BSC (Balanced Scorecard) and Business Studio

Irina Loshchilina

Consultant of the State Corporation "Modern Management Technologies"

The article discusses the methodology for building and implementing a balanced scorecard (BSC). The article is intended for business analysts, BSC implementation consultants and IT professionals.

Assessment of the need to build a company strategy

Today, in order to succeed in a dynamic environment, companies need to be able to quickly adapt to changing market conditions and outperform their competitors in terms of quality, speed of service, breadth of product range and price of products.

Only prompt receipt of information about the company's activities will help the management to make a decision in a timely manner. At the same time, the operational actions of the company must be coordinated and aimed at achieving certain long-term goals, otherwise there is a risk of remaining in place. To do this, the company must be able to correctly identify its strategy and mobilize all resources to achieve its strategic goals.

A lot in the development of the company can depend on a correctly and clearly formulated strategy. It is important to understand that a well-designed strategy is only half the battle. It still needs to be successfully implemented.

What does the strategy look like? Formal representations of different companies about the strategy differ. Presentation options range from a single slide with five keywords to an impressive document full of various tables and titled "Long Term Planning".

Many believe that the content of the strategy plays a key role, and the form of presentation is secondary. Gradually, managers are abandoning this point of view, as they understand that strategies can only be successfully implemented when they are understood by the company's employees. By describing the strategy in a more or less ordered form, we increase the likelihood of its successful implementation.

One of the tools for presenting the strategy implementation process in an understandable form is a balanced scorecard (Balanced ScoreCard, BSC).

A balanced scorecard is a system of strategic management of a company based on measuring and evaluating its effectiveness on a set of optimally selected indicators that reflect all aspects of the organization's activities, both financial and non-financial. The name of the system reflects the balance that is maintained between short-term and long-term goals, financial and non-financial indicators, main and auxiliary parameters, as well as external and internal factors of activity.

Currently, there are not many examples of successful application of the balanced scorecard in practice, because when implementing the Balanced ScoreCard, one has to face various problems. The most serious problems most often relate to the incorrect interpretation of the methodology or organizational issues. The labor intensity of developing a balanced scorecard and the lack of inexpensive and effective software products are also problems that one has to face in the practical implementation of BSC.

The effectiveness of a balanced scorecard depends on the quality of its implementation. The introduction of a balanced scorecard is carried out in four stages:

Preparation for building BSC;
Building a BSC;
BSC cascading;
Monitoring the implementation of the strategy.

Implementation of strategy implementation methodology today is continuously connected with automation. The implementation of the Balanced ScoreCard, for example, using Microsoft Excel, or without any information support at all, is only possible at the initial stages of BSC implementation or in small organizations. If a company sets as its goal the introduction of a balanced scorecard for several structural divisions and periodically refines and adjusts them, then it is impossible to do without using the advantages of information technology.

Currently, BSC developers have the following software products at their disposal: ARIS 7.0, Microsoft Office Business ScoreCard Manager 2005, Business Studio 2.0.

Let's consider in more detail the methodology for developing and implementing a balanced scorecard. To illustrate the main stages of building a Balanced ScoreCard, we will use the Business Studio 2.0 software product.

Preparing to build a balanced scorecard

At the stage of preparation for building a BSC, it is necessary to develop a strategy, determine the prospects and decide for which organizational units and levels a balanced scorecard should be developed.

It is important to always remember that BSC is a concept of implementing existing strategies, not developing fundamentally new strategies. You must first complete the development of the strategy, and then proceed to create a balanced scorecard.

When determining the departments for which the Balanced ScoreCard will be developed, the following should be taken into account: the more departments of the enterprise are strategically managed using one BSC, the better it is possible to cascade (decompose, transfer) important goals from the upper level to the lower ones.

One of the important activities in preparing for the development of a balanced scorecard is the choice of perspectives.

Any strategy development model can claim to be complete only if it contains answers to questions related to different areas of the company.

Setting only financial goals when implementing a balanced scorecard is not enough if it is not clear how these goals will be achieved. In the same way, it will not be entirely correct to set goals isolated from each other. In this case, the relationships between individual goals and their influence on each other remain unaffected. This implies the need to take into account all important aspects of the enterprise.

Consideration of various perspectives in the formation and implementation of the strategy is a characteristic feature of the concept of a balanced scorecard and its key element. The formulation of strategic goals, the selection of indicators and the development of strategic actions in several perspectives are designed to provide a comprehensive review of the company's activities.

Rice. 1. Perspectives of BSC

Companies that formulate their strategy too one-sidedly do not necessarily veer toward finance alone. There are companies that are too customer-focused and forget about their financial goals. Some companies may be overly process oriented and do not pay attention to market aspects. The introduction of a balanced scorecard, in turn, provides an equal consideration of several perspectives and helps to avoid such a bias.

Based on their empirical research, Robert Kaplan and David Norton proved that successful companies take into account at least four perspectives in their BSC (Fig. 1):

Finance;
Clients;
Internal business processes;
Education and development.

These four perspectives should provide answers to different questions, namely:

Finance Perspective: What image of ourselves do we need to create with our shareholders in order to achieve financial success?;
Customer Perspective: What kind of self-image do we need to create with our customers in order to realize our vision of the future?;
“Internal Business Processes” Perspective: In which business processes do we need to excel in order to meet the needs of our shareholders and customers?;
Learning and Development Perspective: How should we maintain the ability to change and improve in order to realize our vision of the future?

Simplicity and the presence of clear logical relationships between BSC perspectives make it possible to achieve an understanding of the processes taking place in the company at the level of all performers.

Building a balanced scorecard

At the first stage of building a Balanced ScoreCard, a balanced scorecard is developed for one organizational unit. It can be a company as a whole, a division or a department.

In this case, the construction of BSC is carried out by performing the following steps:

Specification of strategic goals;
Linking strategic goals with causal chains - building a strategic map;
Selection of indicators and determination of their target values;
Development of strategic measures.

Specification of the strategic goals of the balanced scorecard

Rice. 2. Strategic goals of BSC

In general terms, a goal is a description of the desired state of something in the future. This state can be expressed in the words: "to supply customers with our products within a short period of time." You can specify the wording with the help of indicators and their target values: "delivery time less than 36 hours."

To build a strategic management system, it is necessary to decompose (break down, structure) the company's strategy into specific strategic goals that reflect various strategic aspects in detail. By integrating individual goals, cause-and-effect relationships between them can be established so that the full set of goals reflects the company's strategy.

Each strategic goal is associated with one of the prospects for the development of the organization (Fig. 2).

You should not define too many strategic goals for the highest level of the organization. A maximum of 25 targets will suffice. Too many goals in a scorecard indicates the inability of the organization to focus on the main thing, and also means that the formulated goals are not strategic for the organizational level at which the scorecard is being developed. The development of tactical and operational goals should be given attention in the systems of indicators of subdivisions of the lower levels of the organizational structure.

Building a strategic map of a balanced scorecard

Determining and documenting causal relationships between individual strategic goals is one of the main elements of BSC.

Established cause-and-effect relationships reflect the presence of dependencies between individual goals. Strategic goals are not independent and isolated from each other, on the contrary, they are closely related to each other and influence each other. The achievement of one goal serves the achievement of another, and so on, up to the main goal of the organization. Links between different goals are clearly visible due to the causal chain (Fig. 3). Those that do not contribute to the realization of the main goal are excluded from consideration.

The causal chain is a handy tool for bringing the BSC down to the lower organizational levels.

A strategic map is used to graphically display the relationship between strategic goals and prospects.

Rice. 3. Causal relationships of strategic goals

Choice of indicators of the degree of achievement of strategic goals

The BSC scores (boxes in Figure 3) are target meters. Indicators (Fig. 4) are a means of assessing progress towards the implementation of the strategic goal.

The use of indicators is intended to concretize the system of goals developed in the course of strategic planning and to make the developed goals measurable. Indicators can only be identified when there is clarity about the targets. Choosing the right metrics is a secondary issue, because even the best metrics won't help a company succeed if the goals are wrong. It is recommended that no more than two or three indicators be used for each of the strategic objectives.

Without targets, indicators designed to measure strategic goals are meaningless. Determination of target values of management indicators causes difficulties not only in the development of BSC. The fundamental difficulty in determining the target value of a particular indicator is to find a realistically achievable level.

As a rule, a balanced scorecard is developed for a period corresponding to the long-term period of strategic planning (3-5 years). At the same time, long-term target values are determined for delayed indicators (indicators that speak about the final goals of the corporate strategy). Since the implementation of the strategy is also carried out in the current year, target values are also set for the medium term (1 year) period - for leading indicators (indicators that change over time over a short period of time). Thus, a balance of the system of indicators for long-term and short-term goals is achieved.

In the Business Studio 2.0 system, the content of short-term plans is detailed by periods (quarters, months, weeks, days) and expressed as planned values of indicators. Indicators and their target values (values that are planned to be achieved) provide management with timely signals based on deviations of the actual state of affairs from the planned one, i.e. the actual quantitative results obtained are compared with the planned ones.

So, the indicator is a meter showing the degree of achievement of the goal. However, it is also a tool for evaluating the effectiveness and efficiency of a business process. Indicators serve both to assess the effectiveness of processes and to assess the degree of achievement of the goal at the same time.

Rice. 4 BSC indicators

Strategic activities to achieve strategic goals

Achieving strategic goals involves the implementation of relevant strategic measures. “Strategic activities” is a general term for all activities, projects, programs and initiatives that are implemented to achieve strategic goals.

The distribution of the company's projects according to the goals of the balanced system creates clarity in understanding what contribution this or that project makes to the achievement of strategic goals. If projects do not make a significant contribution to the achievement of the strategic objectives, they should be reviewed to see how they contribute to the achievement of the basic objectives. If one or another strategic event does not make a significant contribution to the achievement of basic goals, then the need for its implementation is extremely doubtful.

Cascading Balanced Scorecard

Cascading leads to an improvement in the quality of strategic management in organizational units involved in building a balanced scorecard, since goals and strategic activities from higher units can be sequentially transferred to the BSC of lower organizational units - this is vertical integration of goals.

When cascading, the strategy specified in the corporate Balanced ScoreCard applies to all levels of management. The strategic goals, metrics, targets, and improvement actions are then fleshed out and tailored across departments and teams. That is, the corporate balanced scorecard should be linked to the BSC of subdivisions, departments and individual work plans of employees. Based on the BSC of their division, each department develops its own BSC, which must be consistent with the corporate BSC. Then, with the participation of the head of the department, each employee develops his own individual work plan. This plan focuses more on delivering real results in the workplace rather than tasks or improvement actions.

Thus, when cascading, a bridge is established between successive levels of the hierarchy, along which the corporate strategy sequentially descends.

Monitoring the implementation of the strategy

To improve the balanced scorecard, top management and those responsible must constantly review and evaluate the organization's performance.

Strategic objectives are characterized by a high degree of relevance to the company, and this relevance should be assessed at least annually. In doing so, it is necessary to evaluate:

Are the selected indicators suitable for assessing the degree of achievement of the developed goals?;
How easy is it to calculate indicator values?;
Has the structural subdivision reached the target values of the developed indicators?;
Have the target values of indicators of higher units been achieved?;
What contribution does the structural unit in question contribute to the achievement of the goals of the upper levels?

The evaluation of indicators is primarily to understand the possibility of calculating the actual value of the indicator based on the data of the reporting period. In addition, it is necessary to compare the plan-fact on the values of the developed indicators with the clarification of the causes of deviations. Such an analysis is accompanied by either an adjustment of the target value of the indicator, or the development of corrective measures aimed at achieving the previously set target value.

The lower level BSC should always be evaluated to help achieve the higher level goals.

In addition, it is advisable to predict the target values of indicators for a long period of time.

What does the company get as a result of the implementation of a balanced scorecard?

Let's sum up some intermediate results. What does the enterprise get as a result of the description of the strategy and its consistent implementation using the Balanced ScoreCard methodology? The first and most important is the concentration of efforts on strategically important areas for the company. The main goal of the company is determined, the means of achieving it (strategic goals) are outlined, the goals are cascaded by departments. The second result, respectively, is the presence of strategic goals for each division - that is, everyone understands what needs to be done. The third result is the possibility of a clear understanding of the effectiveness of actions. The presence of indicators for each goal to achieve it allows each participant in the process to understand their role in the implementation of the company's strategy. And, finally, the fourth result is the control and manageability of the process of implementing the strategy from the top down. The company, in the hands of its leaders, becomes an effective tool for achieving the goal.

Advantages of a computer over pencil and paper

All of the above is quite achievable without the use of any automation. Moreover, a number of successful enterprises used similar methods at the end of the 19th century, when computer technology was not as advanced as it is today. Another question is whether it is convenient to work with pencil and paper, will automation at some stage increase the efficiency of implementing the strategy? Of course, pencil and paper is only a symbol. The collection and some processing of indicators is quite feasible using at least the same Microsoft Excel. However, goals can change, the significance of some indicators after the test of time will be overestimated, some elements that we considered unimportant will begin to play a strong role ... The leader must be able to respond to changes and make changes to his plan as quickly as possible - after all, every step, done in the wrong direction takes us away from the goal.

As a rule, the main problem faced by enterprises that have decided to implement this strategy implementation methodology is not how to automate the creation of a tree of goals and indicators or the construction of a strategy map, but how to automatically constantly provide BSC with fresh data and keep it in working order. Without this, operational control over the implementation of the strategy is impossible. For example, you can use the mechanism for collecting indicator values using mailings, implemented in the Business Studio 2.0 software product (Fig. 5). The means of collecting the values of indicators that are not contained in the information system are Microsoft Excel files that are automatically sent to performers and then imported into the system.

For each individual responsible for entering the values of indicators into the system, a dynamic letter is generated with instructions for filling out the reporting table. The Business Studio 2.0 system finds all indicators for a given individual and generates a Microsoft Excel file containing a table with indicators for which this individual is responsible for entering the values. This file is attached to the letter, and then these letters with files are sent to the electronic address (E-mail) of an individual stored in the system directory.

Rice. 5. Mechanism for collecting indicator values using mailing lists

Next, individuals fill in the files with the actual values of the indicators and place them in a specific folder on the file server or send them to the system administrator. The system automatically reads the files from the folder and uploads them to its database.

At this stage, the collection of indicator values ends.

A balanced scorecard, like any other management tool, should be adjusted as the company develops and the external environment changes. The environment in which the enterprise operates is usually very dynamic, which leads to the adjustment of strategic goals. And this, in turn, requires constant updating of indicators for achieving these goals. However, in most cases this does not happen, which makes the balanced scorecard of performance unworkable at best, if not downright harmful.

The collected indicator values should be made available to stakeholders for analysis. To do this, the system contains a set of pre-configured reports, which, if necessary, can be changed or supplemented with new ones. Planned and actual values of individual indicators are presented in BSC reports in dynamics for several periods. The analysis period can be selected by the user in the Business Studio 2.0 system settings.

The fierce competition in which modern enterprises live and operate dictates the need to improve the efficiency of each aspect of the enterprise. Management is no exception. The manager needs tools for his work just like any other employee. The technique described by us is not as complicated as it is effective, and the availability of software tools for its implementation allows you to perform this work in real time.