Performance Management System and the Balanced Scorecard

Copyright © Morongwa Makakane
Used with permission of the author:
Author: Morongwa Makakane
Managing Director
Tlholego Business Consultants
www.tlholego.co.za
19 July 2007  

Back to ... Workinfo.com Human Resources Magazine Volume 1 Issue 9, 2007

Since the introduction of the balanced scorecard in the early 1990s, organisations worldwide have not been the same. There has been excitement, confusion and even frustration. The excitement was caused by the realisation that, at last, a reliable strategic planning, management and measurement tool was finally available. The confusion was and is being caused by rushing to implement the balanced scorecard without properly understanding how it works and how it affects organisational performance. The frustration is being caused not only by poor implementation, but by the poor management of the implementation.

For a business to achieve its objectives, it has to plan, manage and measure. The balanced scorecard is a tool to use to plan, manage and measure organisational success.

What is the balanced scorecard?

The balanced scorecard was developed by Robert Kaplan and David Norton based on a 1990 USA research study on balanced measures of financial and non-financial performance measures in manufacturing, service, heavy industry and technology companies. The research study was motivated by the inadequacy of traditional performance management systems, which relied almost exclusively on financial and business results. These measures were not telling the whole story. Their focus was mainly internal and based on single dimensions such as quality, cost or schedule. Although these were important, the limitation was they told the story of only past events and were not consistent with the business realities facing the organisation. They were “unbalanced”.

The balanced scorecard helps organisations to link their strategic objectives to performance measures, and is set up to focus attention on matters of both internal and external concern. It is a management system that be used by any organisation irrespective of size and purpose of existence to align their vision and mission with customer requirements, to improve operational efficiencies, and to build organisational capabilities. 

The balanced scorecard as a measurement system

Because the balanced scorecard is not focused solely on a single measurement of performance, it allows us to view results of organisational performance from different dimensions, i.e. business results (financial and customer), operations and organisational capacity. It is based on the following framework of four perspectives:

The learning and growth perspective

This perspective is about the organisational culture, tools, technology, infrastructure, skills and capabilities required to achieve the organisational objectives. It is essentially the foundation upon which the organisational success is built. The measures in the learning and growth perspective are the enablers of all the other perspectives as they will ultimately lead the organisation to achieve its results.

The internal business process perspective

This perspective is about key business processes at which organisations must excel to create and deliver value proposition to their customers. Measures based on this perspective allow the organisation to identify processes (e.g. new product development, manufacturing) that are critical to meeting customer requirements.

The customer perspective

Organisations exist because of their ability to satisfy their customers’ needs – the buyers of service or products. If customers are happy and satisfied, they come back and buy more service or products; they also tell other people who buy the service or product. This virtuous cycle then results in the organisation realising its mission and creating a sustainable platform for existence. In developing measures for this perspective, customer analysis should be performed in terms of kinds and groups of customers and the kinds of processes for which the product or service is provided, and what the value proposition for the customers is.

The financial perspective

For a profit-orientated organisation, this perspective is quite critical as the financial performance provides the ultimate definition of an organisation’s success. The measures in this perspective would typically describe how the organisation intends to create economic and sustainable growth, profitability and rise in shareholder value. It would be of no help to improve customer satisfaction, increase operational efficiency and build organisational capacity if there is no measure on profit making.

For a public sector/government agency or non-profit organisation, the balanced scorecard focus changes slightly. Because a state-owned or non-profit organisation is not profit orientated, the desired outcomes centre on the delivery of service for citizens or members’ value for money. The emphasis therefore changes to the organisational mission, and the framework must be adapted.

The case for the balanced scorecard as a performance management system

• The balanced scorecard helps organisations to understand their customer needs and customer value.
  

• It assists the organisation to focus on strategic result and strategy and ensure that strategic objectives are linked to clear targets and annual budget.
  

• It aligns the vision, strategy, processes, projects and people. As such, strategy is clarified, communicated and cascaded via business unit plans.
  

• It builds employee accountability and buy-in for change. The organisational initiatives reprioritised and accountabilities, for everyone, are clarified.
  

• It assists in identifying critical performance measures and strategic initiatives. These are developed and linked at every level, thus ensuring that they are integrated.
  

• It assists in evaluating strategy performance.
  

• Stakeholder involvement is very high, thereby increasing commitment to making strategy happen.
  

• The balanced scorecard is adaptable for any kind of organisation, irrespective of size.

For the balanced scorecard to effectively work, it needs commitment and involvement from the top, otherwise, it will fail.

End of Part 1: Next issue, Part 2: Successful Step by Step Implementation of the Balanced Scorecard

References

Howard Rohm: A Balancing Act, Perform, Volume 2, Issue 2, 2003

Paul Niven: Balanced Scorecard Step by Step, Chapter 1: Performance Measurement and the need for a Balanced Scorecard; 2002

Alison Painter: The Use of the Balanced Scorecard as a Performance Management Framework: http://www.publicnet.co.uk/publicnet/

Shackleton, C: Developing key performance indicators for corporate communication in the information technology industry; Chapter 4: Organisational Performance Measurement; University of Pretoria; 2007

Need assistance with developing your organisation’s Balanced Scorecard? Tlholego Business Consultants is a Platinum Level affiliate of the Balanced Scorecard Institute, a Strategy Management Group company.  We are certified and licensed to provide training and consulting services using the Balanced Scorecard Institute’s award-winning Nine Steps to Success^TM methodology, a framework used by organizations worldwide to build strategic planning and management systems that drive organizational performance, improve communications and create strategic alignment. 

Morongwa Makakane is a MBA graduate and qualified Human Resources Management and Development Specialist. Her areas of expertise include Business Strategy Development, HR, HRM and HRD Strategies and interventions design such as Change Management, design and implementation of Performance Management, as well as Skills Development. Her sought-after experience as a trainer and facilitator has seen her practice her skills at various levels of management; both locally and regionally. She is a registered assessor. Morongwa is also a renowned teambuilding expert and motivational speaker. Morongwa is a Certified Balanced Scorecard Practitioner. She can be contacted at: Tlholego Business Consultants, Tel: +27 (0)12 643 1404 www.tlholego.co.za  

Short Summary

A balanced scorecard is a reliable strategic planning, management and measurement tool for all organisations which incorporates the various perspectives on which the organisations are founded..

Keywords and relevant phrases

Analysis, balanced scorecard, budget, business processes, capabilities, capacity, corporate culture, customer requirement, development, financial performance, government agency, growth, human resources, infrastructure, learning, management, measurement, non-profit organisation, objectives, operational efficiencies, performance management system, planning, profitability, projects, public sector, skills, strategy, sustainable growth, target, technology, tools, value, vision.

Back to ... Workinfo.com Human Resources Magazine Volume 1 Issue 9, 2007