It's all about the bucks, kid. The rest is conversation. That's how I imagine Gordon Gekko - the infamous character who delivered the trademark line Greed is good. in Oliver Stone's 1987 blockbuster Wall Street-would teach business strategy.
Fortunately, most executives take a more rational and balanced approach to business; among other tell-tale traits of these leaders is their use of many metrics-not just profits-to drive and measure the success of their enterprise.
In fact, successful companies often employ a popular strategic management tool, the Balanced Scorecard, which takes into account not only financial measures but also metrics that assess how the company is performing relative to customer service, business operations, the development of human resources, and more.
Ideally, by using a combination of measures-internal and external, subjective and objective, past performance and drivers of future performance-the Balanced Scorecard approach prevents companies from errantly focusing on short-term performance. Instead, the company takes a more balanced approach that leads to long-term success from multiple perspectives (financial and otherwise). It enables companies to provide a consistent message of where the company is going and provide speedier feedback loops to determine whether the organization is on track with its strategy.
Popularized in the early 1990s, the Balanced Scorecard approach involves working backward from a company's mission and vision to identify a small number of financial and non-financial metrics that employees know, understand, and strive to meet. Meeting or exceeding expectations on these key measurements enable the company to successfully implement its mission.
In teaching the Balanced Scorecard approach at the University of Tennessee, I illustrate why a balanced approach-and the systematic use of balanced measures to continuously assess progress and re-evaluate strategy-is so crucial to a company's ability to fulfill its mission. My favorite way to illustrate the importance of a balanced approach is to make it personal.
For starters, I ask my students this question:
Twenty years from now, how will you evaluate whether you've been successful?
I typically get a wide variety of answers, some concrete and some fuzzy.
I will have made a difference.
I will be in a position to give something back.
I will be able to afford to travel.
I will be happy.
Most people admit that their definition of success spans several levels-from financial to relationship-based, from spiritual to experiential.
The next topic I raise is that of stakeholders.
Who do you consider to be the stakeholders in your life? Who wants your time, your money, your energy? Who will have an effect on whether you reach your goals?
Often, this list includes a spouse, ex-spouses, children, other family members, friends, pets, work, the community at large, even the IRS!
Next, let's consider the resources and constraints you will work with in your quest to have a successful life. Take assessment of your time; your financial assets; your intelligence and personality style; your experience, training and education; your health; and more.
After taking this personal assessment, we are ready to tackle the big question:
How will you use your limited resources to satisfy your stakeholders and still somehow accomplish your goals? (Ah, now we're getting down to business!)
How, I ask, will you quantify your ability to accomplish those goals? How will you be able to definitively say 'Yes, I did it.' or 'No, I'm not quite there yet.'? What might those metrics be for each of the ways you will assess your success?
Inevitably, our conversation quickly turns to a discussion about the critical importance of goal setting and planning. Quite often a significant number of students in the class will be Day Planner or Franklin Covey disciples, well-acquainted with the power of setting daily, monthly, and yearly goals. These students are accustomed to establishing metrics and regularly assessing their progress toward their goals, so they pick up on the value of the Balanced Scorecard approach right away.
Others in the class are more like me-a meanderer. Left to my own devices, I would float here and there as the current leads me, hoping one day I'll end up where I want to be. That's dangerous: if I succumb to my meandering ways, I'd wake up 20 years from now and wonder how I spent the last 20 years of my life. Or as Yogi Berra put it: If you don't know where you are going, you will wind up somewhere else.
That's why a balanced scorecard approach is so important-in life and in business: it helps you articulate your mission and vision; clarify and communicate the strategy; and create the plans, metrics, and targets that will help you get there (i.e. where you really intend to be!).
Now, before I conclude this particular demonstration on why the balanced scorecard is a valuable strategic management tool, I have one final question for the class:
How do you know if you are out of balance on a personal level? Or put another way, How do you know if the stakeholders in your life are not happy with your performance?
THEY TELL US! is the raucous reply. Indeed, the major stakeholders in our lives-typically our spouse and children-have strong lines of communication with us and give feedback that is loud, clear, and immediate.
Companies need that type of feedback as well, and that's yet another reason a balanced
approach can be so helpful. The process of measuring the company continuously on the key metrics of a balanced perspective provides executives and managers with loud, clear, and immediate feedback.
Through all these incisive questions, I hope my students (and now you) have glimpsed the value proposition behind the balanced scorecard approach. If you would like to delve deeper into the topic, I recommend The Execution Premium by Kaplan and Norton (2008).
About the Author:
Bruce K. Behn, Ph.D., CPA, is the Ergen Professor of Business and Center for Business
and Economic Research (CBER) faculty fellow at the University of Tennessee. He is currently vice-president of Sections and Regions of the American Accounting Association and past president of the International Accounting Section of the American Accounting Association and the Federation of Schools of Accountancy. Behn has been the recipient of a number of teaching awards including the American Accounting Association's Innovation in Accounting Education award, UT's Alumni Outstanding Teaching award, and the Tennessee Society of CPAs Outstanding Educator of the Year.