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The Balanced Scorecard

Some organisations have adopted the idea of the balanced scorecard, originally developed by Robert Kaplan and David Norton. This assessment method is based on the notion that traditional corporate sector financial measures capture only past performance and that it is more important to measure the drivers of future performance.

The aim is to measure performance on a range of dimensions, each chosen because it will assist the organisation to achieve its overall mission. In the original balanced scorecard Kaplan and Norton proposed that businesses should measure their performance by tracking dimensions of performance concerned with customers, learning and growth within the organisation, internal business processes as well as financial performance.

So the balanced scorecard focuses managers on both outcomes and the health of the organisation that is producing the outcomes.

Kaplan and Norton’s ideas have been widely implemented in the for-profit world. For the nonprofit sector Kaplan has added a fifth dimension of social impact, to put the organisation‘s mission at the heart of the scorecard. Some nonprofit organisations have followed their model precisely. Others have taken the general principle of measuring performance using a range of indicators grouped into four or five dimensions, but have adjusted the dimensions to suit their circumstances.

According to Kaplan, use of the balanced scorecard has enabled nonprofit organisations to bridge the gap between vague mission and strategy statements and day-to-day operational actions. It has facilitated a process by which an organisation can achieve strategic focus, avoiding the pathology of attempting to be everything to everyone.

The measurement system has shifted the focus from programs and initiatives to the outcomes the initiatives and programs are supposed to accomplish The balanced scorecard approach acknowledges that aggregating performance data is often not appropriate in the nonprofit world. “The key benefit of the balanced scorecard”, as Jeff Bradach, managing partner of Bridgespan Group, a consulting firm to nonprofits, said to me, “is that it helps to organise data. Operating data is very important and having it well organised enables effective accountability.”

Some of the performance measures used in the balanced scorecard are concerned with tracking internal performance. This reflects a compelling argument Harvard business school professor Allen Grossman made to me: “There is evidence that if nonprofit organisations have good plans, quality assurance systems, measurement systems and mechanisms for improving performance then they will have better delivery of their service.”

From Managing at the Leading Edge

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