Measuring what matters: The case for balanced scorecards in 2021

Measuring what matters: The case for balanced scorecards in 2021

By Mark White, MHR Analytics

Measuring what matters: The case for balanced scorecards in 2021

The Balanced Scorecard (BSC) framework helps move you away from focusing on limited financial outcomes to join the dots between all components of planning and management.

So why might this be especially relevant in 2021? To understand any organisation, you need to look beyond the topline financials. This is especially true in the current climate, where businesses are faced not just with disruption and uncertainty, but also a growing expectation to focus on social and environmental outcomes.

Against this backdrop, it’s time to take a fresh look at BSC as a valuable element of your planning and management toolkit.

How it works

As the name suggests, the BSC framework aims to deliver a balanced view of performance.

It lets you view strategic measures alongside the more traditional financial metrics, assess progress towards strategic targets, to better align the day-to-day activities your people are involved in with strategy, and to communicate what your organisation is trying to accomplish.

The approach encourages you to examine your business from four perspectives and define objectives for each:

  • Financial: includes all objectives relating to financial health and performance. Specific goals could be focused on reducing production costs and/or increasing profit margins by a target amount.
  • Customer/stakeholder: this views organisational performance from the perspective of key stakeholders (usually customers and investors). Example objectives might be focused on customer service and satisfaction levels, or around building brand awareness.
  • Internal process: this perspective is designed to assess the effectiveness of the processes you have in place. Internal process objectives might include process improvements such as streamlining, quality optimisation and capacity utilisation.
  • Organisational capacity: this looks at how human capital, infrastructure, and technology drive performance. Objectives could be focused on performance management scores, staff engagement or adoption rates for new business technologies.

Based on these four perspectives, the BSC methodology requires organisations to set their own objectives, KPIs and targets. To tie everything together, you use a strategy map: a graphic that shows the cause-and-effect connection between your various strategic objectives. It’s this clear visual element that makes BSC particularly useful for communicating how value is created by the organisation.

Why now?

Agile planning

After the upheavals of the last year or so, most businesses will be keen to focus on positive rebuilding and stabilisation.

But even as things get back to normal, uncertainty remains. And one thing recent events have demonstrated is that organisations with the ability to adapt quickly to change tend to enjoy a distinct advantage. Goals, objectives, operating models, entire definitions of success: you sometimes need the ability to reevaluate all of these at short notice.

BSC provides a useful framework for considering new challenges and possible solutions. Say, for instance, a particular revenue source has temporarily dried up. At the same time, your hiring plans will need to be put on hold, forcing you to focus on utilisation of existing capacity.

So which targets will need to be tweaked, and what new objectives will be needed to reflect this new reality? Using a BSC strategy map, you can weigh up the ramifications of a range of possible courses of action, right across the business. If you cut back on payroll in order to continue to meet a finance target, the implications of this for, say, a particular customer service or quality control KPI are visibly obvious on the map.

In this way, the conflicts between competing objectives become clearer. With the map in front of you, it becomes easier for business insiders to collaboratively work through the options and reach compromises. And once you have decided on a course of action, you can use the BSC to communicate what you’ve changed and why.

Building sustainability into your strategy

The expectations on businesses are changing. 73 percent of consumers say they would switch their buying habits for the good of the environment. Two thirds would prefer to buy from a responsible company, even if that means paying more.

Attitudes like this are having a ripple effect in B2C, B2B, private and public sectors. It means that alongside customers, parties as diverse as shareholders, fund managers, procurement managers and even job recruits are increasingly keen to check out your sustainability credentials.

ESG criteria (Environmental, Social and Governance) are often discussed in terms of “managing the triple line”: the measurement and balancing of social and environmental impacts alongside financial ones. This emphasis on balance makes BSC a particularly useful methodology for integrating sustainability into your planning and performance management.

As a start, you have a ready-made framework for weaving sustainability objectives and KPIs into the four scorecard areas (financial, customer, internal process and organisational capacity). Here are a just a few illustrations:

  • Financial: Percentage of profits to be earmarked for reinvestment in sustainability initiatives or wider social/community projects.
  • Customer: Targets for reduced product return ratios, take-up of products with a longer lifetime, or take-up of environmentally-friendly customer services (e.g. fewer paper receipts).
  • Internal process: Targets for reduction of waste, less energy or packaging, increased recycle rates, lower fuel usage.
  • Organisational capacity: HR targets linked to responsible employment practices (e.g. gender pay gap and diversity). Target rates for the use of public transport for commuting.

The BSC strategy map is a useful tool for setting viable sustainability objectives and associated KPIs. In the eyes of stakeholders, it helps to show that you are taking concrete steps towards sustainability, rather than merely paying lip service to it.

BSC and dashboards in tandem

The BSC methodology dates back to the nineties: a time before self-service insights, when data analytics was the preserve of a tiny minority of enterprises.

So why should BSC still be on your radar? After all, every major planning and analytics solution now comes with strong dashboarding capabilities: an instant view of everything you need to keep track of via a customisable interface.

In reality, dashboards and scorecards both have a role to play.

  • Dashboards: consist of a hand-picked selection of metrics, presented through your choice of visualisation (usually a combination of graphs, charts and gauges). The data is constantly updated, giving you a bird’s-eye view of operational performance. Useful for day-to-day management.
  • Scorecards: rather than being updated in real time, scorecards are usually updated periodically (e.g. weekly or monthly). Rather than providing you with a snapshot of performance, they are much more useful for helping you compare strategic goals with results. If you want to see how close or far you are to meeting particular goals, scorecards are ideal.

There are, of course, multiple aspects to performance management. For some areas – keeping an eye on cash flow, sales or workforce capacity, for instance – a real time data feed is invaluable.

Then there are your long-term business goals to consider. Examples might include initiatives to increase efficiency, eliminate waste and reduce emissions. For a start, BSC gives you a methodology to assess your business drivers, to weigh up the viability of objectives, to align KPIs with those objectives and to visualise their impact across the business. The scorecards themselves are highly effective in allowing you to measure performance against set targets.

These two approaches – scorecards and dashboards – can (and should) work successfully in tandem. The dashboard delivers up-to-date visibility for monitoring business performance, whilst BSC provides a framework to help define your strategy, monitor progress towards your goals, and communicate your results.


MHR Analytics specialises in delivering precisely the reports, visualisations and insights organisations need to deliver on business objectives. Are your dashboards allowing you to stay on top of performance management? Could you be making more effective use of scorecards? To discover your optimum blend of management tools and techniques, speak to us today or better still join our forthcoming webinar –

https://www.mhranalytics.com/events/extended-planning-analysis-webinar/?utm_source=aa&utm_medium=blog&utm_campaign=xpa

 

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