What do companies like Microsoft, Apple and Intel have in common?
Well they all are using scorecard to measure performance and set strategy!
Today’s manager day and night struggle to measure
performance, but they somehow miss to include measurement as an essential part
of the strategy. For e.g. executive may introduce innovative new processes
intended to achieve breakthrough performance, then continue to use short term
financial indicators to gauge the performance like return on investment, sales
growth, and operating income. Such managers fail to introduce new measures to
measure new goals and processes. Also they are unable to question whether the
old methodology of measurement will work in today’s dynamic work culture.
Effective measurement however should be integral part of the
management process. The balanced scorecard helps executives with comprehensive
framework that translates company’s strategic objectives into coherent set of
performance measures. The balanced scorecard is a management system that can
motivate breakthrough improvements in critical areas like product, process,
customer and business development (other words “sales”).
There could be different perspectives though which manager
can choose measures. It is beautiful mixture of traditional financial
indicators and measures of performance for customers, internal processes, and
innovation and improvement activities. These measures are different from the traditional
methods used by companies in few important ways:-
Many companies believe in myriad operational and physical
measures for local activities. But these local measures are bottom up and are
adhoc. The scorecard measures on the other hand, are grounded in an
organization’s strategic objectives and competitive demands. And, it requires
managers to choose the limited number of critical indicators within each of
four perspectives, and once done the scorecard helps focus the strategic
vision.
In addition while traditional financial measures report on
last period performance; it however doesn’t help managers on how managers can
improve performance in the next. The scorecard however functions as the
cornerstone of a company’s current and future success.
Moreover, unlike conventional metrics, the information from
the four perspectives provides balance between external measures like operating
income and internal measures like new product development. This balanced set of
measures both reveals the trade offs that managers have already made among
performance measures and encourages them to achieve their goals in the future
without making trade offs among key success factors.
Finally, many companies that are now implementing local
improvement programs like process reengineering, total quality and employee
empowerment lack sense of integration. The balance scorecard can serve as focal
point for the organizations efforts, defining and communicating priorities to
managers, employees, investors even customers. The balance score can be used as
the language, the benchmark against which all new projects and businesses are
evaluated.
The balance scorecard cannot be termed as template and
should not be applied to business in general or even industry wide. Other factors like market situations, product
strategies, and competitive environments force us to think that general
scorecard won’t work and organizations require customized scorecards depending
on market and organization. Business
units should prefer customized scorecards to fit their mission, strategy,
technology and culture. In fact critical test of scorecard success is its
transparency: from 15 to 20 scorecard measures, an observer should be able to
view the business unit competitive strategy. But the most important factor is who
and how score card measures are getting implemented. For successful implementation the
organization should hire a right coordinator. Also a decision that scorecard is
appropriate for which business unit. Usually its appropriate for the business
unit which has its own customers, distribution channels, production facilities
and financial performance measures. So prepare, interview, conduct workshop,
interview again post workshop, derive final company’s vision, objectives and
measurements and develop target for each measures. The core implementing team
must agree on implementation program, including communicating the scorecard to
employees, integrating the scorecard into management philosophy and developing
information system to support the score card.
Finally companies should not adopt scorecard as latest fad.
Organizations hire external consultants to help in implementing scorecard and
organizations put system that’s bit different from what existed before. Such
systems are only incremental and you don’t gain much additional value from
them. It can get worse if one thinks that scorecard as new measurement systems
that eventually require hundreds and thousands of measurement and big expensive
executive information system. One should
make the scorecard the cornerstone of the way one runs the business. It should
be the core of management system not measurement system. It’s the people and
senior executives who drive the scorecard approach in the organization. Hence we can say that senior executives will
determine the future of the success of management system. Cheers !
