MeasureProductivity

Very often implementation of balanced scorecard system fails because of different reasons.  At the same time mistakes made in development of strategy and selection of key performance indicators are rather typical.  As they can be systemized they can surely be avoided.  Balanced scorecard is used as a strategic management tool that communicates operational in strategic management that puts strategy into action.  It doesn’t matter in what business area the company operates.  Balanced scorecard can perfectly do its job in case a number of certain requirements and norms is observed.

Critical success factors for competitive advantage

Some business owners use balanced scorecard to implement strategic goals while others use it as a measurement tool.  Very often, strategic goals concern improved financial results, like increase of market share, company value, net income and cash flow.  At the same time, balanced scorecard is very effective performance management tool that can evaluate business productivity.

It happens that business owners and top managers never know that their business can earn more than it currently does.  The company gets profits, employees get competitive salary, shareholders have sufficient return on their investments.  But all of a sudden, having used balanced scorecard for a while it turns out that the business can do more, and that company potential is not used by 100%.

What is an effective KPI?

Balanced scorecard is a great tool to locate strengths and weaknesses.  In such a way, both company top management and ordinary employees can understand what needs to be improved to implement strategic goals.

Balanced scorecard will create strategy maps which a very easy to read.  Just imagine that every employee in the company can understand peculiarity is of the company strategy.  Moreover, ordinary personnel can be aware of own contribution to implementation of strategic goals.  This is very important for an effective work of balanced scorecard.

In measurement of business productivity it is important to find the right indicators, also called key performance indicators.  If you measure secondary things you will operate secondary information which is nothing to do with critical success factors for your business.  That’s why, the right choice of KPIs is a precondition for success.  At least, top management will operate the right data and thus it will be able to make the right decisions.

It is important to remember that balanced scorecard is not a magic tool.  It will not substitute strategy, and it will not make decisions.  It is just a tool in humans hands.

Why measure productivity of business?  This simple question seems rather easy at a first glance.  But ridiculously as it may seem, there are so many business owners who have no answer to this question.  For example, business may bring good money to its owner, and he or she will be completely satisfied with the situation.  But in fact, the business may bring wise of three times as much as it does now.  It’s not a secret that the ultimate goal of any business is making money.  But that is not all.  Top managers and business owners have to make the most effective use of available material and nonmaterial resources.  This is where evaluation of business productivity will help so much.

Modern big time business cannot function without having a proper strategy.  To be correct, such a business will survive for several years and then will be completely wiped out by competitors.  Running business without a strategy is like driving a car to the wrong destination hoping that you’ll get to the place you expected to get.  Strategy is vision of possible problems and obstacles on the way of implementation of strategic goals.  These problems are solved in advance, before they actually appeared, the company will have a serious competitive advantage in the market.

Major BSC requirements

But very often strategy has nothing of very little to do with what company is actually doing to achieve strategic goals.  This gap between strategic management and operational activity is to be bridged.  Balanced Scorecard is such a tool that makes it possible to communicate operational and strategic management and visualize the strategy.

Strategy visualization makes it possible to see cause and effect ties between goals and measures.  In other words, every employee in the company will understand how his work and his mistakes influence company success.

With the help of balanced scorecard top managers and shareholders will see where the company driving and what needs to be improved to achieve strategic goals and withstand tough competition in the market.  Implementation of balanced scorecard is a continuous process, but already at the initial stages it will be possible to measure productivity of business.  It may turn out that employees may attract more customers, introduce more products to the market or perform aggressive marketing campaigns.

Benefits of Balanced Scorecard System

Balanced Scorecard should not be confused with the strategy itself, as it does a substitute the strategy but transfer as it into real actions which need to be taken.