Any company is the object of close attention of a wide range of stakeholders: shareholders, managers, employees, creditors, suppliers, consumers, partners. Based on their specific interests, each party approaches the issue of evaluating the company's activities in its own way, identifies factors and aspects of activity that are important for it and which it will evaluate. The object of evaluation is the company's activities aimed at maintaining relations with the main stakeholders. This approach defines internal structure balanced scorecard...
The balanced scorecard (BSC) is considered primarily as a system for evaluating the performance of companies (organizations, enterprises). We will try to identify the prerequisites that led to its appearance.
First of all, this is a change in the structure of companies' assets and the nature of their activities. The main resources for which there was a struggle at the dawn of civilization were land and natural resources. With the development of industry, the emphasis in competition shifts to the area of fixed assets and capital. Increasingly important role is played by intangible assets in the form of licenses and patents, knowledge and skills of staff, trademarks and brands. However, unlike land and oil, buildings, structures and equipment, intangible assets are difficult to “touch” and just as difficult to value in monetary terms. As a result, the importance of non-financial instruments in assessing the activities of companies is increasing.
In addition, the need for a systematic approach to relations with stakeholders and the activities of the company as a whole can be considered a prerequisite for the emergence of the BSC. This is due to the increase in the rate of changes in the external environment: in competitive environment, in politics and economics.
Consideration of the balanced scorecard will begin with several issues related to performance evaluation, namely:
- why evaluate?
- what to evaluate?
- how to evaluate?
The answer to the first question, it would seem, is obvious - to make a management decision. However, not all so simple.
Any company is the object of close attention of a wide range of stakeholders ( stakeholders). Here is an incomplete list of them: shareholders, managers, employees, creditors, suppliers, consumers, partners. In this case, each of the parties pursues its own specific interests ( rice. one).
Rice. 1. Stakeholders and their interests
Based on the interests, each party approaches the issue of evaluating the company's activities in its own way, identifies factors and aspects of activity that are important for it and which it will evaluate. This raises the next question: “What to evaluate?”
The balanced scorecard is not intended to assess the company as a whole, although it may include financial indicators that characterize, among other things, the value of the company (the value of its net assets, revenue, profit, etc.).
The object of evaluation is the company's activities aimed at maintaining relations with the main stakeholders. This approach determines the internal structure of the BSC. In this connection, we move on to the next question: “How to evaluate?”
American "business gurus" Robert Kaplan ( Robert Kaplan) and David Norton ( David Northon), the authors of the system, propose to consider four main aspects of evaluating a company's performance:
- finance - success is assessed in terms of meeting the interests of shareholders;
- consumer relations - it is estimated how successful the company is in its relations with consumers;
- internal business processes - it is assessed how reasonably managers manage internal processes in the company, how optimally these processes are organized;
- innovation and personnel - evaluates how the company cares about own development and, in particular, about the development of such a resource as personnel.
The composition of the assessment aspects is determined by the specifics of the activities of each specific organization, and when designing a system Special attention should be given to choosing the most appropriate aspects. At the same time, it should be noted that all aspects of assessment are considered to be interconnected by a coherent logic of cause-and-effect relationships. This logic, depending on the relationship of the company with various groups stakeholders may change.
Description of the balanced scorecard
Building logic
Consider the internal logic behind the balanced scorecard. As mentioned above, each of the aspects of evaluation is associated with activities that affect the interests of one of the parties (shareholders, consumers, managers, employees). The choice of specific aspects of assessment is determined by the specifics of the organization's activities and depends on the strategies and priorities it implements. For example, the aspect of "innovation and people" can also cover the areas of development and training. AT table 1 examples of possible areas of assessment for different types commercial and non-profit organizations.
Table 1. Aspects of evaluating the company's performance
Organization | Parties concerned | Aspects of assessment |
| Oil company | Shareholders Consumers Managers Environmental organizations Employees | Finance Consumers Business processes Ecology Staff |
| Political Party | Sponsors Voters Party members Apparatus workers | Finance Consumers Ideology Staff |
| Commercial research organization | Shareholders Customers Managers Scientific workers | Finance Consumers Innovation Staff |
| Hospital | Insurance companies Ministry of Health care Patients Managers Doctors and medical staff | Finance Politics Consumers Business processes Staff |
Selecting assessment metrics
In each aspect of assessment, the company uses a set of indicators that best characterize its progress towards achieving long-term goals. At the same time, it is the long-term goals and strategies of the company that determine the choice of the most appropriate indicators for evaluating the company's performance.
Here I would like to draw attention to the fact that an indicator is understood as a sign that in some way characterizes the activity, a kind of “symptom” by which one can judge the causes of what is happening. At the same time, each indicator is assigned a standard value that the company would like to achieve (sales of more than 2 million hryvnia per year) or would not want to achieve (the number of accidents at work is not more than five per year). In the course of carrying out its activities, the company measures the actual values and compares them with the normative ones: the actual sales volume is 1.8 million UAH. per year, and the number of accidents is one. As a result of such a comparison, the company decides to change (or not change) its activities, determine new standard values of indicators, or change the composition of indicators. AT table 2 examples of indicators for each of the aspects of assessment are presented. The list of indicators is open. The choice of specific indicators and the establishment of standard values is determined by the field of activity of the company and depends on its strategic goals, as well as on the selected aspects of evaluation.
Table 2. Indicators for evaluating the company's performance
Aspect | Indicators |
| Finance | Return on invested capital, % Return on assets, % Sales revenue Profit Amount of costs Other indicators |
| Consumers | Number of consumers Market share, % Number of visits to consumers Consumer satisfaction index, % Other indicators |
| Business processes | Share of administrative expenses, % Production cycle time Equipment performance Labor productivity growth, % Other indicators |
| Staff | Personnel development expenses Number of teaching hours per year Employee satisfaction index, % Other indicators |
Internal relationships between aspects of assessment
A significant innovation introduced by the BSC and distinguishing this system from other approaches to assessing the performance of an organization is the construction of clear cause-and-effect relationships that are established both between individual indicators and between aspects of assessment as a whole. For example, the company Halifax* (Halifax) developed the so-called Z-model, which allows linking the four aspects of evaluating this company ( rice. 2).
Rice. 2. Halifax Z-model
According to the Z-model, there is a causal relationship between the aspects of evaluation, which can be expressed by the following phrase: “If we have selected competent personnel and do business correctly, then our consumers will be satisfied, and we will expand our business.” This means that Halifax considers its people to be the foundation for building efficient business processes, which in turn are driven by customer satisfaction, leading to superior financial results.
Similar to the links established between various aspects of evaluation, cause-and-effect relationships are also established between the individual indicators of the system. Moreover, the links between indicators are established both within each of the assessment areas, and between indicators located in different areas. As a result, the so-called system balance is achieved. However, the balance sheet is not limited to the harmonization of indicators.
The relationship of goals, indicators, tasks and actions
An important factor in the balance of the system is the relationship between the goals, indicators, tasks and actions of the company. To build such a system, it is very important to understand the specifics and purpose of each of these components.
Goals in the context of the BSC should be understood as a description of the future state of the company, preferably after a sufficiently long period of time, for example, 3–5 years. Indicators - those signs by which in the future it will be possible to determine whether the goal has been achieved. Tasks determine the ways to achieve goals, set directions for action. Well, the actual actions: what exactly should be done to solve problems, to achieve the standard values of indicators, and, in the end, to achieve goals.
All these components make up a coherent system of cause-and-effect relationships and cover both all functional areas of the company's activities and all levels of the management hierarchy. It is the vertical and horizontal consistency of goals, indicators, tasks and actions that makes the implementation of the company's strategy a manageable process. In this regard, it is necessary to pay attention to the fact that it is the strategies implemented by the company that set the requirements for the structure and content of the BSC.
Linking the Balanced Scorecard to Strategy
Formulating the mission and setting long-term goals
Building a balanced scorecard is impossible without a clear understanding of the company's mission, requirements and restrictions on activities that determine possible and impossible directions for its development, long-term goals and strategies that are acceptable for it.
The mission can be thought of as a combination of four components:
- purpose Why does the company exist?
- strategy - competitive position and distinctive competence of the company;
- values What does the company believe in?
- standards of conduct - the policies and behavioral models that underlie the distinctive competence and value system.
These components determine the nature of the long-term goals that a company can set for itself. Graphically, the mission can be represented as a range in which both the company's goals and strategies for achieving them fit ( rice. 3).
Rice. 3. Constraints imposed by the mission on the strategies of the company
Long-term goals can be formulated as “doubling the value of the company by the end of the third year of operation” or “ensuring a 20% share in the European market household appliances after 5 years". At the same time, the deadline for achieving the goal and the value of the indicator, which will indicate the achievement or non-achievement of the goal (two-fold growth of the company or 20 percent market share), are clearly indicated.
Strategy formation
To achieve its long-term goals, the company implements strategies, regardless of whether they were clearly spelled out and communicated to managers and employees or arose spontaneously, due to changing circumstances in the external environment. It is important that the company implements only those strategies that fit within the mission, without violating the integrity of its image in the eyes of the stakeholders with whom it maintains relations at the moment and plans to maintain in the future.
Strategies here refer to the course of action that an organization follows in order to achieve its long-term goals. The actions themselves are selected based on the tasks that determine what, in fact, should be done.
Thus, a balanced system appears in a more expanded form, when each of the aspects of the assessment covers both goals and indicators, as well as tasks and actions that need to be taken to implement the company's strategy.
Here you can give an example of building cause-and-effect relationships from goals to indicators, tasks and actions. Let's say the goal in terms of customer relations is "increased customer loyalty", and the indicator is "repeat sales at the level of 38%". In this case, the task may be “improving the quality of customer service”, then the action is “introducing customer service standards” or “training staff to develop communication skills”. If you look closely at the actions, then "introducing standards" can be attributed to the aspect of "business processes", and "conducting training" to the aspect of "staff". It is the construction of a chain of cause-and-effect relationships between goals, indicators and actions within and between various aspects of assessment that makes it possible to make the system balanced. An important role is played by the so-called strategic maps - graphical interpretation of the identified cause-and-effect relationships, both between indicators and between actions taken by the company.
Implementation of a balanced scorecard
- How is the process of implementation of the SSP organized? First of all - this individual activity company, in which top managers, directors, managers of key divisions and departments should be directly involved. There are several main stages of the implementation of the BSC:
- Context analysis. At this stage, the company's competitive environment is analyzed and the company's mission is formed or revised.
- Strategic analysis. The key aspects of evaluation are identified, the mission for these aspects is detailed, and strategic goals are set.
- Corporate strategy cards. Sources are determined competitive advantage companies, a system of indicators is developed, causal relationships are identified, long-term and short-term goals are agreed, strategic maps are drawn up.
- Strategic maps of divisions. The stage is devoted to the detailing of strategic maps to the level of units. In fact, this is a repetition of stage 3 at the lower management level, the identification of responsible executors, the setting of specific operational goals and objectives of the activity.
- System implementation. Planning activities for the implementation of the system, building a monitoring system for the implementation and operation of the BSC and implementation itself.
However, there are many obstacles and traps on the way to the implementation of the BSC that make it difficult, slow down, and often make it impossible to implement a balanced scorecard in organizations.
Traps and obstacles
Organization's unpreparedness for implementation
Readiness for the implementation of the BSC consists of several components. First of all, it is necessary that the organization really needs it. In a small company, where senior management is personally acquainted with each employee and can control his actions, where all processes are visible at a glance, there may not be such a need.
The second factor that determines a company's readiness for implementation is its "maturity". Ripe for implementation can be considered a company that has already established regular management, in which at least the organizational structure is formalized, there is staffing and job descriptions. Another point that positively characterizes maturity can be considered the existence of procedures for planning and budgeting activities. The absence of these elements significantly complicates, and often makes impossible, the successful implementation of the system.
Organization political system resistance
Like any organizational change, the implementation of the BSC affects the vital interests of the managers and staff of the organization. Strengthening control over activities through the use of BSC can be perceived as a negative motivational factor, which often leads to increased tension in the team, the emergence or aggravation of conflicts.
BSC, as a method of performance management, is often closely related to the reward and motivation system. This makes the introduction of the system a political process in any company, because it leads not only to the redistribution of resources allocated to the activities of various departments of the company, but also affects the personal well-being of managers and ordinary employees. Therefore, implementation procedures must be planned taking into account the time and effort that will have to be spent on overcoming resistance to change.
The mentality of managers and staff
Another obstacle to the implementation of the system is the way of thinking adopted in companies. First of all we are talking about top managers, strategic decision makers, including those in whose interests the system is often implemented.
Like any tool of Western management, the BSC is often perceived as an unnecessary conglomeration in a coherent domestic management structure. There are doubts about the usefulness of conveying the strategic vision of senior leaders to the lower levels of managers and performers. The closeness and elitism of top management does not allow for the very vertical integration from strategic goals to operational actions, which the balanced scorecard is aimed at creating.
In conclusion, I would like to note that the BSC is now perceived not so much as a system for evaluating the performance of companies, but as a tool that allows you to implement strategies. In this regard, the question arises of the need to formalize many processes in organizations, which in itself cannot but have a positive effect on the current activities and long-term competitiveness of domestic companies.
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* Open joint-stock company Halifax by 1999 had £154 billion in assets, 36,000 employees, 800 branches, 500 real estate offices and 900 agencies. The main activities are mortgage lending operations for the population, consumer lending, personal insurance, storage of long-term savings and valuables of citizens.
What is a balanced scorecard and why does an organization need it
Achieving success in the modern banking business depends on the availability of a development strategy and effective tools for managing its implementation.
According to surveys of top managers Western companies(1) the main task facing them is the execution of the strategy. Surveys conducted among companies in 1996 showed that most companies do not have systems/processes to monitor and control the implementation of the strategy. Only 40% of organizations linked budget performance to strategic goals, and about 30% of respondents linked the reward system to strategy implementation. In almost all surveyed companies, less than 10% of the staff had an idea about the existence of a strategy and understood what it consisted of. What's more, 85% of executives spent less than an hour a month discussing their organization's strategy, with 50% of respondents saying they don't spend time discussing strategy at all.
A similar survey conducted in 2006 showed interesting changes (see table).
Table
Among the 46% of companies that did not have the tools to implement the strategy, 73% showed average or below average results among companies in their competitive group. At the same time, among 54% of companies that used strategy implementation management systems/tools, 70% demonstrated results that exceeded the average for their competitive groups (2).
Thus, the statistical survey shows a clear advantage in the performance of those companies that use formalized tools to manage the implementation of the strategy. Three-quarters of these companies use balanced scorecards as a tool for managing strategy implementation.
The BSC allows you to translate global strategic guidelines into specific and understandable indicators for employees (Key Performance Indicators, KPIs) that can be monitored and controlled.
If you try to resort to figurative thinking, then the BSC is a certain coordinate system in which the company moves and which allows you to track and control its movement along the most important coordinates for any organization - customers, processes, development / personnel.
The BSC includes four main perspectives - key areas within which sets of indicators are developed to track the activities of the organization: financial, client, process and learning and development perspective (Fig. 1) (3).
An effective BSC system should cover all of the above perspectives (Fig. 2), and not just the financial and commercial indicators most commonly used in Russian practice. A balanced combination of indicators from all perspectives allows the bank to ensure the stability and sustainability of its development.
Relevance for Russia
In Russian banking practice, interest in balanced performance indicators as a tool for implementing the strategy arose as early as the mid-1990s. Banks tried to develop and implement BSC both on their own and with the help of foreign/Russian consultants. The experience accumulated over this short period of time in the development and implementation of the BSC allows us to draw interesting conclusions: in the Russian banking environment, unlike the Western one, there are different goals for the implementation of the BSC.
Based on their goals (Fig. 3), a bank does not always need a full-fledged integrated system of balanced scorecards; often, to achieve the task, it is enough to develop a set of key performance indicators with a simplified calculation option.
At the same time, it is important to realize that the architecture of the balanced scorecard, strategic maps, sets of development of performance indicators and the depth of their development will depend on the goal set, and, which is especially important for many organizations, the time required for the development and implementation of the balanced scorecard.
To illustrate these differences, we present several examples from Russian and foreign banking practice (Fig. 4–6).
However, in recent times Increasingly, Russian banks are faced with the task of developing exactly a balanced scorecard in its classical form, that is, creating a tool for managing the implementation of a strategy.
What is a working BSC of a company's activities
The development of the BSC begins with an analysis of the company's strategy, its mission and vision, and the strategic goals set. The result of this analysis should be a "strategic map" of the bank, which will reflect all strategic goals, key success(KFU) that contribute to their achievement, in four perspectives - clients, finance, processes, learning and development.
Let's consider what criteria, designed to ensure the system being developed, must be observed when developing KPIs, which should:
Reflect the strategic map of the corresponding level;
Be related to the result of the unit's activities;
Be measurable and have a clear calculation procedure;
Calculate on a regular basis in order to make it possible to compare the results of activities for different periods among themselves;
Be related to the relevant task, the result of which affects the activities of the bank.
Number of indicators
Based on the world practice in the field of KPI development, we can conclude that the optimal number of indicators for a unit financial organization ranges from five to nine. These indicators are used directly when calculating the bonus part of the payment to the employee of the unit.
Department-level KPIs typically include both general departmental KPIs and department-specific KPIs that reflect the performance of a particular unit.
For getting additional information auxiliary/statistical KPIs are used. Their number, as a rule, is not strictly limited and remains at the discretion of the head in charge of the unit.
The development of indicators for a bank division is a system for evaluating both the activities of the division itself and the performance of its manager (according to the results achieved by the division, measured using KPIs).
The system for evaluating the head of a department by KPI is not only an objective tool for financial incentives, but also a tool for improving the quality of work and performance of a department.
At the same time, the KPIs by which the division is evaluated may include KPIs that the division itself cannot directly influence. For example, in accordance with the best foreign practice, the indicator of customer satisfaction with the work of the bank should be used to assess not only those departments that communicate directly with customers, but also those that perform the functions of provision and support.
There are various approaches to the use of indicators in the reward system. Some banks take into account all KPIs in the process of evaluating the performance of a unit, others divide KPIs into indicators that directly affect employee bonuses and auxiliary information and statistical indicators. In the latter case, KPIs are not used as a material incentive tool, but are used to evaluate the performance of a unit in comparison with other units (by target indicators) or with other banks.
KPI is an important task that quantitatively sets the main directions of development for various departments and for the bank as a whole. That is why it is fundamentally important that the list of KPIs used by the bank reflect the relationship between the development of individual departments and the overall strategy of the bank and be balanced.
To manage a large organization, it is not enough to rely only on what is available. To achieve success, a comprehensive assessment of information in all areas of the bank's activities is necessary: the effectiveness of working with clients, business processes, work with personnel and, as a result of this, financial results jar.
Depending on the changes external environment the bank's strategic maps, KPIs and their target values should be reviewed regularly. and review should be carried out on a quarterly basis.
As mentioned at the beginning of the article, the fundamental point in the development of the BSC is the question of the purpose of the development, on which the types, composition and target values of KPIs will depend.
Below are examples of KPI sets from the banking practice of different banks with different goals for the development and implementation of the BSC.
Example 1
The purpose of developing the BSC is to evaluate the activities of department heads to develop a remuneration system and increase the transparency of the top management bonus process (an example of a KPI for one of the departments is shown in Fig. 10).
For each SSP, the methodology and frequency of calculation are described (Fig. 11).
Example 2
Objectives of BSC development:
1) valuation of the financial group and individual business areas;
2) evaluation of the effectiveness of business units;
3) the ability to compare the KPI of the financial group with the KPI of other organizations.
Some indicators for selected prospects are shown in Figure 12.
Based on the goals, indicators were used that can be calculated according to published reports.
Starting the development and implementation of the BSC, often faces a variety of operational issues:
What reporting standards should be used to calculate KPIs (IFRS, RAS, management accounting)? How to count?
What to do if the existing accounting system does not allow obtaining the required data in a given unit of time?
What are the minimum/optimum changes to the management accounting system required to implement KPI calculation on a periodic basis?
What are the KPI targets based on? What methods of setting target values do competitors use?
Validity of using market benchmarks?
What principle should underlie the distribution of weights in KPIs? Can they change over time? What does it depend on?
What is the duration and perimeter of the pilot run?
How to objectively evaluate the results obtained in the framework of the pilot?
What adjustments are needed in the calculation methodology, the amount of data collection, the established target KPI values to most correctly reflect the goals of the organization's activities?
How to implement a balanced scorecard if the functionality of IT systems is insufficient for this task? What KPIs would make sense in this case?
In conclusion of this short review, I would like to add that if a balanced scorecard is implemented for the purposes of implementing the strategy, then in any case it will entail serious changes in the organization - modification of the management accounting system, rethinking the areas of responsibility of departments, restructuring business processes, personnel decisions etc.
And you need to be ready for this. But in the medium and long term, these changes will allow the organization to successfully achieve its strategic goals and demonstrate outstanding results.
(1) - Kaplan Robert S., Norton David P. The Execution Premium. Link Strategy to Operations for Competitive Advantage. 2008.
Balanced Scorecard (BSC) is the most popular, world-recognized strategy implementation management concept developed by Harvard University professors D. Norton and R. Kaplan (USA).
The Balanced Scorecard (BSC) provides targeted monitoring of the company's activities, allows you to predict and anticipate the emergence of problems, seamlessly combines the levels of strategic and operational management, controls the most significant financial and non-financial performance indicators (KPI) of the enterprise. The degree of achievement of strategic goals, the efficiency of business processes and the work of the entire enterprise as a whole, each of its divisions and each employee is determined by the values of the so-called key performance indicators (KPIs), which are closely related to the employee motivation system. The indicators with their target and boundary values are determined in such a way as to cover all critical areas that affect the implementation of the strategy as much as possible.
Thus, the Balanced Scorecard (BSC) is a system for measuring the performance of the entire enterprise (system strategic planning) based on a vision and strategy that reflects the most important aspects of the business. The concept of the Balanced Scorecard (BSC) supports strategic planning, implementation and further adjustment of the strategy, by combining the efforts of all departments of the enterprise.
What gives the company the introduction of a key performance indicator (KPI) management system?
Traditional measurement of enterprise performance, focused only on financial indicators obtained from systems accounting, quickly outdated and does not give a complete picture of the state of the enterprise, does not allow to build an accurate forecast of its development. There is a need for better and effective ways global assessment of the entire enterprise. Modern approaches to strategic management urge to pay attention to such non-financial components as personnel, business processes, innovations, customer relations. To this end, Robert Kaplan and David Norton have identified four perspectives, which are the main groups of strategic goals, the achievement of which is measured by key indicators:
- Financial: What value do we provide to our shareholders?
- Client: What value do we provide for our clients?
- Internal processes: What processes should we improve to ensure the competitiveness of the enterprise?
- Learning and development: Are there programs for development, motivation and growth?
A properly constructed Balanced Scorecard (BSC), supported by convenient software tools, allows an enterprise to:
- Concentrate all your resources (financial, human, technological, informational) on the implementation of the strategy and achieve a steady movement of the enterprise towards its goals.
- Provide a link between strategic goals and the day-to-day operations of commercial, manufacturing and administrative structures(by introducing measurable indicators related to goals).
- Increase the manageability and efficiency of the enterprise, as well as reduce risks.
Completeness and availability of information
The main advantage of the Balanced Scorecard (BSC) is that it permeates the entire structure of the enterprise and initiates coordinated operational actions of the personnel aimed at the implementation of the Strategy. All information related to strategic goals is available to employees at all levels. Processed and analyzed information, consistent with the tactical and strategic aspects of the activity, becomes knowledge. The presence of such corporate knowledge is the main value of the enterprise, essential element making informed effective decisions.
Causal relationships
The Balanced Scorecard (BSC) helps managers quickly obtain valuable summary information about the activities of the enterprise to improve the quality of the decision-making process. The concept of a Balanced Scorecard helps to present the strategic goals of an enterprise on a strategic map in the form of a decomposition of goals. A strategy map is a description of a strategy using cause-and-effect relationships at each level of enterprise management. This strategy implementation model is convenient to use both for monitoring the achievement of goals and for modifying them.
Active participation of employees at all levels in the implementation of the Strategy
The Balanced Scorecard (BSC) provides a well-coordinated interaction between the employees of the enterprise and provides all levels of enterprise management with ideas on how to improve the decision-making process and get closer to the set goals. The success of the implementation of the Strategy depends on the achievements and initiative of employees, the correct allocation of resources and building feedback. By participating in the definition of key indicators and the implementation of the Strategy, employees have the opportunity to improve their own qualifications and improve the efficiency of the enterprise as a whole. By involving staff in the implementation process strategic decisions the enterprise turns into a flexible structure, where each employee equally understands the goals set. Such an enterprise is able to quickly respond to dangerous trends and make appropriate management decisions.
Business processes
A Balanced Scorecard (BSC) helps an enterprise optimize its own business processes and align those business processes with strategy. Key management processes such as business planning, forecasting, budgeting, etc. are linked to enterprise performance indicators (KPIs) and prioritized. Thanks to the Balanced Scorecard, an enterprise can manage its budget more optimally based on strategy, and not on the personal preferences of individual managers, which provides a link between priorities and actions.
A responsibility
Each key performance indicator (KPI) used to measure the degree to which a certain strategic goal has been achieved must be assigned to a person who is personally responsible for achieving the established planned values for this indicator. A Balanced Scorecard allows an enterprise to identify key areas of its business and assign responsible people to those areas.
Conditions necessary for the implementation of the Balanced Scorecard
For the successful implementation of the Balanced Scorecard (BSC) it is necessary:
- Get management support
- Come to an agreement on the terminology used
- Find an internal project manager
- Determine the Mission, Vision and Strategy of the enterprise
- Determine the scope (enterprise units in which the Balanced Scorecard is being implemented)
- Define strategic goals
- Define indicators (KPIs) to measure the achievement of goals and how to obtain data for indicators
- Identify initiatives to achieve strategic goals
- Implement process management
- Evaluate the efficiency of the enterprise for certain periods
The main stages of the implementation of the Balanced Scorecard:
Balanced Scorecard Example
The figure shows an example of a Balanced Scorecard (BSC).
Vision- a picture of what the organization wants to become in the future: "We must dominate the market"
How?- Focusing on cost optimization, high quality and investment in new technologies.
How and in what perspectives should we surpass others?- Responsibilities and action plans are defined to achieve the set goals.
Creating the Balanced Scorecard itself is not as difficult as creating a managed Balanced Scorecard!
Benefits of using the Balanced Scorecard (BSC)
- Balanced Scorecard (BSC) provides the management of the enterprise with a complete picture of the business.
- Balanced Scorecard (BSC) allows you to prevent the occurrence of critical situations.
- The Balanced Scorecard (BSC) methodology facilitates interaction at all organizational levels and provides an understanding of strategy and strategic goals by all participants.
- The Balanced Scorecard (BSC) provides strategic feedback and learning.
- The Balanced Scorecard (BSC) helps transform the vast amount of data that comes from a multitude of information systems enterprises into understandable information.
In the modern world, organizations spend a lot of time, attract significant resources to evaluate their performance in achieving strategic goals. Despite significant effort and associated costs, only 35% of respondents consider their performance measurement systems to be effective. This means that 7 out of 10 organizations are dissatisfied with the evaluation of their efforts. A growing number of organizations are finding that their systems for collecting, tracking and reporting performance information are seriously flawed. Nine out of ten organizations fail to implement their strategy due to the lack of an effective evaluation system. M. Hammer believes that "first of all, a process enterprise needs systems of indicators and rewards that more accurately reflect the results of work than those adopted in traditional organizations" .
The discrepancy between the system of only financial parameters and modern management requirements led in the early 1990s to a series of studies. As part of a study by Professors D. Norton and R. Kaplan, it was found that very often, in order to improve short-term financial performance, spending on training, marketing, and customer service was reduced. To solve the problem, the concept of BSC (Balanced Scorecard) was developed. The BSC concept was first published in the article "Measures that Drive Performance" in the Harvard Business Review. and received the highest rating: Harvard Business Review called the Balanced Scorecard the most significant contribution to management practice over the past 50 years. Based on the data obtained, the BSC was recognized as unique, allowing the integration of financial and non-financial performance indicators. One of the important distinguishing properties of the SSP is that it not only allows you to clearly define the development strategy of the organization, but also to put it into practice. Organizations around the world quickly adopted the Balanced Scorecard of the BSC and saw its benefits. However, to reap these benefits, an organization must have the tools to create an effective scorecard. Many companies' reporting systems are geared towards shareholders or government regulators. However, in order to make optimal decisions, the company's management must, along with external financial reporting, receive internal management information that allows tracking the dynamics of indicators characterizing business processes, personnel, customers and competitors.
As a rule, the failures of organizations are not the result of poor strategy, but of poor implementation. Why is it so difficult for even the best organizations to implement strategy effectively? Research in this area has identified several barriers (Figure 22).
Fig.22. Barriers to strategy implementation
The scorecard is a carefully selected set of indicators based on the organization's strategy. SSP is considered in three aspects:
Like a scoring system to evaluate the performance of the organization. The scorecard enables an organization to turn its vision for the future and its strategy into action by explaining the strategy through the chosen goals and indicators. Instead of focusing only on financial control mechanisms, the BSC uses three other components: the client component, the internal processes component, and the learning and development component (Figure 23).
How to system strategic management to implement the strategy. Ideally, the scorecard is created on the basis of a common understanding and translation of the organization's strategy into goals, indicators, norms, initiatives for each of the four components. For successful implementation any strategy must be understood and adopted for execution at all levels of the company. Cascading the scorecard means sharing it with everyone in the organization and giving them the opportunity to demonstrate how their day-to-day activities contribute to the implementation of the strategy. The development of the BSC provides an opportunity to combine the processes of budgeting and strategic planning. In addition, the BSC provides an opportunity to critically examine the initiatives operating in the organization.
As an information dissemination tool. Communicating to the entire organization about the results of the BSC allows employees to discuss the assumptions behind the strategy, learn from the results and, if necessary, discuss future changes. In the implementation of the BSC, employees will learn, perhaps for the first time, where the organization is headed and how they can contribute to its movement towards the ultimate goal.
Fig. 23 Communication of mission and strategy with components.
For the successful functioning of the BSC, it is necessary to strictly maintain a balance between the individual components.
Balance between financial and non-financial indicators.
Balance between internal and external components of the organization. Shareholders and customers are considered in the BSC as external components, and employees and internal processes are considered internal. The CSP recognizes the importance of balancing the sometimes conflicting needs of all these groups in order to effectively implement the strategy.
Balance between lagging and leading indicators. Lagging indicators reflect past performance. Typical examples are customer satisfaction or revenue. Although these indicators are objective and accessible, they have no predictive potential. Lead indicators are the performance factors that lead to the emergence of lagging indicators. On-time delivery can be a leading indicator for a lagging indicator - customer satisfaction. The scorecard should include a mix of lagging and leading indicators
Fortuna magazine cites the following data: BSC is the main strategy execution tool in 402 companies out of 500 included in the Fortuna-500 rating.
The application of the BSC is reflected both in the results of the organization's activities and in its cultural environment (table 11).
Table 11 Application of SSP
One of the tasks of the BSC is to translate the mission and overall strategy of the company into a system of clearly defined goals and objectives, as well as indicators that determine the degree of their achievement (Fig. 24).
Fig. 24 Mission Deployment
Consider the main components of Fig.24.
Mission reveals the reason for the existence of the organization and, in addition to simply creating wealth for shareholders, reflects the motivation of employees that encourages them to take part in the activities of the company. In recent years, the presence of a mission and vision has become an almost mandatory attribute of the activities of any organization. As an example, let us give the content of the mission of the University of Aerospace Instrumentation - SUAI: "The mission of the SUAI is to integrate educational, scientific and cultural activities, to meet the needs of society and the state in a wide range of priority educational programs formation of highly qualified and harmoniously developed specialists, active influence on the scientific, technical, socio-economic and spiritual development of the region and federal districts of Russia”.
Values These are the basic principles that guide the organization. They reflect deep beliefs in the organization and are manifested in the behavior of all its employees. The values of the organization openly demonstrate what behavior it expects from the staff. Here is a typical set of values found in most organizations:
Strive for excellence and not tolerate bureaucracy.
Be open to any ideas and ready to explore them.
Improve quality, speed and reduce costs to gain a competitive advantage.
Be confident in your abilities, involve everyone in solving problems without restrictions.
Create a clear, simple, reality-based vision for the future and communicate it to all stakeholders.
Be energetic and energize others.
To give your best, set difficult goals, reward success, but understand what responsibility and dedication are.
See change as an opportunity, not a threat.
Think globally and build diverse and global teams.
Vision - this is the idea of the owners and top managers about the company in the future. This is an attractive image of the company in the future, an ideal or a dream that the company strives to achieve. From the vision of the company, the preliminary goals of the company should be formed. The vision brings clarity to the ideas about the goals and direction of the company, creates a perspective, gives meaning and meaning to daily activities, and moves the staff to action.
A well-designed vision produces the following effects:
Helps people realize their importance;
gives value to learning and competence building;
brings people together and makes them feel like they belong to a team;
makes the work inspired, carried out without pressure, for the sake of achieving a common goal;
creates integrity, openness, creativity and willingness to take risks in the organization;
inspires people to think about long-term results;
gives people the opportunity to understand the overall intent.
Strategy and goals . There are many definitions of corporate behavior strategy. However, all approaches to the development of an organization's strategy are reduced to a theoretical analysis combined with the intuition of developers, who, first of all, should be the subjects that detail and implement the strategy. So, the strategy is a generalized model of actions necessary to achieve the goals. It is also important that the strategy can never be thought out and calculated to the end, and its adjustment as external and internal conditions change is a necessary procedure.
Goals are the key results that the company strives for in its activities. By setting certain goals, the management formulates those main guidelines on which all the activities of the enterprise and its staff should be focused.
To work effectively, managers set specific, measurable, relevant, stimulating, visible goals for the organization for a certain period of time. The development of effective goals strengthens incentives, sets clear performance targets and creates a clear picture of expected results.
The main components of the company's strategy are shown in fig. 25.
Rice. 25. The main components of the company's strategy
To build a strategic management system, it is necessary to decompose the company's strategy into specific strategic goals that display in detail the various strategic components. When integrating individual goals, cause-and-effect relationships between goals must be established to reflect the company's strategy. It is a process that has two directions: from top to bottom and from bottom to top. Usually, BSCs start to be created from above. Over time, the analysis of the results obtained allows us to evaluate the effectiveness of the system implementation. Usually the process of building a BSC occurs according to the plan shown in Fig. 26.
Rice. 26. Plan for building a BSC
Performance metrics are tools to measure whether goals are being met and whether a company is moving towards successful strategy implementation. Indicators can be both quantitative and qualitative. The number and type of indicators depends on the specifics of the organization.
The basis for creating a BSC is a strategic map. A strategy map is a visual representation of the cause-and-effect relationships between the elements of a company's strategy. The strategy map is unique to each organization, but there is a basic model.
For large organizations, it is necessary to develop a scorecard for each level of the organization, a process called cascading. The starting point for cascading is the SSP for the top layer. The last level is the development of team and personal scorecards. Lower-level units will use strategic goals and metrics to track their contribution to the company's overall goals.
After the introduction of the BSC, it is necessary to link it with other elements of the organization's management: budgeting and management accounting systems, tools for strategic development and operational management. The BSC requires the company to have a unified development, focus on the strategy of all departments, up to each employee, which is impossible without adapting the new system to the existing ones in the organization. Thanks to the integration of the BSC into the enterprise management system, each of the management subsystems will contribute to the implementation of the strategy:
each of the control systems will serve as a source of information for the BSC
BSC, in turn, will contribute to the successful operation of other subsystems
It's obvious that effective work SSP is not possible without full automation and close connection with the organization's AIS. Not only are many indicators formed by mathematical calculations using large amounts of data, but this data also needs to be collected. Therefore, the best option is complex automation, which will affect both the operational circuit for collecting primary information and the analytical block for calculating the indicators themselves. To calculate some indicators, you can use MS Office tools. For example, to evaluate the work of office support services, an indicator is introduced that monitors the timeliness of the execution of assigned tasks. Accounting for the timeliness of the execution of instructions can be carried out in various ways, including through MS Outlook.
Software for automating BSC decisions can be divided into several groups:
CPM (critical path method) - Oracle, SEM, SAS, ASI, Cognos, CPM Suite
Individual developments based on Business Intelligence: TM, Applix, MIS, MIC-OLAP
Special software for BSC: QPR, PROCOS, ARIS, BSC Sheer
Other software: Excell, Access, Minitab
Concept of Balanced Scorecard. Elements of the Balanced Scorecard. Goals and performance indicators. Strategic maps, Strategic themes.
Balanced Scorecard
Andrey Gershun, Yulia Nefedeva
Currently, in order to be able to constantly adapt to changing market conditions better than their competitors, to surpass them in quality, speed and flexibility in the provision of services, in terms of the breadth of the range or the price of products, company leaders need to quickly obtain information about the company's activities for timely adoption management decisions. Of great importance is the conceptual and technological connection between the strategy and the organizational solutions used.
The Balanced Scorecard (hereinafter referred to as the Balanced Scorecard, BSC) is a strategic and operational management tool that allows you to "link" the company's strategic goals with business processes and daily activities of employees at each management level, as well as monitor the implementation of the strategy.
Concept of Balanced Scorecard
The balanced scorecard appeared in the late 1980s and early 1990s. as a tool for managing dynamically developing companies. At that time, companies faced many changes: the market share of some industries began to decline rapidly due to globalization, trade liberalization, and the emergence of technical innovations. The needs of companies have also changed. The need for better information and the ability to quickly respond to market changes has become obvious.
At the end of the 80s. Professors Robert Kaplan and David Norton conducted a study of 12 companies [I]. As part of the study, it was determined that companies are too focused on financial indicators, and in order to achieve them in the short term, the costs of training, marketing and customer service are reduced, which negatively affects the overall financial condition in the long term. One of the main findings formulated by Kaplan and Norton was that employees of companies often do not understand their role in the implementation of the strategy and are not motivated to improve the effectiveness of the implementation of corporate strategy.
As a solution to the problems, Norton and Kaplan developed the concept of the Balanced Scorecard - Balanced Scorecard. This Concept was tested in a number of organizations, and by the end of December 1990, the results of the work done were summed up. Based on the data obtained, Balanced Scorecard was recognized as a unique system that allows integrating financial and non-financial performance indicators of economic activity. The manifesto of the new theory and the new managerial approach was the publication in Harvard Business Review "The Balanced Scorecard: Measures that drive performance" - "Measurements leading to performance", opened the way for the business of the information age to improve and optimize the rigid rules of the traditional economy.
In the wake of the successful publication, the professors continued to develop the concept of the Balanced Scorecard and in 1996 published the book "The Balanced Scorecard: Translating Strategy into Action" [3]. As a result of the introduction and use of the BSC by many organizations, new methods for constructing the BSC have appeared.
In 2001, Norton and Kaplan released a second book, which presented an expanded concept of strategic management of the organization. The result of the implementation of the BSC, according to Norton and Kaplan, should be an organization focused on the implementation of the strategy (Strategy - Focused Organization).
Elements of the Balanced Scorecard
A balanced scorecard allows you to clearly define the organization's development strategy and contributes to its implementation.
projections
The BSC in the classical version contains 4 projections, which are strategically important aspects of the organization's activities (see Table 1).
|
Projection |
key question |
|
How will the strategy affect financial condition companies? |
|
|
How should we look in front of our clients in order to implement the strategy? |
|
|
Internal business processes |
What processes are strategically important? |
|
Education and development |
How will we maintain our ability to change and improve in order to implement the strategy? |
Each projection contains a key question with which it is associated. The answers to these key questions are the goals, the achievement of which will indicate progress towards the implementation of the strategy. A clear causal relationship must be established between projections. The strategic process in any company that has completed the development of a scorecard is implemented from the top down. At the first stage, based on the vision of top management, which reflects (or, more precisely, should reflect) the interests of shareholders, financial goals and guidelines are determined. Next, it is necessary to outline the range of problems associated with the identification of consumers, the development of measures to improve the perception of the client's products or services of the company. Once the desired goals are identified, the search for the necessary means to achieve them begins. At the same time, measures are determined to improve internal business processes (development of new products, improving the quality of service, increasing productivity, etc.), which must be implemented to create a quality offer to the consumer and achieve the desired financial results for the owner. The improvement of internal business processes largely depends on technology, the qualifications and experience of employees, the internal climate in the team, and other factors.
It is important to understand that all 4 projections should contribute to the realization unified strategy organizations. According to the developers of this Concept, modern company should work with at least 4 of these projections, but depending on the situation, it can take on other, additional components.
Goals and performance indicators
Just as in the case of projections, there is a causal relationship between goals. An example of the relationship of goals is shown in fig. one.
Performance indicators allow you to monitor the implementation of the strategy and adjust it in accordance with changing conditions, while at the same time providing a basis for planning and evaluating the implementation of the budget and the performance of each employee. Indicators can be calculated with different frequency: daily, quarterly or annually.
Examples of indicators used for various projections are as follows:
Financial indicators:
total assets
total assets per employee
income to total assets
income per employee
income from new products
profit to total assets
profit per employee
Customer indicators:
number of clients
market share
average turnover per client
average time spent on customer relationship
customer loyalty index
customer satisfaction index
Process indicators:
timely delivery
productivity growth
Administrative expenses
inventory turnover
pre-production time
cost of administrative errors
direct contact with clients
Indicators of learning and growth:
staff turnover
time for training
average time away
annual training costs per person
employee satisfaction index
The so-called "balance" in the concept of the Balanced Scorecard is multifaceted, covering the relationship between financial and non-financial indicators, strategic and operational levels of management, past and future results, as well as between internal and external aspects of the enterprise.
Strategy maps, Strategy themes
In order to facilitate the presentation of a large amount of information, several techniques have been developed. On fig. 2 shows an example of a strategy map.
strategic map
The creation of a strategic map is a necessary step to determine the prospects, goals and indicators, as well as the cause-and-effect relationships between them.
The strategic map allows you to convey to individual departments and employees of the organization their role in the implementation of the strategy. Strategic maps can be created at any level of government, and each level will be able to see its place on the overall strategic map. Table 2 shows an example of decomposing corporate goals down to the level of teams and individuals.
A strategic "theme" is a grouping of similar goals and their performance measures. It gives you the opportunity to do overall strategy more understandable. The use of strategic "themes" also reduces the amount of information. An organization's strategy may have several strategic "themes", with goals and performance measures to achieve those goals. Table 3 shows the development of three "themes" - strategic directions at various stages of development of the organization. While the lines of work remain constant, the specific expression of each "theme" varies.
|
Strategic financial directions |
|||
|
Strategic Directions |
|||
|
Income growth and expansion activity structures |
Cost reduction and increase in productivity |
Use of assets |
|
|
Harvesting" |
Sales growth rate in the market segment Percentage of revenue from sales of a new product or service to new customers |
Revenue/Personnel |
Investment (percentage of sales) Research and development (percentage of sales) |
|
Steady state |
Percentage of Target Customers Cross-Selling Percentage of Revenue from New Use of an Existing Product Product and Customer Profitability |
Own costs vs competitors' costs Cost reduction Indirect costs (percentage of sales) |
liquidity ratio working capital(monetary cycle) ROCE by major asset category Asset utilization rate |
|
Product and customer profitability Percentage of unprofitable customers |
Unit cost (production units, transactions) |
Payback Performance |
The BSC concept is often misunderstood only as a means of grouping key performance indicators within four projections, in which financial performance indicators are simply supplemented by non-financial indicators. The indicators are, of course, important part concepts of the BSC, but they do not fully reflect its essence.
The concept implies a focus on strategies and their division into strategic goals. These goals contain a detailed mapping of various aspects of the strategy. When integrating individual goals between them, causal relationships can be identified. The full set of goals reflects the strategy. Kaplan and Norton consider the following aspects:
Clear strategy formulation
Transfer of strategy throughout the company
Aligning company strategy with staff goals
Linking goals to annual budget
Identification and alignment of strategic initiatives
Performing regular checks with feedback and necessary adjustments to the strategy
Within the framework of the BSC, it is necessary to distinguish between indicators that measure the results achieved and indicators that reflect the processes that contribute to these results. Both categories of indicators should be linked to each other, since in order to achieve the first (for example, a certain level of productivity), it is necessary to implement the second (for example, to achieve a certain capacity utilization of machines and equipment). In practice, the attention of managers is usually focused on indicators of the first category.
Thus, the Balanced Scorecard allows managers to link the company's strategy with a set of indicators individually developed for different levels of management and interconnected.
The main purpose of the System is to strengthen the business strategy, formalize it, carry it out and report to each employee of the company, provide monitoring and feedback in order to track and generate organizational initiatives within structural divisions.
Listliterature
I.R.S. Kaplan and D.P. Norton "The Balanced Scorecard: Measures That Drive Peformance" Harvard Business Review, January - February 1992,71-79;
2. R.S. Kaplan, D. Norton. Using the Balanced Scorecard as a Strategic Management System // Harvard Business Review, 1996, January/February, p. 82;
3. R.S. Kaplan and D.R Norton "The Balanced Scorecard: Translating Strategy into Action" Boston: HBS Press, 1996;
4. R.S. Kaplan and D.P. Norton "The Strategy - Focused Organization" Boston: HBS Press, 2001;
5.Paul R. Niven foreword by Robert S. Kaplan "Balanced Scorecard step - by - step: Maximizing Perf
Bibliography
For the preparation of this work, materials from the site http://www.gaap.ru were used.
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