How to Create a Balanced Scorecard

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The balanced scorecard concept was originally developed by Robert Kaplan and David Norton in the early 1990s. They felt that businesses relied too heavily on measures of outcomes and not on the drivers of those outcomes. By the time measurements of outcomes were available, the company was essentially measuring past performance. They wanted a means of tracking both outcomes and the drivers of those outcomes, as well as a way of incorporating measures outside the typical focus on financial performance. Balanced scorecards have evolved and can be used at the business or employee level.

Identify the financial outcomes that are most important for your business to track. These typically include a measure of current profitability and a measure of growth.

Determine what the key drivers of these financial metrics are. You may want to include measures of process efficiency, customer satisfaction, and even employee satisfaction or retention. Some experts like to include metrics that represent progress in employee learning and development, product or service innovation, and systems effectiveness.

Review the set of metrics you have developed, including both output measures and key drivers. Ensure that you have represented all shareholder groups and that the scorecard as it is reflects your business goals and priorities.

Map the scorecard metrics onto the set of functional areas or core processes in your business. Each metric should tie to at least one area of operations and at least one core process.

Establish an employee-balanced scorecard in each operational area that derives directly from the company scorecard. For instance, if a key metric in the sales area is product return rate because it directly and strongly affects both profitability and customer satisfaction, use it as an employee scorecard metric.

Evaluate the set of employee metrics to ensure that it represents a fair and accurate representation of the desired employee performance. It should include elements of what is accomplished and how it is accomplished, should reflect the needs of all stakeholder groups, and should balance the different demands placed on employees.

Share the new company, department and employee scorecards with everyone affected. Clarify the reasons for the selection of the included metrics.

Review your scorecards periodically to ensure that they continue to match your business goals and that they remain balanced. Consider employee and customer feedback when assessing the effectiveness of your scorecard.

Tips & Warnings

  • Your key metrics should be tied to your vision, mission and values statements. If they are not, either your statements need updating or you should rethink your choice of metrics for your balanced scorecard.

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