Balanced
Scorecard and KPI, performance-based management and benchmarking- kpi scorecard
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KPI guides
Balanced Scorecard concept reefers to the theory of metrics linked by the
specific rules, where the total value is calculated using specific formulas.
Balanced Scorecard is talked a lot about, but there are some applications of
Balanced Scorecard concept which are sometime overlooked.
Scorecard and benchmarking
For instance, combination of metrics, used in Balanced Scorecard can be
easily used for benchmarking, e.g. comparing your product or service against
competitors. What metrics should be used to compare your product to your
rival's solution? There are many opinions, but the most reasonable answer
sounds as: "Why should I reinvent something new, I can use the same
metrics as I use for my business".
Actually, there is no need to create a specific metrics for benchmarking,
when you already have some ready-to-use metrics. The metrics for benchmarking
and metrics for evaluating the performance of your business should be the same.
Terminology: KPI vs. Balanced Scorecard
A note about terminology: what we call Balanced Scorecard is also called
"kpi". KPI is for "Key Performance Indicators". What is the
difference between KPI and Balanced Scorecard? Actually there is no much
difference. What we call "Indicator" is equal to what we call
"Metric". What metrics does Balanced Scorecard include? The most
important one - the "key" metrics. And finally, the goal of Balanced
Scorecard is to measure, yes, the performance of your business, focusing on
some specific aspects.
It's a time now to think about scorecards and kpi as a set of key metrics,
which help you to measure the performance of your business. When we talk about
benchmarking, we actually talk about comparing products' or businesses'
performance, so benchmarking is also based on key metrics and their comparison.
Measure performance and benchmark with
Balanced Scorecard
How to use Balanced Scorecard concept to measure a business performance?
It's actually easy. You will need to pass tree simple steps.
- First, you
will need to design a set of proper metrics, which will describe your
business well. It is very important step, as it will affect all your
future estimations, so be carefully and as some expert to help you or
consider purchasing ready-to-use metrics.
- Second,
the metrics should be grouped. There should not be too many metrics and
groups of metrics. It would be great if you will have four or five metric
groups and about 3-5 metrics in each group. You will need to set the
importance values for every metrics, you will need to describe the way,
how do you measure the metric value, you will need to set a target values
for metrics.
- The final
step is calculating the performance, using your estimation of metric
values, their weights and weights of their groups. The total values will
tell you how the business is performing within the certain viewpoint.
It's important to understand benefits and limitations of estimating business
performance in this way.
- The main
limitation is that your metrics will never describe all your business, so
what you can see in numbers is some kind of abstraction.
- The main
benefit, is having performance described in numeric values. If you have
these values you will be able to record performance, to benchmark your
performance and to control your business.
Use cases: Balanced Scorecard vs. KPI
People are often talking about different ways of business measurement and
control. The most popular approaches are KPI (Key Performance Indicators) and
Balanced Scorecard. While both concepts refer to the business performance
management, there is still a significant difference.
Actually, we can think about KPI as a part of Balanced Scorecard. Balanced
Scorecard measures business using several (usually 4 or 5) basic groups. Each
group has indicators inside. What indicators should be there? Correct! Key
Performance Indicators.
Is Balanced Scorecard a better approach? Actually, yes. It gives more
flexibility. For instance, you're able to specify relative importance of
indicators, e.g. balance them. When KPI will do its job better than Balanced
Scorecard? When you are not interested in global view over the performance
problems (this is what Balanced Scorecard provides), but need to focus on a very
tight niche, more over on some certain aspect of this niche, for instance,
"Finances".
Let's give some samples. Scorecard for HR will include various viewpoints on HR
process, including financial aspect, management and educational aspects. All
Balanced Scorecard groups will include several indicators that will help to
measure business.
HR KPI will focus only on some certain aspects of HR. For instance, it may
cover the most valuable (with bigger weights) indicators from scorecard. Or
will have only indicators from certain group.
Is there any other value with Balanced Scorecard? Again, I’m happy to answer
YES! The Balanced Scorecard concept suggests representing information about
business performance in a four perspectives – Finance, Customer Relations,
Education and Internal Processes. It is important as in this way you are able
to cover all your business or all aspects of some business unit.
Finally, both approaches deal with metrics, e.g. some way to measure
non-numeric values. For instance, to tell how good your customer support
service is (non-numeric value), you will be able to specify several metrics,
that will cover various aspects of customer support service. These metrics will
give estimation about response quality so that the final result will be a
performance in percents.
What is a Key Performance Indicator (KPI)
How to Develop Key Performance Indicators (KPIs)
