Strategic Management & Balanced Scorecard
Companies strive to transform to data utilization and make decisions based on data generated and measured by the company. Financial statements and measures do not necessarily address all vision and strategy efficacies. Balanced scorecard was developed to measure performance from thee additional a views: customers, internal business processes and learning and growth. This approach is a complement to the traditional financial measures. Most companies’ operational and management control systems are built around financial measures and targets, which bear little relation to the company’s progress in achieving long-term strategic objectives. Thus, the emphasis most companies place on short-term financial measures leaves a gap between the development of a strategy and its implementation.
Managers using balanced scorecard do not have to rely on short-term financial measures as the sole indicators of the company’s performance. The balanced scorecard allows them to introduce four new management processes that, separately and in combination, contribute to linking long-term strategic objectives with short-term actions:
1- Translating the vision: help to translate and link the vision and strategy. The lofty statements such as “be leader in industry”, “number one provider”, etc. do not easily translate to operational terms.
2- Communicating and linking: let’s managers communicate their strategy up and down the organization and link it to departmental and individual objectives. The scorecard gives managers a way of ensuring that all levels of the organization understand the long-term strategy and that both departmental and individual objectives are aligned with it.
3- Business Planning: enables companies to integrate their business and financial plans. There are several concurrent change projects happening at all time in a company. Each change has sponsors, stakeholders and consultants with segmented focus. Managers find it difficult to integrate those diverse initiatives to achieve their strategic goals.
4- Feedback and learning: gives companies the capacity for what is called strategic learning. Existing feedback and review processes focus on whether the company, its departments, or its individual employees have met their budgeted financial goals.
Senior executives find scorecard as a framework focusing for many critical management processes: departmental and individual goal setting, business planning, capital allocations, strategic initiatives, and feedback and learning. Without scorecard, those processes were uncoordinated and often directed at short-term operational goals. Communicating the balanced scorecard promotes commitment and accountability to the business’s long-term strategy. One executive once said “The balanced scorecard is both motivating and obligating”.