February 16, 2001, 11:17 AM — A WELL-DEFINED STRATEGY is the key factor behind any successful business initiative, be it a QoS (quality of service) enhancement or a sales force reorganization. Indeed, a company that fails to develop a well-defined set of performance targets will risk miscommunication between business units and invite severe operational inefficiencies.
Many companies have begun tapping the power of a BSC (balanced scorecard) to define enterprisewide strategies and metrics. Developed in the early 1990s by Drs. Robert Kaplan and David Norton, the BSC approach is quickly becoming one of the most widely implemented management processes in the world.
IDC suggests that the BSC technique will continue to grow in popularity because more and more organizations are investing in analytical activities such as forecasting and optimization. Meanwhile, Meta Group analysts predict that all major ERP (enterprise resource planning) vendors will soon deliver scorecard functionality in their products. In fact, many of the big ERP players already do. And analysts at Gartner maintain that at least 40 percent of Fortune 1000 companies will soon have BSC programs up and running.
Often called strategic enterprise management because it facilitates management from the highest executive level, as opposed to midlevel branches or departments, a BSC is a managerial tool for evaluating your company's business performance. It identifies four perspectives -- customer, internal, financial, and learning -- that are used to monitor and measure specific strategic objectives. Thus, a BSC system can identify potential loss leaders, spot sales trends, and pinpoint supply-chain deficiencies and help companies organize around changes that will increase revenue.
The method can illustrate cause-and-effect relationships between the perspectives. For instance, a well-integrated BSC system will alert you to the fact that the revenue gained from employing a new team of mobile sales representatives (the financial perspective) is not worth the IT overhead required to support it (the internal perspective).
A BSC also can recognize trends that aren't directly linked to financial metrics, such as the skill level of your workforce or your customers' opinions of your company.
Over the past few years, BSC features have begun shipping in a wide variety of packaged applications. Most of the early adopters were big ERP players such as SAP, PeopleSoft, Baan, and Oracle, but the field has expanded to include smaller analytical application providers, such as Gentia, CorVu, and Pilot.
To help companies understand this complex methodology, Kaplan and Norton created the Balanced Scorecard Collaborative. The collaborative publishes functional standards and certification programs to facilitate consistent and appropriate use of the BSC in software applications.