Measuring Process through Balanced Scorecards

The Harvard Business Review in 1992 took the business world by storm when Kaplan and Norton introduced the idea of balanced scorecard.

They argued that even though strategic management was being pursued as an organization wide goal in companies worldwide, in effect they were doing a post-mortem of the business situation at hand.

Measurement was done only on the basis of financial information. Financial information reflected past performance.

There were no indicators of future performance as well as the strategic resources of human capital, intellectual capital as well as streamlined resources that were included in the measurement.

The move from cure to prevention

Citing this as the detrimental cause, Kaplan and Norton outlined a framework wherein performance will be measured on multiple dimensions. The weights given to financial parameters be proportional to their importance.

The combined share of factors that predict the future state of business had a greater weight than past performance.

This move was critical as managers would now have to ensure that they do not follow short sighted behavior to make their performance look better.

The number game had been changed to include qualitative aspects as well.

Kaplan and Norton realized that processes were the way that a company performs its operations. The superiority of a company is therefore directly related to the sustainable competitive advantage that its process help it to gain over its competitors.

Hence, not monitoring or measuring the processes would discourage companies to place a continuous focus on improving the processes. The balanced scorecard therefore recommends that processes get equal importance (if not more) as compared to the financial indicators.

This recommendation by Kaplan and Norton and its worldwide adoption by the Fortune 500 companies gave a thrust to the practice of Business Process Management.

Since every manager’s variable pay would, to some extent, depend upon the improvement they bring in the process, everyone in the organization started looking for ways and means to improve the process.

Business Process Management (BPM) was no longer the impetus of a handful of managers and executives located in remote locations.

BPM became the prerogative of each employee. The suggestion boxes that are seen in canteens worldwide are a symbol of this movement wherein the management solicits BPM ideas from all its employees and rewards those ideas which are found good enough to be adopted.

Measuring Process through Balanced Scorecards

Real time Data: First and foremost is the fact that information becomes available to management when it is most required. A dynamic dashboard can be prepared which is updated real time and managers can immediately identify any discrepancy and work to correct it.

Technology facilitates this real time transfer of data and arranges it in a particular format to create actionable information for the management.

Adding dimensions to the scorecard: A balanced scorecard will not give undue importance to any characteristic of a process. It recognizes that different processes can be measured by different metrics.

For instance, grievance redressal must be fast, even if it is a bit expensive. Hence measuring this process on costs will lead it in the wrong direction.

Most often, the measurement is done based on a combination of metrics designed each process and given weights.

Instead of giving weights arbitrarily, technology is harnessed and Analytic Hierarchy programming (AHP) is used to come up with appropriate weights that will ensure that no one factor gets undue emphasis and tilts the organizations focus.

The Balanced Scorecard therefore brings the concept of BPM to the strategic level. Also it provides a good mechanism to measure whether the process improvements are taking the organization in the correct direction.