BI and Balanced Scorecards
What is a balanced scorecard? A balanced scorecard provides a means for linking the strategies of the different business areas within a corporation to the overall corporate vision. The term and methodology was introduced by David Norton and Harvard Business School professor Robert Kaplan back in 1992. They had found that the typical financial reports most companies were churning out did not provide management with enough information to run their companies. Instead of just reporting of the account numbers in the general ledger, Norton and Kaplan suggested that management focus on the key performance indicators, whether financial figures or statistical figures, that really drive their business.
How to make Balanced Scorecard (BSC) a strategic tool? In recent years, the balanced scorecard methodology has become a well accepted school of thought. A number of well-known management consulting companies offer implementation services, and software vendors are improving their applications to handle balanced scorecard reporting. Even very successful organizations could probably be more profitable by utilizing the same resources as they have today by developing a set of key performance indicators and a continuous follow-up process. Examples of such indicators could be:
• Average revenue per employee
• Customer satisfaction (e.g., as a number on a scale from 1 to 5)
• On time delivery
Most modern BI systems now have the capability to allow for loading or entering all the data needed to create a balanced scorecard and they have the report-writing features (for advanced calculations), as well as the analytical functionality (such as drill-down and graphics) needed. As balanced scorecards are being offered by BI software vendors, large organizations with applications from multiple vendors in use around the world have found it necessary to integrate their scorecards. The idea behind the balanced scorecard is to address the issues and to give decision makers a performance measurement and planning tool that is easy to understand and focused, and that can help the company link its strategic plan with key performance indicators.
Why use balanced scorecards in the reporting and analysis process? The way we do business is changing. It used to be simpler to keep track of the performance of a business and to create future plans. However, as key business conditions are changing, performance measurement, reporting, and analysis also need to change. The idea of the balanced scorecard is to focus in on the financial and statistical measurement that really drives the company and not waste time and money on planning and reporting for every possible line item in every corner of the business. The balanced scorecard approach also encourages management to include general industry comparisons as well as competitive comparisons in the planning and reporting.
Another key focus in the balanced scorecard approach is to link employee compensation to the performance metrics. This increases the focus and effort spent on achieving the targets set forth in the balanced scorecard. And because the reports focus on the key performance indicators, it is easy to follow where the company is going every period when actual figures are measured against budgets and forecasts.