The Balanced Scorecard and Performance Measurement Assignment
The design of a good performance measurement system must follow a “top down” approach to ensure that key measures are in fact a measure of the strategic goals established by senior management. Performance initiatives should always start at the top because senior management has the power to implement the system and provide the organizations missions and objectives.
The top down approach starts with a clear business strategy expressed through the organization down to operational units. The “top down” approach emphasizes the importance of the role senior management plays in an effective performance measurement system. By sending a clear message of active support and commitment from the top down, each individual and business unit will also adhere to this culture of commitment and accountability to the business strategy.
Once a vision of the corporate strategies and goals are determined they are driven down into the organization in a way that is significant, understood, and owned by every member. A broad communication program shares the strategy and the critical objectives employees have to meet if the strategy is to succeed. The goals of lower levels are therefore determined by the strategic intent of higher levels, in which participants work down from to determine key measures and activities that support the strategic task. The “top down” approach prevents local optimization while emphasizing overall optimization throughout the organization.
In contrast, the “bottom up” approach starts with a set of measures and determines which ones may be most useful in assessing performance, but these measures may not relate directly to the overall strategy. The “bottom up” approach looks at existing measures so if you aren’t currently measuring an important key measure it may not be considered. For example, if revenue growth is linked to outstanding customer service and you currently do not have a system that measures customer satisfaction, then you may not consider this measure as an indicator of success. The “top down” approach guides us in determining what we need to do and what we need to measure in order to meet the strategic objectives set forth by senior management.
The main goal of the top down approach is tying strategy to execution and ultimately improving the bottom line. The “top down” process helps to ensure strategic goals are linked to the outputs, measures, and activities of the people performing the work.
The balanced scorecard is a performance management tool that enables organizations to clarify their vision and strategy and translate them into action. The scorecard is a strategic management system that helps managers focus on performance measures while balancing financial objectives with non-financial objectives. These objectives and measures are derived from a top down process driven by the mission and strategy of the organization. It provides a framework that not only focuses on performance measurements, but helps managers identify what should be done and measured. The scorecard promotes an organizational wide view instead of a local focus by requiring managers to consider all important measures together. The development process helps organizations clarify its’ purpose by first reviewing and clarifying the business strategy and then selecting measures based on that strategy. The goal of making measurements is to permit managers to see their company more clearly, from many perspectives in order to make better, long-term decisions. These measurements must be interrelated; the scorecard approach helps managers understand how measures influence each other. By having four different perspectives (financial, customer, internal process, and innovation and learning) the scorecard promotes an overall balanced view of any organization. The scorecard requires managers to answer questions about each perspective to...
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