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Balanced Scorecard: Measuring the Important Stuff

Written by: Gerry Maguire

Article Overview: The Balanced Scorecard was devised by Robert Kaplan and David Norton in the early nineties. It began with the premise that an exclusive reliance on the financial indicators such as profit and loss was causing the managers and owners of businesses to do the wrong things. Subsequently it was seen as a tool to measure the success of implementing strategies or implementing good ideas. The financial indicators are great at telling us how a business has performed in the past what the Balanced Scorecard does is supplement this with measures that indicate how the business will perform in the future.

Balanced Scorecard: Measuring the Important Stuff

In the May edition of the Management Today magazine there is an interview with Paul Cave. Paul is the entrepreneur who established the Sydney Harbour Bridge Climb business. In it he says that “So many good ideas fail because the idea itself may be great but the delivery is not”. A Balanced Scorecard will not by itself ensure that a great idea is realized but what it will do is keep the idea implementer’s thoughts focused on what is important in achieving success.

The Balanced Scorecard was devised by Robert Kaplan and David Norton in the early nineties. It began with the premise that an exclusive reliance on the financial indicators such as profit and loss was causing the managers and owners of businesses to do the wrong things. Subsequently it was seen as a tool to measure the success of implementing strategies or implementing good ideas. The financial indicators are great at telling us how a business has performed in the past what the Balanced Scorecard does is supplement this with measures that indicate how the business will perform in the future.

These non financial measures will depend on each business’s objectives but they could be grouped under some or all of the following headings.

* Operations (What the business does)
* Stakeholders (e.g. owners and customers)
* People (Knowledge and Learning) (the people within the business)
* License to operate (government, community relations)
* Growth (expansions, acquisitions, mergers)
* Financial

At its most effective the Balance Scorecard is a one page document and each of the measures should be linked to the strategy of the business. For example a business that has a market strategy of retaining and developing it’s customer base by providing superior post sales service needs to measure the initiatives that are in place for delivering that superior post sales service and how that has been successful in both retaining and finding new customers.

The Balanced Scorecard is a powerful reporting tool that measures the success of implementing the good business ideas. It has the potential to flag business issues months before they are reflected in the financial results. It does this by the simple principle of focusing on what the business is doing now to have financial success in the future.

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Article Tags: balanced scorecard, financial indicators, measures, profit and loss, robert kaplan



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