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What is the Balanced Business Scorecard about?
In their seminal book of 1998, "The Balanced Scorecard", Kaplan & Norton described how world-class organisations had introduced in-company measurement systems way beyond looking only at financial outcomes. They correctly pointed out that measuring financial results only was flawed in that they were after the event - like "driving a car by looking at the white line in the rear-view mirror".
The Balanced Scorecard suggests that a set of organisational measures or metrics be set up that assess performance in real time as much as possible. These metrics can be reviewed and updated at regular strategic discussions by management. They can also be used to help guide change and assess progress. Kaplan and Norton suggest that the measures cover four main areas:
- Financial
- Customer
- In-company
- People development
Many organisations are attempting to use the Balanced Scorecard idea and have established what is called a "Dashboard" of metrics in line with the above four areas of performance. They use them to set targets and assess performance with a "Traffic Light" system of graphical presentation to aid the process of review. Many see the Balanced Scorecard as a more mature version of what have traditionally called "Key Performance Indices" or "KPI"s.
Our Approach
We, at PRISM, take the view that there is great merit in the Balanced Scorecard concept for two key reasons:
- It emphasises a whole system and end-to-end approach to business measurement
- It reinforces the point that world-class organisations have been shown to have a comprehensive system of measurement throughout the organisation - it is simply best practice.
However, we have also observed some serious flaws in the Balanced Scorecard method that we have seen in client organisations:
- The measurement system is naïve in that it fails to recognise the presence of variation in process and system data
- It is used to establish arbitrary numerical targets without providing any methodology for achieving them
- There is no concept of "process capability" in place that can be used as a basis for prediction and assessment of outcome results
- The traffic light system can and will lead to tampering and making things worse because of a lack of understanding of variation
In short, any organisation that is trying to use the Balanced Scorecard would benefit from the knowledge that is delivered by Lean Systems Thinking, the PRISM Improvement Experience and our consulting practice. We are able to train people in the methods of improvement and, in particular, the use of Process Behaviour Charts (Control Charts) for the sophisticated interpretation of Balanced Scorecard data.
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