Welcome back to ESM's latest blog series, The Updated Balanced Scorecard Approach, taken from the article, “The Balanced Scorecard Refresh – Lessons from 20+ Years in the Field,” authored by Mario Bognanno, Ryan Englund, and Randy Russell.
Now that we understand the design principles from last week’s blog, let’s focus on outcomes. The balanced scorecard refresh begins with the strategic result in mind.
1) Strategic Destination: Optimally, the strategic destination is captured with a single measurable strategic objective. It is often derived from the organization’s vision statement; it constitutes the quantification of the vision. It should reflect the time horizon that the plan is addressing (typically a three-to-five-year time frame). Organizations in the private sector often use a financial objective to measure strategic success. Public sector and not-for-profit organizations typically focus on a measure of the mission objective. Two examples are helpful in fleshing out this idea:
Private Sector: “In three years (2017-2020) we will be the premier privately owned Electric Utility in the United States by growing profit from $4.5 Billion to $8.0 Billion.”
Public/Not for Profit Sector: “In three years, the our Electric Coop will provide comprehensive electrical coverage in our rural areas thus supporting regional economic prosperity as measured by a 10% increase in regional job growth over the national average."
2) The Financial Perspective: The next step in the process is to focus on the organization’s financial model. Simplicity is equally beneficial here. The financial model typically includes three measurable objectives focusing on a return objective (e.g. profit or earnings per share) supported by a revenue objective and a cost objective. In the private sector the strategic destination (defined in step 1 above) is typically used as the return objective.
In the public and not-for-profit sectors, the financial model includes identification of the amount of available funding along with identification of associated costs and some translation of the return objective (often defined as net assets, retained earnings or remaining fund balance). Three measurable objectives should be used define the financial model for any organization regardless of what sector it is in.
3) The Customer Perspective: Important to any strategy is the recognition of strategic customer segments and a differentiated value proposition for each segment. It is important to define customers (clients, constituents, service recipients, etc.) as those who will be incorporated in future strategy plans. At the highest organizational level, it is useful to define future customers and focus on a shared value proposition that shows how the strategy creates a bridge from today to the future. Typical Value Propositions may include such attributes as “Reliability, Responsiveness, and, Competitive Price”. Don’t confuse the Value Proposition attributes with the Customer Objective.
Design within the customer-focused perspective of the scorecard generally results in one strategic objective with one or two strategic measures.
For example: customer objective “Enhance Customer Loyalty” can be measured using a “net promoter score” (to measure intent) and could be coupled with a measure such “key customer retention” (to measure customer behavior).
Now that we have defined our strategic destination and our supporting financial model and customer segmentation, the measurement targets are established. The desired outcomes of strategy are known. The next step is to identify the required inputs that drive desired outcomes. The next blog in the series will focus on the internal and talent and technology perspectives.