Balanced scorecard and KPIs to monitor strategic objectives

The Balanced Scorecard (SBS) translates the company's global, strategic goals into the everyday working language of KPIs. It is local, key performance indicators (KPIs) that are needed for the operational management of almost any business.

The concept of the MTSP enjoys well-deserved popularity in the world. Now it is used by all the largest transnational corporations. In modern conditions, when the era of the digital revolution is already beginning to be replaced by something new and not yet known, the value of information is only increasing. Moreover, it moves to a qualitatively new level.

In the case of business projects, data flows are transformed into a series of KPIs, which serve as both a dashboard and a kind of control levers. Despite the wide distribution of key performance indicators, entrepreneurs are not always able to choose a suitable and balanced set of KPIs.

In the service of management accounting Finoko there is a convenient tool for visualizing key performance indicators. With its help, it is possible to build relationships between KPIs, determine the "weight" of each of them and thus see the degree of balance of the MTSP. Specialists of our company, who have extensive experience in the implementation of KPIs in various industries, are ready to help you in this matter.

KPI scorecard

What is a Balanced Scorecard?

A balanced system grew out of the understanding that in the information age, business performance is not measured by money alone. Equally important are intangible and seemingly poorly measurable phenomena. For example: the strength of the brand, the experience of the staff, relationships with partners and customers, the degree of innovativeness of the technologies used and many others. The CONCEPT of the MTSP transforms the input data into a set of indicators.

Collected in a comprehensive and harmonious system of metrics allow you to see and control the movement of the business towards the main goal. However, in order for the SSP to really work, the planned result must be presented with the utmost clarity. And the main meaning here lies not in individual numbers, but in the ability to see the whole picture. Namely, the interaction and balance between different, sometimes heterogeneous, KPIs.

Where did the KPIs come from?

The term KPI originated as an integral part of the SSP back in the late 80s and early 90s. At that time, the SSP was created in many ways empirically, as a method of managing actively growing companies. In those days, information technology was just beginning its development, but was already able to have a great impact on business. The most advanced enterprises underwent strong changes: many areas were reduced due to globalization, innovative technologies were introduced, and the speed of data dissemination was increasing. In view of this, the needs of firms also changed. The need for high-quality information about the state of markets, internal business processes has become obvious, as well as the need to respond quickly to the challenges of the time.

In the late 80s, professors Robert Kaplan and David Norton conducted research on a number of businesses. As a result, it was revealed that all enterprises in their work pay great attention to financial indicators. To fulfill the tasks in the short term, the costs of training, marketing activities and customer service are reduced. Such actions adversely affect the general condition in the long term. The result of the study was that the specialists of enterprises in most cases do not pay due attention to the business strategy. In the future, there is no incentive to increase the effectiveness of work.

Norton and Kaplan developed a balanced system in view of this situation. Before it was launched, it was tested by several thousand enterprises. In December 1990, the new concept of KPI allowed to consolidate all financial and non-financial indicators in the course of conducting the company's activities. Next, several books were published that enabled owners to conduct business taking into account market changes.

What tasks does the MTSP solve?

The metrics KPI methodology helps to transform the firm's strategic plans to the level of operational activity. If the entire set of result meters is implemented correctly, then you can solve the following tasks:

• definition of strategic goals: key KPIs allow you to link the tasks of departments and activities of the enterprise;
• distribution of responsibilities among the company's employees – personal KPIs;
• ways to achieve - functional KPIs, assessment of the effectiveness of business processes.
• The creation of a balanced scorecard begins with the development of a strategic plan. It reflects the relationship between the challenges that need to be addressed. It is called balanced because the result of work is evaluated by four main projections: financial, client, business processes and development of the organization's personnel. Each task has measures of success, these values are the basis for building a set of KPIs.

All the tasks that are included in the strategic plan are necessary for execution. As a result, the set of KPI metrics displays all the effectiveness of the achievement. That's why it's called balanced. In other words, the system is balanced with the structure of strategic tasks.

To fully "customize" KPIs, resources are needed. Setup takes from two months. At the same time, serious control over the quality of the result is necessary. This process is very time-consuming, often it repels management from its application.

Most today already use sets of financial and non-financial KPIs in their work. With the help of them, it is much easier to present information for the study of the manual. Special attention is paid to buyers, namely: how satisfied the buyer is, how many claims, what are needed, whether there is a defect, how well the staff presents information about the product.

Balanced System Projections

Strategic plans are a set of assumptions about cause and effect. KPI is based on cause-and-effect relationships that allow you to break down strategic goals into goal-means and individual tasks necessary to achieve them.

Types of projections

A properly balanced scorecard contains four projections:

• financial KPIs (how the plans will change the overall financial position of the firm);
• client KPIs (market share, customer satisfaction with the company);
• KPI of internal processes (what needs to be done within the enterprise);
• organizational KPIs (this projection concerns the training and development of personnel, the development of new products, the improvement of the quality of a product or service, etc.)
• KPI projections are the way to achieve this strategic goal. All four projections are interconnected by a logical connection and, in a balanced system, determine the overall success of long-term development. These are the four mandatory components of KPIs that must be linked. For example, revenue is a metric of financial projection. You can evaluate such an indicator by controlling how the volume of sales increases.

Further, it is necessary to develop a set of measures to improve the buyer's perception of the products or services of the company.

After that, ways to improve internal business processes are determined. Such activities may include: increasing the quality of customer service, developing new products or services, increasing the productivity of the enterprise, etc.).

Improvement of organizational business processes depends largely on the qualifications, level of professional training of the company's specialists, etc.

The company's strategies are a set of necessary and sufficient actions to achieve the goal: how to create a quality product that will be competently offered to the consumer, what needs to be done by the company's employees to achieve the goals. The result will be to get the expected result.

Are four projections enough?

The classic set of projections takes into account the interests of: buyers, shareholders, employees. But there are other stakeholders— the employees themselves. Then there's the category like suppliers. These criteria are not included in these four projections. Perhaps in your priorities the relationship with suppliers, in this case it is recommended to include in the list metrics that reflect the increase in the efficiency of supply management processes.

Those enterprises that have implemented a balanced scorecard in their work face two tasks: to create KPIs and correctly apply them.

Financial component of KPI

Financial projection indicators are designed to establish a link between a company's strategy as a whole and financial goals. And for many firms, metrics boil down to maximizing profits. With a balanced system, all indicators should be interrelated.

Monetary indicators can be established both for the enterprise and determined for each subdivision. All goals related to monetary indicators should be dual:

• determine the financial result that is expected after the implementation of strategic activities;
• define the basic goals for the rest of the projections.
• The relationship between financial objectives and the firm's strategy
• Financial goals may differ from each other in different periods of time. To make it clearer, three stages can be distinguished: the period of growth, the state of stability and profit.

The period of growth is the time when the organization goes through a period of searching for the optimal structure of processes. At this stage of development, there are working processes, an effective set of actions necessary to achieve results is determined. You have to attract enough resources to find new buyers. The enterprise can attract investments for the development of production facilities, infrastructure, development of the client base, etc. During this period, the material condition may have a negative character. All actions are aimed at making a profit in the future.

State of stability – At this stage, many business processes still need additional funding. But it should already demonstrate a good return on all attracted investments. Market share, with the right approach to work, should constantly increase. Investing money and time in long-term projects is viewed differently by different companies. Some companies focus on financial stability, some on maximizing profits.

Client component of the MTSP

The set of customer KPIs contains metrics of the number and satisfaction of customers and market segments where the firm will operate. This is the basis for achieving the results of financial indicators. The key indicator of the client component is the index of customer satisfaction, loyalty programs, preservation and increase of the customer base, etc.

Previously, businesses paid more attention to production, but customers did not. But, the competition was constantly growing and there was a need for it. To win the competition, you have to be the best in your business.

Internal business processes of the MTSP

The internal business processes of the Balanced Scorecard are designed to analyze the performance of indicators in the entire value chain. It all starts with determining all the needs of future buyers, that is, what we can offer them so that customers are interested in the offer. Next, successful ways of delivering products and providing services are created for them.

Ways to develop indicators of internal business processes include:

• distribution of responsibilities among departments;
• control over planned and current indicators in the course of implementation of tasks;
• performance quality assessment, etc.

 

Almost every enterprise seeks to make the quality of its work better, increase volumes, reduce costs, etc. But it is important that the costs of business processes fall under this reduction. As we have already indicated above, in view of the fierce competition, it is necessary to "bypass all rivals".

KPI Performance Indicators

KPI kpis are metrics on which the assessment of the effective implementation of all strategic tasks of the enterprise is based.

You can evaluate not only the quality of the work of the company's specialist, but also:

• enterprises — revenue, costs, profitability, etc.;
• specialist - how effective the work of the employee is;
• project - for example, whether the developed advertising company is effective.
• Why do I need KPIs?

Implementation of KPIs in the enterprise allows:

• make all business processes of the company open;
• control the quality of the work performed by specialists and projects of the company;
• coordinate activities between all units;
• to form a holistic set of measures to stimulate employees;
• increase responsibility for the result of the work performed.
• Variants of key KPIs
• goals achieved — the number of objectives that have already been achieved;
• evaluation of the work performed - it is better to use numerical meters. The work can be evaluated by management, or by the buyers themselves;
• quantity — the sum of the results, in numerical terms;
• result — assessment of the quality and quantity of work performed;
• expenses - how much the company spent financial resources;
• Efficiency – how long it takes to achieve the goal;
• effectiveness - the ratio of all costs and the resulting result.
• Signs of correctly selected KPIs

In order for the KPI to be really built qualitatively, it should be:

• measurable;
• have a clear time range;
• realistic and doable;
• understandable for execution;
• quality.

Advantages and disadvantages of KPIs

Regardless of the fact that the system is complex enough to implement in the enterprise, all the advantages are immediately obvious:

• Specialists can concentrate their attention on really important goals;
• management can build a good system of incentives for employees;
• the owners and management of the enterprise can perform actual tasks, and leave secondary ones.

Training and development of the company's specialists

All of the above components of the balanced scorecard are aimed at improving the work of the enterprise as a whole. Training and development is aimed at providing the company with the necessary infrastructure in order to solve these problems. Only competently trained personnel will be able to solve all strategic issues.

If we evaluate the work of personnel on short-term indicators, then how to achieve the strategic goal? Yes, you can use this method, but this will also affect the enterprise in the future. The MTSP provides an understanding of how important it is to invest not only in production, but also in personnel.

There are three ways to train and develop staff:

• employee capabilities;
• the power of information technology;
• incentives, distribution of powers, etc.

Employee Capabilities

To date, almost all actions are automated. This not only allows you to reduce the time to perform certain actions, but also reduce errors associated with the human factor. Technology does not stand still, employees need to be retrained.

If the owners and managers of the organization decide to apply a balanced system of indicators in their work, then the company's specialists should definitely be retrained. In addition, the duties of employees will be changed. All retraining can be of two types:

• mandatory retraining for all employees;
• training for those employees when they really need it.
• Opportunities of information technology

Employee incentives and competencies are essential in order to achieve strategic goals. But that's not enough. If a specialist wants to work effectively, then he needs all the information about customers, internal processes of the enterprise, as well as financial results, due to his activities.

Those specialists whose task is to communicate with customers should know exactly how to present information to them. This includes: a segment of the market, how to identify and understand the needs of a potential client, etc.

Employees whose duties include production, the operational process, need feedback: how to speed up the process, how the equipment works, etc.

Incentives and distribution of powers

Even the most highly qualified specialist of your company needs motivation. Such an employee will make a significant contribution to the work of the enterprise. If there is freedom of decision-making, training and a good "climate" within the team, then it becomes much more pleasant and easier for him to work.

Offer quantity indicator

It is necessary in order to assess the result of the work of employees who have been motivated and have certain powers. You can define totals in several ways. The most common is the number of offers per specialist. Such an indicator stimulates all employees to take part in the process of developing the company's activities. The result shows how much your employee appreciates the client.

Balancing personal and corporate goals

This set of metrics shows how the employee's tasks correspond to the strategic goals of the enterprise.

To give an example, one company has implemented KPIs in lower-level divisions. The management team was faced with the following tasks:

balance between the company's goals and personal tasks of employees;

control of work on the basis of conducting activities in the team.

Implementation began with the development of a metrics system and a plan for implementing the use of metrics in the enterprise. At the second stage, it is necessary to bring to all employees clear rules for calculating indicators and assessing their work. After that, the management team defined the goals and gave details on how to achieve them. The compliance indicator reflects whether the employee was able to cope with the set goals.

It is necessary to control not only the final result, but also intermediate achievements. There are cases when top managers arrange a survey of employees on the topic of motivation to work. In this way, you can identify how much the specialist understands what they do not want from.

Team performance indicators

It all depends on the concept of the company. An individual employee does not ensure the achievement of the goal, the work of the whole team is needed. This concerns the development of new products, or services, maintenance, or some organizational issues.

In the set of KPIs for assessing the state of personnel in the team, the following can be distinguished:

• assessment of satisfaction in the team;
• how well the interaction between the departments is built;
• whether there are projects that are implemented by the team, etc.
• Such indicators help to evaluate the work of each employee individually and work in the team. The concept and metrics are developed on the basis of the strategic plans of the company.

How to implement a strategic planning system in the work of the company?

First, strategic plans are defined. The main strategic goals should not be many, ideally, they should be simple to understand and measure. Then it is worked out together with the heads of departments, and sometimes with employees, ways to achieve these goals. An agreed set of actions to achieve strategic goals, created with the participation of employees, turns into a balanced system of metrics. The set of metrics is unique in each organization and reflects the values of the people who work in it.

And only after that, the company's management begins to form a KPI system. First of all, the company's management must determine the main goals of the company, then proceed to the formation of a strategy for achieving these goals. The next step is how to measure the fulfillment of all the tasks. In conclusion, there is a development of a system of motivation of employees, its connection with KPI and monetary remuneration.

After approval, all specialists of the company should be acquainted with the innovations. But most importantly, they need to understand how to deal with it. Namely, how to work with new conditions. The complexity of the implementation lies in the fact that it is necessary to take into account the "human" factor and the uniqueness of the company when developing a set of indicators. It is extremely important to automate the calculation of indicators and, if possible, to exclude the participation of staff in the calculation of metrics. Trust in the automated system is much greater because the results are predictable with certain actions of the staff. Finoko and the company's consultants can assist in the development of the system and the automation of the calculation. We have developed a set of services Implementation KPIs so that you can reduce the time to start and avoid common mistakes.