The Balanced Scorecard endeavours to provide linkages between two interdependent streams of activity. The first stream relates to the setting and monitoring of business strategies and objectives. The second relates to those human resource activities which support business strategies and objectives. In particular, performance management at the individual level.
Balanced Scorecard performance drivers must be integrated into the
organisation's planning and reporting systems. In some instances they will be drawn directly from business plans and budgets. In other instances, new performance drivers will need to be developed.
Capturing all performance drivers in a Balanced Scorecard enables a broad based evaluation of organisation and business unit performance.
Performance drivers need to be aligned to give collective focus to those measures which will deliver maximum value. Where appropriate they can be cross-referenced to external benchmark measures.
The financial perspective is critical. Shareholders expect a reasonable return on their investment. When establishing financial scorecard drivers for organisations and business units the focus may be on:
The Balanced Scorecard methodology is based on four central performance perspectives:
Human resource management is concerned with sourcing, developing, managing and monitoring the people resources necessary to achieve organisational goals and objectives.
In the context of the Balanced Scorecard, individual performance management forms a key component. Individual Key Result Areas (KRAs), Key Performance Indicators (KPIs) and Action Plans need to be linked to Balanced Scorecard performance drivers. Competency development processes are critical to ensure individuals possess and apply skills and aptitudes necessary to achieve performance outcomes.
Revenue Growth and Mix
Financial measures need to be customised to fit each organisation's operating environment although the above are common scorecard items.
This perspective focuses on the way organisations and business units go about meeting customer requirements and providing financial returns. Potential areas for inclusion are:
Innovation enables the energy and creativity necessary to sustain the organisation in the longer term. Measures may focus on:
The needs of customers are critical to the achievement of business success. Most organisations now hold this to be self evident. Yet few incorporate customer/market measures when assessing organisation and business unit performance. Consider some of the elements:
Information systems capability;
The above categories are intended as guides only. The measures appropriate for any organisation will be specific to that organisation's operating environment and culture. Therefore, they need to be designed individually. If desired, measures may be weighted to reflect their importance/contribution to overall performance.
Applications of the Balanced Scorecard
The Balanced Scorecard design has its origins in accounting theory and is primarily a business planning and performance monitoring tool. It was developed by Robert S. Kaplan and David P. Norton of Harvard University in early 1990s. The underlying premise is that long term business viability requires a focus on a broad range of performance drivers . These include, but are not limited to, financial drivers. Performance drivers may also include: customer, market, environment, human resources, research and operational measures. The Balanced Scorecard can be adapted to take account of specific performance drivers unique to each organisation's operating environment.
