The Balanced Scorecard (CMI) – Types, Benefits and Risks
The Balanced Scorecard
The Balanced Scorecard (BSC) or dashboard is a tool that allows to establish corporate control and monitor the objectives of a company and its different areas or units.
It can also be considered as an application that helps a company to express the objectives and initiatives necessary to comply with its strategy, showing continuously when the company and employees achieve the results defined in its strategic plan .
Unlike other business intelligence tools
The Balanced Scorecard differs from other Business Intelligence tools such as Systems Decision Support (DSS) or Executive Information Systems (EIS), which is more oriented monitoring indicators that the detailed analysis of information . On the other hand, it is very common for a CMI is controlled by the general management of a company. The WCC requires therefore that managers analyze the market and strategy to build a business model that reflects the interrelationships between the different components of the company ( strategic plan ). Once you have built, the organization responsible for using this model as a map for selecting indicators WCC.
Types of Dashboards
The Scorecard Operating Officer (CMO) , is a management tool focused on the monitoring of operational variables, ie variables belonging to specific areas or departments of the company.
The frequency of CMO can be daily, weekly or monthly and focuses on indicators generally represent processes, making implementation and commissioning is easier and faster. A CMO should always be linked to a DSS (Decision Support System) to further investigate the data.
The Balanced Scorecard (CMI) , by contrast, represents the implementation of the strategy of a company from the point of view of the Directorate General (which causes it should be fully involved in all stages, from the definition the implantation). There are different types of scorecards, although the most used are those based on the methodology of Kaplan & Norton . The main features of this methodology are using both financial and non – financial indicators, and that the strategic objectives are organized into four areas or perspectives: financial, customer, internal and learning / growth.
The financial perspective incorporates the vision of the shareholders and measures the value creation of the company. Answer the question: What indicators have to go well for the efforts of the company really be transformed into value? This perspective appreciates one of the most important objectives for-profit organizations, which is precisely create value for society.
The customer perspective reflects the positioning of the company in the market or, more specifically, on the market segments where it wants to compete. For example, if a company follows a strategy of costs is quite possible that the key to their success depends on a high market share and lower prices than the competition. Two indicators that reflect this positioning are the market share and an index to compare the prices of the company with the competition.
The internal perspective includes indicators of internal processes that are critical for market positioning and strategy to bring to fruition. In the case of the company that competes in cost, possibly indicators of productivity, quality and process innovation are important. Success in this size not only affects the internal perspective, but also financial, for the impact on expenditure headings.
The prospect of learning and growth is the last that arises in this model of CMI. For any strategy, material resources and people are the key to success. But without an appropriate business model, it is often difficult to appreciate the importance of investing, and in times of crisis the first thing that stands out is precisely the primary source of value creation: investments in the improvement and development of resources are cut .
These four are the most generic perspectives, are not “mandatory”. For example, a manufacturing company sportswear, besides the perspective of customers, has a consumer perspective. For this company its distributors and their end customers are very important.
Once you have clear objectives of each perspective, it is necessary to define the indicators used for monitoring. To do this, we must take into account several criteria: the first is that the number of indicators does not exceed seven per view, and if less, the better. The reason is that too many indicators blur the message conveyed by the WCC and as a result, efforts are scattered trying to pursue too many goals at the same time.It may be advisable for the design begin with a more extensive list of indicators. But a synthesis process to have all the strength of this tool is necessary.
However, the contribution that the WCC has become one of the most important tools in recent years is that it is founded on a business model. The success of its implementation is that the management team involved and spend time developing its own business model.
Benefits of implementing a Balanced Scorecard
- The explicit force a business model and translate it into indicators facilitates consensus across the enterprise, not only the direction but also how to achieve it.
- Clarifies how everyday actions affect not only the short term but also the long term.
- Once the MIC is running, it can be used to communicate the company’s plans, joint efforts in one direction and avoid dispersion. In this case, the CMI acts as a control system by exception.
- Allow automatically detect deviations in the strategic or operational plan, and even dig into the operational data of the company to find the root cause that gave rise to such deviations .
Risks of implementing a Balanced Scorecard
- A little model developed without the collaboration of the address is unheeded, and the effort will be in vain.
- If the indicators are not chosen carefully, the WCC loses much of its virtues, because it conveys the message you want to convey.
- When the company strategy is still evolving, it is counterproductive to the CMI is used as a classical control system and by exception, rather than use it as a learning tool.
- There is a risk that the best the enemy of the good, the WCC is perfect, but outdated and useless.