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What’s in a balanced scorecard

July 19th, 2012

This article follows on from the previous one which looks at how balanced scorecard can assist companies.

A balanced scorecard is like any planning process, it requires an amount of thought & then implementation. So if you were looking at using a balanced scorecard approach here are some points to consider. I’ll give an example at the bottom of the article where a company may want to focus on customer relationships.

Four legs of a balanced scorecard

1.  Financial
This is placing a value on activity. It may be return on capital, productivity, sales, cashflow, liquidity and so on

2.  Customer
Retention of customers, satisfaction, churn, dollar spend, how it benefits the customer

3.  Internal
Stock turns, cost of sale, rework, warranty claims, unbillable work

4.  Knowledge
Retention of employees, morale, skills

Points to consider for balanced scorecard
1. Strategy
2. Themes & Objectives
3. Activity
4. Metrics
5. Scorecard

Strategy
A balanced scorecard needs to support your business plan & be part of your business planning activity. In Jim Collin’s book Good to Great he talks about 7 characteristics of companies that went from ‘good to great’. They included

  • Level 5 leaders.   People who are humble but driven, always looking to do what’s best for the company.
  • First who then what. This is making sure you have the right people on the bus & in the right positions.
  • Confront brutal facts. Acknowledge the situation however dire it may seem, but never give up
  • The hedgehog concept which are three overlapping circles for business strategy. They are (i) What are you passionate about (ii) What can you be the best in the world at (iii) What are your economic drivers.
  • The culture of discipline. Always do what you have to do & be consistent
  • Technology accelerators.   Using technology to accelerate growth supporting the hedgehog concept (don’t rely on technology for the growth, but as a support)
  • The flywheel.   Many small initiatives implemented well have a compounding effect

So consider your strategy along the lines of what Collin’s talks about & have a very clear idea on the direction you need to take.

Themes & Objectives
Here you are looking at the various themes & objectives that need to take place to compliment strategy. Think of these as the projects that you will complete over a period of time, but again thinking of them in terms of the four legs. Each objective should consider how it impacts on each of the legs.

Activity
This is where you are starting to get to the nuts & bolts of what needs to happen, who’s going to do what and by when? Remember a plan without good implementation is really just a dream

Metrics
The activity needs to add more value to the business or as Sir Peter Blake used to say when he was involved in Team New Zealand – WIMTBGF – will it make the boat go faster?

Knowing if you are effective is vital to be able to assess the success of any activity. You need to consider what are the targets that need to be achieved, how you will collect information & measure it, who has to do what & by when?

Scorecard
What is the most effective & efficient way to display the information? How easy will it be to understand & who will have access to that information?

Example
The part example below is for a company that wishes to retain & leverage an existing customer base.

Strategy (that relates to this example)
Ensure that client is fully engaged by the company which means they receive product/service in a timely manner & remain as a long term valued client

Theme
Have an effective customer relationship management (CRM) system that supports both customer & staff

Financial
Objective – Increase average dollar spend from the client & increase customer life
Metric – Increase dollar spend to $x

Customer
Objective – The client will receive better attention from account manager which ensures they are aware of all service offerings that would benefit their business & won’t have to call seeking clarification.
Metric – 90% satisfaction rate, average life of x years

Internal
Objective – CRM needs to be investigated & developed
Metric – Yes / no completed with date & responsibility

Knowledge
Objective – Staff need to be trained in use of CRM
Metric – Have a better understanding of client’s needs which in turn leads to better service delivery

Each activity above would be broken into smaller tasks with responsibility assigned & timelines given.

By considering the cause & effect on each of the legs allows the company to remain in balance and maximise the activity they are completing. Do this in conjunction with your overall plan & strategy and help your business go from good to great.

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