Monday, July 02, 2007

Building A Top - Level Balanced Scorecard

A Top-Level Balanced Scorecard is a great tool to summarize an organization’s top objectives that stem from its Strategic Planning process. The tool has more than a decade of application and proven results, so a well-deployed Balanced Scorecard is a sure way to provide focus, accountability, communication, and a predictable way to achieve strategic goals.

The first step in building an organization's top-level Balanced Scorecard is to copy elements from its strategy map, if one has been created. A strategy map is a simple, visual depiction of an organization’s highest-level strategic objectives, grouped into high-level focus areas, called perspectives. These groupings should take the organization’s key "stakeholders" into account. The four most common perspectives that frame a company's strategic objectives are Financial, Customers, Internal Processes, and Learning and Growth. These may be modified to reflect different or additional stakeholders.

Perspectives become “buckets” into which the high-level objectives fit on both a strategy map and on a top-level Balanced Scorecard. Objectives are the eight to ten most critical organizational goals from the current year's strategic plan. They take the form of short verb-noun statements. For example, an objective under the "Customers" perspective could be "Improve Customer Satisfaction." These critical objectives may often be derived from a “SWOT Analysis,” which uncovers key Strengths, Weaknesses, Opportunities, and Threats that should be addressed.

The next step in building the scorecard is to identify measures that will best determine if the company is on track to achieve each objective. Measures, also called Key Performance Indicators (KPIs) or metrics, are the one to three strategic indicators of success per objective. Using the example objective above, "Improve Customer Satisfaction," a company could measure "Average Customer Satisfaction Score," plus one or two additional proven indicators for this objective, such as “Product Return Rate” and “Number of Customer Complaints.” The measure should also have a specified goal or target. By comparing actual performance data to this goal, a Stoplight Indicator can be triggered, which provides a quick visual reading – typically a red, yellow, or green arrow – of each measure’s current status.

Key to a good top-level scorecard is maintaining focus. By adhering to the maximum numbers of objectives and measures suggested above, focus will be clear. To help achieve these rules of thumb, keep in mind that day-to-day tactical or line-level quality measures should be contained in lower level, “cascaded” scorecards.

The final step in building a top-level Balanced Scorecard is to identify initiatives that will address critical areas of underperformance. Initiatives are time-specific projects with identified start- and end-dates that should be aligned to critical underperforming measures or objectives. These help close the gaps and turn red or yellow stoplight indicators green.

A few best practices to remember:

1. Perspectives, objectives, measures, and initiatives should all be aligned with the strategy to ensure that the correct road map will be followed.

2. Only the critical few (eight to ten) objectives should make it onto the top-level Scorecard and no more than three measures should be tracked for each objective.

3. Finally, a single, top-level scorecard will not drive results. Scorecards must be cascaded down and across the organization to really see results.
A Top-Level Balanced Scorecard is a great tool to summarize an organization’s top objectives that stem from its Strategic Planning process. The tool has more than a decade of application and proven results, so a well-deployed Balanced Scorecard is a sure way to provide focus, accountability, communication, and a predictable way to achieve strategic goals.

The first step in building an organization's top-level Balanced Scorecard is to copy elements from its strategy map, if one has been created. A strategy map is a simple, visual depiction of an organization’s highest-level strategic objectives, grouped into high-level focus areas, called perspectives. These groupings should take the organization’s key "stakeholders" into account. The four most common perspectives that frame a company's strategic objectives are Financial, Customers, Internal Processes, and Learning and Growth. These may be modified to reflect different or additional stakeholders.

Perspectives become “buckets” into which the high-level objectives fit on both a strategy map and on a top-level Balanced Scorecard. Objectives are the eight to ten most critical organizational goals from the current year's strategic plan. They take the form of short verb-noun statements. For example, an objective under the "Customers" perspective could be "Improve Customer Satisfaction." These critical objectives may often be derived from a “SWOT Analysis,” which uncovers key Strengths, Weaknesses, Opportunities, and Threats that should be addressed.

The next step in building the scorecard is to identify measures that will best determine if the company is on track to achieve each objective. Measures, also called Key Performance Indicators (KPIs) or metrics, are the one to three strategic indicators of success per objective. Using the example objective above, "Improve Customer Satisfaction," a company could measure "Average Customer Satisfaction Score," plus one or two additional proven indicators for this objective, such as “Product Return Rate” and “Number of Customer Complaints.” The measure should also have a specified goal or target. By comparing actual performance data to this goal, a Stoplight Indicator can be triggered, which provides a quick visual reading – typically a red, yellow, or green arrow – of each measure’s current status.

Key to a good top-level scorecard is maintaining focus. By adhering to the maximum numbers of objectives and measures suggested above, focus will be clear. To help achieve these rules of thumb, keep in mind that day-to-day tactical or line-level quality measures should be contained in lower level, “cascaded” scorecards.

The final step in building a top-level Balanced Scorecard is to identify initiatives that will address critical areas of underperformance. Initiatives are time-specific projects with identified start- and end-dates that should be aligned to critical underperforming measures or objectives. These help close the gaps and turn red or yellow stoplight indicators green.

A few best practices to remember:

1. Perspectives, objectives, measures, and initiatives should all be aligned with the strategy to ensure that the correct road map will be followed.

2. Only the critical few (eight to ten) objectives should make it onto the top-level Scorecard and no more than three measures should be tracked for each objective.

3. Finally, a single, top-level scorecard will not drive results. Scorecards must be cascaded down and across the organization to really see results.