The traditional performance management and appraisal techniques generally focused on the financial aspect of planning and outcomes. But with time, learning organizations and researchers realized that that this was too narrow a view. While the financial aspect was of vital importance to an organization’s long-term and short-term goals, it wasn’t the only important factor.
In light of this need, Dr. Robert Kaplan of Harvard Business School and Dr. David Norton devised a strategic management tool they called the Balanced Scorecard. The Balanced Scorecard added the other non-financial strategic pillars to the financial aspect of strategic planning such as Customer Relationship, Internal Business Processes and Learning & Growth of the organization. These four elements, as detailed by Drs. Kaplan and Norton are tied to the Vision and Strategy of the organization. The Balanced Scorecard, as the name suggests, ‘balances’ the strategic plans of the organization by painting a fair picture of what it will take to implement these plans.
The major edge that a Balanced Scorecard has over conventional performance measurement systems is that it is primarily a management system that details performance appraisal criteria as well. The balanced scorecards takes the organization’s vision and long-term planning from a big fat file to actionable procedures. With this approach to strategic plan implementation, the organization has a guide for day-to-day activities that streamline its overall direction towards the organization’s vision. A brief look at the different perspectives taken in a Balanced Scorecard will help to better understand how this approach can be implemented across organizations regardless of their size or nature.
Learning and Growth: in the current business landscape, manual labor is fast being replaced by knowledge workers. With advancements in technology organizations’ competitive advantage has trickled down to the skill and knowledge of their employees. Thus, the biggest investment an organization seeking to thrive and thrive well in today’s economy can make is the investment in its human resources. The learning and Growth aspect of the Balanced Scorecard makes sure that the managers and key decision makers focus research funds in areas where the most training is needed. Beyond training this also means providing mentorship and guidance on the job.
Internal Business Prospective: Monitoring the core business processes to ensure that they meet customer requirements as well as the organization’s mission is critical. The procedures and metrics designed in this area have to be done by those closest to the core functions, having a clear idea of what both the customer and organization need.
Customer Relationship: gone are the days when organizations assumed the customers would buy anything they made. Decades after the Industrial Revolution, the focus is now on placing the customer’s wants and needs first. Surpassing customer expectations and ensuring customer satisfaction is the key to achieving long-term business success.
Finance: with everything said about the importance of non-financial aspects of strategic management and strategic planning, the fact that we still need money to make things work can’t be ignored. For an organization to actively achieve its goals it must have a clear idea of the resources it has at its disposal.