As its name implies, the balanced scorecard is a management tool that assists in strategy development and implementation because it:

• measures achievement and shows it to all the relevant people
• focuses on all the major elements of performance, without favouring one over the other

The balanced scorecard is a comprehensive framework that translates an organisation's strategy into a coherent set of performance measures and strategic initiatives.

The balanced scorecard combines management and measurement in the overall process of 'measure — manage — improve — measure' and so on.

It requires managers to select a limited number of critical indicators as the focus for action.

By doing this:

• they know that what they are working on is real, not imagined it has been objectively measured
• they know they are not ignoring any important element of their accountability they are adopting a balanced perspective

The standard scorecard usually has four dimensions, each of which is associated with some critical success factors (CSFs). These are:

1. Customer / client related performance — to achieve our vision, what should we provide our customers?
2. Efficiency of internal processes — to satisfy our stakeholders, what business process must we excel at?
3. Ability to learn and innovate  — to achieve our vision, how will we sustain our ability to change and improve?
4. Financial performance — to succeed financially, how should we appear to our stakeholders?

In some cases, two other dimensions are added, these are:

1. Performance of people — to achieve our vision, what values and capabilities should our people have?
2. Performance according to stakeholders needs and constraints — to achieve our vision, what should we provide our stakeholders?

These are important if people play a central role in the development and delivery of key initiatives (for example, in service industries) and if there is a number of stakeholders who have a vested interest in organisational activities and outcomes.

The act of measurement is critical because we know that people tend to focus their efforts on things that they think will be noticed. Simply by telling people that something is going to be measured is telling them that it will be noticed, and their attention to that issue will increase accordingly.

So, the balanced scorecard is based on identifying key issues relevant to the success of a business and then measuring those issues rigorously.

To facilitate measurement, the balanced scorecard adopts the following approach. Within each element it specifies:

• critical success factors (CSFs): these represent the things the organisation has to achieve in order to successfully implement its strategy
• measures for each CSF
• targets to be reached for each measure
• key initiatives that will enable the targets to be reached

Benefits of a balanced scorecard

A balanced scorecard:

• provides managers with complex information at a glance (managing from the cockpit)
• ensures that managers are managing all the important variables (rather than all their favourite variables, or the historic variables)
• enables management by exception — manage what needs to be managed not what is there
• balances time perspectives — current performance as well as the drivers of future performance can be integrated into the scorecard
• prevents information overload by limiting the number of measures used — it applies the 'loose / tight' principle

The balanced scorecard will assist good managers, it will not substitute for poor management.

Implementing the balanced scorecard

The balanced scorecard is not a substitute for strategic thinking and analysis – it is a follow-on technique that enables implementation of strategy and continuous improvement.

1. Convince everyone that 'we won't know the truth until we measure it'
2. Be familiar with the key principles of measurement — the balanced scorecard is primarily a management device based on measurement
3. Ensure a system of 'measure — manage — improve — measure' can be put in place throughout the organisation
4. Use the system regularly and fully — establishing the scorecard is just the beginning
5. Do not allow one element of the scorecard to dominate management thinking  — an element should not be in the scorecard if it is not important

For the balanced scorecard system to work best it is important to 'lock in' the performance of other organisational units and individuals. This is best achieved by cascading the scorecard into section performance plans and individual performance agreements. This is generally not a difficult exercise, but:

• some issues may not disaggregate well
• most KPIs in lower level scorecards will be 'drivers' not 'outcomes'
• business units should:
  • be given the measures they need to achieve
  • negotiate the targets within these measures
  • be free to develop the initiatives that will enable them to achieve the targets

In this way, the balanced scorecard establishes the well-accepted management principle of 'goals down, plans up' (or leadership down, ownership up).