Online from: 2002
Subject Area: Built Environment
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Article citation: Michael Pitt, (2010) "An introduction to the balanced scorecard", Journal of Facilities Management, Vol. 8 Iss: 3, pp. -
In the early 1990s, Drs Robert Kaplan (Harvard Business School) and David Norton developed a new approach to strategic management. They named the system the “balanced scorecard”. In dealing with some of the weaknesses and vagueness of previous management approaches the balanced scorecard approach provides a clear definition as to what business organisations should measure in order to balance the financial perspective. The balanced scorecard can effect large-scale organisational change and improvement but it does require a degree of expertise in its implementation.
The balanced scorecard is not just a system of performance measurement but it is also a management system that enables organisations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcomes in order to continuously improve strategic performance and results. When it has been fully deployed, the balanced scorecard transforms strategic planning from a routine undertaking into the focus of organisational strategic direction.
Kaplan and Norton claim that “The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology and innovation”.
Before looking at the balanced scorecard in detail it is worth examining the definition of “metrics”. This is a system of parameters and/or ways of quantitative periodic assessment of a process. Metrics require clear procedures to carry out such measurement together with a clear method of interpretation of the assessment in the light of previous or comparable assessments. Metrics are usually specialised by the subject area, in which case they are valid only within a certain domain and cannot be directly benchmarked or interpreted outside it.
The balanced scorecard requires that we view the organisation from four perspectives, develop metrics, collect data and analyse it relative to each of these perspectives:
This perspective includes employee training and corporate cultural attitudes related to both individual and corporate self-improvement.
In a knowledge-worker organisation, people are the main resource and in the current climate of rapid technological change, it is becoming necessary for employees to be in a continuous learning mode. Metrics can be put into place to guide managers in focusing staff training funds where they can help the most. In any case, learning and growth constitute the essential foundation for success of any knowledge based organisation. Kaplan and Norton emphasise that “learning” is more than “training” as it also includes things like; mentors and tutors within the organisation, things that enable effective communication among workers, effective help in problem solving when it is needed and it also includes technological tools.
This perspective deals with internal business processes. Metrics based on this perspective allow the managers to determine how effectively their business is operating and whether its products and services are meeting customer requirements. These metrics have to be carefully designed by those who are most familiar with these processes.
In addition to the strategic management process two kinds of business processes may be identified:
The support processes are often more repetitive in nature, and hence easier to measure and benchmark using generic metrics. However, the changing nature of facilities management since the introduction of the balanced scorecard means that the two types of processes cannot now be treated in isolation.
The importance of customer focus and customer satisfaction in any business might be regarded as self-evident. If customers are not satisfied, they will eventually find other suppliers that will meet their needs. Poor performance from this perspective is seen as an indicator of potential future decline of the business even though the current financial situation may look good. In developing metrics from this perspective, customers should be analysed in terms of sector, organisational similarity and the kinds of processes for which the product or service is being provided.
It is important to note that within the balanced scorecard system Kaplan and Norton do not disregard the need for traditional financial data. Accurate data, which is available as and when needed, should always be a priority. The argument is, however, that emphasis on financial data alone leads to the unbalanced situation with regard to other perspectives. It is this that the balanced scorecard system seeks to address.