Are You Keeping Score?

FMP understands well that measurement is the key to identifying real-time and projected performance impacts for organizations. In the early 1990s, Harvard Business School professors, Robert Kaplan and David Norton, introduced us to the concept of Balanced Scorecards as a strategic tool for measuring and managing performance. Their intention was to expand upon what defines organizational performance – to reach beyond financial metrics alone. While financial metrics are often the most important to organizations, financial metrics are lagging indicators, meaning they are impacts recognized long after the behaviors driving the metrics have occurred. This underscores one reason why Kaplan and Norton understood it was important to track other performance criteria alongside financial criteria. Tracking additional criteria improves the organization’s responsiveness to obstacles that could disrupt performance. The four key performance criteria identified by Kaplan and Norton include: financial, customer, internal processes, and learning and growth. These are defined as follows:  

• Financial: This captures the spectrum of financial metrics from revenue and profitability indices to cost and competitive market valuation. Revenue is often parsed further into operating and non-operating revenue, as well as deferred (not yet paid) and accrued (pre-paid) revenue. Net income is the bottom-line financial metric organizations track. Further, earnings per share (EPS) is an important financial metric for publicly traded companies. While public sector agencies do not exist to produce profits, nor focus on financial competitiveness, they are still challenged to look at financial metrics such as budget resourcefulness and efficiency.
• Customer (Client): This may include customer satisfaction (with product or service delivery and with resolution of issues), customer retention rates (how long the customer continues), frequency of repeat business with the same customer, new customer acquisitions, response time to address customer concerns, and number of customer complaints. 
• Internal Processes: This focuses on the operational aspects of business including the business processes, workflows, quality control activities, time to market or production time, and other factors that determine the efficiency and effectiveness with which products or services are delivered.
• Learning and Growth: This area includes metrics that speak to the organization’s capacity for continued success, even as industry demands fluctuate. These metrics are associated with continuous improvement and innovation. They are also often leading indicators that provide a preview of the expected performance of the organization based on the capabilities of staff, the arrangement of those staff across specific job functions, and staff performance. Organizations often invest in this area by conducting a gap analysis and then investing in training and development in specific technical areas for which there is a sizable gap in capabilities. Gaps considered meaningful or worth attention are those that will impact how the mission of the organization is executed over time and how well those capabilities are synchronized to achieve the organization’s strategic goals.

While Balanced Scorecards have been heavily relied upon now for decades to understand and quantify return on investment (ROI) and performance, they also serve as a useful tool to guide strategic planning and talent management- a forward-looking perspective. By understanding the desired end state of performance, leaders can begin to plan for what is required to get to that end state in terms of the strategy, capabilities, operations, systems, structures, and technologies. The Balanced Scorecard provides a solid framework for translating strategic objectives into actionable metrics. Those metrics may then be used to hold programs, divisions, offices, or the totality of the organization accountable and serve as a roadmap to necessary improvements.  

In our next blog of this two-part series, we will get into how Balanced Scorecards are created. But before that, it may be helpful to know these tools have been tested in both private and public sectors. Private sector companies such as Volkswagen[1], Wells Fargo[2], and Veolia Water[3] have put them to use with great success. Further, government agencies like the Defense Logistics Agency[4], Federal Bureau of Investigations (FBI)[5], and the Transportation Research Board (TRB)[6] have touted the value of Balanced Scorecards for guiding them through significant organizational and mission transformations as well as pushing them towards increased efficiency and resource maximization.

So, are you convinced now that Balanced Scorecards might be just what you need to track and communicate impacts in a tangible way? Oh, glad to hear it! Then, be sure to rejoin us next week to learn more about how FMP approaches the design of Balanced Scorecards.  

Candace Blair Cronin has her master’s and Ph.D. from Penn State University in Industrial-Organizational Psychology. Dr. Blair Cronin is proud to have worked for more than 24 years with private and public sector client at Federal, state, and local levels to help them achieve tangible, cost-effective results. When Dr. Blair Cronin is not partnering with her clients on important initiatives, she is working hard to keep pace with the active social lives of her four teenagers and her small zoo of household pets. In addition to her family, a big passion of Dr. Blair Cronin’s is advocating for children in foster care and informally mentoring foster and adoptive parents.

[1] Volkswagen do Brasil: Driving Strategy with the Balanced Scorecard – Case – Faculty & Research – Harvard Business School

[2] Wells+Fargo+Online+Financial+Services+Case+Study.pdf

[3] Veolia.pdf

[4] DLA directors use management theory to write strategic plans, find efficiency > Defense Logistics Agency > News Article View

[5] How Can the Balanced Scorecard Develop a Leadership Development Program for the FBI? – Homeland Security Affairs

[6] Blair Cronin, C. et al. (2013).​ Building a Sustainable Workforce in the Public Transportation Industry—A Systems Approach. Transportation Research Board’s Transit Cooperative Research Program (TCRP) Report 162.​