1. The financial statements are the standard measure used by most organizations for the
evaluation of management and organization performance. But every aspect of financial
performance contained in the financial statements relates to past performance rather
than current or future performance. This strict focus only on the past is like driving a car
using only the rearview mirror, rather than also using the windshield. Economists refer
to past measures as “lagging indicators” in contrast to “leading indicators” which
correctly predict future measures of performance. Restricting performance measures to
the past often means that corrective steps to fix errors and to change course are
delayed, and left undone until excessive costs and lost profits have been unnecessarily
incurred. Excessive costs and lost profits are expensive, and cannot be afforded in a
competitive environment. Organizations need to eliminate these sources of loss.
2. In addition, virtually every large, well-established organization has a planned strategy.
Whether the organization is for-profit or not-for-profit, chances are that it has a definite
strategy in the form of a well-thought-out strategic plan. That is very commonly the
case. What is not usually the case is successful implementation of the planned strategy.
Successful implementation of the planned strategy is often the point of failure. In actual
practice, it has proven very difficult for organizations to successfully implement, and to
continuously execute, their planned strategies. Seasoned strategy consultants will
confirm this observation. They will agree that a second-rate strategy with first-rate
implementation is rare, and will regularly beat a first-rate strategy with second-rate
implementation. If you are skeptical about this observation, just ask any worker how his
or her job fits into the overall strategy of the organization where they are employed. The
usual response is a blank stare, and a stammered comment that they have little, if any,
idea of the answer. While they go about their daily routines with practiced skill, they are
normally unaware of how their activities fit into the overall organization strategy.
Therefore it is not surprising that many organizations may have sound strategic plans,
but that these organizations have rather poor implementation of their planned
3. The Balanced Scorecard was devised by Robert Kaplan and David Norton in order to
overcome these two deficiencies, namely (a) reliance upon the “lagging indicators” of
financial statements for performance evaluation, and (b) the lack of a connection
between organization strategy and the daily activities of organization employees. This
lack of connection tends to favor daily activities that have no link to strategic objectives.
4. The Balanced Scorecard essentially accomplishes the following key tasks:
a. For the entire organization, strategic objectives are agreed upon for the lagging
indicators of the financial statements (known as The Financial Perspective) as
well as the leading indicators of The Customer Perspective, The Internal Processes
Perspective, and The Organizational Learning and Growth Perspective.
b. These organization-wide strategic objectives are then broken down into the same
four lagging and leading perspectives (Financial, Customer, Internal Processes, and
Organizational Learning and Growth) for each unit in the organization.
c. For each of the four perspectives (Financial, Customer, Internal Processes, and
Organizational Learning and Growth) for each unit in the organization, it is
agreed to have at least 3 metrics that measure progress towards agreed
d. Of course, the three current perspectives (Customer, Internal Processes, and
Organizational Learning and Growth) need to be valid leading predictors of the
lagging financial results. It takes careful cut and try efforts to find these leading
indicators. Further, regular review is required to ensure that they remain valid as
time progresses. On the one hand, that makes the Balanced Scorecard rather
expensive to install and to maintain. On the other hand, it also makes the
Balanced Scorecard effective and successful by ensuring that it keeps working
as intended. As a result of the expensive system maintenance required by the
Balanced Scorecard, it is normally found only in larger organizations with larger
resources, rather than in smaller organizations, which have lesser resources.
e. Given the above considerations, the Balanced Scorecard overcomes the
• Relying for performance measurement only upon the lagging indicators of
financial statements, and delayed corrective actions, rather than also
using leading indicators and speedier corrective actions.
• Failing to successfully implement well-thought-out strategic plans,
because there is no link between the everyday activities of organization
employees and the strategies of their organizational units, which are
coordinated with overall organization objectives.
5. Numbers are the language of business. Numbers are measurements of performance for
companies, for business units, and for individuals. These performance measurements
determine whether companies, business units, and individuals are succeeding or failing
in reaching their objectives. If the measurements are favorable, then companies are
succeeding, employees are earning increased compensation and greater job security,
customers are pleased, suppliers are winning more orders, the local community is
benefiting, and investors are earning good returns. However, if the measurements are
unfavorable, then companies are not succeeding, employees are earning constant or
reduced compensation and losing job security, customers are displeased, suppliers are
winning fewer orders, the local community is being harmed, and investors are earning
low or even negative returns. Therefore performance measurement numbers are of
crucial importance. These performance measurement numbers are known as "metrics."
Your assignment should include a table of metrics for your Balanced Scorecard
organization. If you would like to see a sample table of metrics, for a college, an
example is shown in the table below:
Perspective Objective Metric Target
Financial Tuition Revenue
Annual Rate of Growth
% Operating Surplus
Ratio of Assets to
Customer Increase Number of
Maintain Tuition per
Annual rate of Student
Average Tuition per
Median Score: Student
More Powerful But
Maintain Market Share
% IT1 Expense to
Ratio of New to Old
Market Share %
Learning Employee Training
Annual Hours of Training
Sample Table of Metrics for an Example College Unit
It is very important to understand what a metric is. To be clear, a metric means a
measurement. There are three kinds of measurements:
1 IT = Information Technology
i) Nominal: a nominal scale assigns items to a category. For example, the category may
be a simple "yes" or "no." In the case of a family, a nominal scale assigns items to
categories like grandfather, grandmother, father, mother, son or daughter. In the case of
an automobile, categories could be small sedan, midsize sedan, large sedan, SUV, etc.
ii) Ordinal: an ordinal scale identifies items in order of magnitude. For example, a
customer survey might ask for ratings of service on a scale of 1 through 5, where 5 is
best. That means a score of 4 is better than a score of 2. But it does not mean that a 4
is twice as good as a 2, or that a 4 is four times as good as a 1.
iii) Cardinal: a cardinal scale is also known as a ratio scale. For example, the numbers 1,
2, 3, ... represent a cardinal scale. For a cardinal or ratio scale, 12 is four times three,
three times four, and two times six.
So a metric must be either a nominal or ordinal or cardinal measurement. Anything else is not
For example, “ROE > 20%” is a metric. Also "Increase Sales Revenue by 5%" is a metric.
But "Survey Customers" is not a metric.
For each metric, in each period there are:
(a) target values,
(b) actual values, and
(c) a methodology for obtaining the data and calculating the actual values.
We should include the target values and explain the methodology for obtaining the data and
calculating the actual values each period. It would be helpful to provide illustrations or
examples of the methodology for obtaining the data for target values and calculating the actual
values each period.
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