Balanced Scorecard for Performance Review

What is a Balanced Scorecard?
It provides a more balanced view of organisational, departmental and individual performance. Traditionally performance is reviewed primarily using financial measures such as sales, costs and profit. The balanced scorecard takes into account other measures which lead to financial success. This might include an employee measure such as engagement or retention, and a customer measure such as complaints. The balanced scorecard was developed by Doctors Robert Kaplan and David Norton.
How to Develop a Balanced Scorecard
At the strategic and organisational level it's important to understand the variables that have an influence on financial performance. It is these that are used in the balanced scorecard. They should be selected based on their importance at the time of drawing up the balanced scorecard. So at some stage stock results might be most relevant for improving profit, at another it might be staff training.
A good balanced scorecard should have no more than 4 quadrants, although it can have more than one measure in a quadrant. If you are looking to get a clear focus on key measures the fewer measures used the better, otherwise people will get confused about the priorities.
A Retail Example
In retailing it is generally accepted that staff satisfaction leads to greater levels of customer service and customer satisfaction. In turn this leads to repeat business and customers who recommend you to others. As a result sales increase and so do profits. There is much more information on these links in books and articles on the 'Service Profit Chain'. Therefore a balanced scorecard for a retailer could look like this;
Staff

• Improve staff attitude survey scores by 5%

Customers

• Reduce customer complaints by 20%

Sales

• Grow like for like sales by 5%

Profit

• Achieve budget for the year

Using the Balanced Scorecard
It is used in two key ways. The board of the company can use it to establish and review what each part of the organisation is going to do to support the achievement of the targets. Resources and budget can be allocated on a pro-rata basis to the contribution made by each part of the business. The scorecard can also be used as a means of evaluating and monitoring overall progress towards the targets.

Individuals can have their performance, pay review or their bonus set against the achievement of balanced scorecard targets. Each department should take the overall measures and set targets against each based on those they can influence. These targets can be given to individuals in the department. The real power of the scorecard lies in its ability to integrate and focus the activities of all parts of the organisation on a few key measures. Therefore it's important to be able to translate the measures to the individual level.
Benefits of the Balanced Scorecard
By using this approach the benefits are;

• The whole organisation understands the important priorities for the year
• Each part of the organisation has the same priorities for action
• Departments focus their resources on achieving the measures
• A reduction in the risk of individuals taking short-term actions to save costs at the detriment, for example, of customer satisfaction
• Each individual knows what's important and has an incentive to work toward the targets (pay review, incentive scheme, or performance rating)

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