A balanced scorecard approach to performance measurement: The balanced scorecard provides a useful framework for focusing performance measurement efforts on the critical drivers of success.

• Author: Maholland, Larry
• Position: Brief Article

A team without a scorecard is not playing the game; it is only practicing.

Tom Malone

President and COO, Miliken & Co.

Most organizations have vision statements. However, if you were to ask them how successful they have been in achieving their vision, most would not know how to respond. Such questions require precise answers despite the inherent imprecision of vision statements. For the last decade, performance measurement has been touted as a way to quantify and improve organizational effectiveness. More recently, a variation of performance measurement called the balanced scorecard has been introduced to translate organizational vision into measurable objectives or outcomes. This article examines the application of the balanced scorecard approach in the public sector, using the experiences of the City of St. Charles, Illinois, as an example.

The Balanced Scorecard: An Overview

The balanced scorecard was developed for the private sector in an effort to balance measures of organizational performance between financial results (the so-called "bottom line") and other critical factors that drive success in the information age. In their seminal book on the balanced scorecard, Robert Kaplan and David Norton argue that although the financial perspective is the most important short-term indicator of success, key measures of an organization's future success also include "intangible and intellectual assets, such as high-quality products and services, motivated and skilled employees, responsive and predictable internal processes, and satisfied and loyal customers." (1) The balanced scorecard integrates all the drivers of future success--both financial and non-financial--into a new model that organizes performance measures into four different perspectives: financial, customer, internal business process, and learning and growth (Exhibit 1).

The financial perspective includes traditional measures of financial performance. This perspective is retained in the balanced scorecard because financial measures, despite their short-term focus, are an invaluable yardstick for evaluating "whether a company's (government's) strategy, implementation, and execution are contributing to bottom-line improvement." (2) Applied to the public sector, bottom-line improvement refers to a government's financial condition and the extent to which it effectively addresses constituent concerns.

In the customer perspective, organizations determine who their customers are and identify their respective needs. This analysis provides the information necessary to tailor services to specific customer groups in order to satisfy specific needs. This perspective is particularly important to governments, which are owned by customers (constituents) rather than shareholders.

The internal business process perspective identifies those processes that are most critical to the satisfaction of customer needs and the achievement of organizational objectives. In the past, organizations primarily focused on improving cost, quality, and time-related measures. Although these measures are still important, the balanced scorecard approach suggests that the needs of external customers, rather than internal demands, should drive improvement in these areas. The internal business process perspective not only persuades organizations to improve the way they conduct business now, but also challenges them to find new ways of conducting business for the future.

The learning and growth perspective recognizes that organizations can only reach a level of efficiency and effectiveness that is commensurate to that of their employees. Organizations must have qualified and knowledgeable employees in order to turn their mission and strategy into reality. This perspective underscores the importance of managing the process of employee adaptation to a continuously changing work environment.

Within each of these four perspectives, organizations develop objectives, measures, targets, and initiatives to guide their improvement efforts. Objectives represent where an organization would like to be in the future. Measures determine the extent to which objectives are being realized. Targets are quantifiable, measurable performance outcomes that an organization wishes to achieve within each objective. Initiatives are the strategies and tactics an organization employs to increase the likelihood of achieving specified targets.

Implementing Performance Measurement

Located 45 miles west of Chicago, St. Charles has evolved from a small river settlement in 1834 to a dynamic, prosperous suburban community with a strong economic base. St. Charles' attractiveness and location, however, have created pressures for growth in housing, retail, and employment. This growth has challenged the city to devise new ways of preserving its unique character, maintaining quality services, and managing direct impacts like increased traffic.

St. Charles uses a...