Balanced Score Card and Key Performance Indicators
Every successful organization measures its performance across the subsequent parameters, for dissemination to all stakeholders:
- Financial parameters - Profitability, sustainable growth;
- Customer focus - customer satisfaction, surveys, and complaints handled;
- Business process improvements - reduction of losses, costs, cycle time, etc.; and
- Learning and growth - training, staff satisfaction, attrition, etc.
This is represented as a balanced scorecard for an organization in which not only looks at the operating and financial parameters but also at the learning, growth inside the organization and its customer focus. Therefore, each strategic perspective could be sliced across several facets of the organization and studied. It is also significant in which all strategic perspectives are tied to the critical success factors of the organization that is goals/activities which must be carried out to ensure the success of the organization. This could be measured in financial, technical or customer parameters. If one were to develop the strategic perspectives across the four distinct zones (as presented in BSC) for a distribution organization, it could be along the lines. Once the strategic perspectives are described (closely aligned along with the critical success factors), the further step is in developing the goals. Target should be specific and be measurable.
If the organization proposes "Profitability" in its financial perspective, this should lead to development of goals such as 'Return on Capital Employed', 'Asset Utilization', 'Subsidy Reduction', 'Internal Resources Generation', etc. it could be seen in which each of the measures is specific and measurable and ties along with the definition of profitability goal. These goals are then converted within measurable parameters and elaborate as Key Performance Indicators (KPIs). The KPI is not a raw data point but a meaningful analysis of critical data that measures the goal. This whole system emphasis of measurement as the building block. The KPI is a very significant tool for implementation of Balanced Score Card. One cannot improve; one cannot introduce any new concept/technology unless you measure. KPI not only describes what to measure, how to measure but gives an extremely useful insight to the management about the current state of affairs so that along with the help of Balanced Score Card, whole strategy could be developed/realigned.
The KPIs help to prepare the matrix for balanced scorecard. The weightage could be assigned to every KPI to know the score. The whole result would show the current status and on the basis of that management could take the decisions for future course of action. Balance scorecard (BSC) system could be used to know how to implement strategic initiatives in which help an organization to achieve its mission/vision. BSC is a tool in which helps in communication of strategic initiatives, measuring strategy, aligning the organization and a system of performance reviews.
There are three critical success factors within implementing the Balanced Scorecard.
(1) The visible and active support of senior management;
(2) A strong review procedure; and
(3) A knowledge team to drive and support scorecard deployment.
The balanced scorecard gives a framework for managing the implementation of strategy although also permitting the strategy itself to evolve in response to changes in the company's competitive, market and technological environments.