Balanced Scorecards for Balanced Management

Anyone who has worked for a business administration degree will likely be surprised by a recent study. According to a May 2011 poll by the Conference Board, the biggest single threat to successful strategy execution is a lack of the necessary skills in leadership.

Furthermore, 45 percent of respondents said that the typical business leader was “not well prepared” to “respond to the complexities of leading global teams, facing a lackluster recovery, pricing pressures and strong competitive threats.” Another 47 percent said that the typical leader was “somewhat well prepared.” Only a disappointing eight percent said that the typical leader was “well prepared” or “very well prepared.”

One reason many managers are effectively disconnected from strategy is that they focus too heavily on financial management. Looking only at those numbers offers a limited view of the world. Managers can get a more effective and useful understanding of their companies with a balanced scorecard, which adds important non-financial measurements to get a more “balanced” view of performance.

Financial metrics are traditional in business for good reasons, but they have some shortcomings. They always look backward in time and show how things have been. However, strategy is the roadmap for what a company must do going forward. That doesn’t mean that financial measurement is unnecessary. Far from it. The balanced scorecard doesn’t undercut financial metrics. Instead, it adds three additional perspectives:

  • Finance — What is financial success the company owners or shareholders? It includes such traditional measurements as return on investment, operating income, return on capital, and margins.
  • Customers — How should a company appear to its customers? This includes customer satisfaction, retention, and market share.
  • Business Processes — What are the vital business processes for customers and shareholders? Some examples might be production, order taking, and fulfillment.
  • Learning and Growth — What will the company need to improve over time and change with the environment? Measurement can include turns toward employees to determine satisfaction, skill development, and recruiting, and retention.

Managers then examine four aspects of each perspective: major objectives to achieve, the measures used to determine progress, specific target values for the measures, and initiatives that will help the organization meet its objectives. In other words, the balanced scorecard helps managers do things right and do the right things.

Because the framework includes issues of strategy and operations, managers can more easily ensure that what they do actually moves the organization toward its strategic goals.

If you never came across the balanced scorecard concept, you might consider a masters degree program, which will cover that and other advanced tools that can help you manage more effectively.