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ABC: An Introduction to Balanced Scorecard

Most organizations can benefit from a balanced scorecard approach, which can raise the profile of key projects, increase functionality, and predict future performance—and it often leads to greater financial return.

By Karen D. Schwartz

PAGE 2

• What is a "balanced scorecard"?
• What are the benefits of implementing a balanced scorecard?
• How is it different from other methodologies, such as Six Sigma, activity-based costing and IT governance?
• Does every organization need a balanced scorecard of some type?
• Who is the champion within the organization?
• How can you determine your scorecard measures?
• How is the balanced scorecard implemented?
• Are there software tools that can help?
• What if you choose not to use off-the-shelf software?
• What are the challenges of implementing a balanced scorecard?
• How can you determine ROI?
• Can you dip a toe in the water, or is it an all-or-nothing proposition?
• Is this something a company can do internally, or is external help advisable?
• Even with tools, consultants and books, this is a huge undertaking. Are there general guidelines available?

Who is the champion within the organization?

Generally, the edict comes from the top-the CEO, who, with his or her team, develops top-level corporate objectives for the balanced scorecard. The CEO then appoints either the CIO or the Chief Knowledge Officer (CKO) to spearhead not only those corporate objectives and measurements but also department and individual objectives and measurements.

How can you determine your scorecard measures?

Start at the top, and define both corporate objectives and business unit targets, advises Louis Carter, CEO of Best Practice Institute in North Palm Beach, Fla. For example, a goal may be to double the corporate value in seven years; that requires defining that value. Or you may want to increase your earnings by an average of 20 percent per year. Specific business unit targets are devised in the same way, always using focus groups that comprise both stakeholders and users whenever possible. Then get down to individual measures.

How is the balanced scorecard implemented?

According to the Balanced Scorecard Institute, it consists of multiple steps:

1. Assess the company's organizational structure


2. Identify strategic themes


3. Define perspectives and strategic objectives


4. Develop a strategy map


5. Derive performance metrics


6. Craft and prioritize strategic initiatives


7. Automate and communicate


8. Cascade the balanced scorecard throughout the organization


9. Collect data, evaluate and revise

Are there software tools that can help?

The problem with these tools is that every organization is unique, as are every organization's needs and goals. It's difficult for any software tool to be able to take all that into account, and committing to one tool means you have to buy into a structured approach that might or might not work for your company. That said, there are literally more than a hundred such tools, all claiming to help develop balanced scorecards. They can be useful in some cases, with some caveats. And some are more customizable than others: Make sure to determine how customizable they are. The more, the better. Openness, collaboration, and understanding of your employees and business are critical to the product's functionality. Try to find a tool that is customizable and fits well with the structure of your company and how your employees think. But before using any tool, make sure you have all of your ducks in a row: Get training on the balanced scorecard approach, and determine what you want to measure and what your objectives are.

 

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