Here is a sampling from the balanced scorecard of the Ontario hospital system that measures success in the delivery of health care by their emergency departments. Since its beginnings as a peformance measurement system, the Balanced Scorecard has evolved into a strategy implementation system that not only measures performance but also describes, communicates, and aligns the strategy throughout the organization.
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Several years ago, in recognition of this change, we introduced a concept we called the balanced scorecard. The balanced scorecard supplemented traditional financial measures with criteria that measured are balance from three additional perspectives—those of customers, internal business processes, and learning and growth.
Recently, we have seen some companies move beyond our early vision for the scorecard to discover its value as the cornerstone of a new strategic management system. Used this way, the scorecard addresses a serious deficiency in traditional management systems: Thus the emphasis most companies place on short-term financial measures leaves a gap between the development of a strategy and its implementation. The scorecard lets them introduce four new management processes that, separately and in combination, contribute to linking long-term strategic objectives with short-term actions.
For people to act on the words in vision and strategy statements, those statements must be expressed as an integrated set of objectives and measures, agreed upon by all senior executives, that describe the long-term drivers of success. The second process— communicating and linking —lets managers communicate their strategy up and down the organization and "balanced scorecard objectives" it to departmental and individual objectives.
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Traditionally, departments are evaluated by their financial performance, and individual incentives are tied to short-term financial objectives are. The scorecard gives managers a way of ensuring that all levels of the organization understand the long-term strategy and that both departmental and individual objectives are aligned with it. The are balance process— business planning —enables companies to integrate their business and financial plans.
But when managers use the ambitious goals set for balanced scorecard measures as the basis for allocating resources and setting priorities, they can undertake and coordinate only those initiatives that move them toward their long-term strategic objectives.
The fourth process— feedback and learning —gives companies the capacity for what we call strategic learning. Existing feedback and review processes focus on whether the company, its departments, or its individual employees have met their budgeted financial goals.
With the balanced scorecard at the center of its management systems, a company can monitor short-term results from the three additional perspectives—customers, internal business processes, and learning and growth—and evaluate strategy in the light of recent performance. The scorecard thus enables companies to modify strategies to reflect real-time learning.
What is a Balanced Scorecard?
None of the more than organizations that we have or with which we have worked implemented their first balanced scorecard with the intention of developing a new strategic management system. But in each one, the senior executives discovered that the scorecard supplied a framework and thus a focus for many critical management processes: Previously, those processes were uncoordinated and often directed at short-term operational goals.
The CEO subsequently told employees in a letter addressed to the whole organization that National would thenceforth use the balanced scorecard and the philosophy that it represented to manage the business.
National built its new strategic management system step-by-step over 30 months, with each step representing an incremental improvement. Thus the CEO was able to transform the company so that everyone could focus on achieving long-term strategic objectives—something that no purely financial framework could do. The CEO of an engineering construction company, after working with his senior management team for several months to develop a mission statement, got a phone call from a project manager in the field.
A Full & Exhaustive Balanced Scorecard Example
I want to act in accordance with the mission statement. Second, business processes are evaluated by investigating how well products are manufactured. Operational management is analyzed to scorecard any gaps, delays, bottlenecksshortages or waste. Third, customer perspectives are collected to gauge customer satisfaction with quality, balance when and availability of products or services.
Customers provide balance when regarding if their needs are being met with current products. Finally, financial data such as sales, expenditures and income are used to understand financial performance.
These financial metrics may include dollar amounts, financial ratios, budget variances or income targets. These four legs encompass the vision and strategy of an organization and require active management to analyze the data collected. Therefore, the balanced scorecard is often referred to as a management tool, not a measurement tool.
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