Finding the Balance
Efficient organizations are more than just well-tuned processes. They also focus on how and what value they deliver to their customers, shareholders and employees. In fact, organizational efficiency is a balanced performance in four areas: finances, customers, processes, and learning and growth.
First described in a "balanced scorecard" by Robert Kaplan and David Norton in the early 1990s, this balanced performance tool aids strategic planning. It is a management system to measure (and improve!) organizational performance.
From its early days as a simple performance measurement tool, today the balanced scorecard clearly prescribes what an organization should measure and how this measure supports its financial goals. But it's more than just financial performance.
In each area (finances, customers, processes, and learning and growth), the organization determines what it needs to do to reach desired strategic objectives. For instance, under finances, the organization may determine that it needs to become more productive if it is to meet its objective of becoming an industry cost leader.
As it evaluates each area, the organization identifies key performance indicators (KPI) for achieving its objectives. In the previous example under finances, a KPI for becoming an industry cost leader could include measuring the organization's percent reduction in cost per unit. In the customer area, perhaps a KPI could be percentage of products that are of good quality in the first pass of development - this KPI relates to an objective of achieving zero defects.
The business process area evaluates internal business processes. The organization identifies suitable KPIs to help meet its strategic objectives in this area.
The final area on the balanced scorecard, learning and growth, is very important to overall organizational strategy. Organizational success is not all about money (contrary to what one might think). Organizations that do not provide training and support to its employees are "shooting themselves in the foot." Unhappy and unskilled workers will force the organization to fall flat, along with its profits.
Learning is more than training. It also includes things like mentoring, ease of communication among workers (culture), technological tools, and what the Baldrige criteria call "high performance work systems."
Here is an example of a balanced scorecard worksheet to help you get started to meet your organization's strategy.
When the organization achieves its desired key performance indicators (KPI), the organization achieves operational excellence. And operational excellence translates into profitability. The balanced scorecard helps organizations do exactly that: It helps turn strategic plans into manageable and actionable results.