The Balanced

Scorecard
Information to Drive
Performance

Introduction that supports a long term, forward-

thinking strategic view across the
Every organisation recognises the entire organisation. They need a
importance of measuring: as well as performance measurement framework
providing the means of monitoring the that provides a view across a range of
achievement of the organisation’s measures that encompass all of the
strategy, it is a vital means of key issues for continued financial
communication and motivation. success. A measure framework that
itself helps improve performance by
That, at least is the theory! changing what people do, one that:

In reality many organisations have yet • Communicates priorities and

to successfully implement a direction
performance measurement system that • Focuses on improving processes,
adequately fits the bill. They focus on not functions
financial performance and pay the • Aligns operational activity with
price: strategic goals
• Provides the necessary leverage
• Most financial indicators are for change
backward looking - it has been
likened to “steering the ship by The benefits of such an approach can
watching the wake” be financially dramatic. The impact
of adopting a balanced approach to
• Financial performance tends to measurement have been variously
be measured over the short term estimated as a profitability increase of
and induce short term ‘fixes’ between 15% and 30% for a typical
FT-SE 100 company.
• Financial measures alone cannot
communicate the organisation’s The Balanced Scorecard (R. Kaplan
strategy and priorities to its and D. Norton, Harvard Business
managers and staff Review 1992) is one such a
framework.
What managers increasingly need is a
performance measurement capability

Copyright 1998 INPHASE Software (UK) Limited

 Financial
How do we look against
the financial objectives
of our owners?

Customer Operational
How do we look to the
customers that we want What must we excel at
to attract? for our customers?

Innovation and
Learning
How do we get better at
improving?

Main Driver of Performance

Secondary Influence

The four perspectives of the classic Balanced Scorecard

Balanced Scorecard Perspectives Financial Perspective

The Balanced Scorecard enables managers to view the The Balanced Scorecard encourages organisations to
well-being of the business from four important identify their specific financial objectives and link the
perspectives or quadrants. Each quadrant of the corporate strategy to these objectives. The financial
scorecard reports performance measures directly objectives serve as the focus for the objectives and
related to the corporate vision in the form of key measures of the other three perspectives.
performance measures or indicators (KPI). The
Balanced Scorecard is a mechanism for translating an Every measure should be part of a cause-and-effect
organisation’s vision and strategy into a coherent set relationship that culminates in improving long term
of objectives and performance measures. It uses sustainable financial performance. The Balanced
measurement to communicate the drivers of current Scorecard is an illustration of the strategy, starting
and future success. with the long term financial objectives and then
linking them to the customer focused initiatives,
The four perspectives of the Scorecard provide a internal operational processes and investments in
balance between short term and long term objectives, employees and systems that combine to produce the
between desired outcomes and the drivers of those desired economic performance.
outcomes, and between objective and subjective
performance measures. Clearly it is important to get the ‘right’ measures. For
although it is peoples decisions and actions that
Many measurement frameworks advocate a balanced change performance, measures set the goal, and the
range of measures. The Balanced Scorecard is old adage “you get what you measure” is still true
prescriptive about this range, and about how one today.
perspective defines the drivers of the next.
Leading organisations are now finding new financial
measures, as well as the non-financial measures.

Copyright 1998 INPHASE Software (UK) Limited 2

Rather than simply considering the obvious financial Internal Operations Perspective
measures of revenue, profit, share value or dividend
cover, consideration is being given to a recently Delivering customer satisfaction is achieved through
developed measure: Economic Value Added. This the operational activities of the company. Through the
expresses the amount of value added by the efforts of Balanced Scorecard framework customer focused
the organisation. It also takes into account the value measures can be supported by measures of the internal
that could otherwise be earnt, without risk, by the processes that are most critical in meeting the target
owners capital being deployed, for example, in gilts. customers’ expectations. The objectives and measures
for this perspective thus enable a focus on maintaining
What is also then of leading consideration is what and improving performance of those processes that
phase the business is in, start-up, investment, growth, deliver the objectives established as key to satisfying
harvest or managed decline. The owners financial customers, which in turn satisfy shareholders.
strategy, should be matched by the choice of measure
and target. With this approach, the Balanced Scorecard offers a
vehicle to focus on a complete value chain of
integrated business processes rather than just
Customer Perspective measuring performance within departmental structures.
It is this that represents one of the major opportunities
The driver of financial success, except in a few rare for benefits that the Balanced Scorecard can provide
cases, is customer satisfaction. Satisfied customers over traditional departmental performance
mean retained customers, and referrals and new measurement systems.
business.
This top-down value-chain process can reveal entirely
How an organisation performs from its customers’ new areas within the business processes where an
point of view is clearly a top priority for management. organisation can gain advantage.
It is important however to focus again on the right type
of satisfaction, and particularly, whose satisfaction. The effect can be phenomenal; a reduction in process
costs of 1% when combined with an identical
All businesses have their best customers, the ones that reduction in wastage can typically deliver an increase
deliver the maximum contribution to the specific type in profits of over 15%.
of financial measure which matters most to them. All
businesses also have their average customers, and also
the customers whose money they just can not turn Innovation and Learning Perspective
away, but in reality cost the business too much to
service, are perhaps never quite satisfied, and frankly, The adage ‘our people are our greatest asset’ has been
the business would be better off without. honoured more in the breach than the observance in all
too many organisations. It is an issue that managers
To maximise financial return then it is the customer cannot afford to ignore, however. The operations of
satisfaction of the ‘target’ customer profile which the organisation are undertaken by the people within it.
should be addressed. Customer satisfaction measures The ability, flexibility and motivation of staff
that reflect the issues that really matter to these underpins all of the financial results, customer
customers need to be developed. From these, the key satisfaction and operational activities measured in the
objectives, and measures, for what the company does other quadrants of the Scorecard.
can be established.
Customer expectations are constantly changing and
In this way an even more powerful link can be organisations are, as a consequence, required to make
established between customer focused objectives and continuous improvement. This relies heavily on an
improved financial performance. organisation’s ability to innovate, learn and improve at
an individual level, which collectively delivers the
Research indicates that by increasing sales volume by result for the whole organisation.
1% with a corresponding increase in prices, an
improvement in profitability of nearly 15% could be That everything else eventually depends upon the staff
achieved in a typical FT-SE 100 company. of an organisation could suggest that the ultimate
single indicator of long terms sustainable success, if
there were such a thing, would be the speed at which
the organisation can learn to do new things
successfully.

Copyright 1998 INPHASE Software (UK) Limited 3

Used in this way the Balanced Scorecard framework • By ensuring that cause-and-effect
gives consideration to the importance of investing for paths link through to on-going
the future not just in traditional areas of investment financial strength
such as equipment and R&D but in the human
infrastructure of the organisation - creating a ‘learning An effective Scorecard enables an organisation’s
organisation’- if ambitious long term financial success strategy to be inferred simply from the cause-and-effect
objectives are to be achieved. links between measures. Outcome measures signal the
ultimate objectives of the strategy and performance
And there is no doubt that the effective development drivers indicate actions or initiatives that are required
of staff can also have a direct impact on the bottom in order to create future value. Ultimately, though, the
line. As well as underpinning all of the increases in Scorecard retains a strong emphasis on outcomes, and
profit possible through customer and operational financial outcomes in particular.
improvements, simply increasing staff efficiency by
1% can often have the effect of improving profitability
by twice as much. Benefits of the Balanced Scorecard
The Balanced Scorecard’s prescriptive approach to
Linking the Balanced Scorecard to performance measurement requires performance
Strategy measures defined in each of the three non-financial
perspectives to be linked to each other and to the
The objective of any measurement system should be to financial measures, ensuring that the organisation’s
motivate managers and staff to implement the ultimate goal: that of continuing to be successfully in
organisation’s strategy. By translating strategy into existence, remains paramount.
measures within the Balanced Scorecard, objectives
and targets can be communicated to everyone. They The extent to which business results can be improved
can then focus on the critical drivers and align by decisions taken based on a Balanced Scorecard
initiatives and actions to the meeting of strategic goals. view of the organisation is significant. Furthermore,
these business results tend to be very sensitive to
Why is it important for a Scorecard to communicate minor improvements in performance in key areas.
the strategy?
• It describes the corporate vision to the
whole organisation The table following illustrates the point.
• It ensures that the meeting of
performance targets contributes to Balanced Potential Impact Typical
achieving strategic objectives Scorecard Profit
Perspective Impact(*)
• It focuses effort on the key objectives
Customer 1% increase in 11.4%
and measures prices
1% increase in 3.5%
How can we build a Scorecard that translates a business volume
strategy into action? Internal Business 1% reduction in 7.9%
costs
• By establishing cause-and-effect 1% reduction in 7.9%
wastage
relationships between measures e.g.
Innovation and 1% reduction in 1.9%
increased training on products Learning payroll costs
knowledge improves pre-sales support 1% improvement 1.9%
and matching with customer needs, in efficiency
which in turn leads to both higher
revenue and fewer disappointed TOTAL 34.5%
customers, driving increased (*) Based on a typical FT-SE 100 company.
profitability Derived from Business Excellence, IoD, 1997

• By creating a framework against

which underpinning objectives and
actions can be assessed, valued and
prioritised

Copyright 1998 INPHASE Software (UK) Limited 4

 Corporate Scorecard
Departmental Scorecards

Objectives

Integrated Balanced Scorecards with Underpinning Initiatives and Objectives

Extending the Balanced Scorecard Team and Personal Scorecards

Approach
Implementing the scorecard at the team and individual
Scorecards work well at the corporate, divisional and level can be problematic: individual roles may not
business unit level, although different measures will have measures that correspond readily to all of the
matter to different entities. perspectives of the Scorecard, and trying to force a
match may lead to unnecessary measurement for
At the departmental or functional level, care must be measurement’s sake. When this happens it can also
taken to ensure that they do not become a means of undermine the perceived strength of the strategic value
confirming “functional silos”. As more and more of the Scorecard framework.
emphasis is rightly placed upon processes and value
chains, it may be counter productive to focus In these instances it may be more beneficial in practice
measurement within an individual function. to identify the cascaded and required dependency
Mitigating this effect can be achieved by also objectives driving the measures in each scorecard
establishing measures that link that function with perspective and have individuals relate to the key
process value chains, or ensuring there is strong performance measures of achieving those particular
association with both the functional scorecard and the objectives. For each objective the measures may, or
corporate scorecard where there is a strong process may not, fit into each of the four Scorecard segments.
related element, or making use of another process
oriented measurement system at the same time. For
example some leading UK organisations combine the Information Systems to Support the
use of the Balanced Scorecard with the Business Balanced Scorecard
Excellence Model which has a high degree of focus on
process. Information systems play an invaluable part in
assisting managers to analyse beyond the summary
level Balanced Scorecard measures.

Copyright 1998 INPHASE Software (UK) Limited 5

When an unexpected signal appears on the Balanced INPHASE PerformancePlus provides these
Scorecard, managers need access to underlying data to facilities. PerformancePlus is specifically designed
investigate the cause of any problem or to analyse to support the implementation and ongoing evolution
trends and correlation. of a Balanced Scorecard measurement system, alone
or integrated with other performance management
If the information system is unresponsive, however, it approaches and initiatives, such as business planning,
can significantly impact the effectiveness of team and individual objectives setting, organisational
performance measurement. and personal development, process review and change
initiatives.
Such an information system must, therefore,
incorporate all of the following features: INPHASE offer expert consultancy for strategy,
training, implementation or skills transfer to your own
• At-a-glance exception alerting internal or external consultants.
• Rapid access to summarised data
• Drill down to successive levels of detail The PerformancePlus approach to performance
• Easy to follow dependency paths to identify the management and the Balanced Scorecard has been
causes of performance other than drill-down designed to enable managers to put into every day use
• Reporting of initiative, objective and process the best practice recommendations that in the past may
information including responsible owner, team have seemed impossible to achieve, with minimal
members, and definitions as well as current additional overhead of time and resource.
status
• Reporting of impacts of underlying objectives By creating a single, unified model, in which
upon scorecard measures information about performance can be explored from
• Reporting of the impacts of objectives upon many perspectives and shared throughout the
each other organisation, PerformancePlus can maximise the
• Graphical creation and modification of benefits to be attained from the effort that an
objectives, measures and relationships organisation already puts into performance
• Support for dynamic re-planning for change measurement and management.
• Integration with office tools
• Inclusion of rich text information The Balanced Scorecard, with a comprehensive
• Graphical trending and tabular representation information system to support it, provides a means to
of data make a real difference throughout the organisation
from individual employee satisfaction right through to
• End user configuration and analysis options
significant improvements in the bottom line.
• Integration with existing corporate data sources
- with support for additional direct entry of
values and annotations

For further details and local support information call

PerformancePlus Information

Tel: +44 (0)1895 829111

Fax: +44 (0)1895 829112

web site: http://www.inphase.com email: info@inphase.com

INPHASE Software (UK) Ltd

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Park Lane
Harefield
Middlesex
UB9 6NY
UK

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