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The Balanced Scorecard as a Strategic Management Tool Published: Sunday, April 26, 1998 By: Ing. Ulises Pabón

The need to compete has never been greater. As companies struggle to maintain a leading edge, business strategy has become the most important items on the leaderships agenda.

In response to competitive pressures, many senior management teams dive into their executive conference rooms to develop a winning strategy. Many hours are spent evaluating opportunities and threats and establishing action plans. However, few teams emerge with a clear statement of direction. Ask a typical employee to explain his or her organization`s strategy and you`ll be convinced. Unclear goals and objectives, competing priorities, and poor communication obstruct the path to quick and effective strategy implementation.

In previous articles, we`ve elaborated on methods and tools for strategy formulation. The articles on "Co-opetition", Game Theory, and Strategic Planning are good examples. In this article, I want to focus on strategy implementation. Specifically, I want to touch upon a specific tool we`ve been using with our customers as a dynamic framework for strategic management. I`m referring to the Balanced Scorecard.

A handful of organizations started using the Balanced Scorecard back in 1991, as part of a research project on performance management directed by Professor Robert S. Kaplan from the Harvard Business School. However, as companies started to experiment with the concept, what started as a structured framework of performance indicators, rapidly became a management system that permitted organizations to keep tabs on their strategic initiatives and validate their strategy, as well.

The Balanced Scorecard is a framework that covers four dimensions: Financial, Customer, Internal Operations, and Learning and Innovation. Each dimension represents an important strategic perspective.

The Financial perspective focuses on our financial responsibility. The Customer perspective focuses on the customer requirements we need to address in order to assure we succeed in business and achieve our financial goals. The Internal perspective focuses on the internal processes that add value to our customers. Finally, the Learning and Innovation perspective focuses on the elements that enable people to execute the organization`s core processes flawlessly. As objectives, measures, and projects are identified for each perspective, a Balanced Scorecard emerges.

The power of the Balanced Scorecard becomes apparent when it is integrated into the strategic planning and deployment process. Some quick examples help illustrate this point.

First, during strategy formulation, the Balanced Scorecard helps people think in terms of cause and effect relationship. As people explain how goals will be achieved, and elaborate on the impact of their ideas on the four dimensions of the scorecard, hidden assumptions emerge. The open discussion of these previously hidden assumptions promote a clearer formulation of strategy.

Second, implementing the Balanced Scorecard throughout an organization means that each work unit will develop it`s own scorecard within the organization`s larger framework. This process assists in communicating the strategy. Also, all work units develop a better understanding of how they can contribute to the strategy. The Balanced Scorecard becomes an empowerment device.

Third, as work units construct their short-term plans and their respective yearly budgets, the Balance Scorecard serves as a link between the long-term goals and the short-term priorities. Rather than sitting hidden inside a strategic plan, strategic projects become a reality.

Finally, during the strategic review process, the Balanced Scorecard serves as an organizational learning instrument. As indicators, goals, and objectives are reviewed, the cause and effect relationships built into the strategy are also subject to review. Reviewing the strategy, and it`s related indicators, becomes a learning process rather than a mechanical follow-up exercise.

In our experience, the Balance Scorecard is a formidable tool during the strategic formulation, communication, planning and review processes. If your organization has problems making strategy "work", consider implementing the Balanced Scorecard methodology. Remember, the need to compete has never been greater!


Copyright 1998 QBS, Inc.
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