Balanced Scorecard Designer

Balanced Scorecard system has gained such a tremendous popularity that it has become a choice for many companies and businesses, some of which were somewhat light-minded before BSC implementation.  This revolutionary performance evaluation and strategic management tool seems like a magic stick for so many companies that hope Balanced Scorecard will turn their businesses successful overnight.  Unfortunately, or just to the contrary, fortunately, Balanced Scorecard is just a tool that can be both helpful and harmful, depending on whose hands are holding this tool.

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.

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Reasons for emergence of strategic performance evaluation tools

Business management issues are most important in any business.  In the early stages of business development it was enough to organize simple bookkeeping system which made it possible for business owners and shareholders to adequately evaluate business value, perform efficiency analysis, identify revenue, organize necessary managerial actions etc.  But as competition was becoming tougher and with development of technologies there appeared new important business factors – growing volumes of intangible assets that had a great impact on business efficiency and value.  Thus, if 20 years ago nonmaterial assets constituted only 38% from total assets volume, now this figure is approaching 85.  Moreover, even those assess that cannot be directly evaluated are considered to be primary assets.  For example, the fighting spirit of the company is referred to intangible assets.  Although they cannot be directly evaluated making bring quite real revenue and losses for the company.  Business evolution and progress required implementation of more effective management systems.

During the last several decades business owners started to ask themselves whether the reach their goals and how they do that.  Emergence of such questions is accounted for the following reasons:

• The scope of business ventures have incredibly grown as the business turned international;
• There is very little time for decision making (if 50 years ago the company had six years to construct a new automobile, now car producers have only two years in order to stand tough competition in the market);
• Decision-making is based not on the prime data but expected future results.

In such a way, modern business requires effective system to manage strategy implementation and communicate strategy, tactics and operational management.

BSC model

Balanced scorecard as a compass for modern business

Modern company requires a compass that would show the right direction in the changeable and sometimes violent business world.  Balanced scorecard system created by Norton and Kaplan is such a compass.  The idea of BSC is based on two statements:

• The right implementation of strategies is more important than the strategy quality;
• Use of financial indicators only in company management will not make it possible to fully reach the goal of increasing company value.

Balanced scorecard is implemented in companies with the aim of putting strategy into action.  The key mission of balanced scorecard is strengthening of business strategy, formalization of strategy, explanation of strategy to every company employee, establishment of monitoring and feedback systems. BSC is a management tool aimed at implementation of a long-term strategy.  It transfers strategic goals developed by top managers into a set of interrelated and balanced indicators which are capable of representing critical success factors of current and future state of the company.  Balanced scorecard can show implementation degree of a strategy through evaluation of financial and nonfinancial indicators.

Classical model by Norton and Kaplan of includes four groups (categories) of key performance indicators connected with cause and effect ties:

• Financial;
• Customer;
• Internal business processes;
• Learning and growth.

These four categories are applied in most organizations.  At the same time, it is always recommended to take into account specific character of every individual company, and amend this model with indicators and perspectives relevant to a certain company.

Balanced scorecard modal developed by Norton and Kaplan makes it possible for top managers to focus on those areas which are really important for strategy implementation, as well as use most important information having the greatest influence on company efficiency.  Moreover, BSC represents the idea of the so-called “responsible organization”, i.e. organization in which everyone knows his roles and responsibilities.  Of one of the greatest advantages of balanced scorecard is that it is based on both past, present and future events, thus becoming a “three dimension” model.

A few words about BSC advantages

Balanced scorecard is quite universal and can be applied to manage every business aspect, including nonmarket processes.  This is not another mathematic-economic model, but an entirely new approach to business management, superior level of business thinking, advanced logic of strategic decision making.  Balanced scorecard can be called an accounting system.  It is an inseparable part and sometimes even the nuclear of organization management system.  BSC can measure things that cannot be evaluated in terms of accounting.  Of course, financial indicators in balance scorecard are key elements, but at the same time they cannot give a complete characteristic of the entire business.

In the age of information and IT technologies implementation efficiency is playing the most important role, as all key managerial decisions will be made based on the obtained data. Will lack or distortion of information have a negative impact on BC implementation?  Without any doubt, the answer is YES!  That means that BC model should include indicators representing the quality and efficiency of IT system implementation.  In general, it should be noted that a set of key performance indicators in balance scorecard, their structure and priority is defined according to company strategy.  Sometimes, financial indicators may not have a supreme priority.

Balanced scorecard in combination with other management systems

Balanced scorecard can be successfully used with other management systems and methodology is implemented in various organizations.  First and foremost, these are budgeting system, quality management system (QMS) and reengineering.

There is a misbelief that budgeting can fully substitute balanced scorecard.  But budgeting system is the technology for operational management, and really focuses on results and strategic goals, while balanced scorecard makes it possible for an organization to communicate strategic planning with budgeting.  The maximum effect from combination of budgeting and balanced scorecard in strategic and operational management is obtained through automation of these processes based on a shared IT platform.  At that, it is necessary to include started values of balanced scorecard financial indicators in the annual budget.

Requirements to implementation of quality management system are partially relevant to implementation of balanced scorecard.  Above all, this is necessity to integrate top management in the process of quality management.  In such a way this requirement directly refers to strategic management area.  Scorecard with support of quality management system implementation must perform functions which are supported by BSC as well:

• Understanding of quality strategy at all levels of an organization;
• Ties between different projects of a company;
• Communication of selected quality strategy outside the company.

As a result, we can see interrelation of these systems which makes it possible for the company to improve quality management system and implement balanced scorecard at the same time.

Interrelation of balanced scorecard and reengineering is especially interesting.  Usually strategic goals set by business owners or shareholders seem unachievable or non realistic to linear managers.  That’s why implementation of balanced scorecard without reengineering methods is almost impossible.  Thus, top managers of very far from every day operations in the company, and their views on company management are based on financial indicators which represent past events.  Reengineering makes it possible for top managers to understand business processes and factors in depth which helps them reach strategic goals.

Reengineering of business processes changes almost everything in the company because personnel, intellectual capital, management and values are interrelated.  We call them for elements of business system diamond.  The key element is company business processes or the ways in which job is done, the second one is intellectual capital in organization structure, the third is management evaluation system, and the last is organization culture – values and personnel attitude.  Relations between these elements play a key role.

Reengineering in BSC implementation enables company management to effectively review existing business processes and integrate them in full.  At the same time, using a range in Erie methods, balance scorecard helps business shift from “Brownian motion” to “ordered motion”, intensify synergy effect etc.

As a result of this process, balanced scorecard becomes an effective tool to stimulate and motivate employees who would aim at implementation of specified goals.  It can force an employee to use a previously identified path.  Statistics show that 88% of companies using balanced scorecard to motivate employees consider this system extremely effective.

What is necessary to implement balanced scorecard?

It is impossible to implement balanced scorecard without proper preparation.  This looks exactly like the house built without foundation.  Such a house will not last for long and will collapse every next second.  The foundation of balanced scorecard is:

• Readiness of top management to develop a strategy and objectives (competent and professional personnel should be in charge of BSC implementation);
• Introduction of managerial accounting, budgeting and controlling system;
• Effective system to collect information, prompt analysis of financial and nonfinancial operations;
• Education of personnel, formation of appropriate corporate culture;
• Successful functioning of qualities management system (as already said above, BSC and QMS supplement each other).

Does immature business need BSC?

Not all companies need balanced scorecard.  In other words, balanced scorecard implementation would not be reasonable for any company.   In order to implement balanced scorecard the company should mature or reach a certain level.  This is the highest degree of business culture, a new stage of development.

BSC and reengineering

There a special systems and standards identifying maturity of the company, like People-CMM model (People Capability Maturity Model) which can be easily used in balanced scorecard.  This model is based on identification of key processes and related practice elements, successful implementation of which signals about relevant maturity level of the company.  At that, processes and practice elements of the same level become the basis for implementation of processes and practice elements of the higher level. People-CMM scale is composed of evolution stages which the company undergoes as it becomes mature:

• Initial;
• Managed;
• Defined;
• Predictable;
• Optimizing;

An organization will be considered immature in case all processes depend on certain performers and managers, and decisions are made spontaneously.  In a mature company management procedures are clearly defined.  As a rule, it is recommended for the companies at the fourth level of maturity to implement balanced scorecard.

Benefits of balanced scorecard implementation

If all preparations for BSC implementation are made and the company has reached required maturity level, such a company will enjoy the benefits of balanced scorecard implementation.  If properly implemented and maintained balanced scorecard will make it possible to:

• Managed business as one single whole;
• Fully communicate company strategy with operational management;
• Make business transparent;
• Optimize balance of interests for customers, shareholders and personnel;
• Communicate balanced scorecard with management methods aimed at increase of company value;
• Increase growth potential for short and long-term success;
• Timely locate problematic areas;
• Integrate balanced scorecard with controlling system;
• Executive effective control over linear managers;
• Decrease volumes of corporate reports;
• Help ordinary employees better realize development prospects and company value system.

Implementation of balanced scorecard is recommended for huge companies with a complex organization structure.  BSC implementation is additional positive indicator for investors.  It means that the business is under control.  BSC is also viewed as intangible asset which increases company value in the market.

If the wrong strategy was chosen, business owner can timely locate mistake and introduce necessary corrections long before such a mistake will cause massive losses.

But sometimes happens that BSE signals on successful strategy implementation, but in fact there are no positive results.  Well, perhaps the wrong implementation model was chosen.  In such a case it is recommended to perform an expertise of BSC model by competent specialists.  In addition, it is necessary to remember that balanced scorecard system is a mechanism for strategy implementation, and it does not substitute strategy.

As already said, in today’s business the ability to implement strategy matters more than the strategy itself.  IT technologies can do that, but one should not forget that these are just tools.  People interested in company success stand behind all managerial decisions.

Implementation of balanced scorecard in the company signals about business success.  As improvement of the strategy and indicators in the system is a continuous process, it is recommended to review its model and introduce amendments according to changes in external and internal environment.

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Strategy of a company, establishment of goals and tasks is a privilege and responsibility of top management, while implementation of strategy is performed by ordinary employees in departments and business units of a company.  Lack of feedback and sharing of information between top management and employees is typical for many businesses. This is explained by information overload of top management which makes it impossible to adequately assess information, and as a result to implement strategic goals by the personnel.

On the other hand, lack of employees‘ strategic goals and proper motivation system leads to the situation when those who implement goals do not coordinate their actions with those who set strategic goals.  Such disorientation often results in utilization of company resources to perform secondary tasks.  This is a typical problem for industrial enterprises with complex structure both in Europe and in U.S.

Company strategy is not self sufficient.  Top management aims at implementation of strategic goals through assigning of tasks to employees and control over their fulfillment.  Relationship chain during strategy implementation consists of two elements:

• Vertical “top management – personnel.” At this stage top management identifies tasks, makes personnel familiar with them, and controls fulfillment through reports.  If necessary, tasks may be slightly amended.
• Vertical “personnel – top management.” The personnel receives tasks, undertakes actions to fulfill them and informs top management on fulfillment results.  The next stage implies feedback from top management.

Weak points in this chain are information channels between top management and personnel.  If they do not function properly then decisions may be based on incomplete or distorted information.  Many managers think that having received as much information as possible they protect themselves from making wrong decisions.  But much information does not mean better information.

New management tools

Company management needs the tool that would make it possible to base decision-making process on reliable, complete and adequate information.  Balanced Scorecard system is such a tool that includes financial and nonfinancial indicators, showing progress (or maybe regress) towards implementation of strategic goals.

Efficiency evaluation is exactly the kind of instrument that finds out whether or not operational management complies with company strategic goals (like gaining new market shares, increasing company value etc).  It needs mentioning that Balanced Scorecard is just a tool that facilitates the process of strategic decision making, but it is not a universal treatment for all business problems.  Balanced Scorecard helps identify facts and problem areas but it doesn’t provide managers with ready to use decisions.

Why are we talking about efficiency based management?  Increasing production and improving quality of products is not enough to gain competitive advantage in the modern markets. That’s why an increasing number of companies use progressive methods of corporate governance.  These methods allow to timely react to changes in the market.

The goal of Balanced Scorecard system is to put strategy into action through development and measurement of a complex set of key performance indicators which lays down foundation to form company strategy.

Excessive focus on indicators belonging to one category/group may negatively influence the end result.  That is why Balanced Scorecard System includes four perspectives:

• Financial
• Customer
• Internal processes
• Learning and growth

Implementation of Balanced Scorecard at the enterprise is performed in 5 stages.  The succession of stages is very important since any changes may have a negative impact on BSC effectiveness.

Stage one.  Strategy development

A clear and comprehensive strategy outlines basic steps to be taken to implement desired goals and results.  Company strategy should be divided into certain strategic initiatives which will identify tasks for certain departments, subdivisions, business units or even individual employees.  Coordination between departments and identification of strategic priorities are key elements of the first stage.

Stage two.  Identification of key success factors

The second stage outlines key success factors, i.e. those characteristics of company managerial and economic activity that are vital to implementation of the strategy.

Stage three.  Identification of key performance indicators

It is imperative to focus on most important indicators.  Their number should be limited otherwise Balanced Scorecard will be too complex.  Besides, KPIs should motivate employees.  These are major requirements for key performance indicators:

• Limited number
• Unity for the entire organization
• Measurability
• Direct ties to key success factors
• KPIs should be controlled
• Motivation for employees

Of course, the choice and the nature of key performance indicators depends on business area of the company and its organization structure.  Let’s view to case studies to illustrate the above said.

Case study number one.  Oil producing company

Structural division: well repair shop

Increase of oil extraction volumes is a strategic goal for oil producing company.  This increase is represented by growth of oil extraction volumes and decrease of losses during oil extraction which lowers oil price. That’s why, key performance indicators for well repair shop are set taking into account both company strategic goals and specific nature of this production unit.  During repair process the well is suspended, and consequently downtime results losses (amount of oil which could be extracted during the downtime period).  Production efficiency of underground reparing is represented by debit increase per well (in tons).

KPIs for well repair shop would have the following structure:

• Total downtime of wells (identifies losses related to lost opportunities)
• Average time for repairing (actual-planed)
• Unit cost for each extra ton of oil (actual-planned)
• Number of repair campaigns (actual-planned)
• Average repair costs for one well (actual-planned)

This structure of key performance indicators includes bonus system for employees which motivates them to decrease downtime and repair time through more effective planning and execution of works and improvement in quality of works.  The company evaluates not only the number of repaired wells but also the result – debit increase.  These key performance indicators are coordinated with strategic goals of the company – increase of oil production.  Moreover, these indicators are controlled by well repair shop, which means it can affect them.

Case study number two.  Engineering plant

Organization department: supply and logistics service

The strategic goals for this department are cost decrease of products and shortening of production cycle.  Supply in logistics department has key performance indicators that represent specific nature of the company in general, as well as certain department in particular.  The department is responsible for provision of continuous production process with the component parts and their sufficient stock at the storage facilities.  Failure to supply production process with component parts results in production downtime.  At the same time, stock increase at storage facilities leads to use of additional funds.

The following key performance indicators can be applied to evaluate efficiency of this department:

• Average time from placing the order to receipt of component parts (planned-actual, in days)
• Average production downtime caused by logistics failure (in hours)
• Number of days in the materials turnover cycle (planned-actual)
• The ratio of stock cost to production volume (planned-actual)

This structure of key performance indicators makes it possible to track efficiency planning of production needs in materials and component parts, as well as avoid overstocking.

Stage four.  Development and evaluation of Balanced Scorecard

At this stage that general system of financial and nonfinancial indicators is being developed.  The combination of key performance indicators, their information value and sufficiency will influence decision-making.

Stage five.  Choice of technical solutions to implement Balanced Scorecard

At this stage the source of information is chosen.  At that, such information choice should be relevant for accurate evaluation of KPIs.  The information should be obtained in a timely manner.

As in any change of management system, implementation of Balanced Scorecard faces obstacles and even certain opposition.  There are several reasons for that.  Firstly, a company or an enterprise may be unready to implement BSC.  This especially concerns enterprises affected by severe crisis, since top management of such companies focuses on fulfilling short-term tasks, but not strategy development.  Secondly, implementation of BSC implies transparent management system and “old school” managers may view this as pressure and total control.  Thirdly, this is lack of effective IT and information systems.  Fourthly, this is irregular use of Balanced Scorecard.  If BSC is used on occasion its effect will equal zero.  Finally, it is important to remember that Balanced Scorecard does not substitute strategy and system of managerial reports.

Summary

Taking into account the above said, factors for successful BC implementation go as follows:

• Prior strategy development which is a key success factor. BSE is just a managerial tool
• Identification of company goals taking into account relation of goal implementation with company value
• Effective and reliable information system which serves as a source of information and a basis for efficiency evaluation of key performance indicators
• Support from top management, change of corporate management style, motivation of ordinary personnel.  Without a proper bonus and compensation system it will be difficult to persuade ordinary managers to effectively use Balanced Scorecard.  Key performance indicators evaluation is also about performance evaluation of individual employee.
• Continuous use of the system, inclusion of BSC to the toolbox of top management

When properly used, BSC improves performance of a company, since every employee understands how his performance affects implementation of company strategic goals.  With Balanced Scorecard top managers can measure performance efficiency of every department, and thus can influence implementation of strategic goals.

In the end, it needs mentioning that successful use of BSC depends on understanding of this tool, its nature, limitations and goals.  Balanced Scorecard is indeed a very effective strategic management tool.  But it is not easy to implement and maintain BSC not because of its complex structure but because of the wrong attitude of top management towards Balanced Scorecard.

The above case studies prove that there is no universal solution.  Balanced Scorecard is individually implemented but every enterprise, and top management should take into account specific nature of a company, current problems, competition in the markets, education level of personnel and a number of other factors to effectively identify most important indicators.  Of course, there are set of key performance indicators characteristic for certain business areas.  But as said above, a thorough research and analysis needs to be performed before making the final decision to implement Balanced Scorecard.

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Any business automation tool requires proper implementation and what is more important  – maintenance.  Balanced scorecard system is not an exception here.  There are a lot of reasons why balanced scorecard system will be a waste of time and money.  Formally, when not used properly, balanced scorecard will still work.  But guess what happens if you use the wrong data, take the wrong actions and have the wrong attitude to the system itself?  The answer is quite obvious – you won’t reach strategic goals.

Thus, it is imperative to be aware of reasons or symptoms of balanced scorecard performance evaluation process breakdown.  It needs saying, that most critics of BSC never mention mistakes they have made when implementing and maintaining balanced scorecard.  So, don’t make such mistakes if you want to reach strategic goals and get balanced scorecard help you in this.

Breakdown symptoms can be sorted out in several groups, each containing interrelated and interconnected reasons of performance evaluation failure.  Let’s review each group and give commentaries as well as look for solutions to problems.

Avoid these mistakes when using BSC system

Group 1.  Wrong goals, wrong measures, wrong KPIs

This group summarizes most common mistakes in selection of goals and KPIs.  Evidently, all elements in this chain depend on each other.  As a result, wrong selection of goals leads to wrong choice of measures and KPIs to be evaluated.  This is like driving a car to wrong direction, hoping to reach destination soon.  The stage of making a choice of goals and measures is extremely important as you need to know what to measure, how to measure and what results you want to achieve.  Keep your goals realistic.  It is impossible to wipe out all competitors if your market share does not exceed 1%.  No matter what KPIs you choose and what actions you take this goal will be unachievable.  In selecting KPIs you need to have a different view on your company as if taking a detached view on it.  Avoid measuring one indicator in different ways. Also, keep in mind that measures should always ally with goals.

Wrong goals will result in selection of inappropriate KPIs and actions to be taken

There is also a problem of choosing too many KPIs.  You need to focus on most important things otherwise you’ll be unable to process so much information.  Moreover there is no need in it.  There is also a common mistake when managers focus only on financial measures at the same time ignoring non-financial ones.  Net revenue is a good indicator but not the only one.

Group 2. Data collection and processing

It is imperative that data is timely collected and processed/analyzed in a proper way.  Untimely data collection is rather dangerous because of changes in environment and company internal processes.  Thus, the traditional manual way of data collection is very time consuming and, as a result, ineffective.  Make sure you use automated tools of data collection.  It also need saying that collected information must be complete, accurate and consistent otherwise indicators will represent wrong values which will lead to wrong countermeasures.  Taking into account the above mentioned, it is obvious that timely and accurate collection of information requires investment in data collection and processing.

There is a common misconception that collection of data is enough for perfect functioning of BSC.  Nothing of the kind!  Information is only then valuable when it is properly analyzed.  Thus, personnel should have the time and tools to analyze information. Besides, financial management uses very complex formulas with numerous constants which are not understood for an ordinary office clerk.

Difficulty in getting information out of data systems is another common mistake.  So, employees and top management must be able to timely and efficiently extract data to make prompt decisions.  Moreover, data sources should communicate with each other.

To sum it up, it should be noted that people are key deciding factor in collecting and analyzing since they must be able to get most important data and properly use it.

Group 3. Reporting.

Employees at all levels need to know when and how to report the measures.  Untimely reports make prompt decisions impossible which results in impossibility to react on changes inside and outside the company, as well as changes in indicators.  Reports should have a clear and comprehensive content which should be easy to read and use in further work.

Group 4. Making conclusions. Human factor.

The last group deals with mistakes that mainly concern employees working for the company where Balanced Scorecard System is being implemented and maintained.  Wrong conclusions, fears and misuse of information or use of false information make balanced scorecard just a useless tool and waste of money.  It is imperative that every employee at all management and operational levels understands his contribution to implementation and maintenance of balanced scorecard.  In other words, every employee should know how he can help the company reach strategic goals.  At the same time the company management should encourage its personnel and introduce special bonus programs for completed tasks and reached goals. A properly motivated employee who is aware of own weak points is more likely to do his/her best to perform better and reach specified goals.

Balanced scorecard is designed for internal use only.  It is very unwise to cheat when using this tool.  Wrong indicators or unfinished tasks reported as completed will never contribute to improvements in the company performance and thus will never approach the company to its strategic goals.  If you’re using balanced scorecard and employees provide you with fake figures (as they fear to see poor indicators), you will cheat on yourself.  There is nothing worse than illusion of success in the modern business world.

Personnel must not only do their best to contribute to the company success but should also be interested in the use of balanced scorecard.  At the same time the company management should have human resources and enough time to implement and maintain balanced scorecard without distracting employees from their primary tasks.

It is very unwise to start using balanced scorecard without being aware of how to start.  Moreover, even if you know how to maintain balanced scorecard you must be ready to take countermeasures to changes.  In other words you need to appoint people who will take actions in response to changes, for example if certain measures change or drastic market changes occur.

Balanced scorecard is the tool that is used for the long-term perspective.  Thus, making decisions based on a 1 month trend is not the best thing to do.  Balanced scorecard may help you achieve competitive advantage over years, but not make immediate profits overnight.

Sure, these four groups do not cover all the mistakes and misconceptions about balanced scorecard.  But avoiding the above mentioned errors will surely help fully explore potential of Balanced Scorecard.

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Implement Balanced Scorecard in business processes

Title: Implementing Balanced Scorecard

Summary: This part of the Balanced Scorecard Toolkit is a guide on how to implement balanced scorecard into the business to measure, control and improve business performance

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Slides number: 36. Formats: PPT (MS PowerPoint), Adobe PDF

• Implementing Balanced Scorecard into business processes
• Balanced Scorecard Implementation Scheme
• Steps of Balanced Scorecard Implementation process: Technical Implementation, Organizational Integration, Technical Integration, Operation of the BSC system
• FAQ and Case Study

Slides number: 36. Formats: PPT (MS PowerPoint), Adobe PDF

• Implementing Balanced Scorecard into business processes
• Balanced Scorecard Implementation Scheme
• Steps of Balanced Scorecard Implementation process: Technical Implementation, Organizational Integration, Technical Integration, Operation of the BSC system
• FAQ and Case Study

Sample slides

Slide 9. Technical Implementation Scheme

Slide 14. Objectives of business integration

• Buy full version as a part of  Balanced Scorecard Toolkit

Presentation Content

1. Implementing Balanced Scorecard
2. Implementing Balanced Scorecard into business processes
3. Balanced Scorecard Implementation Scheme
4. Steps of Balanced Scorecard Implementation process
5. Technical Implementation. Introduction.
6. Objectives of Technical Implementation
7. Key objectives in technical implementation stage
8. The task of technical implementation
9. Technical Implementation Scheme
10. Key issues of technical implementation
11. Process of technical implementation
12. Technical Implementation Checklist
13. Organizational Integration. Introduction.
14. Objectives of business integration
15. Integration of Balanced Scorecard with business processes
16. Business implementation scheme
17. Reengineering and reframing in implementation process
18. Structural changes while implementation
19. Implementation Checklist
20. Technical integration. Introduction.
21. Objectives of technical integration
22. Levels of technical integration
23. Integration with databases
24. Combining data for Balanced Scorecard
25. Technical integration checklist
26. Operation of the BSC system. Introduction.
27. Objectives of operational management
28. Analyze and update Balanced Scorecard
29. Updating target values and scorecard model
30. Balanced Scorecard Operational Scheme
31. Logical operations with Balanced Scorecard
32. Operations in Balanced Scorecard. Checklist
33. FAQs. Better implementation.
34. FAQs. Business Integration.
35. Case Study: Implementing Balanced Scorecard in Proto Auto Works.
36. Case study: Technical implementation.

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