How To Measure Business Success Using the Balanced Scorecard Model
Many businesses (as well as tax professionals) are very good at compiling financial information. Most have decent systems in place to gather, compile, and summarize the financial information collected. Yet, many times, unfortunately, it is the only set of metrics that organizations use to determine their success. Finance is only one piece of the story of an organization’s success. In truth, good financial standing is really a function of doing many other things in the organization well — if you don’t have a robust product or service, or if you consistently frustrate and drive off customers and employees, you will find it quite difficult to generate long-term profits. Using the structure of the balanced scorecard model is a smart way to get a broader view of how successful and stable a company is. Within the context of the balanced scorecard model, finance is just one of four areas analyzed for efficacy. And in the spirit of accounting, we are going to cover all four of these components — all of which can be quantified with actual dollars. Financial component. This is the most fully developed area of the balanced scorecard. It includes financial metrics such as key financial statements like the balance sheet and cash flow statement and will also include various types of analysis. The only question to be answered here is “Are the owners happy with the return they are getting on their investment in the organization?” Customer component. Here, goals and metrics are created to determine if the organization is doing a good job of keeping the customers happy. How do customers see your organization? Customer loyalty and repeat business are great metrics to determine customer service effectiveness. Other metrics to consider include: market share, customer acquisition, response time, convenience and brand recognition. Internal business processes component. Many times, both the customer service experience and the bottom line can be improved by evaluating existing internal processes. Small changes that are sustained over periods of time can make a huge impact over the years. How do your internal systems need to function for you to have happy customers and good financial results? What should you excel at? Examples of metrics include: research done for emerging and future customer preferences, percent of sales from new products, new products introduced versus planned, percent defects and time customer must wait for delivery. Learning and growth component. Is your organization set up for success? The amount of capital investment in the development of infrastructure, people skills, and information systems will answer that question. An organization’s growth goals and objectives are directly correlated to the skills of the people and technology available to them. A mistake that some companys make is to focus on the short-term profit motive to the detriment of the longer-term growth. Cutting training programs in an attempt to cut expenses is a common example. Possible metrics include: employee retention, competency upgrades of employees, percent of employees who have access to customer information and percent of employees whose professional goals align with organizational goals. The balanced scorecard inspires managers to take a more holistic view of the organization. In an ideal world, systems would be in place to compile information and report on metrics in each of these four areas as often as possible. This can be done weekly, monthly, quarterly and even a daily basis as the process gets started. The important thing to remember is creating goals and metrics in these four different categories will provide both balance and effectiveness in the organization. If you would like some help in establishing a more balanced outlook for your organization, contact the Onisko & Scholz team today. We have years of experience helping businesses, non-profits and government agencies with tax planning and business growth strategies — with both short and long-term outlooks.