The balanced scorecard approach – its basic concepts and methodology – has long been an effective management tool. This can be seen in the employee bonus or honorary scorecard.
The balanced scorecard is a performance management tool that aims to make it easier to ensure that an organization’s smaller-scale activities are aligned with its larger-scale objectives. In this sense,
it is a very general management tool, but it may also be used in managing smaller aspects of the organization. For instance, one can speak of a marketing, manufacturing, or honorary scorecard.
This strategic management tool was introduced in the early nineties by two men named Robert Kaplan and David Norton. They conceptualized the balanced scorecard approach as a tool to help managers consider all the various measures that are of import to the organization as a whole. These include both financial and non-financial measures, leading to the “balanced” description.
Originally, the scorecard consisted simply of four categories: Financial, Customer, Learning and Growth, and Internal Business Processes. Managers would then select five or six important representative measures under each of these categories. While this was indeed a simple approach that nevertheless covered nearly all the different aspects of organizational performance, it would prove to be too abstract. In addition, it was often difficult to justify the selection of the particular measures under each heading. The question, “Why were these measures chosen instead of others?” was tricky to answer satisfactorily.
This led to further improvements and refinements of the balanced scorecard approach. The “third generation” balanced scorecard approach, which is the latest, incorporates the use of an organizational Vision and a so-called strategy map or strategy linkages. The methodology then consists of first defining an overarching organizational Vision, which is the end strategic goal for the entire organization. Then, based on this vision and on knowledge of the organization’s internal and external processes, more specific strategic objectives could be laid out. These objectives are then linked to one another in a map of cause and effect, and based on these linkages, the measures or key performance indicators to be used in the scorecard are determined. This approach, while more involved, has the advantage of grounding the balanced scorecard in a sound strategic framework.
This same approach may be applied to smaller aspects within the organization. For instance, in human resources, a scorecard approach may be used to determine eligibility for bonuses and honoraries. Implementation would entail detailing the processes that specific employees go through, their objectives, and their relation to the larger strategic objectives of the organization. By creating and monitoring employee scorecards, the human resources department would then have an objective and quantifiable way of determining bonus eligibility.
This honorary scorecard is just one among the many possible applications of the balanced scorecard methodology. This flexible strategic management tool can really help managers to be able to see which measures regarding the different aspects of the organization truly make a difference in overall performance. By following the linkages between strategic objectives and the organizational vision, and using the appropriate balanced scorecards, managers can maintain alignment between different parts of the organization quite easily. This would lead to significant improvements in organizational performance, and eventually to the desired achievement of organizational objectives.
