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Measure And Manage
What Matters To Your Organization
Another article posted here at the TeamStart library discusses Key Performance Indicators as being important tools to help you manage your business. The Balanced Scorecard was developed to fine tune the concept of KPI’s to ensure that in designing your set of measures, you consider all important activities.
According to its developers, Harvard professors Robert S. Kaplan and David P. Norton, traditional financial measurements must be “balanced” by measures of how well you serve your customers, how well you operate, and how well your organization can learn and adapt to change. By having four distinct perspectives (financial, customer, operations, and learning) you get a more balanced view of your organization.
The Balanced Scorecard is a conceptual framework that doesn't say what the specific measures should be. Implementation is up to the individual. The framework does provide guidance though, looking at four fundamental areas, and asking some basic questions in each area.
The key financial question is “In order to be successful, how should we appear to our shareholders?” This perspective captures the traditional financial measures such a profits, dividends, ROI, debt to equity etc, and other relevant financial measures.
The key customer question is “In order to be successful, how should we appear to our customers?” This perspective focuses on the ability of the organization to provide and effectively deliver quality goods and services, and overall customer satisfaction. Measures include customer satisfaction, growth and retention.
The key operations question is “To satisfy shareholders, customers and other stakeholders, what business processes should we excel at?” This perspective focuses on what exactly the business does that leads to financial success and satisfied customers. Measures include efficiency, speed, and quality problems.
The key learning
question to ask is “In order to remain successful, how can we
sustain our ability to adapt and improve?” This perspective focuses on
the ability of employees, the organizational and its systems to
recognize and adapt to change.
My preference is to start with the time, and phrase the statements as “By 2018 or May, we will do\have “X” where “X” is a specific, relevant, achievable result. By design this becomes measurable.
Whatever measures you design, they should relate to scorecard activities and processes, they should tell you if you are regressing or improving, and acting on the underlying activities should effect a change in one of the four key areas. Targets relate to the specific measures, and represent where you’d like the measure to be. Again, they should be S.M.A.R.T. and the initiatives should take you there.
The following list of questions was developed by Paul Arveson, Founder and Trainer with the Balanced Scorecard Institute. Every strategic activity that you measure should be examined critically by asking the following questions:
If you do this right, you
can answer the key Balanced Scorecard questions properly, and you will
measure and manage what matters to your organization.
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