Using a scorecard
Introduce a scorecard to give you an early warning system that all is not well
Businesses of all sizes, be it a large corporation or a newly-established small business, spend a considerable amount of time and effort developing well-thought out strategic plans that work to pave the way for their business’s success. Yet, many of them fail to reach their goals. Frequently, it is because they are unable to measure their performance accurately and, therefore, only realise something is wrong when it is too late.
Using a scorecard is a great way to improve the process of measuring your business’s performance. A scorecard is a set of performance measures that are categorised according to the different performance aspects of a business. Scorecards vary immensely in their appearances, content, and intricacy. Some will include a dashboard that covers the broader performance goals of an enterprise and then expands them into more detail. Others are colour coded to make it easier to scan through them.
Using an automotive supplier as an example, one of the strategic performance goals in the dashboard of its scorecard may be “market leadership through building quality cars”. Two performance metrics that contribute to the achievement of this goal may be “the percentage of reduction in annual warranty expenses” and “the percentage of reductions in car recalls”.
When structuring a scorecard, it is important that you correctly identify what performance metrics are critical to the success of your business and need to be included in the scorecard. If you answer the question well, the scorecard can make for an extremely tangible and concrete way to define success. In general, two types of performance measures should be included in your scorecard; those that account for the achievement of current operational goals and those that account for the achievement of future goals.
The best thing about scorecards is that they allow business leaders and managers to quickly understand how their business is performing overall and to identify if there is a performance gap in a particular area. Because they are structured to reflect performance across several business areas, when there is a lag in one area, it will stand out clearly. This, in turn, allows the business manager to react immediately and solve the problem before it becomes too big to handle.
If you are an entrepreneur with a growing business, constructing a scorecard will help you to better understand what functions of the business you need to work on to ensure that your business continues to do well.
For those of you who are interested in assessing the current performance of a business, read my article “Discover 7 Common Causes of Cash Flow Problems in your Business before it is Too Late”.