Balanced ScoreCard is a means of setting periodic goals (for example, annual) for the organization so that one side does not overshadow these goals. In many cases, material goals have the lion’s share of the goals that we set for the coming year or years, which may lead to a bad result in the long run. This is not because of the lack of importance of material goals, but because there are other things that must be taken care of, otherwise the institution will face many difficulties on the long-term level. It is important that we try to increase the net profit and the return on investment, but if we do that without maintaining our excellence in what we do, trying to satisfy customers and trying to develop ourselves, then we will be surprised that we are unable to compete in the long run.
The Four Cards of Balanced Goals:
The Balanced Goal Card(s) were proposed by Robert Kaplan and David Norton in 1992 and have been widely used by many organizations. Balanced Goals cards, in their original form, consist of four separate cards. Each card contains goals for one area, so that the four cards achieve a balance between short and long-term goals, as well as between material goals and business development goals. These four cards cover the following areas:
1- Finanacial financial goals card: This card contains purely financial goals such as return on investment, cost of products, profitability, and cash flow. It uses financial ratios and various financial numbers to measure that. It is important to choose the important financial numbers that reflect the performance of the work. For example, if we focused only on the value of the net profit, that would not be sufficient because the net profit may be large, but the return on investment is small. Also, some financial numbers may be important at some point in time, such as cash flow in times of hardship. Why do we use financial indicators? Because institutions aim primarily for profit and its function is to maximize shareholder entitlements. As for non-profit companies, the matter may differ slightly, but in the end they must maintain their continuity in their activities by maintaining sufficient resources.
2- Customers Card: This card contains goals related to customer satisfaction, such as fulfilling customer desires through new products or services, responding to customer complaints, improving service or sales method, and increasing knowledge of our products. This card helps us cover a major shortcoming in many of our institutions that do not measure such goals. You will rarely find an institution that asks you to comment on the service after receiving it, while institutions in administratively developed countries send you survey after survey in order to know your desires, what you liked and what you did not. you like it An organization that tries to maximize financial numbers in the short term may be surprised after several years that customer requirements have changed and that their products or services have become unpopular. Likewise, an organization that does not follow up on customers’ requests, suggestions, and complaints is threatened that these customers will gradually go to a competitor that fulfills their desires.
3- Internal Business Process Card: This card makes us not forget to develop the organization from within and maintain a high level of performance in our operations. This card may include objectives such as: quality of manufacturing, percentage of losses in raw materials during manufacturing, lead time in manufacturing, speed of production change from product to product, quality of design, relationship with suppliers, development of administrative work systems, use of information technology, cooperation between The various departments, … and other objectives related to internal operations. In many of our institutions, you may find that there is a great neglect of many performance measures for internal operations, and therefore the level of performance does not improve, but rather declines.
4- Innovation and Learning Card: This card relates to the institution’s ability to develop new products, learn or innovate advanced technology, and implement modern management policies. This card may include goals such as applying a new administrative method, learning new technology, introducing a number of new products, the number of suggestions submitted and implemented by employees, and the motivation of the two scientists for innovation and development. Without learning and innovation, we cannot continue because competitors are developing and thus we will be out of competition. Therefore, using this card helps us to monitor our development and innovative ability compared to others.
The relationship between the four goals card:
Note that the four cards support each other. Learning and development support internal processes and affect customer satisfaction. Internal operations, in turn, affect customer satisfaction, and all of this affects financial indicators.
Each of the four cards has four columns:
Objectives: The objectives of the card are recorded
Measures: In it, the indicators that will be used to measure each objective are recorded
Target: The target value of the indicator at the end of the period (for example, a year) is recorded.
Initiatives: It records the initiatives or things that we will do to achieve the goal
For example, the goal may be to increase customer satisfaction with the level of service, so the indicator is the result of a quarterly survey (for example) that measures customer satisfaction with the service, and there may be an initiative such as improving the appearance of employees or training employees to deal with customers or something else. Note that performance indicators are not required to be quantitative, but may be qualitative or descriptive.
It may be appropriate for the number of indicators in each card to be within the range of five goals, so that the total is less than twenty goals. Note that these are the goals of the supreme institution, which everyone will try to participate in achieving. In addition, efforts should be made to reach goals and performance indicators that are appropriate to the organization’s strategy and the nature of its work.
The relationship of the balanced objectives card with the organization’s strategy:
When using the Balanced Objectives card, the goals that are placed in each card are well-rounded
of the enterprise strategy. The organization that tries to compete by reducing the cost will be interested in the indicators of product cost, manufacturing efficiency, lack of waste, and reducing the cost of raw materials. As for the organization that is trying to be proactive with new products or services, its focus will be on the ability to provide products quickly and the ability to create an atmosphere of creativity within the organization. Also, the organization that plans to expand globally will be interested in measuring the ability to enter new markets and the ability to meet the special needs of customers in each country. In this way the Balanced Objectives Card becomes a means to achieve the organization’s strategy. Note that the balanced goals card does not contain financial goals only, but rather it links between financial goals and the goals of business development and improvement. Thus, it can be said that it helps to link the short-term goals with the organization’s long-term strategy.
Is it really useful?
What if we said we would set balanced goals without using balanced goal cards? Yes, we may draw up a list of goals, but we may overlook some key aspects, especially those affecting the long term. Dividing the goals into four cards in the aforementioned areas helps us maintain balance because we will have to set goals for the process of learning and innovation, goals for developing operations, and so on. This is a real benefit of this method.
The balanced scorecard is not the solution to all problems, nor is it a means to develop institutions, but it is an auxiliary tool as it defines performance indicators and thus helps us achieve the strategy and develop ourselves. As is the norm in every administrative system, whoever markets the system tries to portray it as the basis of all development and that all other policies are part of it. This sometimes happens with the Balanced Goals card. These cards are a means of setting balanced goals only, and therefore, if they are not accompanied by the application of administrative policies for development, they fail.
We may enjoy the process of balanced goals until we have developed dozens of performance indicators. This should be avoided as it leads to the loss of the value of developing performance indicators. Performance indicators should be clear and few in order to be a target for employees. What if the list of indicators is too long? The workers lose focus between the different goals and feel that achieving all these goals is impossible. The clarity of goals and their small number makes them an unforgettable goal for workers and managers. The selection of performance indicators is one of the difficult matters in the case of applying the balanced goals card and in the absence of its implementation. Thus, choosing inexpressive or unclear indicators leads to many problems.
The Balanced Goals Card aims to balance between financial and other goals and between short-term and long-term goals. However, it is possible to find organizations that apply the Balanced Goals Card, but in the end they do not balance the goals as they should. Also, the objectives and their relationship to the strategy may not be explained, so there is no circumvention around the objectives and strategy.
Finally, the balanced scorecard is a means of linking performance indicators to an organization’s strategy. Therefore, if there is no clear strategy, using the Balanced Goals Card will not work.