Knowledge

The Balanced Scorecard

Some organisations have adopted the idea of the balanced scorecard, originally
developed by Robert Kaplan and David Norton. This assessment method is based on
the notion that traditional corporate sector financial measures capture only past
performance and that it is more important to measure the drivers of future
performance.

The aim is to measure performance on a range of dimensions, each
chosen because it will assist the organisation to achieve its overall mission.
In the original balanced scorecard Kaplan and Norton proposed that businesses
should measure their performance by tracking dimensions of performance concerned
with customers, learning and growth within the organisation, internal business
processes as well as financial performance.

So the balanced scorecard focuses managers on both outcomes and the health of
the organisation that is producing the outcomes.

Kaplan and Norton’s ideas have been widely implemented in the for-profit world.
For the nonprofit sector Kaplan has added a fifth dimension of social impact,
to put the organisation‘s mission at the heart of the scorecard. Some
nonprofit organisations have followed their model precisely. Others have taken the
general principle of measuring performance using a range of indicators grouped into
four or five dimensions, but have adjusted the dimensions to suit their
circumstances.

According to Kaplan, use of the balanced scorecard has enabled nonprofit
organisations to bridge the gap between vague mission and strategy statements and
day-to-day operational actions. It has facilitated a process by which an
organisation can achieve strategic focus, avoiding the pathology of attempting to
be everything to everyone.

The measurement system has shifted the focus from
programs and initiatives to the outcomes the initiatives and programs are supposed
to accomplish The balanced scorecard approach acknowledges that aggregating
performance data is often not appropriate in the nonprofit world. “The key
benefit of the balanced scorecard”, as Jeff Bradach, managing partner of
Bridgespan Group, a consulting firm to nonprofits, said to me, “is that it
helps to organise data. Operating data is very important and having it well
organised enables effective accountability.”

Some of the performance measures used in the balanced scorecard are concerned
with tracking internal performance. This reflects a compelling argument Harvard
business school professor Allen Grossman made to me: “There is evidence that
if nonprofit organisations have good plans, quality assurance systems, measurement
systems and mechanisms for improving performance then they will have better delivery
of their service.”

From Managing at the Leading Edge

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Last updated: August 2014