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The Balanced Scorecard
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THE BALANCED SCORECARD

The balanced scorecard, as described by Kaplan nd Norton, is an attempt to enhance existing performance measurement systems by extending its use as a strategic management tool. "The objectives and the measures for the balanced scorecard are more than just a somewhat ad hoc collection of financial and nonfinancial perfor­mance measures; they are derived from a top-down pro­cess driven by the mission and strategy of the business unit." They point out that the measures must be a bal­ance between the external measures for shareholders and customers, and internal measures for management. They advocate the use of the balanced scorecard as a "strate­gic management system." [4]

 

The framework for the balanced scorecard is shown in Figure 1 and includes the following elements:

     Clarifying and translating the vision and strategy

     Communicating and linking strategic objectives and
measures

     Planning and target setting

     Strategic feedback and learning.

Each of these objectives is related and essential to the continuing success of the business.

 

Kaplan and Norton also provide a framework to translate a strategy into operational terms, as shown in Figure 2. This framework provides measures of the fol­lowing types: financial, customer, internal business pro­cess, and learning and growth. In this paper, I will not describe the balanced scorecard; it is better for the reader co get this information from the referenced book. One of the key steps in implementing the balanced scorecard system is to select and design measures, referred to as Task 6 in the appendix of the book, Building a. Balanced Scorecard. I will attempt to show how the use of key indicators is a way to get employee participation in the selection and evaluation of the performance measures.

WHAT ARE KEY INDICATORS?

Imagine a factoiy with one machine that makes all of the production for the plant. When it works, it makes a loud thump every time it makes a good piece; when it is not working, there is no thump. The plant manager knows im­mediately when there is a prob­lem because the machine stops thumping, and he or she can take action to correct the situa­tion. Ever}' business operation has one or more thumping ma­chines that indicate how things are going; the trick is to find out what they are and how to mea­sure them. These thumping ma­chines are the key indicators of a business.

Key indicators, for the pur­poses of this paper, are planning and performance measures that answer most of the criticisms listed above. They have many worthwhile attributes, in that they

 

      Provide physical measures as well as financial

      Can be used as both planning and performance measures 

      Can be used at all levels of the organization

      Can be adapted for use across the organization

      Are easy to understand and report

      Are easy to change as measurement needs change

      Can focus on improvement, not just control

      Can be assigned different priorities

      Can be selected by the persons being measures, to
gain acceptance and use

      Can be used as common measures for different functions to stimulate cross-functional relationships.Key indicators can alleviate some negatives of today's measure. However, they do not eliminate the need for good performance; they only measure it.

To Be Continued

For balance of this article, click on the below link:

Lean Manufacturing Articles and click on Series 12


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