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Does this sound familiar?...
Your strategy is set, your objectives are clear.
Your budget is defined, your timelines are clear.
...but when you hit the go button, things comes unstuck!?
STAYING ON TRACK
It's a common challenge in all companies keeping everything on track. But what's the best method to merge the numbers and words with the people?
Numbers + Words x People = Predictable Results
Numbers - the past, the current, the future targets
Words - what we stand for, where we are going, what we mean
People - your team, from direct managers through the org chart.
If you think about it, there are not too many ways to tie all this together. The words, the numbers, through each person in the company.
But imagine if we had a simple method that would help keep everything tightly together...with room to adapt and room for individual contribution as part of performance management.
Balanced Scorecard Method
The balanced scorecard (BSC) was originally developed by Kaplan and Norton (1992) to complement traditional financial performance measures by including non-financial measures, such as customer satisfaction, internal business process and learning and growth.
It has been promoted to overcome the deficiencies of traditional measures and their inability to link long-term strategies with short-term actions (Kaplan & Norton, 1996).
Since its development in the early 1990s, the balanced scorecard (BSC) approach has become a widely used performance management tool for all kinds of organisations (Kaplan & Norton, 1996, 1997). The early generation of the BSC considered four perspectives to identify the measures necessary to track the implementation of an organisational strategy, namely;
financial
customer
internal business processes
learning and growth
You can actually define your own major themes to suit your company, but of course you want to get a good cross-section and make sure you balance internal vs external themes.
However, by the mid-1990s, improvements to the BSC were being proposed (Nils-Göran et al., 1999), where measures are selected and distributed across the four measurement perspectives using a set of strategic objectives and visualised on a strategic map that offers a better contextual justification for their selection.
The balanced scorecard framework (BSF)1 is a comprehensive and widely used performance management system (Rigby & Bilodeau, 2018; Tayler, 2010).
This translation of strategic goals into performance measures is argued to improve managerial decision making and enables effective performance evaluation judgements (Trotman et al., 2011).
BSC is a vital management system to ensure the effective and efficient achievement of those objectives (Arjunan et al., 2020). The BSC is supposed to clarify and translate strategic objectives into action plans and link the strategic objectives with measures known as key performance indicators (KPIs). The BSC, through the KPIs, aligns strategic initiatives and action plans with a performance excellence (Nazari-Shirkouhi et al., 2020).
DESIGNING YOUR BALANCED SCORECARD
When you are defining each objective, you must define the key metrics to use and the current to future targets you want to achieve.
Then you break your major objective down further into specific initiatives that will see you achieve your objective. It's easier to just start writing and then you can keep refining as you go.
Objective - Measure - Target - Initiatives
Writing the objective statement for each area is the hardest part. Again, just start writing and you can keep refining the words and the numbers and who is involved in each area.
We find it easier to build the detail up in excel or smartsheet - so you can move things around and link things all together.
OBJECTIVE SETTING - LEVELS
But how do consolidate all the various objectives across an entire organisation?
Top 10 Objectives
We find that summarising your Top 10 Objectives into external and internal is very important to get the right balance.
EXTERNAL - customer value driven
INTERNAL - internal improvements
And try and stick to 10. Sure if you need a few more, thats fine, but really sticking to 10 helps keep everything really defined.
Levels of Objectives
Having 3 levels of objectives helps cascade the objectives through the organisation more effectively. You'd be surprised how many people further down the chain don't always know how their role relates to the overall company.
So we suggest having 3 levels of objectives that flow from the Top Down and importantly Across the company as this help know what the person next to you actually does.
Level 1 - Company Level
This is the highest company level in 10 key objectives.
Your Leadership Team can summarise these overall Top 10, using the Level 2 submitted from each functional leader.
E.g. Hit the overall EBIT Target of 10% for the coming FY, by maintaining share in current growth categories and driving new revenue in new growth categories.
Level 2 - Functional Level
This is the functional level for each major function or major team. i.e. Finance, HR, Sales, Marketing, Operations, IT etc.
Suggest get each Functional Leader to submit their Top 10.
E.g. Upgrade the new ERP IT System by the end of the 1st half, with minimal disruption. (EXEC TEAM)
Level 3 - Personal Level
Each persons objectives are specific to their role and relate back to their team leader/managers objectives. (IT Lead)
E.g. Contribute to the EBIT target through consolidating procurement expenses and supporting stock forecasting of the new growth category x. (SUPPLY Person)
OTHER ENHANCEMENTS TO CONSIDER
Strategy Map Based on the Balanced Scorecard Model
A strategy map is a graphical representation of an organisation’s strategy and includes the objectives of the BSC perspectives and their causal relationships (Kaplan & Norton, 2001b, 2005). Following Drtina et al. (2007), a strategy map was developed to formulate the long-term idealistic strategy targets to achieve the full vision of..."whatever your vision statement' is.
A strategy map conveys the causal linkages between the strategic objectives of an organisation, which facilitates an understanding of strategies by managers and encourages consistency of strategic understanding across all staff (Kaplan & Norton, 2004).
The benefit of implementing the balanced scorecard and strategy map is the facilitation of a shared understanding of organisational strategy by the employees who are essential for implementation of the strategy and its ultimate success (Kaplan & Norton, 2004; Malina & Selto, 2001).
Also, its good to throw in some 'Blue Ocean Strategy' thinking to ensure you are taking into account all possibilities for your company to serve your customers better.
Breaking down into Innovation Types
For the purpose of this research, four traditional perspectives of the BSC were adapted to create four dimensions with a focus on eco-innovation. The adaptation was based on the Oslo Manual (OCDE, 2005), which proposes four categories for innovations in industries as follows:
Product innovation (i.e., introducing new or improved goods or services)
Process innovation (i.e., implementing new or significantly improved distribution methods)
Marketing innovation (i.e., creating new marketing methods with changes to pricing, positioning or promotion)
Organizational innovation (i.e., implementing new work methods in company business practices, workplaces or external relations).
Adding In Soft Skils Performance Review - for Level 3 Objectives
Another great enhancement is to add in a 'soft skill performance review' as part of a persons level 3 balanced scorecard or My Performance Objectives.
This really gets into more of the nitty-gritty of whats working well and whats not and how the person can keep improving to be more effective in their role, for themselves, their manager, their overall functional leader...and the overall company!
IN SUMMARY
How you use the Balanced Scorecard can be flexible to suit your company needs. The most critical thing is that it captures your most critical objectives. And when it's in place, it helps to ensure that people don't go off track...if its not related by to a Level 1, 2, 3 objective then you shouldn't really be working on it.
If you would like us to help review and formulate your Balanced Scorecard specifically for your company please touch base.
REFERENCES
Kaplan R. S., & Norton D. P. (1996). The balanced scorecard: Translating strategy into action, Harvard Business Press.
https://www.hbs.edu/faculty/Pages/item.aspx?
Balanced scorecard and eco-innovation in the industrial sector: A strategic map for environmental innovation, José Baltazar Salgueirinho Osório de Andrade Guerra, Jonas Schneider, Mauricio Andrade De Lima
Templates
Blue Ocean Strategy
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