures or indicators. Performance measures or indicators are measurable characteristics of products, services, processes, and operations the company uses to track and improve performance.

The measures or indicators should be selected to best represent the factors that lead to improved customer, operational, and financial performance.

A comprehensive set of measures or indicators tied to customer and/or company performance requirements represents a clear basis for aligning all activities with the company's goals.

Through the analysis of data from the tracking processes, the measures or indicators themselves may be evaluated and changed to better support such goals."