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The idea behind the Balanced Scorecard (BSC) is something that amuse me for it's strength. In this article I want to explain the basics of this strategy management tool to translate it to your management system (MS) in an actionable way, without the complexity of the full system.
 
The BSC is a management system used by a number of succesfull companies to traslate the vision of their top managers to the bottom of the company.
 
 I first heard about the BSC reading an article of Harvard Business Review, and latter on a workshop about it and on an MBA. I tried to apply it pn a number of departments under my control, but at the end it was hard to maintain, mainly because the maturity of the department was too low to deploy a MS mature as it is the BSC. Either way, there were some usefull principles that can give a kick to your company. Today we'll explain two of them.
 
The first concept is a dual concept: cause-effect behaviour and drill-down of the scorecards.
 
I've seen a lot of scorecard over the years, at my company and as a consultant, and it amaze me the imagination of the people creating them. I've seen pages and pages of definitions of KPIs (key process indicators), each department with their own, ones with the sales, others with the production, the accountants with finantial information and so on. Some entering the information month by month like a sacred  process, the less changing the indicators each month. With luck, after a few month, you'll have thousands of numbers without relation.
 
One of the ideas of the BSC is the action-reaction principle, seen backwards: i have 1€ of profits, and forthat i have to sell maybe 2€ selling some goods. The goods are made using people (learning &growth, and my internal processes. Do you see the idea? It seems something trivial, but it's not, and I'm want to give you an example coming from one of the books that created the BSC:
 
A financial indicator is like driving a car on a mountain road with the front shield covered and guiding the steering wheel only with the rear mirror, because the financial information comes months after you have taken a decision at your company, and maybe then is too late (you created a new product, designed, purchased the supplies, made it, sell it to retailers and at the end purchaised by a costumer, if the product don't fit the market you spended months and resources for nothing).
 
It's clear that you can not define a detailed KPI and expect this behaviour, mainly because maybe you can do that once (increase the wuality of some goods carries more sales, but not always will be the same. The idea here is to define generic objectives (reduce operative costs) and from them define the second facade of this concept:drill-down.
 
With drill-down the idea is to define the same map for all your departments until the last person of your company is involved in some way wi his own indicators; maybe sometimes some kpis will follow down, and some will be detailed in some layer but they won't go up, but they have to relate to each other. If you have to provide a cut in opetation costs, each one of the departments will have this goal, and the deeper you'll go in the BSCs the more detailed the indicators will be, but all of them will have a purpose on the common goal, so the improvement in one of them will be at the end an improve,ent in the company and eventually of the company.
 
With this concept in mind, don't you think it has no sense to have KPIs not 'chained' at the end with financial indicators or providing the drill-down of chained goals? Either way, you have to narrow it down even more, because you can define thousands of goals all over your organization with relations with them until you'll drown on information, don't worry, the theory beyond the BSC comes at rescue again, defining your company with 4 perspectives: financial, clients, people and processes. With that four perspectives now you can start defining one economics/financial goals, and associate one or two goals related to clients, and so on.
 
Once you have your strategic map with your goals,  you can create a new one for each department, with the same goals, and give it to the chief of each one of the departments to create their own. 
 
The second concept is to direct your effords on a common goal, a goal that can be controlled by your chain of goals: that will be the initiatives.
 
The initiatives are an easy part of the BSC. The idea here is to define 'projects' in order to increase e different goals, going downagain on them to define tactical projects and so on.
 
To resume all the theory of the BSC, let's say that from an economics perspective you can choose 2 main goals: growth or cost-cut. From one of these two strategies, and your goals defined on the first concept, you can set a number to reach in a year, and with it, a bunch of initiatives that will help you see your track and your sucess.
 
As last, i want to warn you about the perils at this new road: first you have to take good care of the relations between the goals. We've said that they are related, and that means that if you increase any of em at the top of your strategic BSC, you'll have to see the cause-effect behaviour, if not, you'll have to see the relations or the KPI that improved (sometimes give training to your employees doesn't reduce the errors in a production process).
 
I hope you'll find the BSC usefull and interesting enougth to give it a try!
 

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