One of the most popular methods of performance management is the balanced scorecard developed by Drs. Robert Kaplan and David Norton. Almost every organisation in the Western world uses some form of performance management to monitor and manage the performance of the business and its components. Many have opted for the balanced scorecard.
The balanced scorecard is a management tool that measures the performance of a corporation against preset objectives. The scorecard uses a number of perspectives to view the organisation. It is necessary to achieve a high score on each perspective to claim that goals have been achieved. The scorecard is a strategic tool, allowing a company to translate the strategic objectives into day-to-day activities. It is a management tool rather than simply a measurement tool.
The four perspectives include:
> Learning and Growth - reflects the need for an organisation to increase its organisational knowledge and grow its people
> The Business Process Perspective - to ensure that the products conform to standards and to customer requirements
> The Customer Perspective - measures the customer focus, identifies the type of customer and the degree of success in nurturing customer relationships
> The Financial Perspective - measures the key financial indicators to ensure that the organisation is profitable and that finances are being managed effectively.
The balanced scorecard may be seen as a type of key performance indicator (KPI) approach where key measures are identified at the corporate level, cascaded down to the departments and ultimately to the individuals within the organisation.
At the strategic management level, key performance indicators relating to the four perspectives (a fifth may be added as well) define how the organisation should look. The metrics or measures relate to a number of questions for each perspective.
What kinds of employees are required? What level of management education and approach is needed? Can the business process be improved to eliminate defects in the production system? What are the most important parts of the process? Is the customer focus working? Are customer complaints dealt with effectively? The financial aspect is of key importance - is the company operating at a profit and are costs being managed effectively?
A balanced scorecard usually requires software to facilitate the effective compilation of measures. The information being measured is generally extracted from the various IT production systems in place in the organisation. Information from the key systems is extracted and compiled into a business intelligence system. The business intelligence system often includes a dashboard that executive management can use to monitor progress towards achieving strategic objectives.
Managing corporate performance by means of a scorecard usually involves cascading the high level objectives through to the organisation's departments. Each department must define its own scorecard. These measured will feed into the high level scorecard. Ultimately, the measures are rolled down to each individual. A set of KPIs determine what each person must do. The measures at each level are rolled up to the corporate level producing a comprehensive picture of the organisation's performance.
The balanced scorecard can be criticised from a number of points of view. In the first place, it does not promote flexibility. Building the right measures into the system is a lengthy and complex process. A rapidly changing environment does not fit the requirements all that well. W Edwards Deming's stance that opposes performance management is as valid here as anywhere. According to Deming, performance management is one of the deadly diseases of Western industry. It promotes fear and dishonesty. The measures themselves are often questionable and there is often a strong element of natural variance in the measures themselves.