Balanced Scorecard: improving communication in the company and adapting to market changes
Use of special automated business management tools is becoming increasingly popular in all business spheres. With the invention of balanced scorecard system the entire business world learned that evaluation of financial indicators only did not fully represent company business performance. Obviously, in order to achieve financial goals one should do something. Balanced scorecard system started using evaluation of operational/non-financial indicators to measure company performance and communicate company strategic goals with operational management.
It is not a secret that balanced scorecard system is the tool that works in the long term. However, some business owners and managers want to see immediate results. Some of them become critics of balanced scorecard as they failed to reach expected results in the short-term. At the same time, even though balanced scorecard works for the long-term perspective, this tool can be used to develop and automate business and management processes in the company, as well as monitor efficiency of information channels in organization.
As known, balanced scorecard works in four perspectives: financial, customer, internal processes and learning and growth. Internal processes is what we’re interested in when talking about use of balanced scorecard system for development of efficient communication, feedback and reporting scheme, as well as company’s more prompt reaction to changes in the market (external changes).
It often happens that large companies lack proper ties between departments and branches. Several months may pass before the decision adopted by management board will be implemented on the lowest level. This means that prompt and fast decision-making has no visible effect, since the relevant response measures will not be taken on time. This may result in loss of competitive advantage and contribute to worsening of relations between company branches.
By using balanced scorecard system it is possible to measure communication efficiency inside the company. Sure, the most important thing is finding the right KPIs to be measured. As known, some time should pass before a decision adopted by the top management comes down to the lowest operational management, especially if we’re talking about a large company. This is a complex process with numerous factors influencing its efficiency and transfer time. Balanced scorecard may be quite helpful in measurement of KPIs showing how fast information is transferred in all directions.
The problem is that information channels should effectively work in all directions, and problems and/or initiatives from the lowest operational level also need to reach top management within the shortest possible period of time. Evaluation of internal processes is measurement of company flexibility and ability to react on changes in internal and external environment.
By the way, lack of feedback and communication channels inside the company is one of the most common reasons why balanced scorecard system appears to be ineffective. As balanced scorecard is not a magic tool it requires educated and professional personnel and effective organization structure. Finding of the right metrics and KPIs for evaluation of internal processes and communication quality inside the company is the first important step to developing an effective measurement system for processes inside the company.
Imagine an order from top manager which concerns the entire company coming from the highest to the lowest operational level. The goal of Balanced Scorecard System is to transfer the order from level to level of splitting it into a series of sub-orders. Ideally, an employee should receive only that information which concerns his work.
Changes in the market conditions and external environment should result in certain changes inside the company, and Balanced Scorecard System helps makes this process fast and efficient. As to the changes in external environment, flexibility of balanced scorecard depends on the nature of such changes. These may be changes in the political, economic situation, emergence of new strong competitors etc. Of course changing strategic goals is quite an expensive and lengthy procedure. But using balanced scorecard it is quite possible to introduce slight amendments in measures and response actions aimed at reaching strategic goals. Having analyzed changes in the external environment, the company management needs to decide which KPIs should be amended or new which measures should be introduced.
As such, balanced scorecard can help
a) Improve communication processes inside the company, make information channels more efficient, improve relations between departments and branches.
b) In case of changes in the external environment decrease the time required to take response actions to external environment changes. This is the time from the moment such a change was spotted to the moment the response action was taken (by the way such response action may be a failure but the point is that it was taken as soon as possible) or the moment employees at the operational level started doing something in response to changes.
Decrease the time decisions from top management turn into response action
To sum it up it needs saying that balanced scorecard can measure and monitor effectiveness of communication in the company. It is imperative that every employee must be able to get information from the top or the low level as soon as possible, and this information should contain as many details as possible, taking into account professional area of such an employee. If the information is stuck in the company structure or reaches addressee too late, response measures may make no sense.
Use of balanced scorecard for optimization of internal processes makes an organization flexible and able to promptly react to external environment changes through changes inside the company, which is perhaps one of the greatest advantages of balanced scorecard.
There is no need to mention the importance of reacting to changes in the market. Ideally, the company should be one step ahead of the market trends, anticipate changes and start taking counter measures even before market changes occur. Fast reaction to market changes is a must for any successful business, or a company claiming to be successful.
Balanced scorecard will automate the process of transferring changes in the external environment to response measures inside the company, at the same time training personnel and improving company communication channels/feedback system. Again, it should be noted that Balanced Scorecard alone won’t be able to make the entire communication system work efficiently and make company adapt to market changes. Business is still run by people, and this axiom seems to remain unchanged in future.
BSC System can be used in changeable markets
