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Balanced Scorecard: Metrics For Today’s Leaders

By Natasha Bowman

In the 21st century, private and public sector organizational leaders are increasingly using metrics to drive organizational leadership and change to connect enterprise visions to internal and external communications while measuring performance against the organization’s strategic goals. Rooted in General Electric’s 1950-styled reporting practices, the innovative Balanced Scorecard is the brainchild of Harvard Business School’s Robert Kaplan and David Norton, who meticulously crafted diverse metrics that input non-financial performance measures into a more comprehensive framework.1

The Balanced Scorecard is an acknowledged management system that replaces mid-20th century measurement models. Indeed, new and diverse metrics are essential ingredients in the Balanced Scorecard of the 21st century.

According to the Gartner Group, more than 50% of organizational leadership in major US, European and Asian corporations use the Balanced Scorecard to track internal and external progress against the institution’s goals. Additionally, many government agencies and non-profits use this metric-based system to monitor their progress.

The Balanced Scorecard has gained such traction that Bain & Co. recently ranked the strategy as fifth of its ten most used management tools. Not surprisingly, Harvard Business Review cited the Balanced Scorecard as one of the most influential and innovative ideas of the last 75 years.

Old Measurements vs. the New Balanced Scorecard

Kaplan and Norton successfully transformed General Electric’s 20th century management model from a short-sighted performance model to a comprehensive, all-encompassing metric system geared to keep organizations synchronized amidst rapid-fire 21st century communication and technology. Whereas the GE model exclusively focused on financial metrics, the new Balanced Scorecard relies upon a multi-dimensional metric system that allows today’s leaders to execute strategies and measure results across every aspect of the organization.

The difference between the GE approach and the Kaplan–Norton scorecard is similar to comparing a passive measurement system to an organization-wide, proactive management strategy. With the Balanced Scorecard, leaders measure performance, identify strengths and weaknesses and remedy deficiencies through ongoing analysis of internal processes and external outcomes. Essentially, Kaplan and Norton replaced an antiquated academic approach with their interactive, more aggressive management platform.

Kaplan and Norton describe their management tool as follows: “The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation.”

The Four Perspectives of the Balanced Scorecard

The expanded Balanced Scorecard approach is framed in four buckets or perspectives. In order to sustain a thriving institution, leaders continuously measure, analyze and act to improve the metrics in each bucket.

Knowledge, Education and Growth Perspective – Identifiable and measurable metrics in this bucket ensure the growth of the organization’s greatest resource, its personnel. Training, learning processes and growth initiatives that advance the individual and perpetuate the organization are included. Kaplan–Norton stress that learning equates to training and instills mentoring and tutoring strategies to encourage organizational growth.

Internal Business Process Perspective – This perspective concentrates on implementing metrics that monitor the organization’s internal business practices. These metrics help management identify and measure progress with their distinguishing internal and external customer missions and unique product propositions.

Customer Perspective – Metrics in this perspective are designed to measure and track the customer experience including levels of customer satisfaction. If the metrics indicate levels of dissatisfaction, support for the organization is sure to decline. In the scheme of the Balanced Scorecard, the customer bucket serves management by identifying positive and negative aspects of the customer experience absent financial results. Customer types and demographics are identified and monitored here.

Financial Perspective – The Balanced Scorecard does not ignore the importance of financial data. Metrics include timely and accurate funding data and encourage managers to acquire and convey this data across the enterprise’s management team. As a proactive management strategy, the Balanced Scorecard inspires management to address “unbalanced” financial data as it occurs, not after the fact. Risk assessment and cost-benefit data are incorporated into the financial data bucket.

Strategy Mapping in the Balanced Scorecard

Strategy mapping in the Balanced Scorecard conveys the organization’s story through the logical connection between the organization’s strategic objectives as portrayed in a cause and effect chain.2 Therefore, the learning initiatives improve the organization’s businesses process, which improve metrics in the customer bucket and lead to stronger financial metrics.

The organization’s vision sits at the core of mapping the Balanced Scorecard. Successful mapping transmits financial measures across all elements of the enterprise and through the short and long-term objectives. Integration of business strategies with financial objectives and metrics allows today’s leaders to stay ahead of organizational trends and respond with solutions to current and future challenges that arise inside and outside the entity.

As part of the curriculum of the master’s degree in organizational leadership at Manhattan College, students will learn how to apply metrics to organizational performance improvement by utilizing Kaplan and Norton’s Balanced Scorecard approach as well as other data-driven tools and processes. Having a firm grasp of business metrics as taught in this course will prepare students as organizational leaders to drive organizational change to achieve business objectives.

To learn about the online master’s degree in Organizational Leadership from Manhattan College, click here or call (855) 841-2843 to speak with the Admissions office.

[1]http://balancedscorecard.org/Resources/About-the-Balanced-Scorecard

[2]Kaplan, R., Norton & Norton, D.(2007). HBS No. R0707M. Boston, MA: Harvard Business Review