Balanced Scorecard - Executive Summary

The balanced scorecard as a management tool has emerged in an age where bureaucracies are palpably inefficient and ineffective in mustering the support of a broad range of stakeholders in a company. Furthermore, enterprises today are complex with an increasing number of units such as strategic business units, subsidiaries and the extended enterprise which are hard to monitor directly. Increasingly, companies seek to make the working of their companies transparent by measurement of the variables affecting their performance and showing their relationships to outcomes achieved. They are thus able to increase the participation of their employees and others, elicit their initiatives, pinpoint problems much faster and to take specific action plans to correct matters.

Above all, balanced scorecard makes a major departure with the incorporation of non-financial metrics for performance measurement. The non-financial metrics help companies to identify the strategic variables that can help them to gain competitive advantage and improve their financial performance. These non-financial variables increasingly include intangibles like core competence, customer satisfaction, and employee competence. As these variables are measured, companies are discovering unsuspected sources of gaining competitive advantage.

Financial measures, on the other hand, have several problems when they are used for the operational management of enterprises. They are much too aggregated to help in the identification of sources of competitive advantage and in assigning responsibility at a specific level. Financial numbers are, at best, a measure of the outcomes achieved in the past. These numbers are not helpful when managements are looking at means to achieve their future goals.

Balanced scorecard is a methodology by which companies align their strategies with the work flows and resources. They help companies to scan their value chain and find means to lower costs, speed up processes and improve quality in order to achieve their goals. When the outcomes fall short of the expected achievements, companies have the means to trace back the source of the problem and correct it quickly or better still anticipate it in time to take preemptive action.

Companies have to be careful when choosing the variables they select wtihin the balanced scorecard in order to avoid unnecessary data processing and those which have a significant impact on their outcomes. Increasingly, they have access to statistical analysis tools which help them to test the validity of the variables and identify new ones from patterns they observe in their business.

Technology, especially dashboards, is an aide to empower managements with the complex task of communicating strategies, measurement and processing of data and testing the validity of the assumptions companies make in formulating their strategy. Above all, dashboards make the information of their companies transparent and channel relevant information to the employees of their companies. This is essential at a time when tolerance for delays in decision making keeps declining and scenarios change even more rapidly.