Definition and Explanation of
Balanced Scorecard:
A
balanced scorecard consists of an integrated set
of performance measures that are derived from
the company's strategy and that support the
company's strategy throughout the organization.
A
strategy is essentially a theory about how to
achieve the organization's goals. For example,
Southwest Airlines' strategy is to offer passengers
low prices and fun on short-haul jet service. The
low prices result from the absence of costly frills
such as meals, assigned seating, and interline
baggage checking. The fun is provided by flight
attendants who go out of their way to entertain
passengers with their antics. This is an interesting
strategy. Southwest Airlines consciously hires
people who have a sense of humor and who enjoy their
work. Hiring and retaining such employees probably
costs no more—and may cost less—than retaining
grumpy flight attendants who view their jobs as a
chore. Southwest Airlines strategy is to build loyal
customers through a combination of "fun"—which does
not cost anything to provide—and low prices that are
possible because of the lack of costly frills
offered by competing airlines. The theory is that
low prices and fun will lead to loyal customers,
which, in combination with low costs, will lead to
high profits. So far, this theory has worked.
Under the balanced
scorecard approach, top management translates its
strategy into performance measures that employees
can understand and can do something about. For
example, the amount of time passengers have to wait
in line to have their baggage checked might be a
performance measure for the supervisor in charge of
the Southwest Airlines check-in counter at the
Phoenix airport. This performance measure is easily
understood by the supervisor, and can be improved by
the supervisor's actions.
Real Business
Example:
The
Balanced Scorecard at the City of Charlotte:
Governmental and nonprofit organizations as
well as businesses can use the balanced
scorecard approach to performance
measurement. The City of Charlotte, North
Carolina, developed a balanced scorecard
with four major goals: (1) increase
perception of safety; (2) strengthen
neighborhoods; (3) promote economic
opportunity; and (4) improve service
quality. To strengthen neighborhoods, the
city's managers set goals to: (a) promote
safe, decent housing; (b) increase home
ownership; and (c) increase job placements.
The corresponding performance measures are:
(a) the number of code compliances in
housing; (b) the number of assisted
purchases of homes: and (c) the number of
adult job placements.
Pam
Syfert, Charlotte's City Manager, states:
"The Scorecard is a communication,
information, and learning system. Building a
scorecard helps managers link today's
actions with the achievement of today's
priorities. It encourages accountability.
And, today, we define accountability by
results."
Source: Robert S Kaplan, City of Charlotte
(A), Harvard Business School case 9-199-036,
December 15, 1998. |
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