Building alignment of individuals with the organization through Balanced ScoreCard (BSC)

Today’s global business ecosystem is characterized by competition, agility, and customer-centricity. Modern consumers are conscious and conscientious – they are aware of the varied options available to them and they want to associate with companies they can resonate with on ethical grounds as well. In recent times, organizations have also been increasing their focus on sustainability and social responsibility.

With various parameters to watch out for and a number of KPIs to meet, it is crucial that the individual objectives of team members be in sync with the overall goals of the organization. To ensure this, companies may consider the concept of a Balanced Scorecard (BSC).

What is the Balanced Scorecard (BSC)?

Robert Kaplan and David Norton introduced the concept of BSC, a business performance management framework, in a paper published in the Harvard Business Review in 1992. In fact, the concept of BSC changed the way in which performance management was done in organizations.

The BSC framework is an incredible tool for organizations to bring structure to their objectives, strategies, and performance measures used to assess progress. BSC helps by providing guidance on what should be monitored to ensure success. It encourages measuring and monitoring key performance indicators, both financially and non-financially, providing data-driven insights to evaluate strategy implementation and corporate performance. BSC can be used to assess actions taken and results achieved and works to bridge the gap between strategy and daily operations/implementation.

The applicability of BSC

BSC measures financial performance from different perspectives:

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These perspectives help companies track financial performance while monitoring progress in building capabilities and acquiring the intangible assets needed for growth.

BSC links a company’s long-term strategy with its short-term actions. In most organizations, operating and management control systems are built around financial measures and targets, with little to no correlation to the company’s progress in achieving long-term strategic objectives.

To drive performance, linking compensation systems to the BSC can prove to be helpful. For example, weights can be assigned to each of the four parameters and bonus payouts can be made basis the performance and achievements against each of these parameters. This could help align people with the company’s strategy effectively.

A balanced approach

However, organizations should exercise caution while putting BSC to work. For example, ‘Are the measures on BSC the right measures’ or ‘Does the company have a valid and right set of data for these measures’? It may be difficult to develop an accurate and comprehensive set of measurements to use with the BSC, and if a particular measure is not directly related to an organizational goal, it may not be a helpful indicator for evaluating performance.

But BSC can still be a useful tool, with proper implementation and management. It may be a better approach to set minimum threshold levels for critical subsets of the strategic measures. For example, individuals would not receive incentive compensation if their performance for a given period is below the stated threshold.

Global organizations like Apple, Volkswagen, Microsoft, Philips Electronics, FMC Corporation, and others have leveraged BSC for growth and development. In an interview with Larry D. Brady, Executive VP, FMC, by Robert Kaplan, Larry mentioned, “Although we are just completing the pilot phase of implementation (of BSC), I think that the balanced scorecard is likely to become the cornerstone of the management system at FMC. It enables us to translate business unit strategies into a measurement system that meshes with our entire management system.”