Balance scorecard – dynamic performance indicator
After the vision and mission have already been settled by a group leader, it is time to make a way of measurement. Sometimes organization is trapped into a static financial performance measurement. They forget that the competitiveness of business process is a very dynamic. In 1992, Robert S. Kaplan and David P. Norton published a new metric (way ) for the dynamic organization competitiveness, Balance scorecard (BSC). In 1996, Kaplan and Norton also published the book titled The Balanced Scorecard
BSC is just like a dashboard in a vehicle. A dashboard means that BSC can show the current activities and achievements made by the organization. BSC will put the focus not only on financial parameter, but also on the operational, marketing and developmental activities. The BSC will divide an organization process into 4 perspectives:
- Financial perspective: How do we look to our shareholders?
- Customer perspective: How do customers see us?
- Internal Business perspective: What business process are the value drivers?
- Learning and Growth perspective: Are we able to sustain innovation, change and improvement?
Each of the four perspectives should be deployed into Key performance Indicators (KPIs).
The Learning & Growth Perspective
This perspective covers the human resources with their knowledge, skill and attitude. This learning and growth perspective is concerned with human, information and organization. These three factors are the infrastructure needed to be achieved to support the other perspectives. Examples of KPIs that could be used for this perspective are:
- Organization structure with its Business Process Mapping
- Job responsibility and competencies index
- Employee satisfaction index
The Internal Business Process Perspective
This perspective will show the managers about the running of their internal department, and how to conform to customers’ requirements. The effectiveness, productivity and its losses, of the operations management, customer management, innovation and regulatory & social responsibility will be measured. Examples of KPIs that could be used for this perspective are:
- Overall equipment effectiveness
- Accident ratios
- Compliment to regulators
The Customer Perspective
Customers’ focus and satisfactions are the main achievements of the organization activities. The customer is the King, and they have to be well maintained and gathered. The measurements should cover the value that is delivered to the customer (value proposition) which may involve time, quality, and cost and the outcomes that come as a result of this value proposition (e.g., customer satisfaction, market share). Examples of KPIs that could be used for this perspective are:
- Customer satisfaction index
- Customer retention and customer loyalty
The Financial Perspective
This perspective is an index to show how healthy the organization is. All other perspectives would be used to support this perspective. This is the traditional way for the static measurement of the organization performance. It will evaluate the effectiveness of costs – return balance. Some of the most common financial measures that are incorporated in the financial perspective are
- Cash flow
- Return on investment
- Return on capital employed
- Return on equity
How to apply the BSC to the organization
BSC is an easily understood concept . But applying the BSC into the organization need an extra effort and a leader should be pointed out. This leader would do the coordination among the departments and arrange all the KPI into an easy modules.
Below are steps for applying the BSC:
Begin with the organization structure and its Business process mapping.
Translate the BPM into the department process flow chart
Make sure that no section or department that has nothing to do with the BPM
Do the analysis about the process vs department (s) involved
Settled down the organization structure
Write down the output of all departments
Make grouping to all of the outputs, and determine the KPIs (the KPI should be well understood)
- Put KPI to departments involved
All departments would report about their activities results with the KPI
Arrange a new strategy to achieve better KPI
Important consideration before applying the BSC is the KPI should be well understood. Better to use the quantitative KPI rather than qualitative. Example; if you would like to use the OEE; then you should decide how to calculate the OEE; and better the good product would be resulted from the SPC based activity, it means that the SPC should be applied already.
Points to remember:
BSC is only a dashboard, and it is only showed how well the activities are done. The success of the BSC is highly depended on the effective translation of the organization’s goal in term of strategy and vision into meaningful measures which will positively influence the organization behaviour.
BSC is a part of quality circle. It means that BSC just shows the performance of the first implementation of the planning (strategy) and the review should be conducted with the new planning being the next result; and again BSC will gave you an indicator of the organization performance.