The balanced scorecard is a management system that focuses on converting an organization's strategic goals into organizational performances which are measured, monitored and changed if necessary to ensure that an organization's success.
Scorecard perspectives
A balanced scorecard is measured on the following:
Financial analysis, which includes operating income, profitability and return on investment.
Customer analysis, investment in customer service and retention.
Internal analysis, of how internal business processes are linked to strategic goals.
The learning and growth perspective assesses employee satisfaction and retention, as well as information systems.
Elements of a balanced scorecard
- Preparation: The organization identifies the business unit for which a top-level scorecard is appropriate. This is a business unit that has its own customers, distribution channels, production facilities and financial goals.
- The first round of interviews: A balanced scorecard facilitator interviews senior managers for about 90 minutes each to obtain input on strategic goals and performance measures.
- First executive workshop: Top management convenes with the facilitator to start developing the scorecard by reaching a consensus on the mission and strategy and linking the measurements to them. This can include video interviews with shareholders and customers.
- The second round of interviews: The facilitator reviews, consolidates and documents input from the executive workshop and interviews each senior executive to form a tentative balanced scorecard.
- Second executive workshop: Senior management, their subordinates and a larger number of middle managers debate the vision, strategy and the tentative scorecard. Working in groups, they discuss the measures, start to develop an implementation plan and formulate "stretch objectives for each of the proposed measures."
- Third executive workshop: Senior executives reach a consensus on the vision, objectives and measurements hashed out in the prior two workshops and develop stretch performance targets for each measure. Once this is complete, the team agrees on an implementation plan.
- Implementation: A new team implements a plan that aims to link performance measures to databases and IT systems, to communicate the balanced scorecard throughout the organization and to encourage the development of second-level metrics for decentralized units.
- Periodic reviews: A quarterly or monthly "blue book" on the balanced scorecard measures is prepared and viewed by managers. The balanced scorecard metrics are revisited annually as a part of the strategic planning process.