Balanced Scorecard: Management Control System Essay

â€Å"Balanced scorecard† means different things to different people. At one extreme, measurement-based balanced scorecards are simple dashboards of performance measures grouped into categories that are of interest primarily to an organization’s managers and executives. Typical categories include financial measures, and customer, process, and organization capacity measures. Measurement-based scorecards almost always report on operational performance measures, and offer little strategic insight into the way an organization creates value for its customers and other stakeholders. At the other extreme, a strategic performance scorecard system is an organization-wide integrated strategic planning, management and measurement system. Strategy-based scorecards align the work people do with corporate vision and strategy, and communicate strategic intent throughout the organization. In other words, these systems incorporate the culture of the organization into the management system. In strategy-based scorecards, performance measures are only one of several important components, and the measures are used to better inform decision making at all levels in the rganization. In strategy-based balanced scorecard systems, performance measures are the result of thinking about business strategy first, to measure progress toward goals. In strategy-based systems, the first question to answer is the strategic question: â€Å"Are we doing the right things? † The operations, process, and tactical questions come later: â€Å"Are we doing things right†. Over the past decade balanced scorecards have evolved from systems that simply measure performance to holistic strategic planning and management systems that help manage and track strategy execution. Despite this evolution, the majority of balanced scorecards that we have seen over the past 10 years use a â€Å"just give me the measures† philosophy. These measure-centric dashboard scorecards are interesting, but not very robust and not nearly as helpful as they could be. These scorecards remind me of the old Wendy’s commercial: â€Å"Where’s the beef? † Strategy-based scorecard systems, on the other hand, create a â€Å"strategic thinking† mentality in an organization, and can help lift the organization and its workforce to a higher, more performance-oriented way to think and work. Each organization is unique, and there is no â€Å"one scorecard fits all† solution. This article describes how to develop a strategy-based balanced scorecard system for technology companies. We’ll share some lessons learned from developing strategic performance scorecard systems in dozens of businesses and industries over the past 10 years. The Balanced Scorecard as a Technology Company’s Strategic Planning and Management System Technology company management teams are challenged by: †¢ Rapidly shrinking product cycles †¢ Recruiting, retaining and rewarding technology talent Making and communicating critical product development decisions †¢ Tracking the evolution of customer feature demands and use models †¢ Disruptive, enabling technologies that can invalidate products or entire business models In addition, executives rarely communicate the strategic manner in which the business is being directed. The typical result is disagreement and misalignment in how these challenges are perceived and addressed throughout the company. Any technology company strategy needs to embrace these challenges. Strategy is a company’s approach to achieving its vision–it’s the organization’s â€Å"game plan† for success. One thing the technology company’s strategy needs to define is how it will measure product planning and development success. Strategy needs to define how ideas are advanced into opportunities. Passionate technology workers need to know why their ideas and views were embraced, delayed, or discarded. Strategy must describe the timing of such considerations, so that investments in programs underway are protected from an ill-timed innovation capturing the minds of employees. Similarly, programs that are off track need to sound alarms so that corrective action can be taken. Strategy needs to guide when and how to sound those alarms and ensure necessary corrections are taken. Strategy needs to dictate tracking customer feature evolution, and if the company wields the core technology its products need to be successful in the marketplace. Using a balanced scorecard as the strategic planning and management framework allows a company to deal with these and other issues that matter to creating value for customers and stakeholders, such as process efficiency, financial performance, and organizational capacity and readiness. Starting with a strategic view of how the organization creates value for customers, a scorecard system links strategy to what must be done operationally to be successful. Good scorecard systems focus on the critical few performance measures that provide real business intelligence and contribute to the achievement of operational excellence, employee excellence, and business success. But more important, these systems focus on the elements of strategy that can be made actionable – strategic objectives that are the building blocks of strategy. Developing a Technology Company Balanced Scorecard System The logic of building a scorecard system and using the system as the organization’s strategic planning and management framework starts with an understanding of the organization’s customers and stakeholders, and their needs. The management team then develops and validates the strategic components of the management system. The components include mission, vision, core values, strategic perspectives (i. e. , performance dimensions), strategic themes and desired strategic results, strategic objectives, an organization-wide strategy map, performance measures and targets, and strategic initiatives aligned with the objectives. Strategy is the common thread through the scorecard system and forms the basis for communicating the organization’s approach for gaining competitive advantage (for a business), or in the case of a public or non-profit organization, for improving mission effectiveness for stakeholders. The finished strategy-based balanced scorecard system translates customer needs, mission, and values into organization goals, strategy, objectives, performance measures, and new initiatives. In a strategy-based scorecard system, strategy is analyzed through four performance dimensions (perspectives): financial (stewardship for government and non-profits), customer/stakeholder, business processes, and organization capacity. A key strategy development step is the creation of several high-level strategies (i. e. , strategic themes), associated strategic results, and strategic objectives for each theme. Strategic themes are aligned with the organization’s vision and mission, and the theme’s strategic result describes a high-level outcome of successfully implementing the strategic theme. Usually three or four themes define the business strategy of the organization at a high level. Examples of strategic themes include Customer-Focused Operational Excellence, Market Driven Technological Excellence, Strategic Partnering, and Growth Through Innovation. Many other themes are possible, and the selection of vision and aligned strategic themes and results make for unique performance scorecard systems for different organizations. Another key development step is the creation of strategic objectives — the â€Å"DNA† of strategy. Objectives are expressed as continuous improvement actions that can be documented, measured, and made actionable through initiatives and projects. Once developed, objectives are linked to form a â€Å"strategy map. † A strategy map shows graphically how the organization creates value for customers, stakeholders, and employees. The strategy map is constructed by linking strategic objectives using cause and effect relationships. A strategy map is one of the most effective communication tools an organization can use to build transparency, alignment, and a focus on results.