A management team that believes it has a balanced scorecard because it dutifully reports on its KPIs every month may likely be kidding itself. And such a mindset could be doing the organisation a disservice, as they say ‘having the ladder against the wrong wall’.
Whereas most KPIs frameworks have grown ‘topsy’ over time, the balanced scorecard is a carefully thought through and agreed set of performance indicators providing early indicators of successful or unsuccessful business strategies – including more immediate problems on the horizon.
Something your financials alone fail to provide.
The scorecard is also aimed at getting people to understand and work towards an organisation’s vision and business strategies.
The balanced scorecard is simply a group of key performance measures, ideally 15-20, which are in fact measures of business objectives or business strategies. It’s a way of tracking whether objectives are in fact being implemented and achieved.
The key performance measures in a balanced scorecard are often grouped under the following headings:
- Internal Processes
- Innovation & Growth
These groupings depend on the nature of the business. A mining company would probably have Safety & Environmental included in the above.
Typically, a balanced scorecard provides information such as:
- How good your CUSTOMERS think you are?
- How does your organisation add FINANCIAL value for its shareholders?
- To satisfy your customers and stakeholders, what INTERNAL PROCESSES must you excel at?
- Are you sustaining the ability to change and improve by encouraging LEARNING & INNOVATION?
As I stated at the outset, the indicators need to be thought through. Simply reporting on a set of KPIs every month without the appropriate spade work is highly risky.
Our methodology for deploying a scorecard is divided into 2 phases, each of which consists of 5 parts:
Phase 1: Management team scorecard (identifying, designing and implementing the top level performance measures).
Part 1 – Grouping services
Part 2 – Agreeing business objectives
Part 3 – Agreeing performance measures for the business objectives
Part 4 – Signing off the top level performance measures
Part 5 – Embedding the top-level performance measures
Phase 2: Business team(s) scorecard (cascading the top-level measures and identifying appropriate lower level performance measures)
Part 6 – Identifying the drivers of performance
Part 7 – Deciding which of the drivers of performance are key
Part 8 – Agreeing performance measures for the key drivers
Part 9 – Signing off the performance measures for the key drivers
Part 10 – Embedding the performance measures for the key drivers
Does the investment in a balanced scorecard pay-off?
If this helps, we recently have deployed the balanced scorecard for a privately owned Aged Care provider – the result being an average 25% EBITDA, since implementation 12 months ago. For Aged Care this is a fabulous score for operational profitability. And what is even more exciting in this business is that the scorecard has most everyone involved in helping drive the drivers.
Some further tips:
- KPIs must be relevant for the team. Too far removed or too tough a target and they will give up
- As CEO, sit in on team KPI review sessions – emphasising to others the importance of your scorecard
- Don’t hand down targets – get the KPI owner to set their own targets
- Make people shine who meet and exceed targets – create monthly LeaderBoards that can feed into annual organisational awards
- Don’t dodge under-performance, else it will become the norm. Address any slack immediately, privately
- Bring data to life using the vast array of data visualisation software that is available
- Ensure that same software allows for people to add comments, ideas and suggestions for improvement and be active yourself on this forum with comments, recognition and ideas, etc.