Strategy Development and Management
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Balanced Scorecard
At this point, I’ll introduce what is the most valuable tool I have come across for managing strategies ongoing. A widely used management technique in corporations, but equally valuable in small non-profit organizations, is The Balanced Scorecard: Translating Strategy Into Action (Robert S. Kaplan, David P. Norton, Harvard Business School Press, 1996). (I highly recommend this book!)

The “scorecard” part of the name refers to an organization’s handful of measurements that indicate the health of the organization. The “balanced” part refers to the fact that no one aspect can be measured in isolation if long-term health is valued. Financial measures in isolation do not tell the whole story.

Another way of understanding the role of the balanced scorecard is to consider the balance between outcome measures and inputs—or performance drivers. Whereas traditional financially oriented controls focused exclusively on outcome measures (the results of the activities of the organization), the balanced scorecard seeks to strike a balance between measuring outcomes and measuring those activities within the organization that create those outcomes.

Selecting the measures for the balanced scorecard reflects the articulated assumptions of which financial and non-financial investments are most critical for future success. Across the measurements, there is a cause-and-effect relationship. (For example, quality of performances drives patron satisfaction drives patron loyalty drives ticket sales drives earned revenue.)

It is divided into four perspectives: financial, customer, internal business processes, and learning & growth. The order is not by chance; it is hierarchical.

First, one starts by establishing the measures for the financial perspective and what the targets for these measures should be. Then, in order to achieve the financial targets, revenue must be brought into the organization from customers (people or organizations who value your services enough that they give you money: clients, members, subscribers, government and private funders and donors); therefore, there are targets for these. Customers can only be satisfied and loyal by the way you execute your core functions—your internal business processes—as to their quality, cost and timeliness. Finally, in order continually to improve your products and services, you innovate by investing in the learning and growth of your people, processes and systems.

The task at hand is to establish the collection of meaningful measures across the four perspectives. This is done initially on a top-down basis. From there, going back from bottom-to-top, there should be a cause-and-effect relationship between each pair of measures, resulting in financial, long-term health for the organization.

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