How to Develop a Balanced Scorecard as a Performance Management Tool

When you become hyper-focused on one aspect of your job, you can damage the overall health of your business. Because of this, many business leaders choose to implement a “Balanced Scorecard” approach in their organization. What is a balanced scorecard and how can you use it to not only get your financials in order but as a performance management tool, too?

What Is a Balanced Scorecard?

The balanced scorecard is a report that looks at a variety of different areas. One template that is good for all users does not exist as the balanced scorecard is adjustable for every business and every need—it's even used as a people management tool.

The goal of a balanced scorecard is to help you focus on more than just one area of the business—usually, people are focused on the financials. If sales are going well then that’s all you need to focus on, right? Well, wrong. Managers always have more responsibilities than just the bottom line numbers.

The 4 Areas of Balanced Scorecards

The traditional balanced scorecard focuses on four areas:

• Financial
• Customer
• Process
• Organizational Capacity (or learning and growth)

While these categories come from the original creators of the balanced scorecard, namely, Dr. Robert Kaplan and Dr. David Norton, you’re not limited in its use to only their ideas, although they are good recommendations. What you need to do is to make sure that you’re focusing on the priorities that each manager needs to achieve to make their department better. In this way, you meld departments and interests and come together as a performing company.

The balanced scorecard was often used as a sort of dashboard of measurable factors relating to your business. It has now become part of a broader strategic way in which to view the organization. This broader outlook includes other less tangible factors as key strategic indicators.

Using a Balanced Scorecard for Performance Management

A positive outcome of using a balanced scorecard is that it makes performance in multiple areas readily observable. When you take all aspects of a job into consideration you can see what areas are strong and what areas are weak. When you look at only one aspect of performance you can see if there is an overall problem, but you don’t have the information you need to fix the situation.

For instance, Steve is the manager of the produce section of a grocery store. Traditionally, his manager looked at his profit and loss numbers and decided whether he was a good or a bad manager. But, see what happens when you add in the other three areas of his responsibility to the balanced scorecard.

Customer Feedback

What type of feedback are you receiving from customers? Have you gotten complaints about the quality of the produce? Or, has the department received praise for a quality product? What are the customers saying about the staff? Do they find them helpful or unhelpful?

It’s easy to determine who the customer is in a retail organization and sometimes not quite as obvious in an internal department, but everyone has a customer. You need to identify who that customer is for every group—both the internal and external customers.

This hypothetical produce manager should have specific metrics you look at to determine how the customer service is going. Good marks from customers and great financials are both positives. Bad marks and great financials could mean you have a serious problem waiting to happen.

For instance, if your manager has been boosting profits by selling substandard produce, customers will eventually go elsewhere. Looking at the customer feedback helps warn you.

Processes

Processes are activities that are internal to the business. How is this manager doing with internal processes and procedures? Has he developed the procedures for his area of responsibility and do they align with the overall company processes?

When you are implementing processes and procedures across sites or across departments, they are measured in this category. Additionally, the processes measured can be specific to his department.

So, Steve, the example produce manager has processes for buying, rotating, and selling product. How much produce is thrown out? What are his processes for handling discarded produce to ensure your increased profit?

Again, if you’re just looking at profit and loss you may not know where you need to make improvements, but if you’re looking at profits and you find out that the produce isn’t being repackaged properly, this will give you insights.

Organizational Capacity (Learning and Growth)

You need to hold every manager of people accountable for their people. A manager with sky-high turnover is not a good manager. A manager whose people are never prepared to move to a higher level is not a good manager.

When you’re talking about people, you can never focus completely on the present—you always need to prepare to move forward, and that requires training and development.

So, you need to hold the example produce manager accountable for his turnover as well as his pipeline for internal positions and external growth (speaking of his department). In a grocery store environment, you need people who are cross-trained and understand multiple departments, especially at the management level. They can only become capable of managing multiple departments if they do the work at the lower levels as well.

So, this, combined with the internal processes, part of the balanced scorecard helps managers know how they are doing with their people processes.

When you take a look at all four of these areas (and each area can have multiple goals), you have created a great performance management tool. You know about the person’s overall success and the factors that make up that success—or failure. The balanced scorecard allows you to correct problems before permanent damage is done.

Do You Have to Stick to the Traditional Balanced Scorecard?

Absolutely not. Make adjustments to your balanced scorecard to support what your business needs. You can even use the balanced scorecard approach to managing your own life.

Every aspect of your life and business are multi-faceted and the balanced scorecard allows you to look at all of the differences in one spot. It gives you an overview that can help you determine which way you want to go—for true success in work and life.