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Why balanced scorecard is effective

By Memory Nguwi

The  balanced scorecard is a tool and framework that Norton and Kaplan developed.  This framework was designed to address three primary issues in the deployment of the organisation’s strategy.

It can be used as a framework to build and deploy a company strategy.  It can be used as a framework for cascading the company strategy into performance goals and targets at various organisational levels. When deploying the performance management system, it helps with the simple framework for setting goals and targets.

The balanced scorecard framework has four perspectives. The financial perspective focuses on the financial goals and strategy for the business. It represents the major concerns of a shareholder from a financial perspective.

The Customer perspective is the second perspective. It focuses on your value proposition to the customer and how you are going to meet it. The third perspective is the internal business process perspective which focuses on efficiencies within your business.

  • It is the core of every business.  The last perspective is the learning and growth perspective. The key question under this perspective is: What do we require from our people to drive the strategy of the business.
  • Here are the main reasons you should migrate to the balanced scorecard system if you are not using it already.
  • It is a very easy framework to use in your strategy formulation. Most people find it easy to understand the balanced scorecard framework.
  • It brings clarity to the strategy of your business. When done properly, presenting your business strategy in the balanced scorecard framework helps employees at every level within your organisation appreciate the strategy and contribute to that strategy’s success.
  • One of the reasons a company’s strategies fail is because it’s hard to cascade the strategy to all levels within the business. It makes it easy to cascade the strategy down to all levels within the organisation.
  • The balanced scorecard makes it easy to set goals and targets. The framework allows you to set goals under each perspective focusing on the goal, measure and target. In my experience implementing the balanced scorecard in more than 150 companies, I find that even lower-level employees find it easy to understand this framework of setting goals.
  • If you use this framework, you can set your goals in an easy and less cumbersome manner. I always recommend that no role should have goals and targets that cover more than two pages. If you find yourself with goals and targets that are more than one page and want to use them to assess performance, it is very likely to fail. Research has shown that having too many goals leads people to spread their effort, thereby reducing focus, affecting overall performance. I find the balanced scorecard one of the few systems that prioritise areas to focus on.
  • The balanced scorecard allows you to build a map that gives your strategy’s visual cause and effect map. At the board level, you can use the strategy map to communicate the core of your strategy. You can also use the same strategy map to share how your strategy is performing.
  • In my work, I have even gone a step further when assessing the performance of the strategy. You can collect how each measure/indicator has been performing over a period of a year or two years and use the same data to run correlations. This type of analysis will allow you to see which of the indicators are related. You could even go further to run a regression analysis with financial scores being the outcome variable. Such an analysis will show you which indicators drive the business’s financial performance and their contribution.

The above suggestions do not mean that other systems are completely useless. My experience has shown that most of such systems are overly complex. People hate them because they are extremely difficult and cumbersome.

You may find the setting and cascading of goals too complicated for ordinary employees to understand. If you find that your employees are finding it hard to understand the system through it away. I am surprised that some companies overburden their employees with appraisal forms that are as long as at least ten pages. It will not give you value except to allow you to comply with your company policy.

One way to check if your appraisal system is working is to ask your employees through a survey. Once you get that data, check on the pain points.

See if these pain points can be addressed.  In cases where the major pain points can not be corrected, abandon the system and look for a simpler system. I know most companies invest a lot of money and effort to teach employees to understand the performance management system covering performance appraisal. This is all in order, but remember, training will not cure a defective performance management system. A decision must be made at a strategic level on whether the current performance management system in use is giving your organisation value. If not, abandon it. Do not continue with a flawed performance management system simply because other organisations are using it.

Lastly, remember that a performance management system is likely to work with a good organisational culture — a culture of productivity.  Without this, even a good system will fail.

  • Nguwi is an occupational phsychologist, data scientist, speaker, & managing consultant at Industrial Psychology Consultants (Pvt) Ltd, a management and human resources consulting firm. — https://www.thehumancapitalhub.com  email: mnguwi@ipcconsultants.com.

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