The balanced score card is well on its way to becoming the strategic management tool of choice in many organizations worldwide. Initially introduced in the early 1990s as a way to help companies translate their corporate mission to all levels in an organization, the balanced score card is widely acknowledged to have moved beyond this — it has evolved into a strategic change-management and performance-measurement process.
According to surveys by the Institute of Management Accountants (IMA), more than 50 percent of large U.S. companies are using some form of the balanced score card. This reflects its power and simplicity to provide direction for all levels and areas of the organization.
But after more than 15 years, it’s surprising so many businesspeople remain unconvinced of the balanced score card’s utility and effectiveness. And even more surprising is the number of organizations giving up on it through their own misapplication or misuse of the tool.
At its roots, the balanced score card is designed to give companies the information they need to effectively manage the tactics that support their business strategy.
The balanced score card is similar to a dashboard in a car — as you drive, you can glance at the dashboard to obtain real-time information such as how much fuel remains, the speed you are traveling and the distance you’ve traveled.
The balanced score card provides similar information to all levels of the organization through performance measures connected to specific business areas in the same manner. It communicates to managers in clearly defined terms how well the business is meeting its strategies and goals.
The balanced score card’s appeal is its ability to include both traditional financial metrics and nonfinancial performance measures in its reporting capacity, thus the term “balanced.”
Therefore, managers can obtain information on a variety of intangible and nonfinancial metrics — such as customer satisfaction, cost per new hire, percent of jobs that meet schedule, percent of errors in budget predictions — that are essential to capturing information about an enterprise’s performance.
The balanced score card is divided into four primary business and strategic areas on which an organization must focus to get a complete picture of how the enterprise is performing. They are:
Today’s business climate requires managers to balance financial and nonfinancial measures to develop effective solutions in arriving at proper decisions. Financial measures provide historical results, and nonfinancial measures usually indicate the positive outcomes of a particular decision.
Your efforts are directly correlated to nonfinancial performance metrics. They support, for example, why developing a specific skill set for a group of employees increases productivity that, in turn, leads to strong growth, helping to build credibility for workforce learning and performance and your role within the organization.
Nonfinancial measures are essential to helping companies succeed. If used effectively, they can drive an organization — using its performance-measurement system — to higher and higher levels of achievement.
The Need for the Balanced Score Card and Its Connection to Workforce Learning and Performance
To understand the reason for the growing need for the balanced score card, you must understand the significance of organizational strategy. Most business professionals recognize strategy is at the center of every business process. Successful business managers have a laserlike focus on it.
Although this might be common sense, some are unable to connect their business objectives and the organization’s mission, resulting in many companies not meeting their strategic goals. This is not necessarily a result of managerial incompetence (although this might be the case in some instances). Rather, it stems from not knowing how to develop or connect short-term and midterm objectives to respond to the proposed strategy.
This connection is relevant for a few reasons. First, achieving strategic objectives requires that organizational decision makers answer the question, “Where and what do we want to be?”
For both aspects of the question, this necessitates building existing organizational knowledge (human capital). In simpler terms, “What you now know got you here but will not get you to where you want or need to be.”
Learning professionals must acquire the strategic skills and understanding to better align employee skills and abilities with strategic objectives.
Second, contrary to what the “learning ROI” movement has said in recent years, C-level managers are less concerned about learning investments’ financial outcomes and more preoccupied in obtaining nonfinancial performance outcomes. In more direct terms, they want to see how learning and development delivers results in relation to organizational objectives over answering the old question, “Did the training solution make money over what it costs?”
Again, this is because financial measures are lagging indicators of performance and, in the end, if learning’s costs exceeds its benefits, then it is too late to do anything about it. The results already have happened, and when you are concerned what is going to happen tomorrow, you don’t really want to know what occurred yesterday.
Also, learning and development is not perceived as a critical investment over other operational issues. Many executives indicate the importance of having some type of forward-looking indicators, as they already possess sufficient financial data.
Finally, for many years, companies have said their employees were their greatest asset, but only in recent times have senior managers really recognized this. It is evident the marketplace leaders are the same ones investing a significant percentage of their payroll in learning solutions. They also are able to connect employee development to strategic objectives and effectively leverage employee knowledge to innovate in many ways. C-level executives realize true competitive advantage is not achieved solely through physical assets or products but through their people.
Connecting Learning to Strategy
The planets seem to be lined up for the professional learning sector. Externally, market factors call for organizations to adapt instantaneously, and technological evolution is accepted now as a constant. Internally, organizations need to change and evolve quickly, resulting in the need to build employee knowledge, competencies and skills for the future. The common thread in all these factors is the need for continuous learning, leading to improved performance. Add to the mix management’s need to reconcile and integrate all these issues to achieve its strategy. All this places workplace learning performance at the top of many CEOs’ priority lists.
Accountability does not rest solely with senior management when it comes to connecting workplace learning in organizational strategy — learning professionals must be held accountable, as well.
Until recently, those responsible for employee development did not see the relevance of connecting to organizational objectives. This is highly evident with the types of performance measures that have been used, such as number of employees trained or testing scores. Such learning environments are very much disconnected from corporate and market realities.
The balanced score card interdependency diagram, as developed by Dr. Robert Kaplan and Dr. David Norton, includes two important items. The first is that the balanced score card accounts for “learning and growth.” Never before has any business trend elevated the importance of “learning” in the discussion about — let alone the development of — strategy. The second is that it sits at the bottom of the diagram. Many businesspeople say the positioning clearly minimizes the importance of this perspective. Kaplan and Norton rebut this notion, saying, “It’s at the bottom because it acts as the foundation for everything else above it.”
Kaplan once described the employee learning and growth perspective as “the roots of a powerful tree, which are the sources of support and nourishment leading to the blossoms of financial returns.”
Making the Connections: Linking Learning to the Balanced Score Card
Like a well-oiled machine, every organization functions best when the sum of its parts (departments and divisions) work toward a common goal. The driving perspectives of the balanced score card (financial, internal processes and customer) work interdependently through very tangible objectives, measures and initiatives. But how does learning tangibly connect with the other business areas through the balanced score card? A simple example demonstrates the process more clearly.
Say company ABC’s primary strategic objective is to increase revenue in the next three years. To increase revenue, the company will have to increase production and sales by introducing products, producing them and repositioning current products.
In this case, the financial perspective is the primary driver of strategy for the other three perspectives. You can derive the customer perspective by looking to increasing customer loyalty and developing customer relationships to entice repeat purchases.
This, in turn, requires internal processes to support product development through research and development, to ramp up production for the increasing sales, to ensure adequate inventory and to ensure purchasing processes are functioning properly.
These three perspectives are the drivers for the strategy. The role for learning and growth is to enable and support the needs of the first three perspectives similar to how internal processes support sales. By partnering with the other business areas, workplace learning is better positioned to understand their needs.
For company ABC, workplace learning would collaborate with the sales and marketing department to train and coach the sales staff, work closely with customer relations through a customer service and new-product training program and even look at developing production efficiency and new-equipment training courses for manufacturing.
Wrapped around all the perspectives would be specific objectives (the expected results), targets (tangible metrics), measures (the reports to obtain the metrics) and initiatives (what you will actually do). Workforce learning and performance solutions are the vehicle to help other business units achieve these critical metrics.
The following steps will help you to contribute to these critical business areas, become more strategic in your learning solutions and be more tactical in your approach with your customers in the organization.
The first step is to clearly understand your organization’s corporate strategy. Analyze the mission and vision statement, as they provide succinct insight into senior management’s objectives. When done well, these statements outline the critical areas that require the support of an enabling perspective. If you are a public company, review the annual reports to gain further insight of management’s message and gain an appreciation of stakeholder expectations.
Next, get the corporate balanced score card. If one is being developed, get involved. The balanced score card will provide you with the tactical information of what is expected from each of the business units under each perspective. Review the balanced score card and learn about the relationships among the driving perspectives. If you are fortunate, your organization will have cascaded the score card through each business unit. This will allow you to work more closely with every level of the organization to develop more-targeted learning solutions.
Conduct interviews with management and stakeholders. Meet with the C-level decision makers in your organization — they will expect it. Determine their expectations for workplace learning and performance, as well as the role they will play in the strategy. They will provide significant amounts of information, a clear direction for the organization as a whole and how workplace learning and performance flow through the organization (cascading the strategy through the balanced score card to each business unit).
Meet with business unit stakeholders and process-critical staff. Building partnerships with these groups helps create synergy between their knowledge of what they require and your learning expertise to develop effective and targeted solutions.
Determine the measures and metrics for the objectives the balance score card sets forth for each perspective. When working with other business units within the balanced score card, be aware of their objectives and metrics they’re expected to meet.
Develop a balanced score card for learning and performance. Traditionally, learning and development is viewed as a functional, supportive unit. In the evolved strategic context, learning and performance must become operational and interactive with the other units. This means, as a strategic business unit, workforce learning and performance should develop its own score card. This is not solely about learning’s ROI. When developing a workforce learning and performance score card, your performance measures should be forward-looking and make a strategic contribution.
The role of learning in the workplace is increasingly critical and demanding. It is more than measuring business impact, and it is more than simply measuring return on investment of training — it is about connecting to strategy.
More than ever, the sole competitive advantage for every organization is ensuring employees not only understand strategic objectives but are able to attain them. This is the driving message of the balanced score card and senior management’s new paradigm.
It’s time to start thinking “outside of the course” and inside the balanced score card to develop learning solutions that directly connect with the organization’s business concerns and strategic objectives.
Ajay Pangarkar, CTDP, and Teresa Kirkwood, CTDP, are partners at CentralKnowledge.com. They also wrote “Linking Learning Strategy to the Balanced Scorecard” and “Building Business Acumen for Trainers.” They can be reached at firstname.lastname@example.org.
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