1.7 An integrated approach to understanding performance

You need to take multiple perspectives into account. Finally, we can only really understand how these different perspectives work together if we understand the strategic goals of an organisation. We need to consider how each perspective contributions to the achievement of strategic goals. The balanced scorecard helps here.

What you measure is what you get and no single measure can provide a clear performance target or focus attention on the critical areas of the business. Managers want a balanced presentation of both financial and operational measures.

The balanced scorecard includes financial measures that tell the result of actions already taken together with operational measures on customer satisfaction, internal processes and the organization’s innovation and improvement activities — operation measures that are drivers of future financial performance.

You need to answer four basic questions:

1\. How do customers see us? (Customer perspective)

2\. What must we excel at? (Internal perspective)

3\. Can we continue to improve and create value? (Innovation and learning perspective)

4\. How do we look to shareholders? (Financial perspective)

The scorecard brings together seemingly disparate elements of a company’s competitive agenda and it guards against sub-optimzation.

1. Translate your general mission statement on customer service in specific measures that reflect the factors that really matter to customers. Normally: time, quality, performance, service and cost. Look at things from the customers’ eye.

2. These should stem form the business processes that have the greatest impact on customer satisfaction — factors that affect cycle time, quality, employee skills and productivity for example.

3. A company’s ability to innovate, improve and learn ties directly to the company’s value.

4. These measures indicate whether the company’s strategy, implementation and execution are contributing to the bottom line. This can actually enhance the QM program.

The disparity between improved operational performance and disappointing financial measures creates frustration for senior executives. If the strategy as translated to measurable objectives by the balanced scorecard does not provide for a financial return then the strategy needs to be rethought. The balanced scorecard puts strategy not control at the centre.

Remember that everything is interconnected.