Assessing Organizational Performance
The Balanced Scorecard
To organize an organization's performance measures, Professor Robert Kaplan and Professor David Norton of Harvard University developed a tool called the balanced scorecard. Using the scorecard helps managers resist the temptation to fixate on financial measures and instead monitor a diverse set of important measures (Table 2.6 "Beyond Profits: Measuring Performance Using the Balanced Scorecard"). Indeed, the idea behind the framework is to provide a "balance" between financial measures and other measures that are important for understanding organizational activities that lead to sustained, long-term performance. The balanced scorecard recommends that managers gain an overview of the organization's performance by tracking a small number of key measures that collectively reflect four dimensions: (1) financial, (2) customer, (3) internal business process, and (4) learning and growth.
Table 2.6 Beyond Profits: Measuring Performance Using the Balanced Scorecard
Because the concept of organizational performance is multidimensional, wise managers realize that understanding organizational performance is like flying a plane pilots must be on track in terms of altitude, air speed, and oil pressure and make sure they have enough gas to finish their flight plan. For tracking organizational performance, assessing how the organization is doing financially is just a starting point. The "balanced scorecard" encourages managers to also monitor how well the organization is serving customers, managing internal activities, and setting the stage for future improvements. This provides a fast but comprehensive view of the organization. As shown below, monitoring these four dimensions also can help individuals assess themselves.
| Scorecard Point | Definition | You could ask yourself… |
|---|---|---|
| Financial measures | such as return on assets and stock price–relate to effectiveness and profits. | How can I improve my personal wealth? Measures might include cash, savings account, and retirement. |
| Customer measures | such as number of new or repeat customers and percentage of repeat customers–relate to customer attraction and satisfaction. | How strong is my social network? The number of new contacts you make over time might reflect this dimension. |
| Internal business process measures | such as speed at serving a customer and time it takes to create a new product and get it to market–relate to organizational efficiency. | Am I getting better at my current job? Tracking improvements in personal efficiency such as the time needed to complete a task can be helpful. |
| Learning and growth measures | such as the average number of new skills learned by each employee every year–relate to the future and emphasize that employee learning is often more important than formal training. | What skills should I develop now for the future? Although the acquisition of new skills is hard to measure, the attainment of specialized licenses or earning of a graduate degree are tangible benchmarks. |