Dec 12 - 18, 2011

Over the last 15 years, the concept of balanced scorecard has gained much popularity. Balanced Scorecard is a tool that provides a balanced view of the organization. Each quadrant speaks of the same objective from a different perspective and, when put together, gives a greater insight and develops a road map to success.

What started as simple framework designed to help companies to develop a structured performance measurement system has developed into a full-grown strategic management tools that cover all aspects of the management process.

Balanced scorecard is now used in every step of strategic management i.e. from planning to execution and implementation, controlling and monitoring and taking corrective actions based on feedback mechanisms.

It is not that balanced scorecard has had a smooth sailing, there have been failures, there have been lower than expected outcomes of the scorecard implementation, but like all change management tools, there are success stories too.

These success stories are found in various sectors ranging from consumer goods to financial services, healthcare to education, process-based industries to telecom and utilities. Balanced scorecard has even set its grounds in government level (including Malaysian Govt. and State Auditor's Office) and Military Services (Royal Norwegian Air force and UK Ministry of Defense).

The balanced scorecard originated in the United States where a company called Analogue Devices used it. This concept was further refined by two researchers Robert S. Kaplan and David P. Norton.

Analogue devices scorecard had four measurement perspectives: financial, customer, internal process and learning & growth (deals with people working in the organization). All the four elements selected form different perspectives of an organization. A commercial organization works for profits, profit means having positive net income after all expenses are accounted for.

This is a statistical figure and a result of a number of things that company has to do. The financial perspective is a result of the other three perspectives.

The financial perspective is the start and the end points of the scorecard. The targets are all set in financial terms such as growth in revenue, increase in market share and managing expenses (the term cost reduction is now considered an overkill since it is not necessary that you can reduce expenses from everywhere and anywhere, thus managing expenses is more realistic and focused approach). The next in line is the customer perspective that defines three major components of strategy from customer perspective.

The first is "What to Sell" i.e. the product/service that the company has to offer, second is "Who to Sell it to" i.e. the product/service's target market and everything related to the target market. The third component to be considered while defining the balanced scorecard customer perspective is "How to Sell it" i.e. the distribution channels to be employed in this process.

These two perspectives i.e. financial and customer both pertain to the external environment. These two perspectives however highly depend upon the company's internal capacities and capabilities to meet the targets and address the market need.

The third perspective of balanced scorecard is called internal processes. Before, I expand upon this, take a quick review of one of the most common and largely accepted definition available for the term "Organization".

Organization is a set of processes, people and systems working towards a common goal. Each component set compliments the other.

Remove any one of the component and the organization will cease to exist. Taking this as a lead, let's explore, internal processes. All processes are considered here that are directly or indirectly involved in value creation.

Michael Porter gave the famous value chain model that described the primary and secondary components of the value chain and how at each stage value is added to the subsequent stage. Similarly, to address the questions marked in the customer perspective regarding product, target market and distribution channels, the internal process perspective defines how all the above three components will be addressed.

The internal processes perspective takes into account the business processes and systems that are required to meet the financial and customer perspectives.

For example, in the financial perspective you have defined that we shall grow by 15 per cent over the next three years. In the customer perspective, the support is that we shall increase the revenues from existing markets, we shall penetrate new geographical locations such as rural penetration, we shall develop new products or will tailor make product/service solutions and we shall cross sell the product/services to existing customers as well. Sounds good, but are you geared up to do that. For the strategy to increase penetration in other geographical locations, do have the logistics support to effectively do this.

To develop/innovate new products, do you have enough research and facilities/knowledge to do this or is R&D a department somewhere in the corner of the office where mostly people go to take a break. For this you will need to make R&D a core function and central to all activities.

As for cross selling, it is a good idea but only works well if planned and executed well, otherwise it can backfire. This has been observed when ill planned cross-selling strategies actually make existing customers frustrate.

The fourth perspective is called learning & growth. This deals with the most difficult component of the organization i.e. people. All the above perspectives are focused with things to do. However, all this needs to executed by the people using systems and processes.

Therefore, the learning and growth perspective takes care of this. Let's assess the above example again from the learning & growth perspective. To develop more business from the existing markets, the company has to focus on the service levels offered to the market. For example, the distribution channels receive the product/services in committed time, complains are processed on fast track, doing business with the company is considered highly favorable by the market etc, all require the existing work force to be retrained and a customer oriented culture would be required. This can only happen when people working in the back-office and front office both are trained to resolve matters where customer is the priority.

Similarly, penetrating in new geographically locations means that relevant office space and infrastructure is available before you hire someone for rural development. The rural development team should be experienced with the ground realities of the rural area being assigned. For R&D, the effectiveness only comes with level of technical knowledge of the R&D team and their competence in understanding the market's needs.

As we go along, we shall suggest what the companies operating in Pakistani environment need to take care of and what are must-do activities for successful implementation.

To be continued.....