“The Balanced Scorecard”
Peter Drucker is world-renowned for his innovative thinking in the ways of business management. He was worth listening to when he said: “What gets measured gets managed.” He also commented: “Management is doing things right; leadership is doing the right things.”
When we measure someone’s performance in an assessment or we set people incentives, we are having a bigger influence on outcomes than we might imagine.
Badly directed priorities and incentives can frequently result in the wrong behaviours, to the detriment of the business.
As it is frequently defined, performance appraisal focuses not on behaviour but on outcomes.
According to CIPD (Chartered Institute of Personnel and Development) 'performance reviews are one essential element in the broader set of processes that make up performance management. Their purpose is to identify areas for growth and improvement and inform suitable development plans; or inform administrative decisions on contractual aspects of employment (such as pay, bonuses, promotions or redundancy).'
How do you ensure that performance management drives the right behaviours to ensure the best outcomes for your business?
One tried and tested approach is the ‘Balanced Scorecard.’
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So, what is the balanced scorecard?
It is a framework combining strategic priorities, objectives, measures, and initiatives. The balanced scorecard provides a view of an individual’s overall performance. It combines financial measures with other objectives and key performance indicators related to customers, internal perspectives, and compliance.
The balanced scorecard looks at each component of performance, behaviours and outcome to form a well-rounded assessment that will inform any changes to reward, remuneration or promotion.
The first component of any performance assessment tends to be ‘financial.’ Any sustainable business needs to be financially sound. The financial perspective of the balanced scorecard include measures affecting cash flow, sales growth, return on investment and market share. The weight of these elements depend on the nature of the role. For example, someone working in sales will have quite distinct sets of targets and key performance indicators compared to someone working in training and development or human resources.
The second part is ‘customer perspective.’ These customers may be external or internal, or a mixture of both. The measures employed to measure performance in this perspective will include customer satisfaction surveys, measures like NPS (net promoter score) and customer retention. Not everyone is customer facing but they will all have an impact on the customer, either directly or indirectly and if someone doesn’t have any impact on the customer experience you should question their relevance. Every role should drive customer satisfaction or be supporting those on the front line.
The third aspect is ‘internal perspective.’ How does the employee react with others? It’s not just “does he/she ‘play’ well with others,” it’s about how do they contribute to the performance of the team or do they go ‘rogue’ and focus only on their own priorities.
Measures will include efficiency, productivity, staff satisfaction surveys, staff retention & labour turnover, and 360⁰ feedback.
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The final piece in this puzzle is ‘compliance.’ Compliance is critical to the business, whether that’s abiding by regulatory and legal rules or sticking to company policies and procedures.
When designing a recognition and reward scheme it’s reasonable to measure financial, customer and internal perspectives on a sliding scale. Compliance, unlike the previous three sections of the balanced score card is binary. You either achieve a compliant performance or fail in respect of compliance.
The consequences to the business of non-compliance can lead to heavy financial penalties, commercial and reputational damage and even threaten the existence of the business. Failure to comply should never be seen as acceptable.
Ian Garner is a retired Fellow of the Chartered Management Institute (FCMI) and a Fellow of the Institute of Directors (FIoD). He is Vice Chair of the Institute of Directors, North Yorkshire Branch. https://www.iod.com/events-community/regions/yorkshire-north-east
He is founder and director at Practical Solutions Management, a strategic consultancy practice and skilled in developing strategy and providing strategic direction, specialising in business growth and leadership. Ian is a Board Member of Maggie’s Leeds. Maggie’s provides emotional and practical cancer support and information in centres across the UK and online, with their centre in Leeds based at St James’s Hospital.
The Institute of Directors (IoD) is the UK's largest membership organisation for business leaders, providing informative events, professional development courses for self-improvement, networking and expert advice. The IoD North Yorkshire Branch has members across Harrogate, York and the surrounding towns and is reaching out to business leaders, of large and small enterprises, to help their businesses succeed.