The Hindu Business Line : The Balanced Score Card

The Balanced Score Card (BSC) is a useful tool to drive performance and monitor the progress made against set goals. BSC was developed 20 years ago by Robert Kaplan and David Norton.

Kaplan was a professor at Harvard Business School and Norton the Founder-President of an IT consulting firm.

BSC seeks to help the head of the organisation manage the complexity of business performance. Since a single measure cannot be used to assess how the organisation is doing and where it is headed, BSC provides multiple measures, but in a relatively simple form.

BSC provides four important perspectives:

How do the customers see us? (Customer perspective)

What must we excel at? (Internal perspective)

Can we continue to improve and create value? (Innovation and learning perspective)

How do we look to shareholders? (Financial perspective)

The advantage with this approach is that managers can check to see if one goal is being achieved at the expense of another; and to take corrective action if need be.

The first step in using the BSC is setting the broad goals for the organisation. This would involve deciding goals on each of the performance perspectives. Once the goals are set, the next task is to translate the goals into measurable targets.

For instance, ensuring a high degree of customer loyalty could be translated into a measurable target of getting customer satisfaction score up to 8 /10 in year one, 8.5/10 in year two, and 9/10 by year three. This example is, of course, a hypothetical one. Alongside setting measurable targets the organisation has to decide which of the goals is more important than the other and set weights accordingly.

The goals and, hence, the targets too need to be first assigned at the company level, and then rolled out to the SBUs / divisions / functions. For instance, one goal could be that — by year two, 20 per cent of the revenue should come from exports, and this goal could carry a weight of ‘x’ for the organisation as a whole. However, for the export unit, this goal could translate into a revenue target expressed in terms of dollars, and it would carry a much higher weight than ‘x’ for that unit. From the SBU / division level, the goals and weights need to be rolled out across the levels of managers; at each stage the weights would vary depending on the manager’s specific responsibilities.

This process can ensure:

That the organisation has identified milestones on the way to the strategic goals.

That individual managers are assigned targets in alignment with the overall goals.

That the performance of the organisation and of individual managers can be measured against these targets.

(Compiled by Kaybase, a business consulting firm. Mail: Info@Kaybase.com)