Balanced Scorecard and KPI (Key Performance Indicators) mini lessons prepared for users of mobile applications. Learn some basic information about Balanced Scorecard from your mobile device – iPhone, iPad or Android.
It will require a significant investment to design a Balanced Scorecard for your company and put it into use. As a result, it is obviously necessary to create an implementation plan.
What should this plan include?
First, you should know who will be involved in designing your Balanced Scorecard. Your top managers are not enough! To successfully implement the Balanced Scorecard, you must involve all key members of your team.
Second, you need to decide what software tools you will use to support the Balanced Scorecard. If your company is very small, MS Excel might be enough. In a larger company, you will definitely want to consider using some automation tools. Our BSC Designer software, available at www.BSCdesigner.com, includes a freeware edition, as well as a 30-day free trial of our professional edition.
Once you have decided what tools to use and who will be involved in the process of designing your Balanced Scorecard, you can add more details to your implementation plan.
You need to decide who will design your indicators and strategy maps, and who will combine your scorecards into a cascade.
You need to plan to update and revise your Balanced Scorecard. After one or two months, you will need to evaluate the scorecard, and find out how well it works in your company.
And you need to decide how to implement the Balanced Scorecard in your company. Which business units will use the scorecard? What business problems do they have, and how can you use the Balanced Scorecard to solve those problems?
Your implementation plan should also include three different viewpoints:
1) Business problems and strategic goals: your Strategy Maps.
2) Measurement and improvement: your Key Performance Indicators.
3) Line-level actions: the Initiatives that link actions and indicators together.
In this bonus mini-lesson, we will consider some Balanced Scorecard software tools that can simplify the process of designing and implementing your scorecard.
There are three different kinds of Balanced Scorecard software on the market:
1) You can use simple tools like MS Excel. This is an easy way to get started, but it is not a good choice if you want to grow, or if you want to save time updating your scorecard in the future.
2) You can use the Balanced Scorecard features that are included in most ERP systems. This is also not a good idea. ERP systems were designed primarily to work with finances, not with the Balanced Scorecard. Vendors notice that the Balanced Scorecard is a hot market trend, and try to add scorecard features to their systems. But the result is usually an unbalanced scorecard, limited to the financial indicators that are already in the ERP system.
3) You can use software that focuses exclusively on the Balanced Scorecard. This is the most interesting solution for the end user. But again, there are several kinds of BSC software.
Some Balanced Scorecard software focuses on developing business processes, business cases, use cases, and so forth. This kind of software is really about process mapping, not the Balanced Scorecard. In most companies, process mapping is already done successfully with other tools.
However, many tools are designed specifically for the Balanced Scorecard. How can you choose the right tool for your company? Consider this checklist:
Does the software support Key Performance Indicator management? Does it help you to create indicators, update their values, and change their weights?
Does the software support strategy maps? When you build the Balanced Scorecard, you need to start with your strategy map and then develop your Key Performance Indicators. Your Balanced Scorecard software should support both strategy maps and KPIs.
Finally, does the software support cascading? Unless your company is very small, it is not enough to develop one scorecard for your whole business. You need to develop a scorecard for each business unit, and link them together in a Cascading Balanced Scorecard.
We recommend that you try our BSC Designer software, available at www.BSCdesigner.com. We have a freeware edition for novices, and a full professional edition that you can try without limitations for 30 days.
When you build the scorecard for your company, you might consider using a template. Is this a good idea? In this bonus mini-lesson, we will discuss templates and what you can do with them.
There are two different kinds of Balanced Scorecard templates:
1) Ready-to-use templates include a library of pre-defined Key Performance Indicators. Be very careful about using indicators from these libraries. Your business is unique! You cannot solve your business problems or measure your progress using indicators designed for someone else’s business. You can consider indicators from template libraries as examples, and adapt them to your needs, but do not just copy them!
2) Graphical templates are easy to find, and they can be used for presentation purposes. We have some examples available for free on our website, www.BSCdesigner.com. Just remember, graphical templates are hard to calculate and update. They are useful for presenting your scorecard, but not for designing it.
A good compromise might be to use Balanced Scorecard software that can help you create and manage your own Key Performance Indicators, and also help you generate attractive presentations once your Balanced Scorecard is complete.
Our BSC Designer software, available at www.BSCdesigner.com, includes a freeware edition for novices, and a full professional version that you can try without limitations for 30 days.
We have discussed the rule that you should limit the number of Key Performance Indicators on your scorecard to three or four indicators in each category. If you need to add more, you have two options:
You can group some of your indicators together into sub-categories. Eventually, you will face the problem of having too many sub-categories.
Or, you can create a new, lower-level scorecard. Instead of having one scorecard for your whole company, you can have a scorecard for each business unit. People from different business units will each work with their own Balanced Scorecard.
Of course, your goal is to bring together the knowledge and performance information from throughout your company. So if each business unit develops their own scorecard, you need to link those scorecards together in a cascade. This way, you will have one top-level scorecard, which is linked to more detailed scorecards for each department.
With a Cascading Balanced Scorecard, you can share your scorecard and involve more people in the process of designing scorecards and controlling indicators. Employees on all levels of your organization can work together to help the whole company succeed.
In this bonus mini-lesson, we will review some basic ideas about designing Key Performance Indicators.
1) Who should design your indicators? You should involve at least two people: a top manager, who understands the company’s strategy and goals; and a line-level manager, who knows what can and should be done to achieve those goals.
2) Do you have good indicators? There are two rules to remember. Your indicators should not repeat each other, but taken together, they should describe 90% of your company or business unit.
3) Are your indicators easy to measure? Your indicators should be easy to understand and measure, or your employees will not use them. So first, try measuring each indicator yourself. Then, ask a colleague for an independent opinion. If your colleague needs a significant amount of time to understand the indicator, then it is not a good indicator. Either remove it from your scorecard, or clarify its description.
4) How many indicators? Keep the number of indicators low. Ideally, you should have three or four indicators in each category. If you have more, you are overloading your scorecard. Either add sub-categories, or create a Cascading Balanced Scorecard.
Many people seem to think that strategy maps are only for top managers, or that they are not really related to the Balanced Scorecard at all. That is not true!
The Balanced Scorecard is just one of three levels in the business management process:
Top level: Strategy maps
Middle Level: Balanced Scorecard
Bottom Level: Initiatives
Strategy maps are the top level: the first step in the business management process. They describe your strategic goals—that is, what the company wants to achieve in the short term, and in the long term.
How will you achieve those goals? The answers are in the next level: the Balanced Scorecard. The indicators on your scorecard measure your progress toward the goals on your strategy map.
Once you have your Balanced Scorecard with its indicators and categories, the next logical question is, who will improve the value of these indicators, and how? In this case, the answers lie on the lowest level: Initiatives, which link your indicators to line-level actions.
It is important to understand the role of strategy maps. If you design the Balanced Scorecard without a strategy map, you will not be able to link your indicators to your strategic goals!
In this bonus mini-lesson, we will consider the idea of “balance” in the Balanced Scorecard. What does it mean? Why is it important to have a balanced view of your company or project?
Each indicator or category on a Balanced Scorecard has its own weight—that is, a number which shows its relative importance. These weights tell you which goals, indicators, and tasks are most important or most valuable to the company. You will also take these weights into account when you calculate the total performance of your Balanced Scorecard. Our BSC Designer software, available at www.BSCdesigner.com, performs these calculations automatically.
But “Balanced” is not only about the weights of your indicators. It is also important to have a balanced view of your company, business unit, or project.
You need to balance your Financial and Non-Financial Indicators. The Balanced Scorecard should provide a balanced view of your whole company, including internal Business Processes, Customer Relationship, and Education and Growth, as well as Finance.
You need to balance your long-term and short-term goals. We discuss this process in our eTraining, “Strategy Maps and the Balanced Scorecard,” available at www.ScoreCardTrainings.com.
You need to balance completeness and independence when you design your indicators. Taken all together, your indicators should describe 90% of your business, but they should not repeat each other.
And you need to balance the performance of your indicators, as well. After a month or two, if some indicators have changed their values dramatically and others have not changed their values at all, these indicators are not really balanced.
We discussed the process of designing strategy maps in the eTraining, “Strategy Maps and the Balanced Scorecard”. In this bonus mini-lesson, we will focus on some challenges you may face as you define your strategic goals.
Some companies have trouble defining their strategic goals. Investors want a return on their money, but they don’t clearly understand what the company should do to generate a profit. They hire top managers to run the business, but the top managers face the same problem: it is not clear what the company’s strategic goals should be!
This kind of confusion happens most often in small businesses, but large companies can sometimes face the same problem.
If your company is in this situation, here is a simple process to define your strategic goals:
1) Who are your stakeholders? Typically, when you need to define your priorities, you need to start with your stakeholders. These might be the investors in your company, or the owners of your project. Who are you working for?
2) What do your stakeholders need? What are their strategic goals? Typically, investors want to make a profit on their investment. Sometimes they may have other priorities, but they always expect some sort of results. You need to understand what results your stakeholders expect, and you need to research your topic to understand what you need to do to achieve those results. In the process, you will define the strategic goals for your company
3) Create a Strategy Map. Once you have defined your goals, you need to identify your priorities. What should be done first? What results can you expect? This information is enough to start creating your Strategy Map.
4) Consider the four perspectives. Look at your company’s situation from all four of the basic perspectives on the Balanced Scorecard: Business Processes, Customer Relationship, Education and Growth, and Finance. Do your strategic goals include something related to each of these perspectives? If not, you are probably missing something!
Inside you will find:
