The band AC/DC sang/roared the now iconic “it’s a long way to the top…” But it’s also a long way to fall if you initially succeed then take your eye off the ball. Successful business owners know you need to keep your balance to stay at the top. And there are business tools to help you.
Management Performance Measures Leans:
The bias of most existing management performance measures leans towards financial measures, thinking this focus will drive success. But smarter-thinking business owners know financial results are the reward at the end, not the means. In fact, excellent financial results are obtained by successful implementation of your business strategy in four key business perspectives. So don’t let financial results be the driving force. This is the Balanced Scorecard paradigm.
The Balanced Scorecard Framework:
The Balanced Scorecard framework (http://www.balancedscorecard.org) has evolved since the early 1990’s and is now widely used in business, NGOs, and schools throughout the world. It has grown in use because it is successful in helping businesses grow and prosper.
Simply put, having a plan and measuring how well you are performing beats seat of the pants management time after time. If you want to enjoy a growing Bali business, then sooner or later (and better sooner LOL) get yourself a business scorecard. If the thought makes your eyes glaze over, try pretending it’s like scoring for golf or netball or tennis. Or an iron man competition. As I write this there are 2-day training courses being run in Bali for Indonesian businesses, in Bahasa, for an investment of $800.
Remember a previous issue about skeletons?
When your business does use a framework you get results like this:
- 88% businesses report improvements in operating performance
- 66% also achieve an increase in profits.
The Balanced Scorecard tool has four key areas of focus – financial, customers, internal processes (systems) and innovation, learning and growth (people) all related to your business strategy. This is the ”balanced” part of the title.
The “Scorecard” bit is all about measurement so you know what’s going on. Remember in an earlier article we stated “If you cannot measure, you cannot repeat. If you cannot repeat, you cannot scale.”
The Balanced Scorecard tool encourages the identification of measures that answer key questions:
- Financial: “How do we look to shareholders?”
- Customer: “How do customers see us?”
- Internal Business Processes: “What must we excel at?”
- Learning and Growth: “How can we continue to improve and create value?”
While “Finance” is at the top, you start at the bottom – “Learning and Growth.” Unless you have some form of Terminator-Rise of the Machines business that teachers themselves, learning and growth is something you achieve through and for people.
Some typical measurable targets you can articulate for your people:
- We develop, recognize, & develop great people.
- “I’m developing the skills I need to succeed.”
- “We understand the strategy & know what we have to do.”
- “We have authority to make decisions to help solve customer issues.”
- “We have the information & tools we need to do our jobs.”
These are not platitudes. If you agree with these goals then you need to develop them and measure your success in implementing them. Continually improve, this is an ongoing process.
What’s the purpose of these learning and growth targets? If they truly create value then they successfully flow up to the next level of the Scorecard, “internal business processes” and contribute to your business capabilities. Business capabilities and your critical processes combined are the sources of innovation and a key driver of competitive advantage. No, these are not just platitude statements but instead are smart business.
And how do you develop your strategy?
- Define what you are in business for, and how you will operate to have maximum impact on your stakeholders. In BizTalk, this is called your “Mission.”
- Have a clear “Vision” of where you want to be in the next 5-10 years. Not 3 years, leave that for others who won’t last as long as you, be patient and plan for the long term. Something very quantifiable, such as “By 20xx we will have achieved x, y, and z.”
- Your vision requires very clear quantified objectives. CEO Jeff Bezos describes Amazon as “stubborn on vision and flexible on details.” His very clear and stubborn vision has helped Amazon grow to be one of the Big Five global IT companies, together with Google, Facebook, Microsoft, and Apple.
- Conduct a review of your Strengths, Weakness, Opportunities, and Threats – a “SWOT Analysis.” Your focus on Strengths and Weaknesses is always in relation to your position compared to your competition. If you and your competition have the same capabilities, same, problems then don’t waste energy on that issue. Ultimately you are looking for those areas where you can excel and demonstrate a competitive advantage.
Your examination of Opportunities and Threats is about external factors that you cannot control –
eg government regulation changes – and how they could impact your business. For example, what does your cash flow plan allow for in terms of Indonesia’s new legislation for universal social security and an ever-strengthening application of service taxes, personal income taxes, and profit taxes?
- Then prepare your “Strategy Map.” A good strategy map shows how the business creates value. It shows how key objectives are integrated into the areas of Finance, Customers, Integrated Operations, and People.
- Finally, the Balanced Scorecard framework is the tool that links the strategies to operational implementation. The scorecard will help you define key objectives in quantified detail.
- Use it. Regularly measure performance against your targets. Celebrate, adjust as necessary, continue.
What lies behind creating this balanced framework for your own business is a requirement for Thought. That you are able to take time out and really work through these steps. Otherwise, as The Goons used to say, you’ll be “galloping off in all directions.”
Is there is any aspect of developing a successful business you would like me to write about?