First and foremost, business owners have to understand that Balanced Scorecard is not magic tool that can turn any mediocre company into a successful transnational business with billions of dollars in profits.  There is no way that can happen.  Balanced Scorecard and strategy maps are simply tools that can be both helpful in harmful depending on who uses them.  There are so many pitfalls and mistakes that business owners and top managers make when implementing Balanced Scorecard that this system has received a huge portion of criticism.  Balanced Scorecard requires considerable monetary and human resource investments.  This article views the most typical in common aspects of strategy maps implementation that lead to success.

Involvement of personnel

If top managers of the company are not supported by ordinary employees then implementation of strategy maps will be quite problematic.  Moreover, it takes a long time before all company employees clearly understand the concept of this project and its impact on the company everyday activity.  During this period it is extremely important that all company employees understand values, ideas and management philosophy of the strategy maps.  At that, company personnel should enjoy attention of the top management that should allocate relevant resources to prepare and implement a project.  Companies that fail to properly support the project as a rule lack enthusiasm regarding strategy maps and implementation of Balanced Scorecard in general.  It should be noted that both personnel and top management responsible for implementation of Balanced Scorecard must be enthusiastic about this idea, no matter what problems and obstacles are met on the way.

One of the major problems in implementation of strategy maps is involvement of personnel in development of the company mission, its strategic goals, as well as promotion of BSC methodology in general.  If employees have the wrong concept of a strategy map they may consider it to be another control instrument but not the tool used in implementation of company strategic goals.  Besides, involvement of personnel in development of strategy maps and company corporate mission is also imperative.  In such a way, the company may use efforts of individual employees aimed at implementation of common strategic goals.  There is another way to instill the feeling of involvement and desire to participate in the project.  Top management of the company may organize contest among employees who would suggest any ideas regarding implementation of strategy maps, development of the company mission, core values etc.

Clear setting of priorities

The recent decade saw a great number of serious changes in the companies.  Implementation of numerous projects and use of various theories of organization structure improvements resulted in justified irritation of personnel.  That’s why the theory of strategy maps may be considered as another innovative project which will spoil life and break everyday routine for the entire company.  Most employees will believe that strategy maps will only add a great amount to work.  Advantages of this project may be forgotten and chances for positive implementation and impact of strategy maps on the company performance make equal zero.  As a result, the right moment of strategy map implementation has an exceptional importance.  Ability of top managers to clearly explain the project goals and its ties with previously implemented projects also plays an important role.  For example, if the company has already used total quality management methodology, managers may refer to this project and explain what additional advantages the theory of strategy maps has.

Initiative group

The concept of strategy maps aims at providing top management with the most complete picture reflecting company position, its strengths and weaknesses.  That’s why initiative group should consist of representatives of various functional divisions and administrative branches.  Moreover, group members should have the chance to express their opinions on any and all issues and problems appearing during strategy map implementation process.  Many companies form initiative groups with mostly economists and accountants which is a very common mistake.  No wonder that their strategy maps have a bias in favor of financial figures.

Initiative groups usually consist of 4-15 persons.  It seems impossible to determine the right number of initiative group members.  On the one hand, a huge initiative group is very slow to act, while on the other hand all business units and apartments should have their representation in the initiative group.

Implementation scope of strategy maps

If the project covers too many problems or implies involvement of a great number of people, there is the risk that it will become too inflated and “eat up” much of corporate resources.  Company management may need too much time to get employee support in implementation of strategy maps, and desired results will never be obtained.  The project may require too much time of top managers, many of whom will consider it “wasted time”.  Some companies try to fight this trend by introducing so-called “pilot” projects in separate department or business units.  In such a way, the company may learn useful lessons from such experiments.  Obtained experience will be very useful in implementation of strategy map on a larger scale.  There is another advantage of a “pilot” project – it helps win employees’ trust to the project.  Attitude of ordinary employees regarding positive and negative features of strategy maps mean much more than ardent speeches and statements by top managers and external advisors.

Still, some companies prefer to implement strategy map concept on a company level claiming that strategy maps include a great number of issues and problems, which makes it impossible to implement them on lower levels.

Ties with the corporate culture

There is a core principle – strategy maps should be related to corporate mission and strategic goals.  Before development and implementation of strategy maps, it is necessary to perform decomposition of corporate strategy goals to the level of subdivisions, business units, departments and individual employees through creation of relevant key performance indicators.  If strategy maps are not related to company strategy there is the risk of imbalance between goals of different departments.  It is also important to keep balance between talking about strategy and doing something to implement strategic goals.  Experience shows that unfortunately many employees are eager to talk about strategy without paying too much attention to their everyday duties and responsibilities.  That’s why some companies prefer to charge a small initiative group with strategy development, while the personnel is developing action plans, sets of indicators as well as setting local objectives.

Clear and consistent system of key performance indicators

Indicators selected to be used in strategic maps should be unambiguous and unified for all company departments.  If the company wants to compare results of departments and business units then evaluation methodology should be clearly defined and unified at the corporate level from the very beginning.  This information should be available in understood for all employees through shared database.  However, if it seems impossible to find a unified indicator for a certain activity aspect, it does not mean that the company should give up implementation of any indicators at all.

Proper balance and cause and effect ties between indicators

Strategic goals of the company are traditionally set with the help of financial indicators.  Strategic management and performance evaluation systems with a financial constituent part make it possible to control financial indicators almost on the everyday basis.  But many companies experience difficulties with evaluation and control of nonfinancial indicators, which are, as known, extremely important for any company.  Strategic maps do not only broaden concept and perception of business but also show impact of key performance indicators on one another.

Even if the company has no information on such influence for the previous years, it is very important to discuss this issue.  Even if there are no opportunities to clearly set these cause and effect ties, as a rule managers have their own concepts and understanding of interrelation between indicators.

Setting clear and realistic goals

Every indicator should have corresponding goals.  In order to make employees trust strategic maps, these goals should be communicated with the company mission and strategic goals.  Secondly, they should be realistic and achievable.  At the same time, the goals should be rather ambitious to stimulate company growth and development.  Company personnel should believe that it is possible to achieve goals, otherwise are very few chances for success.

Goals are set both in the short- and long-term.  Short-term goals are usually to be implemented in 3-18 months, and they have an intermediary nature in relation to long-term goals.  To control implementation of short-term goals it is necessary to perform evaluation of corresponding indicators as often as possible, for example once a month.

To the contrary, long-term goals cover the period from 2 to 5 years.  Such goals can be modified and amended during the process of strategy development.  Relevant indicators are to be measured once a quarter or once a year.

Relation with the existing managerial control system

Sure thing, any company already has own system of managerial and operational control.  That’s why it is very important that Balanced Scorecard in the concept of strategy maps is well integrated into the existing controlling and reporting system.  The system of budgeting and stimulation methodology must comply with the requirements of strategy maps and key performance indicators.  In course of time existing management and control systems acquire the same format as the strategy maps and Balanced Scorecard in general.

Flexibility of indicators and methods of their evaluation

One of the greatest advantages of Balanced Scorecard is that it is possible to change indicators and assessment methods in course of time, as internal and external environment change.  Markets are very volatile and it is very important to timely react to changes.  Indicators should be simple, clear and what is more important – adjustable.

Depending on what solution the company chooses, it reflects unique peculiarities of Balanced Scorecard implementation. They will be also analyzed in this article, namely:

• How is strategy map implemented in the company and what is its decomposition to the lowest level of organization hierarchy?
• Some companies are talking about key activities aspects/perspectives while others stress the importance of activity focus. What are differences between these notions? Should every company develop its Balanced Scorecard and strategy map based on the four categories offered by Norton and Kaplan, or can maybe top managers and business owners have some freedom regarding this issue?
• What are strategic maps? How many strategic maps does the company need? Who chooses strategic maps?
• How deep should decomposition of strategic maps be? Should it necessarily come down to the level of an individual employee? Can all indicators in the strategic map be used to set company’s goals?

Organization process for strategy maps development

It has been repeatedly stressed in specialized literature and studies that is very important to create initiative group that would devote its entire time and efforts to implementation of strategic maps in the company. Group members should be trusted by company officials and be independent from heads of separate departments and business units. They should be also open for any ideas that may come from the lowest company levels. It is not an easy task to form such a group. Most managers have a very busy working schedule. Sometimes managers are reluctant to freely express their thoughts and opinions to all group members.

The solution may be the employment of an external advisor who will be appointed a project manager. Advantages of such decision are obvious in the situation when company employees want to preserve current management and control system. At that, it is unacceptable that project manager is the only person who creates and chooses key performance indicators for strategy maps. Decision-making should be a collective process. Project manager’s role is to organize the process and implement strategic maps. The initiative group should hold regular meetings to discuss urgent issues.

Organization of strategy maps implementation is a decisive success factor. Managers and top specialists, who are rather authoritative in the company, must promote the project in every way and get personnel involved and interested in it. At the same time, the innovative nature of the project pretty much depends on chances for personnel to get involved and contribute to its implementation. That’s why, the manager in charge of implementation of strategic maps should be very attentive to every opinion and suggestion coming from every individual employee in the company. The manager should initiate discussion of innovation, but in no way he should offer “already made” decisions.

Key activity aspects and focuses

Initially, Norton and Kaplan introduced the term of key activities aspects: how is company looking in the eyes of customers or what are peculiarities of business processes organization? Later on, authors and scholars started talking about focus of activity. These notions are not always identical. Such activity aspect as customer relations includes perception of the company by customers from the position of quality service, positive image of individual products or product lines offered by the company. Customer relations as focus of activity may mainly include company’s image and concept of its customers. What is the penetration rate of company’s products to different market segments? Is the number of customer growing? How much is the company dependent on non-numerous core customer group? But still, despite such difference, very often the above terms are used as synonyms.

Of course, the company should take into account both positions “how customers view the company” and “how the company views its customers.” Such indicators as operation cycles and number of products are simultaneously representing company competitive advantage as compared to other market players and conformity to internal standards. What internal standards should be set to secure company success in the market? The final verdict in this issue is left for customers and competitors. Still, it is very difficult to forecast this verdict at implementation stage of Balanced Scorecard and investment in development of new products.

It is believed that a good strategy map implies balance between several activity aspects of the company, primarily between the four perspectives. Besides, the company strives to get the best ratio of long- and short-term indicators, instead of getting the best values for current financial indicators. The balance varies. In particular, it can be a balance between assessment of the company by external persons (in all perspectives) and by company employees (in various activity focuses).

Based on the strategy map it is possible to get another balance which is balance between statistics and dynamics, i.e. between static goal situation and changes tempos. Balanced Scorecard characterizes company both at a given moment and tracks changes over a certain period of time. For example, it is possible to introduce to strategic map indicators that represent number of customers at a certain moment, and at the same time changes in the number of customers for a certain period of time. Evaluation of intellectual capital may serve as another good example. Evaluation of such capital represents its condition at a certain moment, but it is very interesting to learn how it changed for the reporting period. Strategic maps do not allow evaluation of company based on short term results. Balance between static and dynamic figures as one of the greatest advantage of strategy maps. Without strategy maps most investments are shown as expenses for the reporting period until the moment when first return on investment is achieved. But evaluation of investments and their inclusion to strategy maps and attracts managers’ attention as well as improves management process.

Can company choose key activity aspects/perspectives by itself?

Strategic maps in Norton and Kaplan model include four perspectives: financial, customer, internal processes, learning and growth. But some major companies have added the fifth perspective – human capital. Sometimes additional perspectives are developed to solve a particular problem. Let’s analyze indicators related to employee relations and development of IT technologies. Can they be included to traditional perspectives/key activity aspects or should they be assigned a separate category?

The major peculiar feature of a strategic map is the focus on business strategic development. If relations with employees or IT technologies are being the key focus in company strategic development, than these key activity aspects should be assigned special indicators to be evaluated and controlled. Indicators related to IT technologies or relations with employees can be applied at any level – department, branch, company or corporation as a whole. It is also very important to identify ties and relations of such indicators with other key activity aspects like innovation and development, relations with customers etc.

As already said above, strategic maps are designed to manage business development, that’s why emergence of new categories/key activity aspects is quite logical. The appearance of human resource perspective is explained by a special concept of human resource management. There are many companies that believe human resource capital has a great impact on material assets and company capability for development. At the same time, there are many scholars and business gurus who suggest that Norton and Kaplan model should be used without any changes as company managers and those in charge of implementation of Balanced Scorecard have every chance to expand categories to add additional indicators.

Norton and Kaplan model has mobilizing features as one of its goals is to focus company efforts on solving a limited number of problems. Since the strategic map contains last year’s results in its upper part, current goals and objectives in the middle, and strategic goals in the bottom, it is very easy to identify ties between short- and long-term goals. Last year’s results are presented in the form of traditional financial indicators. Key performance indicators related to internal processes and customer relations reflect ratio between internal and external factors in company activity at a present time. Besides, they show that current company’s position in the market and direction of company development depend both on internal and external factors, and this is understood both for company employees and its customers.

For example, the company may improve its current market position at the account of internal factors, as well as through an effective use of external environment factors. Human capital has an exceptional importance in all four perspectives. If the company adds an additional human resource perspective, then it will be difficult to formulate contents of learning and growth perspective which is located in the bottom of the strategy map. Thus, it is recommended to stay with the traditional BSC model, and if any amendments and additions are introduced they should be well integrated into the system of company strategic goals, mission, values, organization structure etc.

Much has been written on most common mistakes and problematic areas associated with Balanced Scorecard implementation.  It has become clear that every implementation stage of Balanced Scorecard requires much persistence, knowledge, skills, experience and patience.  Balanced Scorecard does not work in the short term while there are so many top managers and business owners who want to have immediate positive financial results.

One of the greatest advantages of Balanced Scorecard is that this system makes it possible to clearly see cause and effect ties between indicators and BSC categories.  What are cause and effect ties?  Let’s analyze a hypothetical example! 

The company owners have set certain financial goals – to increase cost of company shares, gain competitive advantage through winning favor of new customers and thus occupying a greater market share.  As known, Balanced Scorecard evaluates indicators in the four categories which are called perspectives: financial, customer, internal processes, learning and growth.  The above goals are referred to financial category, but their implementation is impossible without measuring performance and implementation of goals in the three other categories.  With the help of strategy maps which are created by Balanced Scorecard software it will be possible to see HOW financial results will be obtained.  For example, to win favor of new customers it is necessary to introduce innovative products at competitive prices, which requires extensive use of company intellectual potential, optimization of internal structure, education and coaching of personnel.  So, this looks like a chain in which implementation of every subsequent goal is impossible without completion of the preceding one.  Understanding of cause and effect ties will give clear answers to most important question – of how to achieve success?

Cause and effect ties between indicators

The balance between different indicators and aspects of activity, included to strategic maps, has an exceptional importance.  Often, companies aimed at setting priorities and ties between different key success factors.  Here are some examples:

• What is the urgency of improvements in personal computer literacy?
• How does performance of customer support service influence rate of repeated sales?
• What is more profitable in the long term: improvements of business processes or price cutting strategy?

In such a way it would be logical to create a scheme which reflects ties between separate indicators of the strategy map.  For example, if customers remain satisfied with the product quality and customer support service, such customers are more likely to become a regular customers for the company which increases profits.  This is a direct way to implementation of financial strategic goals.  This scheme also underlines importance of separate indicators.  For instance, customer service in bank’s regional branches is characterized by indicator developed based on customer satisfaction index, as well as results of the audit and timely submission of annual reports to the head office.

The two types of cause and effect ties

Cause and effect ties can be of two types.  The first type includes ties which can be measured, evaluated and analyzed based on the experience or conducted research.  These may be, for example, influence of improvements in personnel computer literacy on added value of the company, or reaction of customers to offered services and support.  The second type implies supposed ties.  For example, it is possible to expect that increase in number of company web page visitors will encourage company managers to investigate new business opportunities and make investments in IT sphere.  There can be many various consequences of such a decision, but no research will prove or dispel this assumption.

It is possible to say that conclusions on interrelations between different key performance indicators in the strategic map can be made based on the experience and results of special research, but still some certainty may remain.

How to research cause and effect ties between KPIs

Research of cause and effect ties between indicators can be performed in two directions.  When decomposing mission and strategy to the level of key performance indicators and objectives the company moves from general notions to specified and detailed ones.  But then when mission and strategy is promoted in different departments and business units of the company with the help of strategy maps, key performance indicators build a chain of absence which leads to implementation of mission and strategic goals.  Key performance indicators in the strategy maps secure interrelation between key activities aspects.

Increase of human resource value in the company and its intellectual potential caused growth of intellectual capital in relations with customers, which also influences company profitability.  Some consulting companies claim that they manage to identify these ties.

Of course, these examples are very interesting but still it is impossible to identify a general trend.  These are just separate cases that illustrate only one aspect of a problem.  For instance, if company development very much depends on IT support, than knowledge and experience obtained by personnel will not be the only important factor.  It would be necessary to evaluate quality, accessibility and efficiency of using IT technologies.  This example vividly demonstrates the necessity for creation of a system of indicators capable of representing all critical success factors in full.

Number of indicators and ties in strategic maps

Is it necessary to describe cause and effect ties between indicators in the strategy maps?  Some strategic maps may include several indicators which are not related with one another.  This peculiarity is one of the advantages of strategy maps as compared to traditional financial reports.  If it is possible to identify ties between separate indicators, then such KPIs as personal computer literacy or customer support service quality can be formulated in financial figures.  In general, it would be better to leave identification of cause and effect ties between such indicators for users of strategy maps.  Setting priorities is in fact one of the major advantages of strategy maps development.  The choice of certain priorities means that developers of strategic map you favor to certain expected results.  For example, if company wants to improve customer support service, then improvements in business processes or price cutting strategy will be given relatively less priority.  Actually, company priorities should dictate certain succession of its actions.

It is not recommended to considerably decrease the number of key performance indicators in strategic maps as additional indicators makes it possible for company personnel to learn more about their business.  In open discussions may be held in order to explain ties between separate indicators.  If the indicator value is calculated based on statistical research, it is recommended to perform such a research.

When calculating final indicators and indexes on top levels of organization hierarchy both anticipated cause and effect ties and identified ones.  Widely used indicators related to customer satisfaction or human resource capital often present qualitative assessment of questionnaire results on customer attitude to certain aspects of company activity.  For example, grades for employee competence may be calculated as average grade assigned for answering of certain questions listed in the survey.  If the average personnel competence grade is 80% and 75% of managers said that they have necessary experience and knowledge, it means that the company has obvious potential to improve performance.  But is the high rate of those who claim they have necessary knowledge and skills good in all cases?  There are several reasons for a negative answer to this question:

1. Most employees know they lack knowledge in certain areas and they are working on that.
2. Job management is ineffective or its core principles are not understood to the personnel, and that’s why employees are doing the job for which they do not have necessary skills and knowledge.  Thus this and the kind word they should not perform.
3. Company personnel have high claims and always want to improve own professional level.

The last two reasons look quite real.  In the second reason play the most important role in the negative answer, then it wouldn’t be reasonable to start an education and training program, because re-assignment of tasks between employees or improvements and job management will have a greater effect.  If the third reason is a major one then training and education program will be quite effective, and quantify the sense of employees who are not satisfied with own professional level is an argument speaking in favor of the company.  At the same time it would be logical to try to increase this indicator to 75%.

Such reasoning should not undermine belief in efficiency of research in general.  This is rather a reason to think about interpretation of research results.  Besides, this stresses the importance of the right choice of the indicator and accuracy of its evaluation.

To be short, use of Balanced Scorecard will let you use:

To manage your business as a unit (which includes almost unknown for most of managers “noneconomic” factors). Think about how often you was saying “manage” and in the matter of fact kept in mind some unimaginable blend of “going there not knowing where” and “ do what others tell you”. Managing as a unit means the whole organization (every single employee) works in order to achieve a strategic goal.

To improve the level of visibility of business the managers up to the top level of hierarchy. With BSC you will get a measure with the help of which you can impartially to estimate your business and to predict probable scenarios of its development before the market will do it instead.

Really to control your managers without need to immersion in those parts of administration, that they are responsible for it. If before BSC implementation you were thinking that no one of your managers will not risk to cheat you, so now they simple will not be able to do it in large-scale.

Conclusion

The volume and format of our article does not let us to describe BSC in more detail. If you want Balanced Scorecard to work for you at the full capacity, it is necessary to know and to be able to use a lot of quite difficult details of this methology correctly.

The map of the article

Part 1. Discovering the new horizons of management: Introduction;
Part 2. Discovering the new horizons of management: Measuring non-material;
Part 3. Discovering the new horizons of management: How exactly to measure?;
Part 4. Discovering the new horizons of management: The benefits.

Business is not an exception here.  Big and small companies use different performance management tools to evaluate efficiency and productivity of their businesses.  But some companies have truly remarkable measurement systems while others are still in the Stone Age when it concerns the ability of managers to understand the evaluation mechanics of their business.  Many managers cannot answer the question why their company is performing as it is and how it can perform better.  When it concerns cause and effect ties nothing is better than measurement, which is also true for business.  But what should the company measure besides traditional financial data?

Performance measurement systems

Without any doubt Balanced Scorecard is the most popular performance evaluation tool and at the same time it is the most controversial system.  However, there are other effective performance management systems like the Quantum Performance Management Model, Performance Prism and the Tableau de Bord.  All system are helpful and useful but none of them can provide top managers and business owner with all the answers to all of their questions.  By combining elements of different measurement systems will have the following model:

1. Strategies primarily depend on demands, expectation and needs of shareholders and customers.  Stakeholders are shareholders and employees.  At the same time, the community, suppliers and government bodies, as well as other organizations may play the role of important stakeholders.
2. Strategy is not only about financial results.  The strategy defines the customers a company wants to have and how the company intends to compete for customers.  The company general strategy consists of various individual strategies which imply certain actions company should make to implement goals.
3. All direct and support business activities to execute strategies and produce products/services must be included to operations.
4. Company’s organization and infrastructure must make it possible for its operations to meet customers and stakeholders needs.
5. Contributions of stakeholders may include services and products which are very important to operations, for example tech support.
6. Products and services sold to customers lead to certain financial results for shareholders, and very often for other stakeholders.

What questions need to be answered by top executives?

In order to correctly measure performance of the company and its progress on the way to implementation of strategic goals every top manager should be able to answer a certain set of questions, namely:

Customers

1. Do we satisfy our customers?

• Customer satisfaction and dissatisfaction
• Retention indicator of customers

Stakeholders

1. Do we satisfy shareholders?

• Financial results for shareholders

1. Do we satisfy stakeholders?

• Retention and behavior of stakeholders
• Satisfaction and the satisfaction of stakeholders

Strategies

1. What is about our customer base?

• Potential of market
• Market growth rates

1. If the company strategy really effective?

• Market share
• Number of new customers
• Average customer profitability
• Profitability of products/services
• What external factors influence customers?

1. Are all individual strategies being implemented in a proper way?

• Strategic goals and on the line objectives to implement them

Operations

1. Does the company serve customers and stakeholders in an effective way?

• Quality of products and services

1. Do we operate in an inefficient way?

• Waste
• Costs for products and services
• Quality of process and productivity

Capabilities

1. Do we have or develop the capabilities we require in order to implement strategic goals?

• Infrastructure capabilities
• Organization capabilities
• Stakeholder capabilities

Of course, this is only a simplified scheme of what can and should be measured at the top management level of any company.  Of course, every company is individual and thus requires individual approaches, but this all were view is more or less correct and applicable to modern business.

Why is it important to measure market share?

Market share is a tricky thing indeed.  It will never provide you with a solution to the problem, but it will always tell you that you’re about to get into trouble.  The problem is that if you’re losing your market share it will not remain unconquered.  It means that if you lose than someone else acquires it.  This is called loss of competitive advantage.  A classical example of market share loss is Kmart and Wal-Mart.  Back in the 1970s Kmart started to lose share to Wal-Mart.  Management of Kmart did not pay too much attention to this fact of the company was developing and making profits.  Very few changes to the strategy were introduced.  But it was too late.  Now chances of returning market share for Kmart equal zero.

About performance evaluation and success in business

The above indicators are widely used by the most successful world companies that have received various awards.  Of the companies have comprehensive and effective performance management systems which includes some of the above key performance indicators.  It has been estimated that the companies that use performance management systems on a regular basis operate 2-3 times better than companies without such systems in terms of operating income, cash flow, sales growth etc. The logic of how company measures its performance represents top management concept and understanding of the way business must be run.

How to determine what to measure?

Is it easy to find what you company should measure in order to evaluate its progress?  As we have already mentioned, there are several performance management systems widely used in the business world.  Sure thing, all of them have advantages and drawbacks, as well as relations to common practices in business.  But perhaps, the best performance management system currently available in the market is Balanced Scorecard.  It is recommended to use this system in combination with the robust perspectives of the Performance Prism.

Balanced Scorecard is a very effective tool that vividly demonstrates company success or failure to implement strategic goals.  At the same time, discipline is a must when implementing BSC.  Lack of discipline is one of the most common mistakes that make Balanced Scorecard fail.  Implementation of Balanced Scorecard is a many stage process, and each stage should be given due attention.  Balanced Scorecard will provide your organization with strategy maps and targets.  At the same time key performance indicators, performance measures strategic goals, innovative ideas and initiatives are still to be developed by company management or even ordinary employees.

Balanced Scorecard gives no guarantees that the chosen strategy will work.  But key performance indicators will provide top management with timely feedback and information on how successful the strategy is being implemented at the time and what needs to be improved to completely implement goals.  Balanced Scorecard can alert company management about the problems even before they appear.  Without such measures, company management would be blind for a certain period of time and then shocked with sudden problems and obstacles.

Having a good strategy gives no guarantees for success as well.  Of what is really important is operation excellence.  In other words the ways strategic goals are implemented matter a lot.  In order to implement goals the company should keep high level of product quality, customer service, performance and productivity.  Measures as well as goals should be constantly reconsidered and if necessary reviewed.  Markets are very changeable and external changes should lead to organization changes inside the company.  This is why Balanced Scorecard is so much popular, as any goals and indicators can be amended and total performance percentage will be re-calculated.

Cascading measures

Measures on the company level are extremely important but they will appear useless unless they are properly cascaded all the way down to ordinary/front line employees who directly contact with customers and who in fact earn money for the company.  The reason to implement cascading system is very simple – it would be great if 100% of your personnel will be working towards the company strategic goals.  Statistics show that only 20% of managers directly participate in strategic planning and have the right concept of the company strategy.  Ordinary employees are sometimes ignorant of strategic goals or have the wrong interpretation of the company strategy.

The exception is market share that should be measured only on the top level, and in all other cases measures should be introduced at all levels.  Of course, they will vary from level to level depending on job functions and organization structure.  Different managers need different information to measure critical success factors.  Through introduction of key performance indicators and all structural levels company strategy is communicated with operational management which is the key goal and primary advantage of Balanced Scorecard.  As you descend the organization structure the focus of measures must be on processes and operations.  In such a way the company strategy is transferred into action.

Implementation of performance measures

Looking for key performance indicators and measures is not an easy task which requires 1/3 of total implementation time for Balanced Scorecard.  In order to create winning key performance indicators much information must be collected.  Besides it is imperative to train personnel to work with Balanced Scorecard.  Moreover, measures must be understood for ordinary employees.

One of the greatest problems with implementation of Balanced Scorecard and creation of key performance indicators is to change the way managers and employees acting think.  This is about changes in company corporate culture.  Some people are happy to accept these changes, but certain all school managers are reluctant to abandon their beliefs.

In order to overcome these problems strong leadership is a must.  Even the best performance management system will fail unless the company uses its knowledge, skills and values.  Balanced Scorecard must become an inseparable part of the company but not just an interface element in it.  Once implemented and properly maintained the Balanced Scorecard will reward the company.  Major benefits of Balanced Scorecard are:

• It is possible to see what causes problems in sales and profits (strategy, operations etc.)
• Timely location of problems and business opportunities
• Improved product quality, customer service and productivity
• Ability to see cause and effect ties between goals and measures, as well as company strategy

Different business owners and top managers have different answers to these questions.  But these are not “yes-no” questions, as the answer “no” means that such business cannot stand tough competition and is doomed to fail.  The point is HOW to answer “yes!”

Balanced Scorecard system may be the answer.  If you still do not know how to align operational and strategic management in your company, communicate internal and external performance, then Balanced Scorecard is exactly what you need.

Different people have different concepts of Balanced Scorecard.  For some managers this is just a performance management tool.  These are simple dashboards with the categories of indicators used by executives and managers.  Management based scorecards very often have little strategic component.

On the other hand, Balanced Scorecard can be also used as a strategic system for planning, measurement and management.  In such a case BSC aligns goals, measures and actions of all employees departments in the company with the generally accepted strategy.  In other words, such systems puts strategy into action, rather than controls company performance.

This article will focus on implementation and peculiarities of Balanced Scorecard in technology companies that are characterized by shrinking product cycles, importance of recruitment, retainment and reward of talents, constant innovation, high customers’ demands etc.

The first and the most important step in BSC implementation is strategy development and understanding of customers and shareholders needs.  It is important to identify so-called strategic themes that include strategic objectives and are associated with strategic results.  Typical examples of strategic themes are market driven excellence, customer focused operational excellence, strategic planning, innovation and growth.  Then, based on strategic themes and strategic objectives, a set of key performance indicators is developed.  These indicators are divided among four perspectives: financial, customer, internal business processes, learning and growth.

Financial perspective

Strategic objective: increase return on investment (ROI)

A technology company dealing with numerous operational disciplines may be not doomed to failed even if decisions related to development of products are wrong. Technology companies make product management decisions based on product development expenses.  It is imperative to analyze return on investment and use it in the process of making decisions.  As such, this process may have two directions – vertical and horizontal.  This is a very important requirement for decision making in technology companies.

As a rule, managers in technology companies are usually satisfied with how they can determine return on product development expenses and technology.  But traditional approaches to return on investment, like discounted cash flow analysis, can be hardly applied in the field of technology and thus are not very popular with managers, marketers and shareholders of technology companies.  Such analysis is often performed by team of financers.  Decisions on how much to spend, what to spend on, and when to spend are made by someone else, which results in dissonance between contributions of profitability in product development and various support efforts.

However, there is an alternate option to analyze return on investment in technology companies:

• Unified financial indicators for management purposes and product planning;
• Measurable EBIT, operating income or EBITDA;
• Scaling from the level of project up to the product line, department and company/corporation;

A unified financial metric will facilitate decision-making as to investments as well as help to decide what not to invest.  In its turn this will help to run projects and programs that have the highest revenue potential.  In such a way, technology company increases profits and revenue which are direct results of proper product development and efficient innovation.  There may be some other strategic objectives like increasing revenue and profits which are, however, typical for any business area.  These goals are inseparable parts of any financial perspective.

Customer perspective

Strategic objective: intensify customer relations

Technology customers are really special.  Usually they have very strong preferences on what brands and products they buy.  That’s why they require a special dialogue and special relations.  Thus, front line managers in technology companies who directly contact with customers (either sales of support) have a prior task of maintaining strong and positive relationships with customers.

So, front line employees have to pay a special attention to the following issues:

• All issues are continuously monitored;
• It is necessary to identify high priority issues and find necessary resources to deal with them;
• Use model revolution indicators are obtained from stream of issues.

If front line employees pay due attention to the above issues then there seems to be little problems with customer satisfaction and retention of existing customers.

It is not a secret that technology customers expect, request and very often demand upgrade and improvement in products features and quality of services.  Moreover, they are ready to pay for these upgrades and improvements.  It seems ridiculous but customer satisfaction improves even if a customer failed to have an upgrade but he is aware that such option is available.  Recent touchscreen device revolution has proved this fact.  If we look at the “iPhone and iPad boom” we will easily understand this trend, as most users barely use 1/3 of all functions and features offered by the above devices, but customers still know they can use them, which makes them satisfied.

Interaction with customers is about asking their opinions and analyzing their offers.  Do not throw to the trash bin such proposal as “I want my cell phone to chat with me when I have beer”.  Who knows, maybe in some years this will be top cell phone feature.  So, all proposals and offers have to be analyzed.

Internal business processes perspective

Strategic objectives: make improvements in a market evaluation procedure

Technology market is changeable as it is regularly hit by a variety of new products.  The company may be busy developing as they think a revolutionary device, but when it is introduced to the market it becomes clear that such device is already old-fashioned and has very strong competitors.  Market evaluation and monitoring should be never stopped.  It is impossible to base product development on one point in time measurement.

Let’s view a very simple example of the iridium satellite phone.  Initially, it was meant to be a sensation as making a call from any place was a great idea.  But with appearance of cell phones which are cheaper and lighter, iridium satellite phones were doomed to fail.  At the same time, it would be wrong to say that development of a iridium phones was a bad idea.  It was a mistake in the market evaluation.

Forecasting is extremely important before and after launch of the new product.  The key mistakes in predictions are:

• Failure to accurately define customers buying cycle;
• Variations in buying cycles throughout different customer groups, market segments and geographic regions;
• Wrong predictions as two timing of customer purchases.

Improvement of product life cycle management is another important strategic goal.  The sooner innovative products are developed and introduced to the market, the greater market share will be obtained.  It is also an excellent opportunity to position the company as a leader in certain markets.  Latest Apple products are very vivid examples.

Learning and growth perspective

As already said above, innovative technologies are a critical success factor.  There are many ways to obtain such technologies without huge risk and enormous expenses.  So, if the company wants to stay a leader in certain markets one of the strategic goals will be continuous identification and application of innovative technologies.  There are several ways to get innovative technologies such as:

• Partnership with universities
• Consortium in industry
• Funding from government

It is very important to pay a special attention to human factor.  All innovative ideas and technologies are developed by people.  That’s why it is imperative to retain most talented employees and collaborate with the brightest talents from universities.

It should be noted that traditional organization structure fails to work in technology companies.  Top-down structure slows down development and production process which may result in losing competitive advantage in the market.  It is recommended to form cross functional teams that have a relative freedom in decision-making as to innovative ideas and funding.  This will shrink product life cycle and cross functional teams will become core elements in the development and production process.  It is also important for top management to keep pace with cross functional teams otherwise there will be no purpose in their creation.

Summary

Technology companies achieve success through innovation and introduction of innovative products to the market.  As said above, it is extremely important to maintain relations with customers and ask them what features they want to have in the new products.  A strategy based Balanced Scorecard will measure objectives and show cause and effect ties between them, so that top managers and ordinary employees can actually see what needs to be done to implement financial goals.

The concept of Balanced Scorecard is used not only in the area of commercial business, but it can be also applied to measure personal goals.  Personal Balanced Scorecard is widely used by individuals who want to develop themselves and reach strategic goals in life.  Personal scorecard motivates individuals, develops self discipline, tolerance etc.  You can read about personal balanced scorecard, its four perspectives and examine a set of indicators at the following page, while this article focuses on top 10 reasons to use Balanced Scorecard for personal development.

Reason #1

Personal Balanced Scorecard helps you distance from norms and beliefs instilled by education and upbringing, and listen to own inner voice.  It also makes it possible to change own conduct and build own future.  This can be achieved in two ways: 1) adjust external circumstances to personal goals and 2) change own perception of external circumstances so that they fit your personal goals. Both strategies are components of Personal Balanced Scorecard.  Practice has shown that if an individual has clear personal goals he follows them in his life.  As a result, he becomes a dedicated and resolute individual.  Personal goals include different tasks, objectives and ethical norms which add sense to your actions.  Having formulated own Personal Balanced Scorecard and having worked on it, you’ll better understand your life and yourself, which in its turn will result in improvement of your self-consciousness.

Self-consciousness is your inner voice which reacts on everything happening to you nervous system (inner world) and to everything that surrounds you (external circumstances).  They say that in order to change a person it is necessary to change his self-consciousness.  Experience proves that individual coaching with personal Balanced Scorecard enables people to get the right concept about themselves and find their true ego.  Personal Balanced Scorecard offers stimulus for development and self improvement, it makes it possible to broaden horizons and improve mood.

Reason#2

Self-knowledge and self education based on Personal Balanced Scorecard will make it possible for you to work in a more efficient way, instead of working intensely.  Having studied your inner world, your character, spiritual processes and motives, you become more creative.  When you better understand your life your ability for education will improve.  You will gain inner harmony which will make it possible to change own conduct and get rid of bad habits.  Personal changes and improvements will inevitably result in organization changes.  If company wants to develop its employees the top management should better learn themselves.  The recent surveys have shown that many European managers have the wrong concept of own inner world.  Subconsciously, they negatively affect personnel of their companies.  About half of European employees have changed job at least once because of their bosses’ conduct.  Use of Personal Balanced Scorecard will help employees understand what it means to be a person.

Thanks to such education we rebuild our characters and gain skills that we thought we would never gain.  Such education helps develop creative side of our characters and ability to create rather than destroy.  If you will regularly use Personal Balanced Scorecard, obtained knowledge will make you wiser.  We admire people who achieved great success in life, and think they are exception from the rules.  But everyone can develop own skills, as we already have everything to succeed.  We only have to make the right use of own knowledge and skills.  We have to win the war against own laziness, superstitions etc.

Effective job implies well balanced work of left and right brain cerebral hemispheres.  You can achieve that with Personal Balanced Scorecard.  Most of us use only left cerebral hemispheres, while enormous potential of the right one remains unused.

Reason #3

Conformity of your conduct and your goals will make it possible to gain peace with yourself, make fewer efforts and listen to your inner voice.  All this will make your charisma more attractive.  Those who succeeded in it are respected and trusted by friends, colleagues and family.  Moreover, you’ll be able to make people who surround you dedicated to work.

Reason #4

Use of personal scorecards is very profitable for companies and organizations.  Harmony between interests of individual employees and organization’s interests results in higher performance of personnel.  The secret is personal motivation which makes any job enjoyable for an employee.  Personal and organization goals are formed simultaneously.  When we ask ourselves what we want for the company and where we want to drive at, we also ask what we want to achieve for ourselves and under what circumstances. Completion of our personal goals  automatically mean implementation of company strategic goals.  

Personal Balanced Scorecard makes it possible to bridge the gap between work and private life.  There are employees who hope that their job will help them find new friends, new ways of entertainment and rest.  Many employees treat their colleagues as family members.  There is a necessity to re-educate top managers and restore ties of their job with the normal life.  There has always been a great difference between how people treat colleagues and their friends/family members.  When we’re talking to friends and family members we do not view friendship and tolerance as sentiments.  Moreover, we think that friendship and tolerance are necessary to maintain good relations.  Why not use the same approach in our business life?

Reason #5

Having integrated Personal Balanced Scorecard to the training and education process and having unified it with the Organization Balanced Scorecard, it is possible to improve talent retention and human resource management.  Employees should always set new tasks for themselves and obtain knowledge necessary to implement these tasks.  As a result, learning and education process will not become a fiction as it often happens in many companies.  Integration of personal Balanced Scorecard into this process will make talent management more effective, which will increase employee roles in it.

Machines and computers do not make any company successful, but people do. That’s why no theory or plan will bring the company success, compared to how company employees can benefit it.  This is a core principle of human resource management nowadays.  And recent economic crisis proved this statement – companies with great intellectual potential managed to survive and even gain competitive advantage.

Reason #6

Personal Balanced Scorecard stimulates education in teams.  When employees share their goals and viewpoints they begin to the value and understand each other which results in improvement of respectful and reliable relations.  Regular use of personal Balanced Scorecard results in the lifestyle characterized by “freedom.” An individual pays attention to self discipline only when he feels free, and only self discipline promotes true personal development.  If an individual feels free in a certain area, this encourages him to look for freedom in other spheres of life.  Freedom implies responsibility and freedom intensifies it. If an individual is offered carte blanche (freedom of actions) he will be able (and moreover you will be eager) to assume responsibility.  The freedom of choice and the freedom of decision-making can do magic.

Reason #7

Personal Balanced Scorecard will help effectively use and manage own time by performing everything according to the plan.  Personal Balanced Scorecard is an action plan on implementation of your most important personal goals which represent your priorities.  It will help you become muster of your time. If something unpleasant happens or someone attempts you to change the course, you’ll quickly restore the chosen path, being aware that you are going in the right direction, set by personal Balanced Scorecard.  Time management is especially important for organization discipline.  Very often employees receive poor performance results just because they cannot efficiently manage their time, but not because they are incompetent.

Reason #8

Personal Balanced Scorecard will help employees get rid of fear to discuss their personal goals with their bosses and top management. Ordinary employees have from time to time to discuss their personal goals and personal Balanced Scorecards with managers.  It goes without saying that such talks should be held in private, and they should be 100% confidential.  Employees should feel that they are valued and respected. If an employee really feels that he is treated like a person but not like a small element in the business mechanism he will have additional motivation to show high performance.  This creates an atmosphere of trust and mutual respect which is necessary for personal growth and development of creative skills.  In general, positive organization climate has a direct impact on company and individual employee performance.

Reason #9

Personal Balanced Scorecard is a great tool to decrease stress and avoid physical and nervous exhaustion of employees by harmonizing their personal goals with strategic goals of organization.  The stress experienced by employees at work is defined as negative physical and emotional reaction which appears when employees face requirements which do not meed their demands, capabilities and skills.

Physical and nervous exhaustion is physical, mental and emotional reaction on a regular stress.  Physical and nervous exhaustion creates feelings of despair, importance, non-satisfaction, cynicism, offense, expectancy of failure which surely results in low performance.  Surveys have shown that employees having strained relations with management are more likely to experience severe stresses.  Regular use of personal Balanced Scorecard restores interest to job and harmony in labor relations, as well as decreases stress and helps avoid physical and nervous exhaustion.  It is not a secret that employees show their best performance only when they believe in something they do or have a keen interest in the job.  By the way, let’s not forget that a good mood decreases the risk of heart attack.  In other words, personal Balanced Scorecard helps find harmony own inner world and external environment.

Reason #10

Personal Balanced Scorecard helps human resource managers find a perfect candidate for a certain position.  Personal scorecard shows conformity of candidate’s abilities, motivation and skills to position requirements and company goals.  Personal goals of the candidate characterize him in a more complete way, as compared to a resume. It often happens that a person is perfect for a certain position, judging from his resume and biography, but his personal goals conflict with company goals.

If personal goals are well integrated in the system of strategic goals and position requirements, this will help improve customer satisfaction.  Recruitment of personnel is especially important now as headhunting is so much popular.  The right choice of personnel is a remarkable success factor for any business.  That’s why don’t waste your time for trying traditional and barely effective methods of self improvement.  Instead of complaining, start using personal Balanced Scorecard with its unlimited opportunities for personal growth and improvement of organization climate.

Summary

Personal Balanced Scorecard makes it possible to reformulate your personal goals, objectives, principals, norms and moral values, and then make your family, friends and colleagues familiar with them (in fact, all people whose opinion is important to you).  If organization takes into account personal goals and objectives of employees, it turns from from enslaving machine into a mechanism for their self-actualization.  Some all school managers think that if they let employees express their personal goals this will result in anarchy and chaos in the company.  However, these fears have nothing to do with reality, and most employees sincerely wish to align their personal goals with the company strategy.

If you want to improve relations with your environment, start with yourself.  If you want to achieve success in the external world, first succeed in your private life!  Before promising anything to anyone, learn to keep your own word.

At a first glance,  Balanced Scorecard can be hardly used to implement individual goals.  Some people think that this system turns human beings into machines.  Indeed, it is quite weird to count number of quarrels with your wife and amount of consumed alcohol.  However, in course of time use of personal Balanced Scorecard will become an inseparable procedure of your daily routine.  Moreover, when you start enjoying first results you will never regret you started your own personal Balanced Scorecard.  If this system works for best businesses in the world, why wouldn’t it work for you?

They say that something that can be measured can be improved.  Performance evaluation systems have become extremely popular in various business areas.  Planning and strategic vision are all important for any company that wants to succeed in the market and gain competitive advantage there.  But any business is run by people who have their own preferences in life.

• 10 reasons why use personal Balanced Scorecard

Of course, business goals are different as compared to personal goals.  Life is so versatile and unpredictable.  You never know what happens tomorrow, but still planning is important for those individuals striving to make their lives a complete success.

At a first glance, it may seem ridiculously and even funny, but the concept of Balanced Scorecard can be easily applied in the area of personal planning and development.  As already said above, every individual has different goals in different spheres of life.  People have jobs, families, hobbies and friends.  Naturally, every individual wants to make great achievements in life.  At that, these achievements and improvements differ throughout different spheres of life.

Personal scorecard 4 perspectives

The traditional Balanced Scorecard concept applied in business includes four categories (groups of indicators): financial, customer, internal processes, learning and growth.  These four categories fully describe everything that happens to the company both in the internal and external environment.  And what about personal goals?  Every individual has to deal with finance, processes in his family and company he works for, personal development issues etc.

Each category includes goals and.  It goes without saying that all goals must be well integrated into the system of values and mission in life.  Balance scorecard helps individuals set realistic goals and develop a system of measures evaluation of which will indicate success of failure in implementation of these goals.

So, what are the four personal scorecard categories?

• Internal.  This is about physical and mental state of an individual.  It should be noted that the person mood and physical well-being influences his performance at work, as well as has the greatest impact on relations with colleagues and family.  For example, the person who often false sick may be irritated and annoying which prevents him from completion of personal goals.  In this category one should give an answer how to maintain good physical and mental conditions.  The following personal performance measures in the internal category are most widely used: enthusiasm rate, work intensity, stress rate, stressed tolerance, job satisfaction, trust rate from boss, time when I felt good, job irritation rate, time spent for jogging, my weight, every sleep time, number of sports sessions a week, number of new tasks, frequency of uncontrolled emotion expression at work, cholesterol level in blood, intuition accuracy, percentage of time I felt full of energy, alcohol consumption, physical state, error rate at work, time spent for work and a number of others.
• External. Like any business or a company, an individual is living in the environment of other people: family members, colleagues, friends etc. it is important to know how all these people see you. If a person manages to be in harmony with internal and external environment he is more likely to reach goals and achieve success in everything he does.  The following personal performance measures are widely used in external perspective: customer satisfaction, of time spent with children, time spent with family, how often I made donations, reliability of my services, how often I was praised by my wife, satisfaction rate of other people with my services, number of warnings from management, my availability rate, number of frank and pleasant conversations with my loved ones, participation in public organizations, how often I help other people, how often I go out with family, number of quarrels with my wife, number of people who think I’m a good boss, how often I was praised for ethical conduct, how fast I answer emails, time spent with bosom friends, how many times my children ask for my advice etc.
• Knowledge and learning. Everything is simple here. An individual must develop his knowledge and skills no matter what he does in life. For example, IT engineer must learn new programming languages, while an artist should try new experimental arts and so on… Such goals may be formulated in the following way: “To read 10 new books by the end of the year” etc.  You may consider the following indicators in this category: number of areas I’m competent in, ratio of completed learning tasks, number of music classes, number of books on management, hours spend that training courses, number of published articles, ratio of sales which became possible because of newly obtained knowledge, expenses for education, number of innovative ideas, number of spiritual books I read, time spent for reading and discussion and a number of others.
• Finance. Both poor and rich people have to deal with finances. It is imperative to know to what degree an individual fulfill his financial needs. Measures in this category may include “number of timely paid bills” or “number of things which an individual planned to buy and did so.” Of other indicators may include financial savings, deviation from budget in percents, ratio of revenue from new orders, savings account balance, number of late bills, debts rate, revenue growth, wages, bonuses, cash flow, pension, investment rate, money spent for charity, household expenses, hourly jobs rate etc..

Personal performance measures/indicators are those norms based and which one evaluates his progress towards implementation of personal goals.  With the help of personal performance measures it is possible to evaluate own actions from the position of how you use own critical success factors and implement personal goals.  Personal performance measures a criteria with the help of which one measures personal goals.  Such indicators make personal vision and goals measurable.  Without such indicators and without any tasks it would be difficult to perform self coaching, using feedback information.  Personal performance measures stimulate for action in case they are related to relevant objectives.  Based on the indicators it is possible to develop a certain course of actions.

When you evaluate changes and compare obtained results with the norms, the indicators timely signals you about problematic areas, as well as your strengths and weaknesses.  It is recommended to have no more than two indicators for each objective.  When undergoing this stage of personal scorecard development your answer to questions: 1) how can I measure my personal results, and 2) what makes my personal goals measurable?

It is obvious that BSC models for commercial organizations and personal scorecards look very much the same. The difference that in business BSC models interests of shareholders/business owners are taken into account, while personal scorecards are focused on personal/individual ambitions. It also matters for what purpose personal scorecards are used. Often, HR specialists use them to align personal goals of employees with company goals and objectives.

It is also important to mention that the above model has various forms and interpretations. For instance internal goals and measures may include personal and health goals, while financial category may have thing goals. In fact, the number of categories may exceed 4, depending on specific character of personal scorecard.

In conclusion, it should be said that personal goals must always have realistic target and provide individuals with motivation. Only in such a way personal scorecard will really work.