Hasn't a book been written on balanced scorecards already?
Yes - Kaplan and Norton have written a book on the subject of balanced scorecards. Their book however focuses on the use of this tool at the top of an organization, and primarily for strategic planning reasons. I wanted to share with you a set of tools that I have found to be effective for use on the front lines. These tools work, both for helping the workforce know what measures are important and for helping managers find the balance they need to reach levels of high performance in all performance areas.
Why do you need to use balanced scorecards?
There are three main benefits that can be gained by using balanced scorecards on the front lines in your pursuit of process excellence. First, this tool shows people how their daily job directly impacts most, if not all, of the organization's key performance areas. Second, by including weighting factors on your scorecards, you can send a clearer message to your people about the relative importance of certain measures (such as customer service) versus others (like efficiency) that are also tracked. Finally, scorecards can be used to indicate when formal recognition for significant workgroup performance efforts will kick in, in turn helping to motivate your teams to higher levels of performance in all key performance areas.
What is a balanced scorecard?
The balanced scorecard design presented on this website has three main components. First, there is a set of performance ranges for each key measure on the card (in most cases, there are one or two key measures per performance area for a team). The second component is the weighting factor referred to previously - each key measure is weighted in terms of importance on a scale between one (low) and five (high). Scores that are possible for attaining (or failing to attain) certain levels of performance make up the third component. At the end of each reporting period (usually a month), a total score for the workgroup's performance is calculated by (1) scoring each measure's performance, (2) multiplying that score by the measure's weighting factor, and (3) totaling these scores for the whole card. A link to an example card is provided below.
What do you mean by "key performance areas"?
In most organizations, there is a common set of key performance areas. For example, in manufacturing, these areas might be safety, quality, cost, people, and efficiency. Different terms might be used (for example rework or waste instead of quality), but the focus is the same. Service organizations have similar areas of focus, especially when these five more generic terms are used. In some cases (such as with a profit center versus a cost center), there is also a sales or revenue growth performance area include on the scorecard, especially at the company level. Another option involves looking at the 'People' area only on a quarterly (or less frequent) basis, as it is more difficult to get a good regular measure here (such as internal customer satisfaction percentages from an employee survey). The key thing to remember however is that most organizations have a common set of five or six key performance areas similar to the categories of safety, quality, efficiency, people, cost, and sometimes, growth.
How do you decide which performance areas are the most important?
While it may sound simple, deciding what weight to assign to each key performance area can be very challenging to do in terms of reaching consensus on these assignments. As the scorecard's effectiveness relies heavily on these weights however, they do need to be assigned, either by the organization's Leadership Team or a cross functional performance improvement focus group. The organization's mission and value statements should be the key references to use in assigning these weights. There should be alignment between the focus of these statements and the weights (and number of measures) that are assigned to each area. There should also be alignment between the daily behaviors of your people, especially members of management, and these assignments. Why give service a weight of 5 only to focus primarily on efficiency during a performance review meeting? People are not blind to hypocrisy!
How do you decide what performance goals to use?
Your performance goals should be based on the organization's mission, the performance trends that have been displayed to-date, and the expected effect of the system improvements (and external system changes) that make up your annual plan. In other words, do not simply take last year's average and bump it up by five or ten percent - define HOW you will improve performance through systems change before projecting how those changes will affect your numbers. The performance goals should be challenging, but in general, an average level of performance should at most garner you only one half of the total points possible on a card. Experimentation is the best way for you to determine how to set your performance goals - scorecards are not cast in stone - they can change as the systems change as long as people understand why and play a part in making the change decision.
Where do you go next?
Begin by exploring the examples that the following links will take you to. At a minimum, define your key performance areas and the key measure or two that each workgroup has for each area. By doing this and assigning weights to each area, you can often accomplish a lot by gaining clarity about what is important. I would also be happy to work with you further to help you develop a balanced scorecard system in your organization - all you need to do is ask. Keep improving!
Would You Like to Learn More About Great Systems!?
Click on one of the following links to learn even more about Great Systems! and the types of systems improvements I can help you make:
“The only thing I know is that I do not know it all.” -- Socrates