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Intro to Business: Help and Review32 chapters | 518 lessons | 2 flashcard sets
Video: What Is a Balanced Scorecard? - Metrics & Examples
One of the most effective ways to determine the success of one's business, product, strategy, or employees is to measure results via performance appraisals. This lesson discusses one form of performance appraisal, the balanced scorecard.What Is a Balanced Scorecard? - Metrics & Examples
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Lesson Transcript
Instructor:
Katryn Stewart
Katryn has a Masters degree in Management, has been PHR certified, and has taught college business and human resource management courses.
One of the most effective ways to determine the success of one's business, product, strategy, or employees is to measure results via performance appraisals. This lesson discusses one form of performance appraisal, the balanced scorecard.
The Balanced Scorecard
You've probably received a work evaluation at your job. Often, performance is evaluated by measuring an employee's specific traits or general behaviors. Do you come to work on time? Do you make errors? Do you complete your work efficiently? Do you satisfy your clients? You might even work on a team and receive a group evaluation. Does the team handle work-related stress well? Does it know how to foresee potential problems? Can the team collaborate to find the solution?
Corporations utilize performance appraisals to evaluate how a person or team acts, and what skills and knowledge they have, in order to give a broader view of the performance and productivity of individual employees, teams, business units, or entire corporations. There are many performance appraisal methods. The balanced scorecard method provides a big picture of the organization and how each part fits into and influences the whole organization.
The balanced scorecard (BSC) provides a clear description of the goals and objectives for each segment of an organization, but takes it one step further by tying in individual goals with organizational goals. The BSC demonstrates how the objectives of an individual employee have an influence on his role as a member of a team and how that team then contributes to the success of a business unit and how that business unit's productivity affects the overall goals of the organization.
Focus Areas
The BSC is often divided into four process areas:
- Financial goals: What are the financial responsibilities and goals of each individual, department, and/or organizational group?
- Customer satisfaction: What can each segment of the organization do to increase customer satisfaction?
- Departmental and organizational processes: How do we save time, money, or effort, or increase satisfaction or revenue, by changing our processes?
- Training and Learning Goals: What do we need to train on or learn as an individual, department, or organization in order to improve in the other areas?
You can imagine how much easier it is to work toward your goals when you know how your actions affect the overall goals of the organization for which you work. Conversely, it is also much easier for management to determine the success of different units when they, too, can see how all the pieces fit into place and what must be done in order to be more successful and productive as an organization.
Metrics
The balanced scorecard has the capability to measure many different areas within an organization. Metrics used by different organizations often include:
- Profitability
- Market share
- Productivity
- Leadership
- Public responsibility
- Legal and ethical behaviors
- Stakeholder responsibility
- Environmental responsibility
- Training and development
- Employee attitudes
In order to be most effective, a BSC must contain clear objectives - each individual or business unit must know exactly what it is trying to achieve. There must be specific measurements attached to each objective ('10% improvement' versus 'improvement').
There must be a focus on the impact of the 'front line' - the employees who are actually responsible for the completion of the work - and recognition of their value as employees, as well as empowerment of these employees to do what needs to be done to meet the goals presented to them.
One of the most important aspects of the BSC - and any performance appraisal process - is performance feedback. There's no benefit to evaluating performance if that information is not then used to improve. Providing feedback to employees, teams, and organizations detailing what they have done well, where they need to improve, and how they've influenced (or, perhaps, negatively affected) the success of an organization is one of the most fundamental parts of the balanced scorecard and is, essentially, the primary purpose of the appraisal process.
There's no one right or wrong set of metrics that must be used with a balanced scorecard. Each organization must utilize strategic thinking and decision making, with a focus on its specific organizational goals, in order to develop the set of metrics that will most help the organization accomplish its objectives.
Lesson Summary
The balanced scorecard is a highly effective method of taking a big picture look at how all the pieces of an organization work together to be productive and successful. Four major aspects that balanced scorecards often measure are finances, customer satisfaction, business processes, and training goals. But, a corporation can use any metrics it deems necessary according to its individual business goals.
As with any performance appraisals, the results are only effective if they're used to improve. If an appraisal determines that improvement is needed, it should always be followed by a re-evaluation. When used correctly, the balanced scorecard method of results-focused performance appraisals can have a great impact on the productivity of an individual, a team, and an organization.
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Lesson
11 in chapter 7 of the course:
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- Management by Exception: Definition, Principle & Examples 4:11
- What Is Bureaucratic Leadership? - Definition, Examples & Disadvantages 5:02
- Trust Building in Business Teams: Definition, Activities & Exercises 4:17
- What Is a Balanced Scorecard? - Metrics & Examples 4:57
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