By: Susan Walsh, SHRM-SCP
Balanced scorecards have been around since the early 1990s with several iterations over the years. A balanced scorecard is often used to manage the strategic objectives of the organization by measuring multiple performance points. This includes a mix of financial and non-financial measures. The original four measures include:
Financial – How do we create revenue? What is our shareholder’s perception?
Customer – How satisfied are our customers?
Internal Processes – What business processes do we need in order to achieve excellence?
Learning & Growth – How do we develop the necessary skills to excel in our industry?
The intention of a Balanced Scorecard is to avoid an over-emphasis on any single measure, often the case when short-term financial goals sacrifice customer satisfaction. By having multiple measures, the health of the entire organization is considered. These four points can relate directly to strategic goals that can be tied to team/individual performance objectives.
How to Develop a Balanced Scorecard
The process begins by defining a clear vision of a future state. Once the vision has been defined, the work on a Balanced Scorecard begins:
- Define the strategic objectives
- Determine the goals needed to meet objectives
- Measure and monitor performance using specific indicators
- Develop action plans and initiatives
A rental car company was structured by region and within each region, cities were held accountable for financial results. The General Manager of each city had specific performance objectives that singularly focused on financial results. These included generating revenue in the form of additional sales, increasing market share, and reducing expenses. This comprised 100% of their performance objectives. Since meeting or exceeding objectives provides individual and team rewards, the singular focus led to short-term financial success at the expense of long-term customer satisfaction, process improvement, and employee engagement and retention. The city could make its financial goal the first year, but could not sustain that level of financial return year after year. Their customer satisfaction ratings declined as a result of improperly trained staff, inadequate staff coverage and unclear check-in and check out processes, and customer waits time for vehicles.
Balanced Scorecards look at the whole picture, not just a view through a narrow lens. Using the four steps listed above, here’s an example of what a scorecard might look like for the General Manager of our rental car company:
|Financial||Increase revenue||Upsell 50% of the time||Sales reports||Sales/Service Incentives, Staff Training|
|Customer||Repeat customers||75% of new customers return||Customer Use reports pulled from CRM||Customer Loyalty/Incentive Program|
|Process||Customer wait time for vehicle||100% vehicle readiness at the time the customer checks in||Service logs, time tracked from check-in to vehicle pickup||Clear documentation on service requirements, incentive programs for Service staff|
|L&D||Trained staff||Train 100% customer service staff in sales and service skills||Course attendance lists, % passed grades||Develop online and in-person sales and service curriculum|
The goals can be scored in a variety of ways, where goals are:
- met or not met, in an all or nothing approach
- given a percent from 0-100% completed
- rated using a scale of 1-5, with one being the lowest and five being the highest score
- graded using a type A, B, C, D, F grading system
This works in any size company that truly wants to take a holistic view of their business and achieve sustainable success. Consider how using Balanced Scorecards can help align your organization’s strategic vision with performance results!