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Characteristics of Balanced Scorecard:

Performance measures used in the balanced scorecard approach tend to fall into four groups: financial, customer, internal business process and learning and growth.

"Has our financial performance improved?"
What are our financial goals?

Vision and

"Do customers recognize that we are delivering more value?"
What customers do we want to serves?
Internal Business Processes
"Have we improved key business processes so that we can deliver more value to customers?"
What internal business processes are critical to providing value to customers?
Learning and Growth
"Are we maintaining our ability to change and improve?"

Exhibit 1-1

Internal business processes are what the company does in an attempt to satisfy customers. For example, in a manufacturing company, assembling a product is an internal business process. In an airline, handling baggage is an internal business process. The basic idea is that learning is necessary to improve internal business process; improving business process is necessary to improve customer satisfaction; and improving customer satisfaction is necessary to improve final results.

Note that the emphasis in Exhibit 1-1 is on improvement - not on just attaining some specific objective such as profits of $10 million. In the balanced scorecard approach, continual improvement is encouraged. In many industries, this is a matter of survival. If an organization does not continually improve, it will eventually lose out to competitors that do.

Financial performance measures appear at the top of Exhibit 1-1. Ultimately, most companies exist to provide financial rewards to owners. There are exceptions. Some companies, may have loftier goals such as providing environmentally friendly products to customers. However, even nonprofit organizations must generate enough financial resources to stay in operation.

Ordinarily, top managers are responsible for the financial performance measures - not lower level managers. The supervisor in charge of checking in passengers can be held responsible for how long passengers have to wait in line. However, this supervisor cannot reasonably be held responsible for the entire company's profit. That is the responsibility of the airline's top managers.

Customer Perspective

Performance Measure Desired Change
Customer satisfaction as measured by survey results +
Number of customer complaints -
Market share +
Product returns as a percentage of sale -
Percentage of customers retained from last period +
Number of new customers +

Internal Business Process Perspective

Performance Measure Desired Change
Percentage of sales from new products +
Time to introduce new products to market -
Percentage of customer calls answered within 20 seconds +
On-line deliveries as a percentage of all deliveries +
Work in process inventory as a percentage of sale -
Unfavorable standard cost variance -
Defect-free units as a percentage of completed units +
Delivery cycle time -
Throughput time -
Manufacturing cycle efficiency +
Quality costs -
Setup time -
Time from call by customers to repair of product -
Percent of customer complaints settled on first contact +
Time to settle a customer claim -

Learning and Growth Perspective

Performance Measure Desired Change
Suggestions per employee +
Value-added employee +
Employee turnover -
Hours of in-house training per employee +

Exhibit 1-2

Exhibit 1-2 lists some examples of performance measures that can be found on the balanced scorecard of companies. However, few companies, if any would use all of these performance measures, and almost all companies would add other performance measures. Managers should carefully select the performance measures for their company's balanced scorecard, keeping the following points in mind:

  • First and foremost, the performance measures should be consistent with, and follow from, the company's strategy. If the performance measures are not consistent with and follow from, the company's strategy, people will find themselves working at cross-purposes.

  • Second, the scorecard should not have too many performance measures. This can lead to a lack of focus and confusion.

While the entire organization will have an overall balanced scorecard, each responsible individual will have his or her own personal scorecard as well. This scorecard should consist of items the individual can personally influence that relate directly to the performance measures on the overall balanced scorecard. The performance measures on this personal scorecard should not be overly influenced by actions taken by others in the company or by events that are outside of the individual's control. And, using the performance measure should not lead employees to take actions that are counter to the organization's objectives.

Real Business Example:

When Improvement is not Better:
Mark Graham Brown, a performance measurement consultant, warns managers to focus on the right metrics when measuring performance. He relates the following story: "A fast-food chain gave lip service to may objectives, but what senior managers watched most rigorously was how much chicken its restaurants had to throw away . . . What happened? As one restaurant operator explained, it was easy to hit your . . . targets: just don't cook any chicken until somebody orders it. Customers might have to wait 20 minutes for their meal, and would probably never come back - but you'd sure make your numbers. Moral: a measurement may look good on paper, but you need to ask what behavior it will drive."

Source: "Using Measurement to Boost Your Unit's Performance," Harvard Management Update, October 1998.

Relevant Articles:

Definition and Explanation of Balanced Scorecard
Characteristics of Balanced Scorecard
Delivery Cycle Time
Throughput (Manufacturing Cycle) Time

Manufacturing Cycle Efficiency (MCE)




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