Balanced Scorecard Newsletter Article
The following article was produced in August 2002 to summarise a presentation addressing the principles of the Balanced Scorecard and its relationship to Business Excellence.
It is reproduced here from the original which was produced in a three-column format
High Flying Organisations Need Balance
Before leaving to create Access to Excellence Steve Unwin was Head of Business Excellence for BAE SYSTEMS (formerly British Aerospace.) winners of the 1999 UK Business Excellence Awards.
Last September Steve spoke at our Best Practice Day at Wigan Pier and here captures the key points of the presentation he gave on the Balanced Scorecard.
Managing Change
We need few reminders of the changing world that we live in. Managing any organisation, large or small, public or private, more than ever calls for management of today’s performance whilst preparing to ensure tomorrow’s performance in this changed world.
Complex Systems
The management of an organisation is the management of a complex system, complex because many things are happening at once, all competing for the organisations, inevitably limited, resources and all consuming management time. Just as in flying an aircraft, the operation of a business requires a range of performance information to understand the situation.
In an aircraft the instruments ‘paint’ a picture of what is happening and help the pilot understand the consequences of their actions on the controls. The pilot thus learns and understands ‘cause and effect’.
This understanding must provide a complete picture. In an aircraft the pilot is provided with instruments covering all parameters of flight. In organisations a similar balanced set of measures are required if the organisation is to ‘fly’.
Comprehensive Measures
 Peering into the cockpit of an aircraft the array of instruments can appear overwhelming.
The same feeling may occur in business, but the temptation to avoid the complexity and concentrate on one or two instruments is no more valid for the Business Manager than for the pilot. No one would fly with a pilot who concentrated on speed and ignored altitude!
Key Measurements
Years of experience have refined the set of basic flight instruments seen in all aircraft.
Business has been less fortunate, with the only commonly seen measures being financial ones. These provide valuable information, but only cover a subset of business activities. They also provide a backward looking view of performance; the consequences of past decisions.
Using only financial measures, has been described as like driving a car only looking in the rear-view mirror. This can be done, but works best when the road ahead is like the road behind. Unfortunately we know that the future road is not like the past.
Balance
 No less than for the aircraft, balance is key if the Business Manager is to be provided with real understanding with which to pilot.
The Balanced Scorecard provides this system of cause and effect measures to enable an organisation ‘to fly’ successfully.
Balance of short and long term objectives so that today’s aims don’t compromise tomorrow’s ambitions.
Balance of Leading and Lagging indicators, to ensure that today’s actions are creating tomorrow’s desired results.
Balance of internal and external performance perspectives to ensure the business aims meet those of customers and stakeholders.
 Balance of financial and non-financial measures to ensure that the need to create profit is aligned with other performance needs.
Kaplan and Norton who devised the Balanced Scorecard recognise that this balance could be achieved different ways, but suggest the following four perspectives to pilot a business. In effect the basic business flying instruments:
Financial Perspective
Customer Perspective
Learning & Growth Perspective
Internal Business Process Perspective
An Integrated System
The Balanced Scorecard should not be thought of simply as a set of instruments however. Just like the aircraft cockpit, it is the means to integrate the pilot with the system, through both instruments and controls.
The Balanced Scorecard enables the Business Manager to interface with both the cause and effects of the business to;
Clarify and translate vision and strategy
Create plans and targets
Communicate and link strategy to plans
Provide strategic feedback and learning
This ‘closed-loop’ allows the Business Manager to pilot the business; set the direction, develop strategy, implement plans and measure the effects, and all the time learn to become a better pilot.
Summary
Much like the Business Excellence Model, the Balanced Scorecard provides an antidote to the dangers of one dimensional thinking – ‘ignoring the altimeter’.
Its primary value is not in providing a prescriptive set of measures, but in prompting an organisation to ask what measures it needs for a balanced picture. Once achieved, a correctly balanced picture allows cause and effect within the business to be managed to achieve both today’s and tomorrow’s objectives.
|
