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Balanced Scorecard (BSC)

Balanced Scorecard (BSC), developed by Harvard professors Robert Kaplan and David Norton is the most effective and widely used worldwide by commercial, governmental, industrial and non-profit companies concept of implementation of the company's strategy through its decomposition to the level of operational management and monitoring, based on Key Performance Indicators (KPI).

Balanced Scorecard (BSC) enables the integration of financial and non-financial indicators, taking into account causal relationships between resulting indicators and factors which indicators calculation depends on. This allows detailed monitoring of the company’s activity in a strategic focus, increase responsiveness and effectiveness of management decisions, monitor the most important financial and non-financial performance indicators (KPI), which are set as objectives for the company, and fulfilment of which is a measure of progress, accordingly to the defined strategy. KPI values reflect the efficiency of business in whole as well as of particular business processes, departments and personnel resources.

Balanced Scorecard

As a result, the Balanced Scorecard (BSC) become not only a technique to measure the effectiveness of the company in strategic focus, but also a comprehensive company management system.

In the Balanced Scorecard (BSC) one should distinguish between indicators that measures goal achievement (KPI itself), and indicators that reflects processes that ensure achievement of these goals (performance indicators). For example, in order to achieve target value of the “financial strength limit“ it is necessary to achieve a certain level of manufacturing capacity, which would allow reduction of fixed costs and lower the value of the break-even point. The concept of the Balanced Scorecard (BSC) suggests construction of this kind of multifaceted relations between the KPI and the operational indicators, financial and non-financial indicators, strategic and operational levels of management, past and future results, as well as between internal and external activities of the company. This what "balanced" is stand for in Balanced Scorecard (BSC). Accordingly to expert estimates, the number of KPIs at the corporate level or the company-wide level must not exceed 15 - 25, otherwise they will cause attention distraction, diminishing of resource efforts and "smearing" of goals and responsibility, weakening the strategic focus.

Due to the balance of causation, Balanced Scorecard (BSC) allows effective company management while monitoring a small number of KPI (Key Performance Indicators).

The traditional concept of performance evaluating is based on measurement and monitoring of exclusively financial indicators, which contain information about past events and do not reflect the possible long-term investments and customers relation.

Balanced Scorecard (BSC), while supporting the measurement of financial indicators, also takes into account non-financial indicators, that reflects the movement of the company to create future value through investment in staff, streamlining business processes and technology, improving relationship with customers and suppliers. This broader view on management efforts results in more reliable picture of company’s current status and allows opportunities analysis of internal and external development and competitiveness.

Balanced Scorecard (BSC) identifies four strategic areas, reflecting the respective company's prospects:

  • How shareholders evaluate a company (financial perspective)
  • How customers evaluate a company (customer perspective)
  • Which processes will give company a competitive advantage (prospective internal business processes)
  • Is there are programs dedicated to innovation, personnel development, motivation and growth (the prospect of learning and personnel development)

scorecard

Stages of Balanced Scorecard (BSC) roll-out

  • Defining vision
  • Determining of strategic objectives
  • SWOT analysis and identification of success factors
  • Definition of indicators and their target value
  • Determination of indicator calculation method
  • The causal chain of strategic objectives
  • Cascading of strategic goals
  • Strategic action plan
  • Support, updating and improvement of the Balanced Scorecard (BSC)

Benefits of Balanced Scorecard (BSC)

  • A thorough understanding of the business with all internal and external processes relationships.
  • The strategic direction of the business activities of all departments and employees
  • The increasing progress in achieving the strategic objectives.
  • Effective centralised resources distribution
  • Evaluating the impact of executive decisions in accordance with the company's strategy
  • Understanding of the strategic objectives and personal tasks by employees
  • Improved collaboration of employees and departments
  • Overviewing the key business information in a generalised, systematic, easy to understand way
  • Personal responsibility of executives staff and employees for performance indicators assigned to them
  • Motivating employees through clarity of personal goals and objectives

However, the effectiveness of any KPI system implementation directly depends on right choice of KPIs, and their ability to be automated by high-tech software products.

You can order a demo version of KPI MONITOR 2010 Basic edition on our web site.