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Staying on track with a balanced scorecard

May 26th, 2012

In the busy world we live in it can be difficult to keep track on all the comings and goings of your business. That’s why taking a systematic approach at both governance and management level is vital. One of the tools to assist business owners and managers is the use of balanced scorecards.

The next few articles are going to look at how a balanced scorecard can assist your business in both setting, extending and achieving goals.

If you’re not familiar with a balanced scorecard concept think of it as an easy reference to all the core components of your business which allows you to assess what is good, not so good and what needs addressing. Just like a table if one of the legs is lacking in substance or out of sync with the rest of the company things can start to slip.

Four legs of a balanced scorecard

1. Customer
2. Internal
3. Knowledge
4. Financial

Let’s look at the four legs in a bit more detail:

Customer
Here we are looking at what we deliver to the customer v what they expect. Do we exceed or under deliver on expectations. Are we giving them what they want or are we giving them a reason to leave and go to a competitor?

A quick reference check is to ask everyone in your business ‘do you know what our customers want from us’?

Then think about the future, what will they require in the future, how will technology impact, what will they be prepared to pay, what other markets are there available to you to develop? (Don’t forget your internal customers i.e. your own staff)

Internal
This looks at the key operational side of your business, how you deliver your core activities and how you may be able to improve. Two major impacts on the internal side of your business are time and money. If a task can be completed in a shorter period of time that means you should be able to increase productivity and if you can do that and keep costs down that in turn will assist in profitability.

Some measures may be around people, plant, time to complete, rework, cost of sales, wages and so on.

Financial
Here we are looking at the financial side of the business and how it affects us today. Management reporting from the general ledger reflects on what has occurred in past, whereas we want to know what is happening now and potentially in the future.

Start with the bigger financial question what are your financial objectives. Do you want to build the business, remain the same or slowly exit? Then break these down and look at the key numbers which may be sales, gross profit, receivables v payables, stock turns, equity, cashflow, number of customers/transactions – the list goes on.

Knowledge
This is the skills that your staff needs to operate in the business. It’s how you train them, what technical skills they need, how you retain them and what additional knowledge they need to grow with.

First of all by managing this area we make sure that the business is not at risk and dependent on one key person and if they leave all the knowledge goes with them which places the business under immediate stress. You can then put in strategies that allow for staff to grow with the business and vice versa. Have the wrong people in place or doing the wrong tasks and the result can be very damaging

Look at what skills are needed, what the gaps are and then what needs to be done to get staff up to the level required.

These four legs need to have objectives and measures attached to them so you can see what progress is made and what gaps may be present. As you grow there needs to be balance in all areas (hence the name), otherwise the business will eventually get out of sync.

In the next article we’ll look at how you can actually develop a scorecard for your business.

(If you would like to find out more about how balanced score carding can assist your business then contact PlanA Consulting)

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