Some management analysts have tried to compare the Balanced Scorecard with other performance management frameworks, such as the Total Quality Management, Kaizen, and Business Process Reengineering. This comparison is often futile. The reason is simple.
The introduction of the Balanced Scorecard in any organisation will not always imply stopping other performance management systems that have worked. Usually, this is the fear that provokes the comparisons.
The reality is that while most of the other performance management tools are specific to operational and process efficiencies, the Balanced Scorecard provides for a comprehensive management of the whole organisation, roping in the other area-specific tools that could be in place. Those who later get to understand the Balanced Scorecard realise that it provides room for seamless accommodation of the other performance management systems, within its framework.
The reason the Balanced Scorecard enjoys such elasticity can be traced to its triple functionality.
Balanced Scorecard as a Communication Tool: The Balanced Scorecard provides clarity in terms of the activities that must be undertaken to achieve a specific strategy. It does so by breaking down a strategy into simplified objectives, which are then communicated to those with relevant responsibilities.
The set of objectives spelling out what must be done to implement the organisation’s strategy is referred to as a strategy map – the all-encompassing compass that points everyone to the desired direction.
The strategy map is thus a communication tool. It translates the game plan into clear measurable objectives.
Usually, a strategy map is no more than a one-page graphical representation of what must be done to effectively implement the overall strategy. It is referred to as a “map” because it is the tool that shows the route to the desired strategic destination.
Balanced Scorecard as a Performance Measurement Tool: The objectives set out in the strategy map make it possible to establish the performance elements to measure. The Balanced Scorecard assesses these under the four performance focus areas or perspectives. They are financial, customer, internal processes, and employee learning and growth.
Performance measurement is guided by the strategy map, which gives it contextual value. But it is on the other hand the tool that brings life to the strategy map. Without measuring performance, the strategy map remains just a nice piece of graphic.
Balanced Scorecard as a Strategic Management Tool: Naturally, the reason for measuring performance is to know how well or badly the organisation is doing towards achieving the objectives outlined in the strategy map. But why is that knowledge necessary? It is so that the correct follow-up is taken. It is so that the activities within the organisation are managed in line with the ultimate goals in mind. It is so that any short-term actions are aligned with organisational strategy. This way, the Balanced Scorecard serves as a management tool.
In a nutshell, the Balanced Scorecard brings about focus and alignment in the functioning of the organisation that applies it, leading to improved execution of all the strategies in place, including application of the other performance enhancing tools.