The Balanced Scorecard (BSC) and Strategy Maps are performance planning and measurement systems developed by Robert S. Kaplan and David P. Norton in a series of articles and books, built around the general idea of Management by Objectives. These systems work to measure whether the smaller-scale activities of an organization work in terms of its larger-scale strategy.
While traditional measures within most organizations are solely financial, the BSC system includes additional measurable objectives from customer, process and employee perspectives. These measure are designed to identify both past and future performance. The initial labels for these four perspective with "Financial", "Customer", "Internal Business Processes", and "Learning & Growth" but over the years and number of other titles have been proposed and used. In the mid 1990s, the "strategy map" method evolved where measures were selected from a set of "strategic objectives" and linked into a map, often across the initial four categories but allowing the freedom for different maps to be drawn. Balanced Scorecards have been implemented by government agencies, military units, business units and corporations as a whole, non-profit organizations, and schools.
Sun Tzu's strategy might be considered the complementary opposite of the Balanced Score Card, touching all the little decisions that it cannot measured and, like the BSC, aligning them with the vision and mission of the company. While BSC provides a set of metrics that many organizations find valuable, Sun Tzu's Sun Tzu's Rules provide a set of tools that individuals can use to analyze situations, discover opportunities, and make the right decisions. the BSC changes behavior from the top-down and the inside out, by changing what is watched and measured internally. Sun Tzu's strategy changes behavior from the bottom up and from the outside in, but teaching people how to respond to external events in a way the conforms to the company mission.
The Financial Perspective
According to the principles of BSC, the financial perspective determines if execution is contributing to the bottom-line improvement of the company. As taught by Sun Tzu's strategy, good economics is a necessary level for meeting any mission. Kaplan and Norton describes three business stages: rapid growth, sustain and harvest. Each has its own measurement profile. For example, the growth stage might measure increased sales volumes, while the sustain stage can focus more on costs control and ROI, while the harvest stage might focus revenue volumes. Other typical BSC financial measures include cash flow, return on capital employed, and return on equity .
The practice of classical strategy feed these various financial measures, especially those front-line people working it sales. The classical perspective views organizations as competitive entities where financial performance is dictated by the competitive realities of the larger market. Having people on the front-line that understand this dynamic is critical. Sun Tzu's strategy spreads the understanding of those competitive realities as broadly as possible within the organization. Sun Tzu's strategy defines the financial goals of an organization as the broadest and shallowest aspect of its mission. It involves everyone in one way or another, but it is the result of their activity, not the goal. This level of mission is necessary for competitive viability, but higher level of mission are what create competitive vibrancy.
On the front-line, individuals do not have to concern themselves with determining the correct stage of a company's development. The front-line competitive issues are simpler: defending a position or advancing it. The strategic tools for minimizing risk in an advancing a position also have the additional effect of reducing cost. The skills of aiming and moving a position to beyond competitive reach is what creates higher and higher profit levels. Financial success is certainly promoted by having the right measures, but it is created by the rapid strategic cognition of front-line people making good decisions quickly.
The Customer Perspective
In BSC, the customer perspective tries to measure the organization's value proposition for its customers. These measures can include ideas such as basic ideas such as customer satisfaction and market share and more sophisticate measures such as delivery performance to customer by date, delivery performance to customer by quality, and customer retention.
A company employing BSC looks at three different areas of customer interaction: operational excellence, customer intimacy, or product leadership. It tries to develop a clear advantage in one of these areas while maintaining basic competence in the other two. The goals of customer perspective measures are to satisfy customers, create more sales, identify the most profitable customer groups, and similar customer oriented goals.
This is the area where the tools of Sun Tzu's Sun Tzu's Rules deliver the most value. Customer relationships are created one person, one interaction at a time. These customer interactions, by definition, all take place on the front-line of the organization. People with front-line strategic skills create better customers relationships through their more comprehensive understanding of the competitive situation. They are trained specifically to appreciate the perspective of the customer and how the customers sees their alternatives.
While BSC measures like customer satisfaction increase everyone's desire to make customers happy, rapid strategic cognition quickly identifies the fleeting opportunities for creating that satisfaction on the front-lines. In the fast-paced environments where your people interact with customers, they need to develop the instincts to understand what is important and why. They need listening tools to develop their individual customer perspective. They need aiming tools to see the highest value opportunities. They need moving tools to surmount obstacles. And they need claiming tools to establish the value that they have deliver.
The Internal Process Perspective
This perspective concerns itself with the processes that produces and delivers the organization's product or service, what BSC calls, its value proposition. These measures track all the organization's productive, with the idea of conducting those activities as efficiently as possible. Including in this process as also those activities that improve this processes that we normally associate with the quality movement and continuous improvement. Measurements in this category include tracking items such as the number of activities, opportunity success rate , accident ratios , and equipment utilization.
BSC uses clusters similar processes into groups. This groups include 1) operations management processes that measure asset utilization, supply chain organization, and so on, 2) customer management processes that develop customer relationships, 3) innovation processes to improve product and services, (by new products and services), and regulatory and social processes that maintain elations with external entities.
Except for the specific clusters of "customer management processes," and "innovation processes," this is an general area least impacted by the introduction Sun Tzu's Sun Tzu's Rules. Internal production processes exist in controlled environments. These environment are simple enough that people are not overwhelmed by information. The detailed information required for top-down planning is generally available so the individual decision of people are not as important.
However, both customer management and innovation exist outside of the deterministic framework of normal planning. Customer management engages the creative intelligence of individuals working on the front-line and classical strategy orients that intelligence toward the organization's mission. Innovation also offer a similar opportunity for people in the organization to contribute to the system instead of merely operate it and again, the strategic toolkits for identifying opportunities and overcoming obstacles become valuable.
The Learning and Growth Perspective
One of the great insights of BSC is that the skills of capabilities of the people and systems within the organization that form its critical intangible assets. Without these skills, the organization would not have the skills to create values through its processes. This perspective is easily overlooked because these assets are less well understood than other types of assets.
BSC divides the assets in this category into jobs, which is the way human capital is deployed, the systems that deploy information capital, and the general climate that is called the organizational capital of the enterprise. These three factors create the infrastructure that allows an organization to meet is other measures. This perspective require that investment are made, balancing short-term financial gains against long-term success in all dimensions. Measures here include training investment, illness rate, internal promotion rate, employee turnover, and gender/racial ratios.
BSC defines training in Sun Tzu's Sun Tzu's Rules as an investment that an organization makes in its human capital. The levels of strategic skill in the organization as a whole and the percentage of front-line employee certified as strategy professions are important measures determining the competitive health of an organization.