The Use of Balanced Scorecards in Business

The Use Of Balanced Scorecards in Business

My blog post today focuses on the use of Balanced Scorecards in business. Today I will discuss what scorecards are, how they are used effectively, and what some of the pitfalls can be when used improperly.

What Are Balanced Scorecards

Scorecards are used by businesses to share the company’s mission and strategic goals by breaking down a set of performance measures that are being monitored for outcomes (Lawson, et. al., 2008). Scorecards are important because they give a company a method to clearly communicate information regarding their mission and their strategic goals. Scorecards work by linking and aligning the outcomes of people, projects, and goals to the strategy, and give a clear reason to measure performance at all levels (Lawson, et. al., 2008). Quite often people go through their work each day without thinking about how the work they do impacts the bottom line. By sharing the information contained within balanced scorecards, managers are able to link those daily efforts to real-world measures, and show how they in turn affect the strategic plan. It gives perspective to employees, and simultaneously allows managers to more effectively, and quantitatively, measure performance (Lawson, et. al., 2008).

How Are They Used Effectively

To be used effectively, scorecards need to measure the appropriate information, and do so accurately. Scorecards also need to display the information effectively, so it can be used to measure performance over time, as well as at a glance. When asked, adopters and non-adopters of scorecards agreed on some of the following measures: key performance indicators, a cause and effect map, measure of leading, lagging, financial and non-financial data, and the ability to collaborate on results (Lawson, et. al., 2008).

The use of scorecards can also be detrimental if they are not used appropriately. As indicated before, a scorecard is only as effective as the information being measured. A company may choose to follow a metric in one department, simply because it’s easy to measure, and not because it has a solid impact on the bottom line.

Common Pitfalls and Problems

Over time, the use of scorecards can also become more sophisticated and complex to implement as businesses look for more ways to drill down to various measurements. This can give managers too many metrics to follow, and spread their targets too thin. This can also give rise to complaints from employees who were part of the initial rush of excitement when scorecards were first rolled out, only to later feel bogged down by watching so many metrics that they are unable to do their jobs effectively (Lawson, et. al., 2008).

Cost benefit analysis of some metrics may also prove to be out of reach, and are determined to be too costly to implement. Companies that solicit managers and employees for input on which metrics to measure may also be disappointed when their opinions are determined not to meet the needs of the organization (Larson, et. al., 2008).

Successful Implementation of Scorecards

Having the scorecard system driven by top management can greatly increase the chances of long-term success of scorecard adoption and use. The first reason being that there is going to be cost associated with the collection, and dissemination of the data. If upper-management doesn’t support the initiative, they are also unlike to support the added expenditures. Additionally, employees tend to pay attention to the things their managers pay attention to. As company leaders adopt the use of scorecards into their everyday management of their departments, they initiate a change in company culture that centers on the use of scorecards by everyone. This shift in culture allows for more widespread adoption, and thus wider understanding of how scorecards are used, and what is being measured (Lawson, et. al., 2008).

Conclusion

            The use of scorecards is not without possible pitfalls or problems. However, when used effectively, they can shift the culture of a company to being more focused on the bottom line, and open up more lines of effective communication. It allows for more effective and accurate measurement of goals and outcomes, as well as more qualitative measurement of employees. These benefits are certainly needed for companies to remain profitable, and even those in the non-profit realm, scorecards could allow them to stretch their dollars further.

References

Lawson, R., Hatch, T., & Desroches, D. (2008). Scorecard best practices: design, implementation, and evaluation. [Books24x7 version] Available from http://common.books24x7.com/toc.aspx?bookid=23364.