How to Improve Corporate Governance With a Balanced Scorecard

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Effective corporate governance requires that business leaders have accurate and timely information about how a company is performing. Without such information, they cannot be expected to make the best decisions about policies, procedures and personnel. The balanced scorecard gives leaders the information they need for effective decision making. It incorporates measures of outcomes and measures of the inputs that drive those outcomes. It includes not only measures of financial performance, but also measures of internal performance and the customer experience.

Instructions

    • 1

      Identify the key outcomes for your company. These should derive directly from your vision and mission statement and typically include financial results such as revenue and market share. A nonprofit organization often tracks different types of outcomes related to community impact or client outcome.

    • 2

      Establish metrics that accurately reflect performance in each of these areas. For instance, annual gross sales and percent market share growth may be appropriate for a for-profit company. Percent successful client outcomes or donation growth are relevant for a nonprofit.

    • 3

      Identify key drivers for those metrics that can provide advance information about the results that can be expected. Product returns, customer complaints, process efficiency and employee satisfaction are examples of drivers that may be useful for your company.

    • 4

      Designate specific metrics to use for tracking each of the drivers you just identified. Note that you should be sure the data can be made available for each one if it is not already.

    • 5

      Review the set of outcome and input metrics you have created. Does it accurately and completely reflect the goals of your business and the information required to understand performance at the executive level, based on the needs of all shareholder groups? If not, fill in the missing areas with appropriate metrics.

    • 6

      Determine the target levels for each scorecard metric and the levels that signal a performance problem that requires attention. Consider automating the metric reporting so that any metric that does not meet expectations is highlighted in red or in some other way that draws everyone's attention.

    • 7

      Track your scorecard metrics continuously and review the scorecard regularly with other business leaders. Take appropriate action when the metrics indicate problems with performance or opportunities to leverage improvements.

Tips & Warnings

  • Consider including measures that do not directly let you evaluate performance but are key indicators of either critical problems or substantial progress. For instance, changes in employee retention and turnover can signal internal issues that should be explored.

  • These steps seem simple, but you do need to put thought and effort into identifying the metrics that are right for your company. If you have process management or business measurement experts, you can rely on them for guidance.

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