The Balanced Scorecard

How to Use the Tool

The Balanced Scorecard works from the top down. The entire framework hinges on aligning performance with strategy, and strategy comes from the top: It comes from you, as the leader of the company, department or team.

The steps that follow are addressed to you as leader of your organizational unit, the one who sets the strategy and vision. From there, the Balanced Scorecard can be implemented as follows:

Step 1: Lead the Implementation

Start with your strategy for your organization. Take the time needed to make sure that it is as well-thought-through, researched and tested as it can be (this will often take a lot of analysis and careful consideration). Everything else rests on this strategy being sound and well-considered.

Step 2: Prepare for Change

Once you've decided to use the Balanced Scorecard approach, you'll need to set a plan in place to prepare the team and communicate the process for implementing the Balanced Scorecard - this will take a lot of work from managers at all levels.

More than this, you'll need a measurement "machinery" to be in place, if you're going to successfully measure people's performance. This needs to be implemented as well, with all of the issues associated with this.

Step 3: Develop Performance Measurements

Using your overall strategy as your guide, determine the critical success factors in each performance area, set related goals and then identify ways to measure results.

The Performance Areas are:

• The Financial Perspective:
  This includes those traditional financial indicators which measure progress towards the achievement of your strategy, and which give your shareholders the information they need.
  
  
• The Customer Perspective:
  Here, you set goals which relate to your customers' perception of your business. These could include measures like customer satisfaction levels, numbers of customer referrals, or target market penetration.
  
  
• The Internal Business Processes Perspective:
  Here you look at your main business processes like production, logistics or sales and then set goals related to such things as quality, time/efficiency, and cost reduction. Here, you explore ways of improving your internal systems and functions.
  
  
• The Innovation and Learning Perspective:
  In this area, you examine measures relating to employee development, retention, and skills improvement. You also look at measures for research and development. The focus here is on continuous improvement and value creation, by using your people resources most effectively.

Step 4: Make Sure Measures Are Transmitted Throughout Your Organization
Achievement of your vision needs different actions from different groups of people and individuals. This means that you need to develop subtly different scorecards for each of your reports, and each of your reports needs to develop scorecards for the people who report to him or her. Scorecards need to "ripple down" through your organization if everyone is to work to achieve your vision, in their own particular ways.

More than this, you'll need to implement the systems needed to collect performance information.

All of this is time-consuming: Make sure that you leave plenty of time for it to happen, and that you keep an eagle eye on this strategy transmission process.

Step 5: Plan Initiatives
Once you have specific goals and targets in place, you plan the initiatives and actions needed to achieve them. Make these easy for your team to understand so they can follow the plan to completion.

Step 6: Follow-up and Evaluate
The chances are, the first time you use the balanced scorecard, some strange behaviors may emerge. Perhaps particular measures are misinterpreted, or errors develop as ideas are transmitted down through layers of management.

More than this, the measurement processes may fail or give spurious results.

Be alert to these issues, and monitor and correct performance closely. And where the scorecard itself is misleading, adjust it appropriately.