Leading a successful organization in today’s fast-moving world is like flying a jet fighter: environmental forces fluctuating between extremes, quick reaction times, and sudden stresses from every direction.
The more rapid the speed of change and extreme the conditions, the more important it is to have gauges that instantly show critical changes, environmental conditions, system performance, and new threats and opportunities.
Today's organizational pilots need a set of gauges - a balanced scorecard - that shows what they most urgently need to know, at a glance. Purely financial measures provide a vital but limited perspective, and focus on what has happened in the past, rather than providing an early warning. Measure the wrong things and people will react when they should not; fail to measure crucial threats and people will not react when they should.
Most organizations collect information on customer satisfaction, operations, and employee satisfaction. However, data is typically scattered in MIS, marketing, finance, human resources, sales, and operations, with no integrating force; the proliferation of data can result in executives drowning in a sea of low value and often conflicting information. What is the answer?
Many forward-thinking executives are identifying a limited, but balanced, set of performance gauges. These combine measures to show well the organization is performing - both long and short-term.
The power of the balanced scorecard approach is in its ability to focus resources and attention on key issues. The gauges must be designed to provide clear answers to six core survival questions:
- How are we doing in meeting customers' expectations? (customer perspective)
- How well are we developing our human assets? (human resource perspective)
- How are we doing in meeting stockholders' expectations? (financial perspective)
- How productively are we operating the enterprise? (operations perspective)
- How effectively are we adapting to changing requirements? (change perspective)
- How well are we dealing with environmental or regulatory forces that may alter the playing field? (environmental perspective)
A well designed balanced scorecard provides a clear picture of how the organization is doing in each of these six areas.
When the gauges are updated regularly and shared with the employees responsible for taking action, decisions occur more rapidly and with increased strategic balance.
When combined into a concise report, distributed to the management team and cascaded throughout the organization, a well-designed balanced scorecard:
- Simplifies managers’ lives by providing focus and prioritizing actions and resources.
- Eliminates information overload by bringing together crucial elements.
- Improves communication by providing a common language and reliable information about current organizational strengths and weaknesses. Everyone understands the strategy, their role in helping achieve it, and how their efforts will be measured and rewarded.
- Forces the management team to clarify the strategy to a level of specificity at which its implementation can be measured.
- Helps managers understand interrelationships by tracking how improvements in one area impact other areas.
- Helps focus an organization's attention towards where it is going, rather than backwards towards where it has been, adding future to past and present measures.
Some executives said their balanced scorecards had...
- “helped us emphasize a process view of the business, increase motivation, and incorporate client feedback into operations.”
- “expanded management's discussion beyond simply gross margin, return on equity, and market share to what was truly important to the organization for our future success.”
- “produced a truly strategic set of measures. While managers are willing to share basic financial information, they are protective of their balanced gauges because it defines their strategy.”
One executive noted, “The effect it has had on alignment and teamwork from top to bottom is truly extraordinary.”
The right measures can focus an organization and carry it to success; the wrong measures divert focus and speed decay. To be effective, a balanced set of gauges must capture the essence of an organization's vision and strategy.
Metrus Group's consultants have a unique blend of capabilities in balanced scorecards, strategy refinement, and measurement. We have helped hundreds of clients to measure and evaluate performance from the perspectives of their customers, employees, shareholders and systems. We invite you to contact us.
Strategic Focus | Assessment | Change Implementation
Metrus Group’s Balanced Scorecard System
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