Balanced Scorecard Building Blocks

Over a span of 30 years, the Balanced Scorecard evolved from a measurement tool to a management tool, to a management system and finally to a holistic strategy execution framework. This journey from just a tool to an organization encompassing management framework still leaves a lot of people at guessing what the BSC actually is, what are its components and characteristics and most importantly how do you implement and operate a fully-fledged BSC framework.

BSC System Architecture

Our extensive experience with organizations worldwide has shown that a well-designed system ensures that corporate strategy is pursued, strategic goals are achieved, and stakeholder expectations are met. However, it is the actual design of the BSC system itself that poses the greatest challenge in managing organizational performance nowadays.

Providing an organization with the right set of Performance Management tools is a key phase in the development and implementation of a uniform BSC system. These tools reflect current and desired performance results, enabling an effective decision-making process within the entity. This set of reporting tools forms the backbone of our BSC framework, what we term the Architecture of the system, the core elements detailed below:

• Desired State of Evolution (DSOE) - The process of integration of all strategic statements of an organization that comprises Values, Mission, Destination statement and Vision is facilitated by the Desired State of Evolution. The sequence: Values -> Mission -> Desired State -> Vision represents a storyline that illustrates the desired evolution path of the organization and represents a core communication tool in the organization.
• Strategy Map - The Strategy Map is a visual representation of an organization’s strategy, highlighting the strategic objectives of the organization and uses a cause and effect relationship to reflect on their interdependencies. The objectives in the Strategy Map are linked across the four perspectives of the Balanced Scorecard and facilitate translating strategy to operations at all levels of an organization by effectively communicating strategic priorities.
• Performance Scorecard - draws together the most relevant KPIs selected for the organization and groups them under strategic objectives, clustered per perspectives. The scorecard is our core performance reporting tool using KPIs in a standardized manner, across organizational levels.
• Performance Dashboard – a visual dynamic tool used to grasp the pulse of the organization’s day to day operations and take actions based on KPI results. The benefit of the dashboard is that it invariably complements the scorecard by monitoring measures that provide insight into the efficiency and effectiveness of operations.
• Portfolio of Initiatives - The portfolio of initiatives aggregates organizational initiatives and maps them with strategic objectives. This tool clearly illustrates the actions required to achieve each objective, focuses on the distribution of resources, as well as, points out the progress of each project.

BSC and Performance Management Terminology

To be able to build and use our reporting tools, we need to understand performance management related terminology. Unfortunately, this part is still not adequately standardized, where tools and techniques are not well structured; terminology is not uniform, and it’s used with different definitions across industries and functional areas. Proper standardization and understanding of key terms are pivotal in setting the right foundation when embarking on the road to establishing a Balanced Scorecard system. This standardization will ensure proper differentiation and understanding of performance management tools and principles and will allow us to ensure that we’re building a system that not only follows certain prescriptions but one is understood by all of our stakeholders.

BSC and PDCA

Now for the last trick, how do we link everything together? How do all these terms and reporting tools intertwine to create a functional system without confusing everyone in the organization with terminology and a plethora of communication and reporting tools?

To address this issue, we borrowed a technique from the domain of Quality Management. Adopting and adapting the Plan-Do-Check-Act (PDCA) cycle is the missing link and the answer to our above questions. In managing performance, when the Balanced Scorecard requires a robust application framework, the PDCA comes to the rescue. It provides the elements required for migrating the Balanced Scorecard concept from a Management Accounting tool to the holistic strategy execution framework mentioned at the beginning.

In the overall context of supporting organizations design and develop their own BSC System, we believe that the recipe for success stands in the capability of the entity in creating a performance architecture that is complementary with the company’s structure and most importantly aligned with the strategic planning process and all performance-related processes. Such alignment will facilitate buy-in from internal stakeholders, as strategic direction is translated into everyone’s activities and each employee will have a clear role in making consistent decisions that are aligned with what the organization aims to achieve.

Sound Performance Management practices integrated and aligned with the PDCA cycle provide context and make the entire journey of improving performance interesting and relevant.

Keep in touch.

Teodora, 

Email: teo.gorski@kpiinstitute.com 

Call/WhatsApp: +971 55 787 6427