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The Balanced Scorecard

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A structured approach for developing and aligning meaningful key performance indicators (KPIs) in the following 4 key areas of any organisation:

1. the Customer* Perspective 2. the Financial Perspective 3. the People and Knowledge Perspective 4. the Internal Business Process Perspective

*customer may be the general public for private and public sector services, and also the next person in the chain, in the same organisation. Anyone relying upon you to perform your part in the value chain is your customer. image

More on the Balanced Scorecard's four perspectives (a PC powerpoint show).
Some primary questions and an example relating to how you currently manage performance within these four perpectives (a PC powerpoint show).

These perspectives can be managed through the application of either leading or lagging indicators however. Read on to understand more about the difference between Leading and Lagging indicators, with some examples to illustrate below, under the four perspectives.

The Customer Perspective

Let's consider the Customer Perspective for a moment. If your customers are not satisfied, they will find other suppliers to meet their needs and most likely will not notify you until you try to get repeat custom from them. Measuring poor performance at the earliest stage of customer service or quality in this instance would be an example of leading indicators warning of future decline, even though the current financial picture may look good. Relying solely upon financial indicators to warn of problems in the organisation is an example of using lagging indicators which still highlights a problem, however at a time when much more damage has been done. We help our clients be as proactive as possible and design the right leading indicators for them.

The People and Knowledge Perspective

We operate in an era of rapid change and it is becoming necessary for knowledge workers to be in a continuous learning mode. Leading measures here often refer to employee skills and competencies, availability of information and your organisation's culture, to name a few. Recent estimates suggest that as much as 75 percent of an organisation's value is attributable to human capital.

The Internal Business Processes Perspective

These are frequently leading measures as they monitor the effectiveness of key processes which you must excel at in order to continue adding value for customers, and ultimately, shareholders and stakeholders alike.

The Financial Perspective

The balanced scorecard retains the traditional Financial measures. Remember however that financial measures usually tell the story of past events at a time when the situation has likely prevailed for some months. This drives reactive responses and typically a lagging indicator. This was considered adequate in the industrial-age where investment in long-term capabilities and customer relationships were considered less critical for success. These sorts of financial measures on their own are inadequate for guiding and evaluating the journey that information-age organisations must make to quickly create future value. Frequently organisations over-handle and process financial data at the expense of creating future value.

Further Recommended Reads:
The Balanced Scorecard Balanced Scorecard In A Week, Mike & Pippa Bourne (the CMI Series)
Alignment: How to Apply the Balanced Scorecard to Corporate Strategy, Robert S. Kaplan & David P. Norton

For further details on how the balanced scorecard can be applied in a learning organisation, please e-mail us at .