The Balanced Scorecard Method: from Theory to Practice

ISSN 1822-8011 (print) ISSN 1822-8038 (online) INTELEKTINË EKONOMIKA INTELLECTUAL ECONOMICS 2008, No. 1(3), p. 18–28

THE BALANCED SCORECARD METHOD: FROM THEORY TO PRACTICE

Margarita IŠORAITĖ Mykolas Romeris Universitety Ateities str. 20, LT – 08303 Vilnius, Lithuania El. paštas [email protected]

Abstract. Performance management has become a legislative requirement for the private and local sectors. Unfortunately, not many tools exist to measure and monitor public and private service delivery effectively. Managers require accurate information to ensure that their decisions are not based on emotions and assumptions but that the information with regard to service delivery is accurate and relevant. In modern business models, intangible assets such as employee skills and knowledge levels, customer and supplier relationships, and an innovative culture are critical in providing the much-needed cutting-edge to the organisation. This is where tools like the balanced scorecard method hold relevance for the enterprise. Developed by Robert Kaplan and David Norton, the balanced scorecard method translates an organisation’s strategy into performance objectives, measures, targets and initiatives. It is based on four balanced perspectives, and links them together with the concept of cause and effect. A proper balanced scorecard can predict the effectiveness of an organisation’s strategy through a series of linked performance measures based on four perspectives including finance, customers, internal processes, employee learning and growth.

JEL Classification: G390, M190. Keywords: balanced scorecard, strategy maps, performance measurement Reikšminiai žodžiai: subalansuoti rodikliai, strateginiai žemėlapiai, veiklos išmatavimas.

Introduction 2. It is not uncommon for the current market value of an organization to exceed the market value of Balanced scorecard is a management system its assets. There are financial ratios that reflect the that enables organizations to translate the vision and value of a company’s assets relative to its market strategy into action. This system provides feedback value. The difference between the market value of on internal business processes and external outco- an organization and the current market value of the mes to continually improve organizational perfor- organization’s assets is often referred to as intangible mance and results. Robert Kaplan and David Nor- assets. ton created the balanced scorecard approach in the Traditional financial measures do not cover the- early 1990s. Most traditional management systems se intangible assets. focus on the financial performance of an organiza- The main purpose of this article is to analyse the tion. According to those who support the balanced Balanced Scorecard method theory and practice. The scorecard, the financial approach is unbalanced and article seeks to analyse the origins of the Balanced has major limitations: Scorecard method, evaluate this method in private 1. Financial data typically reflect an organiza- and public sectors, and to analyse the strategy map- tion’s past performance. Therefore, they may not ping process. accurately represent the current state of the organization or what is likely to happen to the organization in the future. The Balanced Scorecard Method: from Theory to Practice 19

1. Origins of the Balance Scorecard panies within a “financial”, “customer” or “learning” Method or “process” perspective (see Figure 1 below). So, the frame of the Balanced Scorecard consists of four The Balanced Scorecard was developed by perspectives (see Figure 1). Each perspective consists Robert Kaplan and David Norton (1992). In 1990, of relevant strategic goals, indicators and measures to Kaplan and Norton led a research study of a lot of achieve them. One should emphasize the fact that the companies with the purpose of exploring the new concept remains open for integrating further relevant methods of performance measurement. The impor- stakeholders or perspectives, e.g. an environmental tance of the study was a growing belief that finan- perspective (Kaplan and Norton 1997, pp. 33). When cial measures of performance were ineffective for conceiving the BSC, Kaplan and Norton, maintained the modern business enterprise. Representatives of that companies lack sophisticated tools for the mana- the study companies, along with Kaplan and Norton, gement of intangible or qualitative assets (e.g. cus- were convinced that reliance on financial measures tomer satisfaction, processes quality, infrastructures, of performance had an affect on their ability to cre- know-how). Intangible assets, however, seem vital in ate value. The group discussed a number of possible order to stay competitive in the future. So, the Balan- alternatives but settled on the idea of a scorecard, ced Scorecard provides ‘enablers’ that focus on the featuring performance measures capturing activities achievement of strategic goals in the future (leading from throughout the organization—customer issues, indicators) as well as results (lagging indicators) to internal business processes, employee activities, and depict the effectiveness and efficiency of measures of course shareholder concerns. Kaplan and Norton in the past. Strategies can be usually interpreted as introduced the new tool the Balanced Scorecard and a set of hypotheses of causes and effects. So within later summarized the concept in the first of three a BSC the relevant goals and corresponding indica- Harvard Business Review articles, “The Balanced tors are linked to each other revealing this structure Scorecard—Measures That Drive Performance.” of causal relationships. Such relationships are both The Balanced Scorecard has been translated and relevant within each perspective and also between effectively implemented in both the nonprofit and them. Objectives of the “learning” perspective, for public sectors. Success stories are beginning to accu- instance, serve as ‘enablers’ for the achievement of mulate and studies suggest the Balanced Scorecard goals of the other ‘overarching’ perspectives (e.g. is of great benefit to both these organization types. customers, finance). What is a Balanced Scorecard? The Balanced The BSC was originally created primarily as Scorecard can be understood as a management sys- a measurement system and as an answer to a criti- tem, which is structured according to the logic of the cism concerning the unilateral measurement of the management circle (“plan-do-check-act”). The Ba- performance ability of a company. It was organised lanced Scorecard resembles a typical management through four different perspectives: fashion. For instance, Van den Heuvel & Broekman · The financial perspective: to succeed finan- wrote that “a self-respecting organization apparently cially, how should we appear to our share- can no longer do without the Balanced Scorecard” holders? Examples of this perspective in- (1998) and Hers (1998) pointed to an abundance of clude financial ratios and various cash flow congresses, seminars and publications on the theme. measures. In crescendo, commentators spoke of “a real trend” · The customer perspective: to achieve our (Koning & Conijn, 1997), “a fad-like impression” vision, how should we appear to our custo- (Du Mée, 1996) and “a true hype”(Hers, 1998). Such mers? Examples of this perspective include statements suggest that the Balanced Scorecard has the amount of time spent on customer calls become popular and brought about many changes in and customer survey data. a variety of organizations. If the quoted authors are · The internal perspective: to satisfy our share- right, the Balanced Scorecard even resembles a typi- holders and customers, what business proces- cal management fashion. ses must we excel at? The internal business Kaplan and Norton position the Balanced Sco- processes that are often classified as mission recard as a tool for organisations to manage the de- oriented and support oriented. Examples of mands of relevant stakeholders and to translate stra- this perspective include the length of time tegies into action (“from strategy to action”). Possi- spent prospecting and the amount of rework ble stakeholders that are strategically relevant could required. be shareholders, customers or employees. Their de- · The learning perspective: to achieve our visi- mands are integrated into core management of com- on, how will we sustain our ability to change 20 Margarita Išoraitė

and improve? Includes employee training 7. Automate and communicate. and organizational attitudes related to both 8. Implement the balanced scorecard throughout employee and organizational improvement. the organization. Examples of this perspective include the 9. Collect data, evaluate, and revise. amount of revenue that comes from new ide- There are many benefits and challenges to the as and measures of the types and length of balanced scorecard. The primary benefit is that it time spent training staff. helps organizations translate strategy into action. By defining and communicating performance metrics related to the overall strategy of the company, the The starting point of the Balanced Scorecard is balanced scorecard brings the strategy to life. It also the vision and the strategy of a company. The BSC enables employees at all levels of the organization to takes the vision and the strategy as a given - the BSC focus on important business drivers. should translate a business unit’s mission and strate- The main challenge of this system is that it can gy into tangible objectives and measures. The me- be difficult and time-consuming to implement. Ka- asurement focus of the BSC is used to accomplish plan and Norton originally estimated that it would the following management processes: 1) clarifying take an organization a little more than two years to and translating vision and strategy, 2) communica- fully implement the system throughout the organi- ting and linking strategic objectives and measures, zation. Some organizations implement it quicker, 3) planning, setting targets and aligning strategic for some it takes longer. The bottom line is that the initiatives and 4) enhancing strategic feedback and balanced scorecard requires a sustained, long-term learning. The measures function as a link between commitment at all levels in the organization for it to the strategy and operative action. The core question be effective. is the selection of goals and measures to monitor the There are many benefits and challenges to the implementation of the vision and the strategy. balanced scorecard. The primary benefit is that it Kaplan and Norton recommend a nine-step pro- helps organizations translate strategy into action. By cess for creating and implementing the balanced sco- defining and communicating performance metrics recard in an organization. related to the overall strategy of the company, the 1. Perform an overall organizational asses- balanced scorecard makes the strategy come alive. It sment. also enables employees at all levels of the organiza- 2. Identify strategic themes. tion to focus on important business drivers. 3. Define perspectives and strategic objectives. 4. Develop a strategy map. 2. Comparing the Balanced Scorecard 5. Drive performance metrics. between private and public sectors 6. Refine and prioritize strategic initiatives. Using the same performance metrics in the public sector as the private sector is likely to be ineffective sin- ce public sector goals differ drastically from those of the private sector. Private sector focus is primarily on shareholder value: the bottom line. Funding comes from various sources, and as long as shareholder financial needs are met, the company can function as it pleases (see table 1). The public sector faces a quite different environment. Public sector funding comes, in most cases, from the taxpayers it Figure 1. The methodology of the Balanced Scorecard (Kaplan and Norton, 1997, p. 9) is servicing. the measure of The Balanced Scorecard Method: from Theory to Practice 21 success is not shareholder value or profit but rather how well the agency is meeting the mission given to them by congressional statute or executive order. Although the agency can often- times perform this mission in wha- tever way it sees fit, it is still bound by the directive of the mission. thus, strategic value comes in the form of fulfilling the mission, and fulfilling the mission comes down to customer satisfaction with the agency’s service. however, defining customer needs is a bit more complex. A second difference evolves through the number of customers or stakeholders that a public sector organization must serve. Financial measures in the BSC relate to financial performance, which is a means to satisfy investors (shareholders, investment firms, bondholders). in the public sector organiza Figure 2. Comparing the Scorecards for Government Versus For-Profit tion, the financial measures are just Organizations (Nicholas J. Mathys, 2006) part of what is needed to please the “investors,” which in this case would ding. taxpayers also require accountability that their be the funding agencies. tax dollars are being used effectively and efficiently. Therefore, program performance, efficient use of Table 1. Comparison of Balanced Scorecards in the Private resources, and satisfaction with the service by the and Public Sectors (source Nicholas J. Mathys, 2006) public are additional key issues. These differences lead to a different sort of hierarchical model for the Features Private Sector Public Sector balanced scorecard, as seen in Figure 2. First, as in- Focus Shareholder Mission creasing shareholder wealth does not have primacy value effectiveness in a governmental operation, financial performance Financial goals Profit; market Cost reduction; becomes less critical. reaching the mission of the or- share growth; efficiency; account- innovation; cre- ability to the public ganization is of key interest to those who fund the ativity organization. Hence, the government model needs some changes in the hierarchical ordering compared Efficiency con- No Yes to how Kaplan and Norton arranged the hierarchical cerns of clients ordering in their mapping article. Some public sec- Desired outcome Customer satisfac- Stakeholder satis- tion faction tor balanced scorecard advocates have put financial measures at the bottom of the model to indicate the Stakeholders Stockholders; taxpayers; legisla- bondholders tors; inspectors importance of having adequate funding as a precur- sor to developing the organization, as done in Figure Who defines Customer Leadership; leg- budget priorities demand islators; funding 2. However, to be consistent with usage in the pri- agencies vate sector, we look at financial measures as output Key success Uniqueness; Sameness; econo- measures that are precursors to meeting the mission, factors advanced mies of scale; stan- which will in the end lead to adequate future fun- technology dardized technology ding. Internal process management would be similar for government and for profit-seeking enterprises as While private sector clients are not concerned both relate to the key value-added processes that the with an organization’s internal efficiency so long organization provides. For a car manufacturer, the as their product, price, and service needs are met, key process would be producing automobiles and internal efficiency is of great concern to the public trucks. For the government agency, it is providing sector’s stakeholders, who are also its source of fun- the service promised through its mission. This is 22 Margarita Išoraitė why there is a direct line from internal processes to to develop the organization culture as they introdu- both customer/user satisfaction and to financial per- ced the scorecard. the second case, the United States formance. In the world for-profit, the financial ties Postal Service, the focus is on the difficult time they directly to the overall goal; in government organiza- had in enacting the scorecard and how reinforcement tions it is only one part of fulfilling the mission, with systems became an important part of their process. customer/user satisfaction the other part. cases, lear- Both cases provide two different sorts of initial or- ning and growth support the development of internal ganizational cultures and environments that needed processes. in summary, the balanced scorecard is an different approaches to effect a quality scorecard ineffective management tool that can support impro- troduction and deployment. vements in government sector organizations. There The Balanced Scorecard can be effective in the needs to be some modification in the basic strategic public, if and only if, the current perspectives are re- mapping model provided by Kaplan and Norton to arranged (see Figure 3). The four perspectives of the align elements in the BSCc to correspond to the envi- current version of the The Balanced Scorecard can ronment faced by government organizations. allows still be applied in government organizations as long a focus on the mission of the organization as the fo- as they are rearranged according to governmental cal point rather than return to shareholders. We now priorities. Therefore, it is clear that above considera- focus on two government organizations that have tions seem to have considerable impact on the ability adopted the balanced scorecard as a major part of of the the Balanced Scorecard in ensuring best custo- the management effort. First, we look at the Defense mer satisfaction. These considerations, if positively Finance and Accounting Service and what they did dealt with, may contribute to employee satisfaction,

Figure 3. Is it meaningful to measure perfromance in public sector? The Balanced Scorecard Method: from Theory to Practice 23 superior employee performance, sound internal bu- measures are aligned to the financial success and siness process and in turn, may lead to efficient ste- profitability of the organisation. wardship of taxpayers’ money. The Public Sector’s financial perspective is Furthermore, the best possible use of taxpayers’ mainly adjusted to budget targets, saving potentials, money may eventually lead to achieving the bottom- securing the basis for taxes, sustainment of credit line objective - absolute customer satisfaction. In the worthiness and similar. light of the above observations, it is clear that some Some of the facts which are especially impor- modifications are needed to the current version of tant for adoption of the Balanced Scorecard appro- the Balanced Scorecard for its use in the government ach in public sector are: sector as an effective performance measurement and • The closeness to political interests needs a management tool. Although significant research has special thoughtfulness and sensibility. taken place and various modifications to the current • It is important to explain employees and re- version of the Balanced Scorecard have been sug- presentatives the Balanced Scorecard’s use- gested by the researchers for the private sector, no fulness. studies have been found recommending a modified The implementation of a Balanced Scorecard Balanced Scorecard model for the government sec- requires an effective controlling system which as- tor. The following diagram (Figure 3) is suggested sembles measures, values and other significant -re for the government sector, keeping in mind that porting data. Public sector still needs to catch up “Customer” perspective is the bottom line of govern- here. Accordingly from the beginning this should be ment sector. allowed for. The Balanced Scorecard Institute has compared • A balance between a tight schedule and the different strategic objectives of the public and adequate time for practice, communication private Sectors. Table 2 shows the differences in and feedback during strategy discussion has each strategic level: to be found. To keep motivation high the rollout should be kept short. Adoption needs Table 2. Comparison of Private and Public Sector dynamics, especially in the Public Sector. Strategies (Marco Ahrendt, 2006) 3. Strategy mapping Strategy Private Sector Public Sector

common target competitive achievement of The strategy map has turned out to be as impor- mission tant an innovation as the original Balanced Score- financial target profit, growth, cost reduction, card itself. Executives find the visual representation increasing market effectiveness of strategy both natural and powerful. Strategy maps share provide increased granularity for executives to des- values innovation, creativ- responsibility to the cribe and manage strategy at an operational level of ity, acceptance public, equity, integrity detail. A strategy map provides a visual framework for an organization’s strategy – how it intends to cre- desired result customer satisfac- customer satisfaction ate value. Specifically, a good strategy map will link tion together: stakeholder founder, market, tax payer, legislator, 1. The desired productivity and growth outco- stockholder auditor mes. prioritisation customer management, 2. The customer value proposition which will of budget demand legislator be needed. 3. Outstanding performance in internal proces- orientation securing national security ses. in terms of intellectual 4. The capabilities required from intangible as- security property sets. critical factors growthrate, rev- best management prac- In effect, a strategy map captures the organiza- for enue, market share, tices, consistency, tion’s strategy in visual form so that managers can success uniqueness, supe- standardised technol- better execute their desired strategy. Strategy maps rior technology ogy are built around the structure of these four perspectives. They ensure that the organization’s objectives A special requirement for adoption is needed for in each of these perspectives are consistent and in- the financial perspective. Even though the Balanced ternally aligned. That alignment, in turn, means the Scorecard seems to be balanced all perspectives and 24 Margarita Išoraitė organization is focused and performing at an optimal b) How to balance the allocation of resources level rather than having the actions of one part of between the various internal processes in the organization impact on the results achieved by such a way that different benefits are delive- another part. Strategy maps clarify all cause-and-ef- red at various points of time. fect relationships so that an effective strategy can be c) How to align everything the organization does developed and then optimized over time. They are in such a way that the efforts of one part of the interface between strategy and the Balanced Sco- the company do not have a negative impact recard. Conceptually, a strategy map links the high- on the results achieved elsewhere. level goals of the organization – its mission, values d) How to make good management decisions and vision – with meaningful and actionable steps about investments in intangible assets as the each an employee can take. Strategy maps also pro- drivers of organizational growth in the future. vide balance between the various competing dynamics every organization faces: A company or other organization creates value _ Whether to invest in intangible assets that will by producing goods and services that can be sold for generate strong long-term revenue growth or focus profit. At one time, it was suggested that managing on cutting costs more aggressively so as to boost these processes was the most important duty of ma- short-term results. nagement. In today’s competitive environment, ho- _ How to differentiate your organization from wever, operational excellence alone is not sufficient your competitors by clarifying your value strategy to provide a sustainable competitive edge. A strategy – which usually involves one of the four different map (see Figure 4) helps ensure internal processes approaches already mentioned: are well executed and properly aligned with intangi- 1. Offering the lowest total cost to customers ble assets and the customer value proposition. The four key internal processes by which orga- 2. Product leadership – always offering superior nizations create value according to (Kaplan, Norton, products 2002) are: 3. Making available complete customer soluti- - Operations management processes; ons - Customer management processes; 4. Locking-in customers so that it would be hard - Innovation processes; to switch to other vendors: - Regulatory and social processes; a) Which internal processes to focus on and op- In the operations management area, organizati- timize and which to outsource. ons are: - Attempting to develop deeper relationships with suppliers with the goal of lo- wering the total cost of procuring Financial Long-term perspective objective all the materials needed to products the customer is offered. Ge- nerally, this involves simplifying ordering and accounting functi- Productivity Growth ons to lower administrative costs as far as possible. – Looking for new ways to Customer Customer value actually produce the products and perspective proposition services as efficiently as possible through continuous improvement Internal Value-creating perspective processes of processes and enhanced efficiency initiatives. – Attempting to lower the costs of distribution and delivery in any way possible. – Trying to get a better idea of the risks involved in doing bu- Learning & Intangible siness and then finding effective growing assets ways to offset and minimize those perspective risks to a better effect. Figure 4. A simplified strategy map (sourceKaplan, Norton, 2002) The Balanced Scorecard Method: from Theory to Practice 25

By focusing on operations management, organi- 3. In addition to researching new products, com- zations attemp to inject key features into their value panies also need to be designing the products, doing proposition: prototyping and testing, running pilot production 1. Competitive prices tests and planning on how best to ramp-up the manu- 2. High levels of quality facture of new products in acceptable volumes. All 3. Speedy delivery of the goods purchased of these activities need to be completed within an 4. A comprehensive solution to customer pro- applicable time-frame and budget. blems. 4. At the conclusion of the development cycle, A well thought out and integrated strategy new products and services then need to be made avai- map provides strategic focus to these key internal lable in commercial quantities. In parallel, the mar- processes. Or, put differently, a strategy map helps keting and sales units will also launch their efforts link process improvement programs to important to sell the new products and services to customers. organizational outcomes. Strategy maps help orga- Customers will also be demanding that suitable le- nizations improve the right things, not just the more vels of quality are achieved. obvious things. Companies and organizations must continu- Strategy maps are also useful where organi- ally win the right to operate in the communities and zations have embarked on quality management pro- countries within which they produce and sell their grams such as Total Quality Management (TQM), offerings. They do this by complying with all the ap- Six Sigma or Activity-based Management (ABM). plicable laws and regulations, and by contributing to The strategy map helps embed these quality mana- the communities within which they operate. Specifi- gement efforts within a strategic framework that will cally: provide cause-and-effect accountability and measu- 1. Organizations have to use energy wisely, rement metrics. avoid contaminating the environment and minimize Many organizations are weak in one or more the impact on the environment of all products produ- of these areas. In customer management terms, orga- ced and sold. nizations are: 2. Organizations have to provide a workplace 1. Segmenting the broader market into niches or which is safe and healthy for its employees, and to target segments which can then be offered a specific take active measures to reduce employee exposure to and customized value proposition. dangers wherever possible. 2. Attempting to acquire new customers by com- 3. Companies need to pay workers appropriate- municating an attractive value proposition. ly and provide opportunities for employees to gain 3. Working to retain the present customers rat- new skills and competencies. her than marketing to replace those who choose com- 4. Corporations need to be sensitive to the needs peting products or services. Typically, this involves of the broader community and willing to make mo- customer loyalty incentives and other programs. netary contributions or allow employees to do volun- 4. Trying to get existing customers to buy more teer work while still being paid. products and services in the future through cross-sel- At a minimum, these social and regulatory ling or other partnering relationships. internal processes are intended to inject into the cus- By focusing on customer management, or- tomer value proposition: ganizations are attempting to inject into their value 1. A sense of partnership with the community. propositions: 2. An awareness of the need to be a good Citi- 1. A stronger, more vibrant brand image; zen. 2. A win-win expanding customer relationship; Regulatory and social processes also pave 3. Increased levels of customer loyalty; the way for companies to enter new markets in the Innovation requires that organizations: future. Organizations with a strong track record in 1. Anticipate the customer’s future needs and this area are welcomed into new regions. There is develop entirely new or next-generation products also the flow-on effect in internal morale when em- that will meet those needs. ployees take pride in their organization’s contribu- 2. Have a portfolio of research and development tion to improving the communities where they live. projects underway. Ideally, these will run the full This, in turn, makes it easier to attract and retain ta- spectrum from projects that create new science and lent. technology through to breakthrough products, next- Strategy maps can be used dynamically to generation products, derivative products and joint create an action plan rather than passively as snaps- development products. hots of corporate intent. To use a strategy map and 26 Margarita Išoraitė

Balanced Scorecard together effectively in this way unilateral measurement of the performance ability of is a six step process: a company. It was organised through four different 1. Establish and define what the current value perspectives: the financial perspective, the customer gap is for shareholders – or in other words, set the fi- perspective, the internal perspective, the learning nancial objectives, measures and targets. Determine perspective. how much long-term revenue growth and short-term The Balanced Scorecard provides the corners- productivity improvements you will work towards tone for a new strategic management system. The achieving. These should be stretch targets that will scorecard enables organizations to introduce new challenge the organization. governance and renew process focusing on strategy. 2. Reconcile your current value proposition – by It does not rely on short-term financial measures as identifying your current target customer segments, the sole indicators of performance but it does the fol- clarifying the value proposition you now use, selec- lowing additional functions (Samir Ghosh, Subrata ting your measures and reconciling your customer Mukherjee, 2006): objectives to the goals of financial growth. You might 1. Translate strategy to action, making strategy also decide on a new customer proposition that will everyone’s job. generate the growth you desire. 2. Manage the intangible assets e.g. customer 3. Establish your projected time line – how qu- loyalty, innovation, employee capabilities. ickly you anticipate your new internal processes and 3. Leverage cross functionality without chan- themes can begin to generate the kinds of financial ging the structure of the business. results required. This should indicate which goals 4. Measure what matters the critical few vs. the are achievable and which goals may need further important many in real time, not just after the facts. adjustment. 5. Create a daily management system for the 4. Identify your key strategic themes – those cri- day-to-day navigation of the business. tical few internal processes which will have the gre- A Balanced Scorecard, however, suffers from atest impact on the customer value proposition. You some major drawbacks. The most important among also highlight which internal processes are the dri- these are (Samir Ghosh, Subrata Mukherjee, 2006): vers for those targets and create some linked objecti- 1. The Balanced Scorecard decomposes the ves, measures and targets. organization’s primary objectives (financial perspec- 5. Identify and align your intangible assets – by tive) into customer, internal process and learning and assessing the level of strategic readiness of each in- growth objectives (operating perspectives) in a way tangible asset. You then set targets on how to increa- that is reminiscent of the way that the Dupont formu- se each asset’s level of readiness individually. la decomposed the return on capital employed metric 6. Specify and fund the strategic initiatives into front-line operational measures. required to execute the strategy – so there is clarity 2. To make scorecard useful, it should be pre- about the level and sources of funding required. The pared in conformity with the overall business stra- cause-and-effect linkage of the strategy map, Balan- tegies. Thus, companies may bias their scorecards ced Scorecard and action plan should help visualize to the dimensions that closely support their strategic the logic involved. These steps mean that passive direction. statements of intent are given substance and rele- 3. It is difficult to integrate a company’s sco- vance. For example, a strategic objective to “Reduce recard into its planning, budgeting and resource al- the typical product development cycle” is appealing location process; especially when scorecard metrics but also open to individual interpretation. When it is are changed. transformed into something like “Reduce the product 4. In order to make the scorecard more useful development cycle from three years to nine months”, and practical it is necessary to assign weights to dif- everyone in the organization realizes this will require ferent measures (both financial and non-financial) some breakthrough, outside-the-box thinking rather on the basis of their importance to the organization than minor enhancements. for specifying trade-off between financial and non- financial measures. Conclusions 5. To make the scorecard more efficient and useful it should include a large number of both financi- The Balanced Scorecard was developed, betwe- al and non- financial measures and these should be en others, by Robert Kaplan and David Norton. It continually modified on the basis of measurement was originally created primarily as a measurement feedback. system and as an answer to criticism concerning the The Balanced Scorecard Method: from Theory to Practice 27

6. There are some organizations like investment References companies to which Balanced Scorecards have little value as they are interested in improving financial 1. Ahrendt Marco. Balanced Scorecard in Public Sector Realising the Open Source Software Strategy with performance only. the IT Balanced Scorecard. Diploma thesis, Faculty 7. The creditors, debenture holders and even Computer Science Reutlingen University, 19. Janua- shareholders of an organization are interested in fi- ry 2006, p. 55–60. nancial performance rather than operating perfor- 2. Biswanath Chakrabarty. Is it meaningful to measure mance which compels the management to give much performance in public sector? Vidyasagar University emphasis on financial perspective of the organizati- Journal of Commerce, Vol. 12, March 2007, p. 37 on making the scorecard imbalanced. – 38. Creating the balanced scorecard is a critical step 3. Du Mée, A. F. De “Balanced Business Scorecard”: in the strategic process. So many organizations cre- filosofie of modegril?, Pacioli Journaal, 9, 1996, p. ate a strategic plan and then dutifully ignore it be- 16–21. 4. Hers, F. Doe mij even een Balanced Scorecard!, cause day-to-day issues / firefighting tends to take Financieel-Economisch Management, 29, 1998. p. precedence. The scorecard periodically reminds the 18–20. Koning, J.; Conijn, F. Balanced scorecard? organization what the critical strategic issues are and Nooit van gehoord!, Tijdschrift voor Administrateurs gives the necessary feedback on the progress toward en Controllers, 12, 1997, p. 34–38. achieving them. 5. Kaplan, R. S., Norton, D. P. “The Balanced Score- It is important that the scorecard is like a scale. card—Measures That Drive Performance,” Harvard The role of the scale when you are on a diet is not Business Review, January–February 1992, p. 71–79. to make you lose weight. The scale merely provides 6. Kaplan, R. S., Norton, D. P., The Balanced Score- you with feedback on how you are doing. In the same card, Boston: Harvard Business School Press, 1996. 7. Kaplan, R. S.; Norton, D. P. Balanced Scorecard: way, building a balanced scorecard will not improve Strategien erfolgreich umsetzen, aus dem Amerika- organizational performance. It will simply give you nischen von Horváth, P., Stuttgart, 1997. feedback to know how well you are achieving your 8. Kaplan, R. S.; Norton, D. P. Strategy maps. Conver- strategic direction. ting Intangible Assets Into Tangible Outcomes. Har- The real strength of the linkages between the vard Business Review, 2002. strategy map, Balanced Scorecard and action plan is 9. Nicholas J. Mathys. Using the Balanced Scorecard: consistency. Instead of a fragmented approach where Lessons Learned from the U.S. Postal Service and one part of the organization pursues a different agen- the Defense Finance and Accounting Service. 2006, da from another part, everyone uses the same overall p. 9–10. strategy. The vision is consistent with the strategy to 10. Samir Ghosh, Subrata Mukherjee. Measurement of coporate performance through balanced scorecard: get there. People can be inspired to act because they an overview. Vidyasagar University Journal of Com- see that it is feasible to get to where the management merceVol. 11, March 2006, p. 64-67. wants to head. 11. Van den Heuvel, H.; Broekman, L. 1998. Wolf in schaapskleren 2 – Scorecard nader gebalanceerd, Personeelbeleid, 34, p. 23–26.

SUBALANSUOTŲ RODIKLIŲ METODAS: NUO TEORIJOS PRIE PRAKTIKOS

Margarita Išoraitė Mykolo Romerio universitetas, Lietuva

Santrauka. Subalansuotų rodiklių kokybės užtikrinimo teorija išreiškia sistemišką požiūrį į organizacijos koky- bės valdymą. Ji atveria galimybes organizacijos misiją ir strateginius siekius transformuoti į išsamų veiklos uždavinių, kriterijų, rodiklių, siekinių ir procedūrų rinkinį (Kaplan, Norton, 1996; 1992). Šio rinkinio kaip kokybės užtikrinimo instrumento paskirtis – palengvinti su kokybės tyrimu, vertinimu ir tobulinimu susijusį institucijos vadovų darbą. Tai, R.S. Kaplano ir D.P. Nortono nuomone (1996; 1992), yra organizacijos strateginio valdymo instrumentas. Interpretuo- jant autorių žodžius, taikant subalansuotų rodiklių instrumentą, organizacijoje į kokybę žvelgiama iš įvairių pozicijų, atitinkančių fundamentaliuosius organizacijos dalyvių ir jos realizuojamų produktų ar teikiamų paslaugų vartotojų interesus. Tai reiškia, kad rengiant subalansuotų rodiklių kokybės užtikrinimo instrumentą strateginiai organizacijos uždaviniai, kriterijai, rodikliai ir siekiniai numatomi atsižvelgiant į organizacijos finansinę, klientų, vidinių veiklos procesų ir iniciatyvos (arba mokymosi ir augimo) perspektyvas. Jų visuma ir rodo integruotą (arba subalansuotą) 28 Margarita Išoraitė požiūrį į kokybės užtikrinimą: tyrimą, vertinimą ir tobulinimą. Vadinasi, siekiant aukštos organizacijos veiklos koky- bės apibrėžiama ne vienos, o keturių krypčių pokyčių valdymo organizacijoje eiga, grindžiama sistemišku požiūriu į daugiamačių veiksnių kompleksus, nuo kurių ryšių priklauso aukšta organizacijos veiklos kokybė.

Margarita Išoraitė is an associated profesor, doctor of social sciences (04 S) at the Department of Strategical Management at Mykolas Romeris University. Her research interest: Performance audit, Performance measurement methods, Social service administration, Public administration. Margarita Išoraitė – Mykolo Romerio universiteto Strateginio valdymo ir politikos fakulteto Strateginio valdymo katedros docentė, socialinių mokslų daktarė. Moksliniai interesai: veiklos auditas, veiklos vertinimo metodai, socialinių paslaugų ir viešasis administravimas.