Relation between Performance Management and Balanced Scorecard
The relation between performance management and the balanced scorecard can very well be described with a one-liner – a Balanced Scorecard approach needs to be taken for a proper assessment and management of performance.
Traditionally, most of the companies, especially the federal agencies have over the years gauged their organizational performance by putting more emphasis on their internal performance than anything else. They have done so, by considering and evaluating various factors that include FTEs or Full Time Equivalents, the total number of programs that are controlled by the organization, and the budget that is allocated for a given fiscal year.
On the other hand, the private sector companies generally put emphasis on various financial measures pertaining to the bottom line or the basics of their business, like ROI, market share, and the amount of earnings per share.
When considered individually, none of these factors would provide a holistic view of the performance of the organization or business in question. However, by balancing the internal measures, process measures, end results and the financial measures, managers are able to draw a comprehensive picture that helps them take a bird’s eye view and locate the areas that need substantial improvements. It is the balanced scorecard that helps the managers in doing that. In other words, a balanced scorecard can be defined as a strategy performance management instrument that is backed by a string of automation tools as well as design methodologies which can be utilized by the managers to keep a track of activities, plans and their executions, and monitor the end results of business procedures.
It is classically established that managers generally tend to acquire information from the following perspectives:
- Perspective of the customers: Managers need to know whether their company is at all satisfying the needs of its customers and meeting their demands. They are always in search of the answer to the question, “How our customers look at us?”
- Perspective of the internal business: They need to put emphasis on the critical parameters pertaining to internal operations, so as to make sure that they are able to satisfy the customers and meet their demands.
- Perspective of learning and innovation: They need to optimize the ability of the business to improve the existing ties, and come out with newer collaborations that directly boost productivity and improve the standard of business.
The majority of the organizations today look forward to taking a 360 degree or (as mentioned earlier) a bird’s eye view of their performance, by taking stocks of reports, reviews and only a limited number of KPIs or Key Performance Indicators, or those indicators that have the maximum impact on the performance at the end of the day. It is this approach that is followed by balanced scorecard, and this makes all the difference at the end of the day.
The following aspects or parameters enjoy importance in such a scorecard:
- Net Margin
- Residual Income
- Return on Investment
- Gross Margin
- Return on the Employed Capital
So, make sure your business has a healthy approach to balanced scorecard; you will surely thrive. All the best!