The purpose of this article is to illustrate how companies that have adopted Balanced Scorecard (BSC) approaches have aligned their processes and systems with their strategy.  The article then goes on to discuss the opportunities and/or implications of having a BSC system together with another strategic improvement system.

Balanced Scorecard

To begin with, the Balanced Scorecard is a strategy. A company adopting a BSC approach must “align and focus” every process and system within the company to match with its overall strategy.  Kaplan and Norton list five basic principles that are commonly used to do this.

1. Translate the Strategy to Operational Terms

Have a “logical architecture” for the organization’s strategy.

2. Align the Organization to the Strategy

Since large organizations present the problem of poor communication, effort must be made to get information from one side of the organization to the other.  Silos are a typical example of this problem.  A department is able to produce very efficiently; so efficiently that inventory is backing up because down the production line, another department cannot keep up with the pace.  These individual strategies must be linked together for the good of the whole company.

3. Make Strategy Everyone’s Everyday Job

Successful adaptors of the BSC idea realized that upper level management could not do all the necessary work themselves.  They needed help from everyone in the organization.  All employees have to understand the strategic goals of the company.  Kaplan and Norton refer to this not as top-down direction, but rather top-down communication.  Instead of passing objectives down the management ladder, the whole strategy is known throughout the company, to every employee.

4.  Make Strategy a Continual Process

Many adopters of BSC have frequent meetings to discuss how the company is pursuing its strategic goals and to determine if there are any new strategies that the company should undertake.  Aligning processes to the main strategy should never stop.  One example the article gives is that of Chemical Bank.  Management initiatives were evaluated using BSC measurement criteria, basically telling how well those initiatives would help the company meet its strategy.  Executives found that over 50 of the 70 initiatives did not align with the company’s strategy.

5.  Mobilize Leadership for Change

Finally, the executive team must convince everyone in the organization that the change is a good idea.  First, leaders have to clarify to employees that the change is needed.  Then, once the project is started, management must have a well thought out plan to smoothly (as smoothly as possible) guide the project through fruition.

Other Organizational Improvement Methods

Activity-based costing and shareholder value management were introduced around the same time as BSC.  The authors credit each initiative as highly beneficial to an organization.  The three methodologies do not compete against each other.  They can work very well together for maximum company improvement.  Also, they can all work independently of each other and prove useful on their own.

Shareholder Value Management

This method can work within the financial perspective of BSC.  It addresses subjects such as “cost reduction, improved asset productivity, and revenue growth.”  The strategy for growth is dependent on what will make customers happy.  However useful shareholder value may be, Kaplan and Norton contend that without BSC complementing the information received from Shareholder value management, the organization cannot cultivate a strategy for revenue growth.

Activity-Based Costing

Similar to shareholder value management, ABC can be useful on its own.  However, if used within the context of a BSC system, ABC can become very valuable due to its ability to measure financial and non-financial data.  There are many areas which ABC can “link” to a BSC system:

·  Operational linkage- Kaplan and Norton argue that only an ABC system can trace costs related to the processes of product development.

·  Customer profitability linkage- Outcome measures such as customer acquisition, retention, and satisfaction can all be captured using an ABC system.  Further, an ABC system can determine whether or not a customer is profitable.

·  Budget linkage- While BSC is used to develop a strategic budget, ABC is used to create an operational budget. The two methods used together can provide myriads of constructive information.

Which should an Organization Implement First?

If an organization has large, growing costs.  And business processes are inefficient, then an ABC system should be installed first.  If ROI, Sales, and financial viability are all looking meager, then perhaps the best option for the company would be shareholder value management.  Shareholder value management highlights financial inefficiencies, thus helping the company find better uses for its money.  BSC would be perfect for a company looking to change its strategies, or even for a company that wants to clearly articulate its current strategy.  BSC sets the whole organization towards common goals.

Basically, the Balanced Scorecard forces an organization to constantly address its strategic goals.  It forces the company to devote its finite resources to the processes that will help the company satisfy those strategies.  Through constant application of the BSC, new strategic opportunities will open, and the company will be able to determine if the opportunities are consistent with where the company wants to go.

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