dierschow-1024x730Robert Kaplan and David Norton developed a powerful concept back in the 1980s and ‘90s for monitoring business performance.  Dubbed the Balanced ScoreCard, it has spread rapidly through large organizations around the world.

Despite this popularity, I’m continually surprised by its lack of visibility among smaller companies.

Perhaps some fear that it’s too complex and requires too much overhead to support. Well, yes, it’s possible to go crazy and create a behemoth which then crumbles under its own weight.  But that’s true of any tool of significant power.

My experience is that the BSC, as it’s affectionately known, can be used efficiently and elegantly to help focus teams on what’s most important.

This diagram shows a general template which can be broadly applied and customized to almost any kind of organization.  This is a generic example showing 11 measures in four categories. Let’s walk through it so you can get a sense for how it works.

The financials tend to be the most comprehensive measures of business health. Almost everything else ends up as a financial result at some point, although it may take weeks or even months to show up.  For our business, let’s choose to closely follow revenue and one of the key margins.

For this particular business, customers care the most about the quality of our products, how we price them, and the effectiveness of the service which supports keeping them happy. We’ll make sure we keep focused on those three more than all the other attributes which show up in our brochures.

In order to provide this, inside our organization we need to reliably deliver our products, and we’ve decided that innovation is a key to continued success. We’re a regulated industry, so we have to closely monitor our compliance.

Our team, to deliver this, needs to maintain a very effective culture and leadership model. We’ll develop particular skills so we can stay ahead of customers and competitors.

I imagine you now see why this is called a balanced scorecard. We haven’t focused so tightly on one part of the business that we’ve lost visibility somewhere else. We’re looking internally and externally.  We’re talking about past, present and future.

These measures do a powerful job of conveying our priorities to the organization. If we’re spending a lot of effort on something that doesn’t show up in the metrics, we should be asking why we’re not looking to minimize or outsource it. This can help highlight key gaps in delivering the core results we need.

In reality, you should expect to have about seven to 12 of these measures at any level of the organization. If you stretch beyond that, people feel burdened by the overhead and lose sight of the priorities. Fewer than seven, and you run the risk that you’re completely ignoring a critical aspect of the business.

What I haven’t shown in this diagram is the linkages between the measures. For instance, we can draw a logical thread: Our ability to innovate must be supported by key elements of the culture and specific new skills we’ll develop. That innovation will be focused outwards to deliver a quality product (as opposed to innovation just because it’s fun).

When we stay ahead of the market in delivering a quality product, we believe it’ll let us charge a little price premium, improving both revenue and margins.

This is best conveyed to your team through stories and examples. You want to focus on the connections that are most critical to success. It’s possible that you could draw some minor connections between almost every measure on the page, but that will obscure the power of your unique strategy.

When I work with my clients on these kinds of exercises, we always have to look seriously at removing overhead. You don’t want to focus people too much on measuring rather than delivering actual customer value! It can be a delicate balance.

I encourage you to investigate the Balanced ScoreCard if you’re unfamiliar with it. You might be quite impressed with how much it can align and mobilize your people.

Robert Kaplan and David Norton developed a powerful concept back in the 1980s and ‘90s for monitoring business performance.  Dubbed the Balanced ScoreCard, it has spread rapidly through large organizations around the world.

Despite this popularity, I’m continually surprised by its lack of visibility among smaller companies.

Perhaps some fear that it’s too complex and requires too much overhead to support. Well, yes, it’s possible to go crazy and create a behemoth which then crumbles under its own weight.  But that’s true of any tool of significant power.

My experience is that the BSC, as it’s affectionately known, can be used efficiently and elegantly to help focus teams on what’s most important.

dierschow-1024x730

This diagram shows a general template which can be broadly applied and customized to almost any kind of organization.  This is a generic example showing 11 measures in four categories. Let’s walk through it so you can get a sense for how it works.

The financials tend to be the most comprehensive measures of business health. Almost everything else ends up as a financial result at some point, although it may take weeks or even months to show up.  For our business, let’s choose to closely follow revenue and one of the key margins.

For this particular business, customers care the most about the quality of our products, how we price them, and the effectiveness of the service which supports keeping them happy. We’ll make sure we keep focused on those three more than all the other attributes which show up in our brochures.

In order to provide this, inside our organization we need to reliably deliver our products, and we’ve decided that innovation is a key to continued success. We’re a regulated industry, so we have to closely monitor our compliance.

Our team, to deliver this, needs to maintain a very effective culture and leadership model. We’ll develop particular skills so we can stay ahead of customers and competitors.

I imagine you now see why this is called a balanced scorecard. We haven’t focused so tightly on one part of the business that we’ve lost visibility somewhere else. We’re looking internally and externally.  We’re talking about past, present and future.

These measures do a powerful job of conveying our priorities to the organization. If we’re spending a lot of effort on something that doesn’t show up in the metrics, we should be asking why we’re not looking to minimize or outsource it. This can help highlight key gaps in delivering the core results we need.

In reality, you should expect to have about seven to 12 of these measures at any level of the organization. If you stretch beyond that, people feel burdened by the overhead and lose sight of the priorities. Fewer than seven, and you run the risk that you’re completely ignoring a critical aspect of the business.

What I haven’t shown in this diagram is the linkages between the measures. For instance, we can draw a logical thread: Our ability to innovate must be supported by key elements of the culture and specific new skills we’ll develop. That innovation will be focused outwards to deliver a quality product (as opposed to innovation just because it’s fun).

When we stay ahead of the market in delivering a quality product, we believe it’ll let us charge a little price premium, improving both revenue and margins.

This is best conveyed to your team through stories and examples. You want to focus on the connections that are most critical to success. It’s possible that you could draw some minor connections between almost every measure on the page, but that will obscure the power of your unique strategy.

When I work with my clients on these kinds of exercises, we always have to look seriously at removing overhead. You don’t want to focus people too much on measuring rather than delivering actual customer value! It can be a delicate balance.

I encourage you to investigate the Balanced ScoreCard if you’re unfamiliar with it. You might be quite impressed with how much it can align and mobilize your people.

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