Initial stages of BSC implementation

That’s why it is extremely important to initiate a broad discussion of balanced scorecard.  Even if ordinary employees lack strategic management knowledge they can still offers some creative ideas as to internal business processes and generally everything happening on the operational level.  Top managers can think in the long term while head of departments can tell much about company customers, market segments, customer demands and requirements.

What BSC teamleader must do

Before implementing balanced scorecard and developing a set of key performance indicators top management of the company should understand that successful implementation of balanced scorecard can mean drastic changes in the company.  If organization is not ready to change balanced scorecard will be helpless and useless.  Moreover top management and company personnel should start such changes with themselves.  Previously used methods of management will not work with balanced scorecard.  The company must learn to live with BSC but not just use it as a popular managerial tool.  It is not a project that has certain terms for implementation.  Once implemented balanced scorecard is either rejected by the company or stays in the organization forever.  So, in other words, it even works but doesn’t work.

Preparation for BC implementation is perhaps the most important stage, that’s why company should carefully select people will be in charge of BSC development.

But creation of a working group itself will not solve the problem.  The company should find the right people who will have desire, motivation and time to promote balanced scorecard and manage discussion of strategy maps.  Some of these people should be discussed and moderators.

Working group members must represent different managerial levels in the company

The common mistake is inclusion of external advisors and company top managers only to the working group.  Sure, these people are very competent in the fields of strategic management.  Of external advisors have prior experience and skills in implementation of balanced scorecard, while top management possesses valuable information on the company itself.  But without participation of ordinary personnel development and design of strategy maps will restrict itself to one time presentation of balanced scorecard and strategy maps to the company.  If ordinary personnel in the company does not understand why they should use this system and what their personal of interest is, there are very few chances to succeed in implementation of balanced scorecard.

How BSC strategy is discussed

BSC becomes philosophy for the company.  It should always cause changes and discussions inside the company.  Discussion on the top level will mean nothing to ordinary personnel who actually bring money and contact customers.  And ordinary sales manager may tell you a lively picture of who his customers are.  He will tell something that a top manager never new.  That’s why combination of professional knowledge in the field of strategic management and the dissipation of ordinary personnel will give the best results.

Working group members should lead discussion on all themes and topics which might be relevant to strategy development and use of balanced scorecard.  BSC must be promoted and working group members should rather act like preachers (of course in a good sense of this word).

It has been observed that companies that initially failed to use balanced scorecard in the right way them and get back to the system, while companies with the positive BSC experience will never part with it.

Reward program life cycle

But there is one condition for successful use of balanced scorecard.  Company personnel must be involved in development of strategy maps and in everyday use of BSC.  The problem is that sometimes top management is far far away from company customers while ordinary front line employees know everything about those people who bring money for the company.  That’s why ordinary employees must understand their contribution to implementation of strategic goals.  In other words, they should know how their work affects company success.

Employees must be well motivated.  As known, financial motivation proves to be one of the most effective systems of rewarding employees.  But very often companies develop incomprehensive reward systems.  On the one hand, employees may be not satisfied with the compensation and bonus systems.  On the other hand, the company may simply be paying bonuses for completion of the wrong goals.

How reward system works?

For example, when measuring business productivity, company employees in sales department may be getting bonuses for number of contacts with customers or visits paid to customers.  This leading indicator is very important.  But at the same time it does not guarantee that all those potential customers will be buying from the company.  So, as sales manager is not interested in sales but he wants to make as many phone calls as possible.  Formerly, he will improve his performance, but in fact the company will not benefit from it.  Just to the contrary, it will pay such as sales manager bonus for a certain number of phone calls.

Download swot analysis guide

These days, top managers and business owners use a variety of strategic management tools.  As known, it’s not easy to define strategic goals of the company since many factors (both internal and external) have to be taken into account.  That’s why, some companies never managed to formulate strategic goals and perform actions to reach them.

SWOT analysis is one of the methods used in strategic management.  This is the acronym for strengths, weaknesses, opportunities and threats.  In other words, company management looks at situation inside and outside the company, locates current and potential problems, makes an effective use of available opportunities for growth and development.

AKS-LABS offers SWOT analysis guide for all those interested in this strategic management tool (business owners, top managers, strategic planners, budget and finance specialists etc.).  This information package includes SWOT analysis templates, frequently asked questions, SWOT analysis guide.  Such information will give answers to most burning and acute questions related to SWOT analysis.  Besides, managers may use templates to make own SWOT metrics and have a look and what needs to be done to improve company position in the market.

Get free SWOT analysis guide here, or purchase the full version of this package from this page.

Advantages of BSC

Of course, there are no universal answers to these questions.  Every company is individual and thus requires individual approaches to evaluation of performance and productivity.  However, use of effective and well reputed performance management system is a must.  If you should communicate strategy with operational management and Balanced Scorecard is exactly what you need.

On the one hand, you can use balanced scorecard as a performance management tool.  Balanced scorecard evaluates key performance indicators in four categories: financial, customer, internal processes, learning and growth.  Each category has a number of indicators which characterize key success factors in a certain business area or direction.  As a result, you will have performance management evaluation index expressed in figures or percents.  But what is more important you will have figures measuring all key success factors.  Thus, it will be possible to locate week points in the work of the company.

4 perspectives of Balanced Scorecard

But if your task is to communicate operational in strategic management, or in other words, puts strategy into action, and at the same time evaluate current performance of the company, balanced scorecard it just an ideal solution.  Strategy maps will show cause and effect ties between different categories and indicators of balanced scorecard.  Thus, implementation of financial goals is impossible without improvements and implementation of strategic goals in customer or learning and growth categories.  This makes balanced scorecard a unique performance management tool.  At the same time, balanced scorecard is a great tool for strategic planning.

It is important to remember that balanced scorecard is not just and magic management system which all of a sudden solves any business problems.  Balanced scorecard will not substitute strategy either.  But it will surely help top managers and strategic planners to clearly see what should be done to drive company to its strategic goals.

Measurement of business product in a tea will give answers to many questions, including two once concern in implementation of the company strategy.

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.

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.

At a first glance it’s not so difficult to set goals.  And the same time just goals sitting alone is not enough.  You need to keep these goals realistic otherwise the company is doomed to fail.  For instance, if a small company undertakes to gain and 50% market share it will be impossible to achieve such a goal without revolutionizing the market.

What makes a good strategic goal?

The goal, and especially strategic goal, is the vision of future.  In other words, you decide what future you want to see for your company and how we will achieve such future.  If you set strategic goals and hope there will be no problems and obstacles you are business romantic who will fail.  Strategic vision and strategic goals should forecast possible problems and obstacles.  The wrist of competition in the market and the res no way you can avoid this competition.

In use of balanced scorecard goal setting is a number one challenge.  This is where the implementation process begins.  With the wrong goals you’ll pick the wrong key performance indicators.  Thus you will measure some secondary things which are nothing to do with key success factors in your business area.  Of course, your strategic goals should be compliant with the mission and values of your company.

Results of setting the wrong goals

Only with the right strategic goals and the right set of key performance indicators it will be possible to successfully use balanced scorecard system in order to communicate strategic and operational management.

Through measurement of productivity it is possible to locate strengths and weaknesses of your business and find relevant solutions to existing problems.

Read more about goal setting here

Every business should have strategic goals otherwise it is doomed to fail.  Strategy also implies human resource management.  It is impossible to improve the company without improving its personnel.  One can give employees the most effective tools to achieve success, but if employees are not ready to use them nothing will happen.  Any investment should be supported by training and coaching of personnel which should be ready to operate on a new level.  That’s why, evaluation of HR performance is vital for any company.  Human resource department is not earning money, that’s why inefficient human resource management wastes it.

The 4 perspectives of BSC

In measuring product image of any business measurement of HR efficiency is a must.  Of course, different businesses have different approaches to human resource management and evaluation of HR performance.  Obviously, it is impossible to measure performance of human resource department at an industrial enterprise and in a law firm in the same way.  However, there are some generalized guidelines and sets of indicators difficult for a certain business area.

Influence of HR on business productivity

Evaluation of HR performance implies measurement of human resource key performance indicators.  They may be subdivided into several categories like retention, recruitment, employment, education and training, working conditions, HR ratios, loyalty and satisfaction etc.  Each category includes me numerous indicators representing certain aspects and key success factors in different business areas.

Evaluation of HR performance with balanced scorecard ensures that the company aligns human resource management with the general strategy of the company.  So, by implementing HR goals the company does not conflict with the general strategy and mission.

4 BSC perspectives

Balanced scorecard doesn’t work as a magic solution for all problems inside and outside the company.  Moreover, if not properly applied balanced scorecard can even harm the company and become a waste of time, effort and money.  Critics of balanced scorecard may claim that the system becomes very expensive and complex.  Also they say that the results were not achieved.  Well, they have their own reasons to say so.  But let’s analyze these mistakes and think whether or not they could have been avoided.

Most common BSC mistakes

Mistake number one.  No comprehensive strategy.  Balanced scorecard transfers strategy into action.  So, if the company has no strategy or its strategy is vague and incomprehensive, then what should be transferred into action?  Strategy development is the initial stage of BSC implementation.  Moreover, it is important to differentiate strategic goals, tactical objectives and short-term tasks.  Strategic goals and strategic problems are problems that have not occurred yet.  Strategic vision is the vision of future.

Mistake number two.  Lack of IT solutions to collect and analyze information.  Distorted or incomplete information will make managers adopt wrong decisions.  Untimely submission of information is also a common problem.  Companies are to react to changes in the external environment with internal changes as soon as possible.  If the information comes too late it will be too late to react.

Mistake number three.  Lack of competent and educated staff to implement balanced scorecard.  As a rule, 80% of managers do not the dissipating strategic planning or have no idea what the company strategy is, say apart of ordinary employees who have their own goals and tasks.  That’s why, it is important to have people who will be responsible for collection and analysis of information as well as decision-making.

Mistake number four.  Wrong choice of key performance indicators.  Even in the company has strategy, well educated staff and necessary resources BSC may fail if the wrong indicators are chosen.  Company management should focus on most important indicators to put strategy into action.

A mistake number five.  Desire to achieve results as soon as possible.  Balance scorecard works in the long-term.  Please, remember that.