Implementing The Balanced Scorecard Performance Management System

Implementing the Balanced Scorecard Performance Management System

More and more organisations today are resorting to the balanced scorecard as a performance management system. This method of performance management allows performance to be measured across four different perspectives, where traditionally it was based on financial indicators alone. The four balanced scorecard perspectives are Financial, Customer, Internal business processes and Learning & growth.

The balanced scorecard approach allows a holistic view of how well the business is performing. Looking at the financial perspective alone has proven in many cases to be unsustainable. An organisation's financial statements can report good performance while the business is actually on the verge of collapse. The balanced scorecard moves away from this by considering three other perspectives when measuring the performance of the organisation.

The Financial perspective is one of the four perspectives but, other things need to be considered in order for shareholder value to be maximised. We need to consider adding value to what we are offering our customer in order for them to purchase our product or service.

For this to happen, we need to ensure that the internal business processes within the organisation are working well in order to deliver this value to the customer and thus meet our financial targets. The final perspective, learning and growth, looks at key people issues as this is the backbone of a company strategy.

There are a number of challenges in implementing the balanced scorecard. If the challenges are not properly addressed, they could result in frustration and difficulty when using the system. We have been liaising with some of the balanced scorecard clients in order to find out what problems they have been facing and we found the following:

Collecting objective measurement information places a huge administrative burden on the organisation. While most organisations want to implement the balanced scorecard, they do not want to commit resources to collecting the information required for the scorecards to function effectively.

A lot of information resides in systems within the organisation but many organisations find it a challenge to objectively collect this information for performance purposes. Most organisations indicated that they do not have the capacity internally to measure their targets as goals are cascaded down to lower levels. Despite this difficulty, it was a general consensus that the results aspect of the system is excellent. This is because it allows people to become more focused as the system is results based thereby limiting subjectivity in performance assessments.

In our experience, many organisations opt to have intensive balanced scorecard training only for senior management within the organisations. After this the concept and goals are cascaded to the rest of the organisation during the building of scorecards without the rest of the organisation having received the same training.

All organisations that have avoided intensive training for the entire organisation, for whatever reasons, have experienced problems in implementing the balanced scorecard.

From our experience there is no short cut to effective implementation. All employees need to be trained to the same standard for the system to produce the desired results. Where shortcuts have been taken we have discovered that lower level employees are confused and do not see the link between their goals and the higher level goals.

We recommend that when an organisation embarks on the balanced scorecard system of performance management, adequate resources must be availed for the system to be implemented properly. This will allow for standardised training to be offered to all employees.

There is no better time to implement the balanced scorecard system than now considering the stability in the economy. Targets set under the scorecard system can be tracked without changing the targets more often as was the case during hyperinflation. Another key success factor in implementing the balanced scorecard system is to restructure rewards to support the achievements of performance targets under the scorecard system. The final and key success factor is that both the Board members and senior executives must be fully committed to the system as a way of transforming the organisation. The balanced scorecard is not a substitute for poor leadership. Performance measurement must start with the Board and cascade to the rest of the organisation. The balanced scorecard can work effectively and deliver the desired changes and results if implemented based on business needs rather than just following trends.

Memory Nguwi is the Managing Consultant of Industrial Psychology Consultants (Pvt) Ltd a management and human resources consulting firm. Phone 481946-48/481950/2900276/2900966 or cell number 0772 356 361 or email: mnguwi@ipcconsultants.com or visit our website at www.ipcconsultants.com