It’s All About Balance

Author: Christian Bamber
Posted: Monday 29th August, 2011. 10:18:49

At the end of last week’s article, we mentioned how a good strategy is a balanced strategy i.e. not all objectives should be centred on finances. This week’s discussion comes with a warning: you may switch off before you get to the end of this article! It’s a bit heavy going.

Hopefully, however, it will give you a general understanding of the importance of balance in strategy whilst just about keeping your interest. Don’t worry as next week will be of vastly more practical interest to everyone!

The model for a balanced strategy was first introduced by Robert Kaplan and David Norton in 1992 in an article written for the Harvard Business Review. Their research had shown that executives and employees duly paid attention to what their organisation measured but could not manage well what they were not measuring.

Unsurprisingly, most efforts were focussed on measuring short-term financial gains with insufficient investment in measuring intangible assets. These intangible assets, however, provide the foundation for future financial success.

And so, the concept of the Balanced Scorecard (BSC) was formed whereby in addition to financial measures, three other perspectives were also considered: customer, internal processes, and learning and growth.

Even manufacturing companies, which formerly competed on production capabilities and product characteristics, began to realise that success now necessitated a deeper understanding of market requirements and that most of the required value was now provided through non-financial, intangible aspects of strategy.

I’m not going to attempt to tell you how to design a Balanced Scorecard here in detail but what is useful is to look at the other three, non-financial perspectives of the BSC so that you have an understanding of the importance of considering these in the development of your own strategy.

1. Learning and growth perspective

The learning and growth perspective represents the first of the intangible factors that ultimately provides a source of sustainable value creation for the organisation. Objectives associated with learning and growth describe how people, technology and culture combine to support strategy.

Ask yourself how learning and growth can contribute to the success of your organisation and then assign two, three or maybe at the most four indicators that can be measured so that you can track progress.

For example, one measure could be reporting the average number of CPD days undertaken by each employee annually, a reasonable indicator of an organisation’s learning.

Another measure may be the percentage of staff’s improvement ideas implemented by the organisation reflecting an “inclusive” culture, or perhaps the ratio of electronic vaccine reminders to those posted in the mail as an indicator of technology uptake.

The choice of indicators is yours but indicators should always be relevant to your strategy and therefore reflect the success of strategic progress. Getting learning and growth right, in theory, acts as a platform for the next perspective, internal processes.

2. Internal processes perspective

The performance of the organisation in terms of its internal processes is a major influence upon the success of the subsequent perspectives of customer and finances.

Examples of internal processes indicators include how the business operations of your organisation are conducted and measures could include ease of client appointment bookings, efficiency of billing systems and bad debt management etc.

Your organisation may value its innovation process such as development of new products and services and appropriate measures for these could be designed.

And perhaps regulatory processes are important to the success of your strategy such as health and safety or compliance with RCVS practice standards scheme.

Once again, choose two or three indicators that can be measured to give a good impression of how you are succeeding in achieving the internal process perspective of your strategy.

3. Customer perspective

Kaplan and Norton’s third perspective is that of the customer. Having designed BSCs for different organisations in many different industries, I have modified and broadened this third perspective to include the stakeholder in general. Therefore, my preference is to term this perspective the “stakeholder” perspective.

This allows for the interests of different individuals and bodies, not just the final customer or client. So, although success in areas such as customer service and customer retention are still appropriate to measure, it is also important to have a strategy that considers, for example, staff, community and professional body interests, not to mention the animals themselves.

Therefore, in addition to measures such as customer retention or customer satisfaction, you might include quality of clinical care, community opinion or professional body standing.

Stakeholders and not just customers or clients can all have an effect on your bottom line so it is important to consider the needs/requirements of these within your strategy and measure these accordingly with two or three indicators.

4. Financial perspective

If you have designed a balanced strategy including the three intangible perspectives, then you are well on your way to succeeding in the fourth. Arguably, success in the financial perspective provides the ultimate definition of your organisation’s success. However, you still need to drive this aspect of the strategy and therefore measure certain objectives.

For example, if you are concerned with growth then you may wish to measure ways in which you increase your revenue opportunities or income streams and/or enhance customer value.

If you are concerned with good financial management and improving productivity, you may want to measure improvements in your cost structure or increases in your asset utilisation.

Of course, you may want to include more classic measures such as increase in turnover and/or profit but these should not be used in isolation. Remember, it’s all about balance.

In the end, you should be measuring 10-12 indicators of success covering the four perspectives described above and this information should not only be made available to everyone within the organisation but also actively displayed for all to see.

I hope this brief explanation of balancing strategy and the BSC hasn’t confused you. If it has, apologies, but go away with this: the success of your organisation doesn’t just depend on focusing on the finances. Consider the power of the intangibles in giving you long-term and sustainable success.

Next week:

A break from strategy! We’ll be looking at something that everyone in your organisation can take control of: the Seven Deadly Wastes.

Christian Bamber is Principal Consultant and Director of Approach Strategy, a consulting firm specialising in strategy services to service industries and not-for-profit organisations. For more information, please contact Approach Strategy at christian@approachstrategy.co.uk. Tel: 01225 722 654 or visit their website www.approachstrategy.co.uk

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