Balanced Scorecard is a strategic performance management tool

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Balanced scorecard is a tool that allows you to accurately assess the strengths and weaknesses of all departments of the enterprise and the company as a whole. For its effective use on the part of management, it is necessary to develop indicators that are relevant within the framework of the overall strategy of the enterprise. It is also necessary to form an evaluation system for specific departments of the company.

How it came about

This management technology, also called the Balanced Scorecard, is used relatively recently. It was developed on the basis of research that was carried out in the early 90s.

They were handled by the president of the consulting firm, David Norton, and Professor Robert Kaplan. Their main task was to identify new ways to achieve the strategic goals of the business and improve the efficiency of the company at all levels of its activity.

BAs a result, the BSC was obtained, a balanced scorecard. This discovery led to the formation of two main provisions:

• Only financial indicators will not be enough for a balanced (comprehensive) and complete description of the state of the company. They need to be supplemented.
• BSC can be used as a management system, and not just a comprehensive indicator of the state of the enterprise. At the same time, the implemented concept is able to ensure the relationship of the company's owners and senior managers with the operational activities of the organization's management.

The purpose of the system

Sustainable improvement of performance indicators is important for any company. It is for this purpose that the balanced scorecard is used. It is a tool that allows you to connect strategic ideas and decisions with daily processes. As a result, all facets of the company's activities are directed to the implementation of key tasks.

Such control is carried out with the help of key performance indicators. They allow you to receive several levels of assessment:

• characteristics of business process efficiency;
• indicators of the productivity of each individual employee;
• measuring the attainability of goals.

Based on this information, it can be argued that the balanced scorecard is a tool not only for strategic, but also for operational management.

The main value of the BSC is that the company using it will be able to evaluate and control the process of achieving strategic goals at alllevels of the organization. Thus, the enterprise balanced scorecard is not a tool for working with a separate functional area, it combines them all at the same time.

For this reason, it will be difficult to implement such a concept within one direction, and it will not be possible to obtain the desired results.

Benefit

When top managers analyze the performance of the enterprise, they may miss the individual components of success or failure, paying attention only to financial indicators.

An example is the situation with the expansion of the product line. If you do not increase the range, then you can avoid investments related to the modernization of production, the introduction of additional equipment, etc. As a result, costs are reduced and everything is fine from the side of analyzing the financial condition. But at the same time, in order to achieve strategic goals, it is necessary to expand the range, which will allow the company to take new positions in the market. And from the point of view of global planning, the refusal to modernize is the wrong decision.

With gaps like these in analytics, performance management will occasionally come with windfalls. After all, if there is not all the information about the processes that affect the achievement of the goal, then it is not known when positive or negative changes will be repeated.

In order to fully, accurately control the various facets of the enterprise, business programs such as BSC are being introduced. Because theit allows you to analyze any components of production and management operations, as well as the company's service. Managers can identify all the factors that affect the final result.

With this information, they will be able to develop a competent enterprise management strategy that can significantly increase the level of efficiency of all activities as a whole.

Human Resources

There are organizations whose quality of services largely depends on the professionalism of employees, since their qualifications are the product. An example would be a consulting or law firm.

With this form of doing business, it is periodically important to improve the level of knowledge and skills of specialists. This is necessary to maintain market positions or conquer a new niche.

Against the background of illiterate analytics, the company's management may consider that there is no need to pay for management training courses, and specialized specialists are able to perform tasks without additional training. As a result, from the point of view of financial indicators, the decision was made correctly, since it was possible to avoid additional costs.

But the service market is constantly evolving, new tools for solving problems are emerging. With the same skill level, it will no longer be possible to attract as many customers as before. They will go to more trained specialists. As a result, the company loses.

Thus, for successful business development, you need analytics that takes into account allfactors.

Strategy

Any serious company has a developed development plan, which includes several main goals. Usually there are no more than 5-7. But sometimes it happens that the goals either contradict each other or are not connected.

Strategic management is a technique to avoid such mistakes. When the system is balanced and based on clear rules for building goals, it becomes possible to perform key tasks at a fundamentally new level.

With a well-implemented BSC for all facets of the company's activities, interconnected goals will be developed. In order for management to mark key points of interaction, a special strategic map is formed. It is on it that the relationships between the main goals are noted.

Using such a system, top managers can constantly monitor the work of specialists within certain areas, and see whether they help to perform key tasks or not.

Structural idea

The main feature of the Balanced Scorecard is to divide the system into 4 groups in order to bring it into a balanced state. These are the following directions:

• The first group. This includes standard financial ratios. The owner of the company will inevitably be interested in the level of return on funds that have been invested in the enterprise. Therefore, despite the importance of well-established internal processes and the market orientation of a company, the system should start with financial data and end withthem (final grade).
• Second group. Here attention is paid to the description of the external environment - customers and the attitude towards them from the organization. The emphasis is on the company's ability to satisfy the customer, retain it and find new customers. The market volume and the company's share in the target segment are also taken into account.
• Third group. Used to describe a company's ability to grow and learn. This part of the organization's strategic management system focuses on information systems that provide critical information to operational systems that provide interaction between process participants, as well as people, their abilities, skills and motivation.
• The fourth group. It is intended to characterize internal processes. It's about product development, innovation, pre-production, core resources, manufacturing, sales and after-sales service.

Elements of a balanced scorecard

At the moment, the basic requirements for software that supports SSP have already been developed and tested in practice.

Based on research, six elements should be present in system design to allow full analysis and control:

1. Strategic goals. They are needed to determine the directions in which the strategy will be implemented.
2. Prospects. The components used to separate the strategy. They areimprove the implementation process. In most cases, four perspectives are sufficient: processes, customers, people, and finance. But if the specifics of the enterprise strategy so require, the list can be expanded.
3. Target values. They are necessary to quantify the level of performance that a specific indicator should correspond to.
4. Strategic initiatives. This includes both programs and projects that contribute to the achievement of key goals.
5. Causal relationships. They are used to combine strategic goals so that the achievement of one leads to progress towards the other.
6. Indicators. It's about achievement metrics. It reflects the level of progress towards a specific strategic goal.

Balanced Scorecard is a management tool that can be easily adapted to the tasks of a particular enterprise, but provided that the concept is well structured and developed.

Motivation

Initially, it is worth noting that BSC-type business programs do not include direct interaction with each employee separately. For this reason, the level of remuneration of an employee is tied not to his personal results, but to the level of efficiency of the entire department to which he belongs.

If you correctly implement such a motivation scheme, then the employee will work as actively and with a high level of involvement to achieve high performance in his department.

As a result, such a labor organization scheme leads to the formation of a connection between personnel motivation and the process of implementing strategic goals.

Also, the importance of the employee's contribution to the common cause is growing. This happens due to the visualization of its impact on the activities of the unit and the company.

Thus, by introducing competent motivation and getting clear, accurate performance indicators for all departments, managers can exercise full control over the functioning of the organization. This is the embodiment of the concept of strategic management.

Of course, there is always the risk of various deviations that prevent the achievement of planned indicators. In this case, management, thanks to the implemented BSC, can carry out a full and accurate analysis of the reasons for the deterioration in results and adjust the target values.

Such a system makes it possible to constantly have the most suitable format for the operation of the operational management system. Moreover, the strategy of the enterprise will not lose its flexibility, changing to suit new circumstances.

The MTP actually functions as a business control panel. It is designed with the expectation that plant management will deal with a small number of controlled parameters. At the same time, top management and owners of the organization will be able to quickly receive all the data regarding any changes that are important within the activities of the company or its individual divisions.

How to use the system correctly

If we consider the balanced scorecard on the example of organizations,operating on the Russian market, three of its features can be noted:

• BSC does not replace planning;
• the system cannot be effectively used without a well-designed enterprise development strategy;
• The main purpose of the BSC is the systematic management of the company, taking into account the relationship of indicators, as well as their values.

Thus, the system should not be used to determine the key goals and direction of the company as a whole. The BSC begins to operate when the strategy has already been drawn up and it becomes necessary to quickly and accurately control the process of its implementation.

For example, the goal is to increase the annual profit of an agricultural enterprise. After analyzing all facets of the company's work with the help of the BSC, managers, based on the data obtained, can see a clear need for economic, technical, organizational and technological changes. As a result, they will make the necessary correction and get new results.

Strategic management is the system that works best in the process of achieving 4-5 year goals. At the same time, specific indicators and values should be formed for each of them. It is they who will serve as a guide in the process of implementing analytics.

First, you need to determine the indicators for the entire planning period, and then develop them for individual periods (from six months). Next, you need to find out exactly what actions will help achieve a balance of the results of alldivisions. After that, it will be necessary to draw up specific indicators for their evaluation.

It is worth considering the fact that sometimes several departments are responsible for achieving the same result. This may be the revenue that 2-3 branches in the same region give together. And such an amount is one indicator of the effectiveness of the enterprise, and it should be considered in this way.

If you study the balanced scorecard on the example of an organization that has regional offices, then it will be necessary to use data cascading. We are talking about the formation of indicators for individual units, taking into account the annual goals of the enterprise as a whole. It is for their achievement that affiliates will be held accountable.

As a result, the activities of each division help the company achieve its strategic goals.

Results

BSC is a tool for managing the company's activities, which is necessary for any modern enterprise striving for development. Such a system allows you to quickly and accurately identify the strengths and weaknesses of production and management processes. Using it, the company's management will be able to constantly adjust the organization's strategy and make the necessary changes in the work of specific departments.