The balanced scorecard helps an organization to identify a performance measurement system, enabling it to fully exploit its tangible and intangible assets to achieve a chosen strategy. It does so by defining and tracking performance measures across four perspectives:
Financial, Customer, Internal Business Process, and Learning and Growth.
To apply the BSC (The Balanced Scorecard) to your business, it’s interesting to consider the below criteria:
The main question to answer here is:
“Is your business achieving its financial goals”?.
The ultimate goal of a company is to create value and greater return to its shareholders/owner(s); however it is critical to assess how this value is being measured. Without denying the fact that financial measures are backward looking, they help to value a company and determine how well it’s doing compared with competitors or the industry.
- Increase in profitability:
Your Businesswould like to ensure that the capital invested has earned a return, the appropriate metric for performance measurement here can be the Return on Investment (ROI) which measures how efficiently your businessuses its total assets to generate income. Net or Gross profit percentage may also be used as a direct profitability measure.
- Increase new customers and markets:
As your Businessis looking forward to increasing its activities in a specific market, conquering new customers will go in line with this objective. The appropriate performance measurement here can be the percentage of revenue from new sources.
- Reduce unit cost:
To improve profitability, it’s essential to minimise the cost ; Your Businessmight include this as a metric in the BSC as it is a critical success factor in comparison to the industry. The performance measurement here can be the unit cost per item/service produced.
From your Business' prospective, customers would mean those to whom your Products/Services areintended to be sold. The main question to answer here is:
“Is my businessmeeting customer expectations?”.
The answer to this question leads us to use the following metrics.
- Increase customer satisfaction:
Meeting customers expectation is highly correlated to increasing revenue, your Businessmay use survey ratings to assess this performance objective.
- Increase market share:
To grow in the targetmarket, your Businessneeds to gain more market share. The performance measure here is the your Businessmarket share compared with it’s competitors.
- Increase Product/Service quality:
Designing good quality Products/Serviceswill go in line with your Businessgoal and can be measured through the number of returns.
To successfully integrate performance measurement system, it is important to clearly identify the organization’s key business processes, that is, those having the most impact on the success or failure of the organization’s goals. The critical question to answer here is:
“Is my Business improving critical internal processes?”.
The components below can be noted for your Business:
- Increase quality of purchased components:
An effective supply chain organisation will help your Companyto bring more value to its business. This metric can be measure by the Quality cost (this includes products returns, number of defective components from vendors, unsatisfactory services...).
- Improve process quality:
Process quality might lead your Businessto be a lean organisation, this can be measured by the Percentage of defective units that are returned by customers.
- Lead time:
Lead time here measures the gap between the ordering and the reception of parts or services. This is essential to Your Businessproduction to minimize the lead time and avoid carrying important inventories which in turn may lead to reduction of the working capital in place and therefore the cash flow. To measure this metric, Engineering hours can be used.
The main question here is:
“Is your Businessimproving its ability to sustain innovation, change, and continuous improvement?”.
- Increase information system capabilities:
To increase information system capabilities, your Businessmight improve and measure the Suggestion per employee (system user survey by users).
- Increase employee capabilities:
To increase employee capabilities, your Businessmight develop internal and external training. ( this could be part of appraisal system; this will be discussed in coming articles: Moving away from traditional performance appraisal).
- Increase motivation and alignment:
To Increase motivation and alignment, your Businessmay use the Job coverage ratio and implement suggestion from employees (percentage of new idea generated).
To conclude, and effective performance measure will gather quantitative measures (number of returns...) balanced with qualitative measures (survey rating customer satisfaction...). There will be a balance of backward-looking measures (ROI approach or Revenue in new market...) and forward-looking measures (license to operate in different targetMarkets...).
Howdo to measure your business performance or what do you think should be the right way to do it?
About Yannick Rostand Kounga Taptue
Yannick R. Kounga T. is an ordinary man. He is a Finance and Accounting Professional who has received a Master's degree with majors in Accounting and Finance from University of Douala (Cameroon) and an MBA in Finance from University of Wales (UK). He is a Fellow of several US professionals associations where he plays multiple roles. Yannick currently works as Controller in the energy industry and is based in Houston Area where he lived with his family. He speaks French, English and basic Spanish besides four others African dialects and has lived in 13 countries. Outside of work, Yannick is an avid reader/learner, community worker, volunteer, Father, Husband, average guess-blogger and poor but keen cook!
Reach him byE-mailor follow him onTwitter|LinkedIn|About.me | Google+
See other posts from Yannick Rostand:
Is Risk Management Critical for Small Businesses?
The 7 Majors Contributions of Enterprise Risk Management (ERM)
WHAT DOES THAT MEAN TO BE THE BEST-RUN COMPANY?
Cash Reward Vs Non-Cash Reward.
CPS 2015 DISTINGUISHED ANNUAL CONGRESS: MY THOUGHTS AND PERSPECTIVES
How managers can sustain a culture that fosters creativity and innovation.
Motivation and Morale: Who is Right?
