What you measure will determine what you get. Senior executives know that the organization’s measurement system has a significant impact on employees and managers. Executives also understand that traditional financial accounting measures like return-on-investment and earnings-per-share can give misleading signals for continuous improvement and innovation–activities today’s competitive environment demands. While the traditional financial performance measures were useful in the industrial era they are not relevant to the skills and competencies that companies seek today. Balanced scorecard in strategic project management.
Managers and academic researchers have attempted to fix the shortcomings of current performance measuring systems. Some have emphasized making financial measures more relevant. Some have suggested that financial measures should be ignored. Managers shouldn’t have to choose between operational and financial measures. We have observed many companies and found that senior executives don’t rely solely on one set or another. They know that not one measure can give a clear performance target, or focus attention on the most critical areas of the company. Managers desire a balanced presentation of operational and financial measures.
A balanced scorecard is a collection of measures that provides top management with a quick and comprehensive overview of their business. This was after a year-long project. The balanced scorecard contains financial measures that show the results of previous actions. And it complements the financial measures with operational measures on customer satisfaction, internal processes, and the organization’s innovation and improvement activities–operational measures that are the drivers of future financial performance.
The balanced scorecard is like the dials and indicators of an airplane cockpit. Pilots require detailed information on many aspects of flight to navigate and fly an airplane. Pilots need to know the fuel, altitude, speed, bearing, destination and other indicators that show the current and anticipated environment. Relying on one instrument alone can prove fatal. Managers must be able view multiple areas of performance simultaneously because of the complexity involved in managing organizations today.
The Balanced Scorecard links Performance Measures
- How do customers see us? (customer perspective)
- What are the most important things we must excel in? (internal perspective)
- Can we improve and continue to create value? (innovation and learning perspective).
- What should we do for shareholders? (financial perspective)
The balanced scorecard in strategic project management provides information overload to senior managers by providing information from four perspectives. Too many measures are rarely a problem for companies. They often add new measures to address any worthwhile suggestions made by employees or consultants. One manager described the “kill another tree” program at his company’s expansion as a proliferation of new measures. The balanced scorecard requires managers to concentrate on the most important measures.
Many companies have adopted the balanced scorecard. The scorecard meets many managerial needs, as evidenced by their early experiences with it. The scorecard combines many seemingly disparate elements of a company’s competitive agenda in one management report: becoming more customer-oriented; shortening response times; improving quality; emphasizing teamwork; reducing new product launches times and managing for the long term.
The scorecard also protects against suboptimization. The balanced scorecard allows senior managers to see if there has been improvement in any one area. Even the most important goal can be hampered. Two ways companies can cut down on time to market are: either by improving their management of new product introductions or by releasing products that are incrementally more different than existing products. You can reduce setup time or increase batch sizes to cut down on your spending. Production output and first-pass yields may also rise. However, these increases could be caused by a shift to standardized, easier-to-produce, but lower-margin product mixes.
With the help of Electronic Circuits Inc., we will show you how companies can create their own balanced scorecard in strategic project management. ECI’s scorecard was created to bring together the top executives and focus their attention on a few key indicators of future and current performance.
What does the customer see in us?
Many companies have a corporate mission that focuses on customers. Top management must be focused on how a company performs from the perspective of its customers. Managers must translate their customer service mission into concrete measures that are relevant to customers.
Customers’ concerns fall into four categories: cost, time, quality and performance, as well as service and support. The company’s time it takes to satisfy its customers’ requirements is called lead time. The lead time for existing products can be measured starting from the moment the company receives the order and ending when it delivers the product to the customer. The lead time for new products refers to the time it takes to get a product to market. This is the time from product definition to shipment start. The customer perceives and measures quality as the level of defects in incoming products. On-time delivery and accuracy of company delivery forecasts could be also measures of quality. Performance and service are two measures of how the company’s products and services create value for customers.
ECI’s Balanced business Scorecard
ECI calculated the percentage of sales from new products and proprietary products to track the goal of offering a steady stream of solutions. This information was already available internally. However, the company had to obtain data from outside due to other factors. ECI consulted its customers to assess whether it was meeting its goal of providing reliable and responsive supply. ECI built a database listing the factors defined by its customers. ECI redefined “on-time” to meet customers’ expectations after shifting to external measures of customer performance. Customers defined “on time” as any shipment that arrives within five days of the scheduled delivery date. Others used a nine-day window. ECI had used a seven-day window. This meant that ECI was not satisfying certain customers and exceeding others. ECI also asked the top ten customers to rate the company overall as a supplier.