Learning and growth perspective of the Balanced Scorecard
It is not a secret that implementation of Balanced Scorecard is quite a difficult and lengthy process which requires considerable investment of time, money and human resources Every minor detail in the BSC dashboard may play an important role. That is why it sometimes happens that Balanced Scorecard only harms companies which have a negative experience of BSC implementation. The reason is the mistakes made at different stages of Balanced Scorecard implementation. Possessing ground knowledge is a must for managers in charge of BSC implementation and maintenance.
In other words, it should be clear what goals the company has, how it is going to achieve them and how success will be measured. Every of the 4 perspectives covers certain issues and things concerning the company in the external and internal environment. The last perspective in BSC is learning a growth. The last but not the least.
Such sequence has sense. First, the company sets goals in financial perspectives in order to meet requests and objectives of shareholders. On the other hand the company has customers whose needs must be also satisfied. Internal processes define actions and innovations that will make implementation of shareholders’ and customers’ objectives possible. Finally, objectives in learning and growth perspective offer infrastructure that makes it possible to achieve ambitious goals in the three other perspective. It is difficult to say which perspective is the most important. The name of BSC suggests the answer – they are all equal, as the Scorecard is BALANCED.
Learning and growth perspective explained
Objectives in learning and growth perspective are drives that that encourage implementation of goals set in the financial, customer and internal processes objectives. It has been observed that when organizations were measured based on short term financial objectives it was really difficult to perform effective investments that would improve performance of people, organization processes and systems. As a rule, cutbacks on such investment types are the direct way to improve short-term financial goals. As a result, consequences of saving in such investment types are not visible in the short term. But when they eventually come on the surface it is sometimes too late to act.
Sometimes, investment in the research and development are confused with learning and growth objectives. It is OK if the company invests in new equipment and technologies, but it still needs relevant infrastructure and educated personnel to make the new technologies work for the company. Of course, this concept works only in the long term, in order to reach long term financial objectives.
The three key categories in learning and growth perspective:
- Employee capabilities
- Information system capabilities
- Motivation, empowerment and alignment
Employee capabilities. With the emergence of huge businesses and enterprises employees usually had a strict plan which outlined the scope and the nature of work to be done. In other words, employees had to do much of routine work. However, the IT revolution brought in dramatic changes. Now, employees are hired to think for the company, while most of routine work is automated. The front line employees are those people who are close to production and customers at the same time. That is why creative ideas often come from the lowest levels. In the modern business world, maintaining current performance is not enough. Refusal to develop will soon cause company’s death. Thus, these days, creative ideas and minds of employees are used in favor of the company.
Core employee measurement group (Employee capabilities)
- Employee satisfaction
- Employee retention
- Employee productivity
Most companies have agreed that employee satisfaction is a precondition for overall business success. Statistics shows that most satisfied employees usually have the most satisfied customers. The answers lie in the psychological perspective. If an employee feels that he/she is valued, if there is a positive organization climate, it is reasonable to expect higher performance form such an employee.
Employee satisfaction is especially important in companies that provide customers with services since those employees who directly interact with customers usually receive the lowest compensation. The most common way to measure customer satisfaction is to conduct an annual/monthly survey. They key points in this survey go as follows:
- Involvement in decision making
- Recognition for a job well done
- Access to information which is required to perform tasks well
- Encouragement to be creative and active in the workplace
- General satisfaction with the company
Employees are asked to grade these points of a 1-5 or 1-3 scale. The average figure can be then added to Scorecard and given necessary weight (priority/importance).
Employee retention is another important indicator. As a rule, smart HR managers try to make the best employees stay in the company for as long as possible. Long term investments in personnel are known to be rather effective, and if an employee leaving the company, it (the company) loses part of its intellectual potential. Percentage of most important personnel turnover is a major indicator for employee retention.
Employee productivity is a measure representing impact of innovation, improved skills and knowledge of employee, improved customer satisfaction and internal processes on the company profitability. One of the simplest ways to evaluate employee profitability is to measure such an indicator as revenue per employee which, of course, should be well integrated in the system of other economic measures of BSC.
Information system capabilities
If the company expects employee (especially a front line employee who directly contacts customers) to perform better, it needs to make sure that such an employee is provided with the most accurate, complete and up-to-date information regarding customers, their goals, internal processes and possible consequences of his/her (employee) decisions. Employees should have a quick feedback on the product and services they offer customers. Ideally, this should be an online access to information in order to completely satisfy customers’ needs.
Motivation, empowerment and alignment
Imagine that an employee is well educated and has access to information on products/services. However, if he/she is not motivated enough the organization is unlikely to benefit. Thus, organization climate, employee initiative and motivation are extremely important. Some companies use such indicator as number of suggestions per employee. Of course, this indication should be tracked further to implementation and implementation results. It goes without saying that initiatives are to be encouraged financially, or in any other suitable for personnel ways. It is important that senior management controls how such suggestions are used and provide employees with feedback on this issue. Often, suggestions from front line employees can save thousands of dollars for big companies.
It is imperative that all goals and objectives in different department and business units align with company strategic goals formulated in Balanced Scorecard. One of the best ways to make sure objectives of departments are integrated to BSC it to expose Balanced Scorecard to as many employees as possible so that every employee understand his contribution to implementation of strategic goals and role of BSC in the company.
Capabilities of a company to learning and growth pre-determine success in the three other objectives. There are three sources of enablers for learning and growth: employee, information systems and organizational alignment. A special attention is to be paid to employee satisfaction and motivation (this especially concerns front line employees who contact with customers). All goals and measure in learning and growth objective must be subordinated to strategic goals of the company formulated in BSC.
Read more about other perspectives of the Balanced Scorecard: