What gets measured, gets managed.
If an organization is to perform, the people who have expectations or place demands on that system have to be satisfied. These people’s expectations may be different, even conflicting. For example, customer demands may differ from employee demands; shareholder demands may conflict with the demands of environmental groups, and so on. A system is required to identify and give due weight to all the relevant stakeholders in the organization. Many organizations focus on one group of stakeholders at the expense of other groups.Organizations are now arriving at the concept of total stakeholder satisfaction which is defined as satisfying the demands and expectations of all the stakeholders of a given organization or team.To optimise the organization system there needs to be an emphasis on the rigorously measured demands and expectations of all stakeholders. To optimise the overall business system, team-based performance systems need to be based on outputs, measures, and targets that balance the potentially conflicting requirements of customers and stakeholders. Total stakeholder satisfaction is a balancing act between, for example, short-term profit and long-term gain, or customer retention and employee satisfaction. Experience suggests the creation of a balanced scorecard of targets upon which the other performance systems can be based is the best way to proceed.
Put simply, a balanced scorecard is a weighted set of outputs, measures, and targets that reflect the complex mix of requirements needed to achieve total stakeholder satisfaction. For example, targets covering profit and return-on-investment would satisfy owners and shareholders while targets on customer satisfaction, employee satisfaction, cost and cycle time would be weighted so as to reflect the needs of the other stakeholders. 23 The balanced scorecard, originally popularised by Kaplan and Norton, has become synonymous with a systematic approach to implementing strategy. It can be used as a framework to translate the organization's vision, mission, values and strategic goals into the everyday outputs, measures, and targets of the people doing the work.Many strategic plans do not work well because they are not implemented. The workforces of many companies go about their daily business activities unaware of the fact that the company even has a business plan. As a result, there is no relationship between the plans and the workers' activities.
Unfortunately, many businesses lack a mechanism or system to translate their abstract visions and plans into measurable outputs, so that every person in the organisation knows exactly what outputs they are expected to produce and how those outputs are to be measured. This would ensure that everybody knows exactly what they have to do on Monday morning in order to achieve results. This module outlines the balanced scorecard process to hierarchically and mathematically connect the organisation's vision to the daily actions of the people doing the work. It is a process to implement strategy.
The starting point would be the identification of the business unit, and the development of the business unit's strategic plan. This would involve the development of a vision, mission, strategy, outputs, measures, targets and feedback systems for the business unit. These are then cascaded down the business unit in such a way that it is localised, meaningful, understood and owned by every team in the business unit. The cascading process ensures alignment and linkage between the business units strategic goals and the outputs, measures, targets and action plans of the people doing the work.
Such a process enables resource allocations, annual budgets and strategic decisions all to be driven by the strategy. Performance reviews can be used to monitor individual performance which in turn monitors organisational performance. Reward systems can be designed to reward organisational performance achievement. The vital link between performance management and strategic goals can be made. The performance management system becomes a process to implement strategy.
Building the Balanced Scorecard: The Process
- Identify an autonomous business unit
- Develop a strategic plan
- Identify stakeholders
- Develop outputs, measures and targets
- Weight the targets
- Identify the information requirements
This is how we do it:
Firstly, we identify the stakeholders, the next step is to find out exactly what the stakeholders’ expectations are. It should be emphasized that all stakeholders care about the welfare of the entire organization. So while stakeholders are identified with particular outputs, they are all generally concerned with the overall optimisation of the organization as a total system.
The step of weighting the targets enables the strategic goals to be balanced and clarified so as to achieve the overall aim of optimising the business system to achieve total stakeholder satisfaction. This will ensure that the needs of one stakeholder are not optimised at the expense of other stakeholders.
The priority order of the targets set will assist in the assigning of weighting, as the high priority targets, which are now in line with the strategic goals of the business unit, must get the highest weighting. Distribute 100 points against the targets set. Avoid the temptation of giving one target an inordinately high weighting because of a pressing short-term need. Rather, give priority to the satisfaction of stakeholder needs and strategic goals when assigning weightings.
A clear understanding of the outputs, measures, and targets and how those targets are to be weighted provides a specific blueprint of what performance information should be fed back to ensure stakeholder expectations are being satisfied.
There are far more workers than managers. As a result, a manager’s attention tends to be focused on outstanding performers. The high-performers receive a lot of positive attention, poor performers receive a lot of negative attention, and the vast and silent majority of people at the workforce level are ignored. This can lead to apathy, cynicism, and alienation at the crucial point in the output chain where the value is being added.
In the creation of a workforce culture and the implementation of performance systems, the target should be the silent majority rather than the positive and negative minorities. In other words, be satisfied with systems that meet the needs of 80% of the target group, rather than 100%. The extra benefits to be gained from satisfying the last 20% may not be worth the effort.
Have a look at our Balanced Scorecard EBook for more information.