Implementing the balanced scorecard

The implementation of the Balanced Scorecard consists of a number of steps. The first step is that senior management sets up the mission, vision and strategy of the organisation.

The strategy is linked to a number of strategic objectives. The mission, vision and the top level strategic objectives are then communicated to middle management.
In consultation with middle management and senior management several objectives are formulated in which different critical success factors are designated per objective. Appropriate performance indicators are selected for each objective to measure them. Specific targets to be achieved are also set and initiatives meant to achieve these objectives are put in place.

When starting to implement the BSC the first aspect is to use it in your strategic planning process. This is the first and most important step in full implementation of a Balanced Scorecard, since it establishes the link between your strategy and the BSC framework.
This stage involves preparing the organisation strategic plan around the Balanced Scorecard.
You set each of the four perspectives, namely, Financial, Customers, Internal Processes and Learning and Growth, as the strategic Focus Areas. You then add strategic objectives, projects, KPIs and initiatives directly underneath each perspective.

This method is simple to understand and will enlist management’s total commitment to the Balanced Scorecard framework. By having each of the perspectives as Focus Areas, it forces the strategy to be geared around the Balanced Scorecard and everyone within the organisation will understand the link between the strategic plan and the BSC.
The second aspect of implementing the BSC is how you can use it to track and report your progress in achieving your strategic objectives.

When using the BSC for strategic reporting you need to come up with a BSC dashboard. The dashboard should show a score for each of your 4 perspectives, which is an average of the scores of key strategic objectives, projects and KPIs that fit within that perspective.

If the scores indicate that you are not meeting your targets then you would need to come up with initiatives that will improve and change the situation.
The process of choosing several strategic objectives for each perspective is very critical. Good strategic objectives should start with a verb, for instance, improve profitability, reduce costs or increase market share.
They should be actionable; something that you can control. They should be quantifiable otherwise it’s not worth including it among your strategic objectives.

After you’ve chosen strategic objectives for each perspective, you then put them in the relevant perspective. This process entails coming up with a strategy map which shows the organisation’s strategy at a glance.
A strategy map shows the relationship between strategic objectives. The strategy map is structured in such a way that it shows the cause and effect relationship between the four perspectives.

You can view the Balanced Scorecard as a series of leading and lagging key performance indicators. The learning and growth, internal processes and customer are the leading steps, as they will facilitate or enable the achievement of the primary lagging KPI, which is the financial perspective.

Each perspective therefore unlocks your ability to deliver effectively against the one above it. So you can view this whole process this way: your ability to learn and grow will directly dictate your ability to better manage your internal processes.
In turn, as your internal processes improve, this will have a positive impact on your customers as well as directly reducing your costs or increasing revenues.
The combined benefit of this lower cost, increased revenues and higher customer engagement will lead to your end goal, increased profit and financial return.

Once you have identified the strategic objectives you need to decide on one or two measures or key performance indicators for every strategic objective to determine how it’s performing.
These measures should be tracked on a regular basis. It’s important to choose a very small number of measures to track so that you’re able to focus on the things that matter most.
The corporate wide balanced scorecard should be cascaded down first to business units, support units or departments and then teams or individuals. The end result should be to focus across all levels of the organization.

The organisation alignment of the scorecard should be clearly visible through strategy, using the strategy map, performance measures and targets, and initiatives.
Scorecards should be used to improve accountability through objective and performance measure ownership, and desired employee behaviours should be incentivized with recognition and rewards.

As the management system is cascaded down through the organization, objectives become more operational and tactical, as do the performance measures.
Accountability follows the objectives and measures, as ownership is defined at each level. An emphasis on results and the strategies needed to produce results is communicated throughout the organization. This alignment step is critical to becoming a strategy-focused organization through the use of the BSC.
The implementation of the balanced scorecard requires a lot of work and therefore there should be certain factors in place to ensure success.

The balanced scorecard needs a great deal of high-quality data from the organisation’s operational systems. It’s therefore critical that the systems are not prone to errors or produce incomplete data.
This would result in a waste of much time when taking corrective action and also in analysing data to ensure accuracy.
The adoption of the balanced scorecard framework represents a major cultural change. The implementation process requires a long time and therefore needs to be accompanied by significant organisational change management so that both management and employees change to the new way of tracking organisational performance.

The process also requires strong executive support, so that the necessary resources to collect and monitor the required information are made available.
The executive team must be seen to use the balanced scorecard data or else the rest of the organisation will ignore any corrective actions suggested by it resulting in the whole program being neglected.
It’s important that appropriate metrics that accurately support organisational goals are selected. A good set of performance metrics should be easy to understand and expressed quantitatively. Management should avoid trying to measure everything.

There should be a balance between trying to provide a complete picture of an organisation’s health and providing too much data which can be very overwhelming and can make it difficult to understand what conclusions to reach and what actions to take.
It takes time to get large organisations to fully embrace the balanced scorecard. Constant updates will be required as lessons are learned during the implementation process, and also competition changes, and new challenges emerge which might necessitate adjustments to the implementation process. This regular feedback is critical for the enterprise to learn, adapt, and improve.

The use of the BSC brings a lot of benefits to an organisation. The balanced scorecard helps executives in tracking the performance of an organisation by monitoring the performance indicators in the four perspectives namely, financial, customers, internal processes and learning and growth.
Management can therefore monitor and measure progress towards meeting strategic objectives.

The use of the strategy map helps to provide a clear and concise way to communicate priorities and goals to employees and other stakeholders. The balanced scorecard also creates a linkage from organisation’s strategy to daily activities thereby ensuring goal congruence within the organisation.
Everyone within the organisation will be able to understand how their projects and activities contribute to the overall success of the organisation.

Stewart Jakarasi is a business and financial strategist and a lecturer in business strategy, advanced performance management and entrepreneurship.
He is the Managing Consultant of Shekina Consulting (Pty) Ltd, a multi-dimensional consulting firm, and he provides advisory and guidance on leadership, strategy and execution, corporate governance, preparation of business plans, tender documents and on how to build and sustain high-performing organisations.
He is also a link with international investors intending to invest in the country. For assistance in implementing some of the concepts discussed in these articles please contact him on the following contacts: sjakarasi@gmail.com, call on +266 58881062 or WhatsApp +266 62110062.