How Do You Measure the Success or Failure of Your Organization?
If you’ve done your planning right, you should have your organizational mission, vision, and broad-level strategic goals clearly spelled out.
But how do you know whether or not you are successfully achieving your mission and reaching the targets you’ve set for yourself?
In days gone by, companies defined their success based solely on the bottom line.
In other words, they viewed organizational performance in terms of financial statements, earnings, and profits and losses.
While we agree that financial measures are still a very important indicator of organizational success, today’s leading companies recognize that organizational performance cannot be measured by financial statements alone.
The first major drawback to relying solely on financial measures is that they are a lagging indicator of performance. Financial statements can only tell you how you performed in the past and cannot predict current or future performance with certainty.
Secondly, financial measures fail to identify how results are being achieved or what behaviors will lead to the desired results in the future.
Think about it… Can you really tell whether customers are satisfied with the service you provide just by looking at the bottom line?
And if you’re in the non-profit space, can looking at incoming and outgoing cash-flow really tell you whether you are achieving your social mission?
Of course not!
That’s why leading organizations have adopted the Balanced Scorecard approach to measuring performance.
The Balanced Scorecard measures four distinct dimensions of organizational performance: financial, customer perspective, internal processes, and innovation and learning.
The customer perspective asks, “How do customers see us?” and measures aspects of performance such as delivery time, quality, and customer service.
Given that most organizations incorporate statements of customer satisfaction into their vision and mission statements (i.e. “To be first in quality”) this measure is an important part of determining if the vision and mission are being achieved.
Internal Process Perspective
The internal process perspective asks, “What must we excel at?” and measures aspects of internal performance such as cycle time, employee skills, and productivity.
Organizations must be able to leverage their internal resources and effectively carry out their internal processes in order to meet customer needs and achieve their vision and mission.
Innovation & Learning Perspective
The innovation and learning perspective asks, “Can we continue to improve and create value?” and measures the organization’s ability to develop new products and services, innovate, improve, and learn.
This dimension of performance has become extremely important in today’s age of rapid technological advancement and the constant evolution of consumer markets. Without the ability to innovate and learn, many organizations would find themselves outdated and out-paced by the competition.
And, as always, the financial perspective remains an important part of measuring organizational performance.
This traditional perspective looks at dimensions such as cash flow, sales growth, market share, and ROI to gauge success.
Using the Balanced Scorecard
In order to employ the Balanced Scorecard method of performance measurement, three to four goals should be set in each area that align with the organization’s vision, mission, and strategic plan.
Specific metrics should be established for each goal to make the measures concrete and tangible.
Executives and managers can then use data from each of the four categories in order to get a more comprehensive view of organizational performance.