A balanced scorecard is a tool for strategic performance management

A balanced scorecard is a tool that allows you to accurately assess the strengths and weaknesses of all departments of the enterprise and the company as a whole. For its effective use by the management requires the development of indicators relevant to the overall strategy of the enterprise. It is also necessary to create an assessment system for specific departments of the company.

How did

This management technology, also called the Balanced Scorecard, is used relatively recently. They developed it on the basis of studies that were conducted in the early 90's.

The president of consulting firm David Norton and professor Robert Kaplan were engaged in them. Their main task was to identify new ways to achieve the strategic goals of the business and increase the efficiency of the company at all levels of its activities.

As a result, the MTP was obtained, a balanced scorecard. This discovery led to the formation of two main points:

• Only financial indicators will not be enough for a balanced (comprehensive) and complete description of the state of the company. They need to be supplemented.
• MTP can be used as a management system, and not just a comprehensive indicator of the state of the enterprise. Moreover, the implemented concept is able to ensure the relationship of company owners and senior managers with the operational activities of the organization’s management.

System purpose

For any company, it is important to continuously improve performance indicators. It is for this purpose that a balanced scorecard is used. This is a tool to combine strategic ideas and decisions with daily processes. As a result, all facets of the company are sent to fulfill key tasks.

Such control is carried out using key performance indicators. They allow you to get several levels of assessment:

• performance characteristics of business processes;
• performance indicators of each individual employee;
• goal reachability meters.

Based on this information, it can be argued that a balanced scorecard is not only a strategic, but also an operational management tool.

The main value of the BSC is that the company using it will be able to evaluate and control the process of achieving strategic goals at all levels of the organization. Thus, the system of balanced indicators of the enterprise is not a tool for working with a separate functional area, it combines them all at the same time.

For this reason, it will be difficult to implement such a concept in one area, and the desired results cannot be obtained.

Benefit

When top managers analyze the performance of an enterprise, they may miss the individual components of success or failure, paying attention only to financial indicators.

An example is the situation with the expansion of the product line. If you do not increase the assortment, then you can avoid investments related to the modernization of production, the introduction of additional equipment, etc. As a result, costs are reduced and everything is fine from the analysis of the financial condition. But at the same time, to achieve strategic goals, it is necessary to expand the assortment, which will allow the company to take new positions in the market. And from the point of view of global planning, the rejection of modernization is the wrong decision.

With such gaps in analytics, performance management will periodically be associated with unexpected results. After all, if there is not all the information about the processes that affect the achievement of the goal, then it is not known when the positive or negative changes will repeat.

In order to fully, accurately control the various facets of the enterprise, business programs such as BSC are being introduced. Since it allows you to analyze any components of production and management operations, as well as the company's service. Managers can identify all factors that influence the end result.

With this information, they will be able to develop a competent enterprise management strategy that can significantly increase the level of effectiveness of all activities in general.

Human Resources

There are organizations whose quality of service largely depends on the professionalism of employees, since their qualifications are a product. An example is a consulting or law firm.

With this form of doing business, it is periodically important to increase the level of knowledge and skills of specialists. This is necessary to maintain market position or to gain a new niche.

Against the background of illiterate analytics, company management may consider that there is no need to pay for advanced training courses for management, and specialized specialists are able to carry out tasks without additional training. As a result, from the point of view of financial indicators, the decision was made right, since we managed to avoid additional costs.

But the service market is constantly evolving, new tools for solving problems appear. With the previous level of qualification, attracting as many customers as before will not work. They will go to more trained specialists. As a result, the company loses.

Thus, for the successful development of a business, analytics is necessary that takes into account all factors.

Strategy

Any serious company has a developed development plan, which includes several main goals. Usually there are no more than 5-7 of them. But sometimes it happens that the goals either contradict each other or are not interconnected.

Strategic management is a technique to avoid such mistakes. When the system is balanced and based on clear rules for constructing goals, it becomes possible to carry out key tasks at a fundamentally new level.

With a correctly implemented MTP, objectives related to each other will be developed for all aspects of the company’s activities. So that management can mark key points of interaction, a special strategic map is formed. It is on it that the relationships between the main goals are noted.

Using such a system, top managers can constantly monitor the work of specialists in individual areas, and see if they help fulfill key tasks or not.

Structural idea

The main feature of the Balanced Scorecard is to divide the system into 4 groups in order to bring it into a balanced state. These are the following areas:

• The first group. This includes standard financial indicators. The owner of the company will inevitably be interested in the level of return on funds that were invested in the company. Therefore, despite the importance of well-established internal processes and the market orientation of the company, the system should begin with data on the financial condition and end with them (final assessment).
• The second group. Here, attention is paid to the description of the external environment - customers and the attitude of the organization towards them. The emphasis is on the ability of the enterprise to customer satisfaction, its retention and the search for new customers. The market volume and the share of the enterprise in the target segment are also taken into account.
• The third group. Used to describe a company's ability to grow and learn. In this part of the organization’s strategic management system, the focus is on information systems that provide critical information to operating systems that provide interaction between process participants, as well as people, their abilities, skills and motivation.
• The fourth group. It is intended to characterize internal processes. It is about developing a product, introducing innovations, preparing production, providing basic resources, manufacturing, marketing, and subsequent after-sales service.

Elements of a balanced scorecard

At the moment, the basic requirements for software that supports the MTP have already been developed and tested in practice.

Based on research in the design of the system should be present six elements that allow for full analysis and management:

1. Strategic goals. They are needed to determine the directions in which the strategy will be implemented.
2. Prospects. Components used to split strategy. They allow to improve the process of its implementation. In most cases, using four perspectives is sufficient: processes, customers, staff, and finance. But if the features of the enterprise strategy require it, the list can be expanded.
3. Target values. They are necessary for quantitative expression of the level of effectiveness to which a particular indicator should correspond.
4. Strategic initiatives. This includes both programs and projects that contribute to the achievement of key goals.
5. Causal relationships. They are used to combine strategic goals in such a way that the achievement of one of them leads to progress in the implementation of the other.
6. Indicators. It is a metric of achievement. It reflects the level of progress towards a specific strategic goal.

A balanced scorecard is a management tool that can be easily adapted to the tasks of a particular enterprise, but provided that the concept is well structured and worked out.

Motivation

Initially, it is worth noting that business programs like the MTP do not include direct interaction with each employee separately. For this reason, the level of employee remuneration is not tied to his personal results, but to the level of effectiveness of the entire unit to which he belongs.

If you correctly implement such a motivation scheme, then the employee will work as actively as possible and with a high level of involvement to achieve high performance in his department.

As a result, such a scheme of labor organization leads to the formation of a connection between staff motivation and the process of implementing strategic goals.

The importance of the employee’s contribution to the common cause is also growing. This is due to the visualization of its impact on the activities of the unit and the company.

Thus, by introducing competent motivation and getting clear accurate performance indicators of all departments, managers can exercise full control over the functioning of the organization. This is the embodiment of the concept of strategic management.

Of course, there always remains the risk of various deviations that interfere with the achievement of the planned indicators. In this case, the management, thanks to the implemented BSC, can carry out a full and accurate analysis of the reasons for the deterioration of results and adjust the target values.

Such a system makes it possible to constantly have the most suitable format for operating an operational management system. Moreover, the strategy of the enterprise will not lose its flexibility, changing in the light of new circumstances.

MTP actually acts as a business control panel. It is designed with the expectation that the enterprise management will deal with a small number of controlled parameters. At the same time, top management and the owners of the organization will be able to quickly receive all the data related to any changes that are significant in the framework of the company or its individual divisions.

How to use the system

If we consider the system of balanced indicators on the example of organizations operating in the Russian market, then we can note three of its features:

• MTP does not replace planning;
• the system cannot be used effectively without a well-designed enterprise development strategy;
• The main purpose of the BSC is the system management of the company, taking into account the relationship of indicators, as well as their values.

Thus, the system should not be used to determine the key goals and course of the company as a whole. MTP begins to act when the strategy has already been drawn up and there is a need for quick and accurate control of the process of its implementation.

For example, the goal is to increase the level of annual profit of an agricultural enterprise. Having carried out an analysis of all aspects of the company’s work with the help of BSC, the leaders on the basis of the obtained data can see the clear need for economic, technical, organizational and technological changes. As a result, they will make the necessary correction and get new results.

Strategic management is the system that works best in the process of achieving goals for 4-5 years. At the same time, specific indicators and values ​​should be formed for each of them. It is they who will serve as a guideline in the implementation of analytics.

First you need to determine the indicators for the entire planning period, and then develop them for individual periods (from six months). Next, you need to find out exactly what actions will help achieve a balance of the results of all departments. After that, it will be necessary to draw up specific indicators for their assessment.

It is worth considering the fact that sometimes several departments are responsible for achieving one result. This may be revenue, which is given together by 2-3 branches in one region. And this amount is one indicator of the effectiveness of the enterprise, and it should be considered that way.

If we study the system of balanced indicators on the example of an organization that has regional branches, then it will be necessary to use cascading data. We are talking about the formation of indicators for individual units taking into account the annual goals of the enterprise as a whole. It is for their achievement that the branches will be responsible.

As a result, the activities of each unit helps the company achieve its strategic goals.

Summary

MTP is a company’s business management tool that is necessary for any modern enterprise striving for development. Such a system allows you to quickly and accurately identify weaknesses and strengths of production and management processes. Using it, the company's management will be able to constantly adjust the organization’s strategy and make the necessary changes to the work of specific departments.