I start with specifying the organization’s mission. In a for-profit organization, the mission is logically to make money for its investors (I will discuss about non-profits later). After specifying the mission, I then choose a strategy(1).
After the mission and strategy have been identified, I start defining the balanced scorecard (BSC). Note that it is important to always tie the BSC with the strategy because, after all, the former will be used as a measure of the latter’s success. I like to use the following guide questions for each step: (Mission) Where do we want to go? (Strategy) How do we get there? (BSC) How do we know we’re getting there? (2)
The order I follow in building the BSC is to start with the financial perspective and end with learning and growth. For each perspective, I answer the following questions:
- Financial: What must we achieve financially so that we add value to our investors?
- Customer: What should we achieve with our customers in order for us to achieve our financial goals?(3)
- Internal Processes: What internal processes should we be good at so that we will achieve our customer and financial goals?(4)
- Learning and Growth: What must we achieve in terms of learning and growth so that we will achieve our goals?(5)
I usually put my answers in the matrix that looks like the one below. The objective column is where I answer the questions above. The measure column is where I specify what indicators I will observe to determine if the objective is being achieved. The target column, on the other hand, is where I specify what values(6) I will expect from said indicators at certain points in time. Afterwards, I then specify in the initiative column the specific activities I will undertake to achieve the said objectives and targets. I do this for every answer to my guide questions. Note that there may be more than one answer for each perspective.
Sometimes I also double-check the matrix with a map wherein I connect related objectives across the four perspectives. This is to make sure that there are no orphaned objectives (objectives that have no connection with any of the other objectives).
BSC for non-profits
For a non-profit organization, I do things slightly different. Don’t be fooled though into thinking that for-profit and non-profit BSCs are interchangeable. While the differences are subtle, they are not just semantics: In the for-profit BSC the financial objectives are the ends while the customer objectives are just means. In the non-profit BSC, the customer objectives are the ends and the financial objectives just one of the means. Aside from that, the questions asked in the non-profit BSC are also different.
As with the for-profit process, I start with identifying the mission. My guide for coming up with the non-profit’s mission is to first think who its customer is and then think about what I want to achieve with them. I then proceed to defining my strategy that will help achieve the mission. Afterwards, I proceed to defining the BSC using the following guide questions and in the following order:
- Customer: What must we achieve that will create value for the customer? What must we achieve that will directly benefit our customer?
- Financial Perspective: What must we achieve financially so that we can sustain our value-creation for our customers?
- Internal Processes: What internal processes should we be good at so that we can achieve our financial and customer objectives?
- Learning and Growth: What must we achieve in terms of learning and growth so that we will achieve our goals?
You will notice that in the two BSCs there is a bit of an overlap between the mission and the first perspective. The key thing to note is that the mission has a wider time-span while the BSC has a relatively shorter time span.
- Balanced Scorecard by Kaplan, et. al.
- Adapting the BSC for the Public Sector by Paul R. Niven
- The Microsoft BSC Framework
- What is the BSC?
- BSC at 1000ventures.com (Includes shortcomings of the BSC)
- Note, however, that strategic planning involves a number of other steps before arriving at the strategy, but I will reserve that for another blog entry.
- The credit for these guide questions goes to one of my professors in UP, Prof. Mike Soledad
- Analyze in terms of type of customer and type of processes involved in delivering the product to them.
- These metrics have to be carefully designed by those who know these processes most intimately. There are two types of internal process, by the way: mission oriented (ad hoc) processes and support (repititive) processes.
- Involves more than just training. It’s also about retaining and improving the knowledge already within the organization.
- It is important that these values be quantifiable. It should not be something that can only be “felt”, rather it should be something that can be truly and unambiguously measured.