Using Balanced Scorecards in Performance Management

The balanced scorecard is not an additional management tool but an essential ingredient of a performance management system throughout the organisation.

According to Kaplan and Norton, pioneers in this area, this concept takes the mission and strategies of the corporation and converts them into tangible objectives and measurements. These measures are to integrate historical outcomes and future performance measures by addressing the following perspectives:

  1. financial, or How do we look to stakeholders?
  2. customer, or How do customers see us?
  3. internal business, or Are we productive and effective?
  4. innovation, learning, and growth, or Can we continue to improve and create value?

The strategic objectives of the organisation should be linked in cause and effect chains that cross the multiple scorecard perspectives—graphically depicted in what has become known as a strategy map. These objectives can then be cascaded and rolled down to lower levels of the organisation, such as business units, divisions, departments or individuals. This ensures that individual objectives or targets can be traced back to the top level strategy.

Each target or metric should be measurable and independently verifiable. Metrics may relate to business as usual or may relate to strategic initiatives which are defined to to help accomplish the strategy or close the gap between a measure and the target.

When taking the methodology down to individuals in the organisation, it may not be possible to have a "balanced" scorecard with metrics which can be independently verified. The combination of individual compentencies (the behaviour or actions needed to successfully perform within a particular job or function) and the measurable metrics should provide a balance which reflects the scorecard components.

The important part of developing performance related scorecards is to define guidelines which enable individual performance targets to be defined which reflect the competencies of the role and the strategic objectives of the organisation. And to ensure that these can be reviewed and updated regularly. 

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