What is a balanced scorecard?
Balanced Scorecard is a 30 year-old performance measuring concept developed by two US academics – Robert Kaplan and David Norton – in the early 1990s. It started as an article in Harvard Business Review and then they wrote a number of books, of which the original, The Balanced Scorecard, remains the most popular. There are four useful sources at the end on this topic.
At its heart the Balanced Scorecard is a very simple idea. An organisation should monitor its performance not just by looking at financial measures, but through a basket or ‘balanced scorecard’ of measures. It might be more self-explanatory to call it an ‘organisational scorecard’. Kaplan and Norton suggest four core areas for measurement in the scorecard:
· Financial measures such as profit & loss, capital investment, share price and the like.
· Customer measures such as customer recruitment and retention, customer attitudes and spend per customer.
· Internal processes such as IT, digital, brand, order fulfilment
· Organisational capacity including staff retention and satisfaction, culture and the like.
And these measures should all be linked to the organisational strategy. With the perspective of 30 years this is an incredibly simple idea: measure all aspects of what an organisation does! However I wonder how many organisations actual do have a systematic approach to measurement across all the areas of their business.
Many balanced scorecards are portrayed in a diagrammatic way, with an example below from the 1st of the four sources.
The key feature of the diagram is that the combination of the colour code and the short phrases to represent the goals of the strategy, give a very easy way to give an overview of performance. There is one area on the diagram that isn’t doing well in red (reduce energy consumption) and four greens and seven orange goals. It’s quick and easy for an organisation to give staff, directors, and customers an idea of how the company is doing. It’s worth noticing that the vision and overall mission are included in the diagram as well.
Is a balanced scorecard a useful idea for charities?
Balanced Scorecard is undoubtedly a very useful idea for charities. Its power is in its simplicity and its adaptability. The four main areas of measurement can work for any kind of organisation, for profit or not for profit, and every organisation can adapt to their own specific circumstances. There are also now a range of software programmes too to help with the measurement process.
I would add a couple of caveats to the recommendations of the balanced scorecard approach. The first is that the work needs to go into what can be measured, to make sure that the scores in the four elements can be assessed on a regular basis. The second is that the balanced scorecard is effectively an evolution of the measurement of performance using key performance indicators or KPIs. Any organisation that already uses KPIs should be able to evolve its performance measurers to create a balanced scorecard. The four areas of measurement should also provide an indication of whether some areas of an organisations work have been missed.
I’d love to hear how any charities are getting on using a balanced scorecard approach on joe@heyheyjoe.info
Sources
I have used four main sources for this blog, the last of which is the original 1992 article in Harvard Business Review:
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