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The Balanced Scorecard

The Balanced Scorecard continues to grow in popularity as a tool for supporting the implementation of strategy. “The Hackett Group found that of the nearly 2000 global companies it surveyed had implemented, or planned to implement, the Balanced Scorecard. The real issue though isn’t how many companies are using this approach but, rather, whether they are using it properly” (Norton and Russell, 2005, p. 3). To design the Balanced Scorecard for your small business you need to have first crafted your vision, mission, values, and strategic objectives. The Balanced Scorecard is the set of measures you created to measure the achievement of the vision and strategic objectives as you serve your mission. The Balanced Scorecard is often seen in two different formats. The first format (which is the one you will use for this week) is a table that includes the measures in the four primary categories of the Scorecard:

1. Financial (representing the increase in shareholder value). 2. Customer (representing the increase in customer value). 3. Operations or process (representing the increase in the value of internal processes. 4. Learning and Growth (representing the increase in employee and organization value).

In this format there is always a measure which is defined (e.g., “profit margin”), and then there is a metric that is identified to assess the measure (e.g., “percentage of profit margin” or “percentage increase in profit margin”). Finally, there is a target set for the metric (e.g., “a 20% profit margin” or “an increase of 5% in profit margin”). The Balanced Scorecard shows the targets for the metrics for each calendar year during the plan. For example, the year one profit margin may be 18%, year two could be 20%, year three at 22%, year 4 at 26%, and year 6 at 30%. A sample Balanced Scorecard is shown below.

Sample Balanced Scorecard

Scorecard Four

Balanced Areas for Measures

Strategic Objective Measure Metric

Targets

Year 1 Year 2 Year

3

Financial Improve profitability

Improve return on capital investments

ROIC ↑5% ↑5% ↑5%

Improve the overall profit margin of the company

Margin ↑4% ↑5% ↑6%

Customer

Grow the business by focusing on customers

Bring in more revenues from each customer

Revenue/ customer

↑5% ↑5% ↑5%

Increase in number of customers served in current markets

Market share ↑2% ↑3% ↑5%

Operation or

Process

Improves productivity in product areas

Reduce the time to bring new products to markets

Product development cycle time

↓5% ↓10% ↓5%

Improve the sales process to add value to the customer

Improve the effectiveness of the sales process

New process developed and in place

In 6 months

NA NA

Learning and

growth

Improve capabilities needed to improve productivity

Retain people at top 50% of performance curve

Retention rate of top talent

>90% >90% >90%

Change the behaviors of leaders and employees to those need to support the new

Begin to change culture to realize new plan

Climate survey question results on target

100% 100% 100%

strategy

In some cases there are perspectives other than the four areas shown above. Others might include measures for the community, the government, or even the environment. The important point is that there should be a set of measures for any stakeholder that is essential to the realization of the plan.

Reference

Norton, D. & Russell, R. (2005). Balanced scorecard report. Harvard Business School Publishing. Retrieved from http://reporting.talent20.co.za/Harvard/HMM10/strategy_execution/resources/b0505a.pdf