Balanced Scorecard
Balanced Scorecards tell the knowledge, skills and systems that the employees will need (learning and growth) to innovate and build the right strategic capabilities and efficiencies (internal processes) that deliver specific vale to the market (customer) which will eventually lead to higher shareholder value (financial).
3 Generations of Balanced Scorecard:
The 1st Generation of balanced scorecard was developed in early 1990s by Drs Robert Kaplan and David Norton as reporting tools in order to help the executives to understand the true health of an organization by focusing on key areas that needed attention, instead of relying on traditional measures of performance based on a centuries-old accounting model.
The 2nd generation of balanced scorecard drew a linkage between strategic management and performance measurement through a strategy map. The organisation was viewed from four perspectives:
Financial perspective: how the organisation will deliver values to its shareholders.
Customer perspective: how the organisation will deliver values to its clients.
Internal Business Process perspective: defines the key internal processes at which the organization must excel in order to deliver on its customer value preposition.
Learning & Growth perspective: looks at employee training and cultural attitudes related to both individual and corporate self-improvement.
Each perspective was related to each other by developing metrics, collecting and analyzing data.
The 3rd generation of balanced scorecard was a framework for implementing and managing organisational strategy. It is a measure-based management which provides quantitative inputs to forecasting methods and models for decision support systems. It pulls everything together, so-called cause and effect relationship. It drives transformational change through the execution of its strategy.
Process of Balanced Scorecard
- Start from the company vision and strategies
- Define the critical success factors
- Conduct measures that assist target-setting and performance measurement in areas critical to the strategies
- Deployment: push the entire into other parts of the organisation
Vision Barrier
The ability of the organisation to translate its vision and strategy to its employees, and the ability of the employees to understand the strategies of the organization. It can be overcome by evaluating current organisation structures, lines of reporting, and policies and procedures; re-alignment of business units; and re-defining the roles of different support units.
People Barrier
Most people have objectives that are not linked to the strategy of the organization. In order to overcome this barrier, the team shall have the ear of the leadership and can readily escalate issues to executives for resolution. At the same time, the executives continue to communicate their support for, and involvement in, the balanced scorecard initiative.
Resource Barrier
Time, energy and money are not allocated to those things that are critical to the organisation. For example, budgets are not linked to strategy, resulting in wasted resources.
Management Barrier
Management spends too little time on strategy and too much time on short-term tactical decision-making.
