The Balanced Scorecard Approach to Strategy

Continuing to explore the link between project management and strategy, this post explores the Balanced Scorecard approach, and how it can be leveraged by project and program managers

Genesis of the Balanced Scorecard

The Balanced Scorecard concept was developed at Harvard Business School back in the 1990's by Robert S. Kaplan and David P. Norton. In short, the Balanced Scorecard is a great common sense way to link organizational strategy to implementation levels through key measures. Implementation levels can include business units, departments, projects and programs, or other convenient organizational entities that are part of the greater organization. One of the key aspects about balanced scorecards is that metrics are not just financial in perspective, but rather are spread over four distinct and defined perspectives - resulting in a "balanced" scorecard.

Four Perspectives for "Balanced" Scorecards

The "balanced" in Balanced Scorecards derives from the idea that financial measures are not enough to tell you whether you are achieving your strategic goals. A more complete picture is needed, and here are the four perspectives provided by the balanced scorecard approach:

balanced scorecard

  1. Financial - For example, Organizations need to identify what financial success means by determining its position of maximizing current earnings versus investing for the future - and communicate those expectations to investors.
  2. Customer - For example, a company may create business value by re-positioning its product line to a new group of customers.
  3. Internal Business Process - For example, a company might invest in a project to reduce the number of steps in a manufacturing process.
  4. Learning and Growth - For example, a company might institute a rotational system that cross trains employees to provide a more agile and effective work force.

These four perspectives provide a more holistic view of success for the company. While initiatives in any of these four areas should eventually show up in the financial results, they are unlikely to show up in quarterly or monthly results, and there are measures other than financial that can best show progress. The Balanced Scorecard accommodates these other measures that fill the gap between financial results and strategic results.

But it takes some processes to instill the discipline to implement the balanced scorecard...

Four Balanced Scorecard Processes for Managing Strategy

The four processes that support the balanced scorecard approach - and bridge the gap between short-term activities and long-term objectives - are:

  1. Translating the Vision - This is about operationalizing the vision. For example, what strategic tenets does my project or program support, and what measurements within my project or program can map back to those tenets? This process allows for clarifying the vision and gaining consensus.
  2. Communicating and Linking - This is about think about communicating and educating, setting goals, and linking rewards to performance measures to build the vision into the fabric of the organization units my project or program touches. For example, if you are building a marketing system for a particular business unit, how can you build the vision, via measures, into the system that will be used by departments and individuals?
  3. Business Planning - At a higher level, the business planning and budgeting processes need to be aligned and unified. At the project or program level, we also need to ensure that the business planning inputs are aligned with our budget inputs so that the measurements will help drive us towards the goals in the plan.
  4. Feedback and Learning - This is similar to the Lessons Learned concept in project management. The key is to tie together causes and effects via the scorecard so as to allow for fine tuning of initiatives to better achieve strategic objectives. People often search for the "root cause" of the problem, and the scorecard can be designed to support this systematically. This process allows for supplying strategic feedback, strategy review, and coordinated learning

From Strategic Level to Implementation Level

There is a practice of balanced scorecard strategic management, adapted from the work of Robert Kaplan and David Norton. Note one of the key precepts stated on those pages:

[Using the balanced scorecard approach] gives organizations a way to ‘connect the dots’ between the various components of strategic planning and management, meaning that there will be a visible connection between the projects and programs that people are working on, the measurements being used to track success, the strategic objectives the organization is trying to accomplish and the mission, vision and strategy of the organization.
Source: Balanced Scorecard Institute Nine Steps to Success (TM) Process

The balanced scorecarding approach can be used to help tie projects and program back to organizational strategy. It allows measurement of metrics beyond just financial, providing a robust tool for ensuring continued relevance.

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