Pinnacle Consultants L.L.P.

Helping Businesses Reach Their Financial Peak

Financial Review

Is it Time To Implement a Balanced Scorecard at Your Company?

Traditional financial reporting systems provide an indication of how a firm has performed in the past, but offer little information about how it will perform in the future.  As business becomes more complex, managers need both financial and non-financial information about customers, internal processes, organizational learning, shareholder value, quality etc. This will help them understand how their business has performed in the past and will perform in the future.

To deal with this problem, Robert Kaplan, of Harvard Business School and David Norton of Renaissance World, developed the Balanced Scorecard, a performance system that considers not only financial measures, but also customer, business process, and learning measures

Managers have embraced the notion of “balance” among performance measures – balance between the leading and lagging, financial and non-financial, internal and external. Note that “balance” does not necessarily imply equivalence among all measures. It simply means balancing the single-minded focus on financial measures with additional focus on non-financial ones. 

Balanced Scorecards

The Balanced Scorecard enables managers to accelerate continuous performance improvement, facilitate strategic formulation and execution, and strengthen internal and external accountability for creating value.  The balanced scorecard goes beyond the standard financial measures to include the following additional perspectives:

  • Customer - includes measures such as customer satisfaction, customer retention, and market share in target segments
  • Business Process - includes measures such as cost, throughput, quality for business processes such as procurement, production, and order fulfillment
  • Learning and Growth - includes measures such as employee satisfaction, employee retention, and skill sets
  • Financial Perspective - includes measures such as operating income, return on equity, and economic value added

There is a sound connection between each of these perspectives, learning and growth lead to better business processes, which in turn lead to increased value to the customer, which lead to improved financial performance.

Each perspective of the Balanced Scorecard includes objectives to be achieved, observable measures of those objectives, target values for those measures, and actions required to meet those objectives.

Management Use

The Balanced Scorecard can be used as a management system to implement strategy at all levels of the organization.  It serves as a tool to translate high level objectives into operational objectives and communicate strategy throughout the organization.  It also helps the organization set achievable targets and align action plans to achieve those targets.  Furthermore, management receives measurable feedback on whether or not its strategy is proceeding according to plan.

The size of the organization does not significantly matter to implementation of the Balanced Scorecard.  Research shows that the scorecard works for companies of all sizes, from small business to fortune 500 company. So if you are looking for a program to more effectively manage your company's growth and improve performance, the Balanced Scorecard may be your answer.

Thank you for your continued interest in Pinnacle Consultants.  If you would rather not receive e:mails with news, updates and tips from the financial world, please click the following link paul@pinnacleconsultants.org


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Special Points of Interest

  • Balanced Scorecard, a performance system that considers not only financial measures, but also customer, business process, and learning measures

  • The Balanced Scorecard can be used as a management system to implement strategy at all levels of the organization.

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P: 480 980-3977

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Website:

www.pinnacleconsultants.org

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