Metrics Development Procedures Explained

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Implementation of BSC starts with development of key performance indicators. The wrong KPIs choice will result in BSC failure. Choosing the right business metrics is a key success factor in BSC implementation. Read more about metrics development in this article. Check additional information about metrics development.

What considering the possibility of BSC implementation many business owners think about most difficult implementation stage. Indeed, implementation of Balanced Scorecard is a many stage process that requires much time and investments (monetary and human resources). However, the question remains the same: "What is the most important and difficult BSC implementation stage?" Strategy development? It does not seem so. Strategic plans can be easily developed. What is more important is how to measure company progress? Is company doing OK or should it introduce some changes to strategy or the way it measures current performance? The bottom line here is that the right choice of measures is already half of success. So, it is possible to say that metrics development is one of the most important stages in BSC implementation.

What is business metrics? As known, BSC employs the principle of KPI evaluation. Key performance indicators are measures that demonstrate how well company is implementing strategic goals. If indicators show negative results, then something needs to be changed either in company strategy or the way KPIs are evaluated. At the same time the problem may be in the wrong choice of key performance indicators. Yes, the wrong key performance indicators will inevitably lead to acquisition of the wrong evaluation results. In such a way company management will be misinformed. It sometimes happens that top management receives positive analysis results while in fact the company is not doing OK. One has to be able to locate most important indicators, i.e. those that represent critical success factors. In some cases seemingly important indicators are not significant for company success. For example, number of customer contacts per employee is extremely important for retail business while financial companies should focus more on customer satisfaction and range of services offered to customers. These are hypothetic examples. There are hundreds of KPIs that can be successfully used in various companies.

What is the procedure for choosing Key performance indicators? First and foremost, let's define the four categories of Balanced Scorecard. These are financial, customer, internal business processes and learning and growth categories. Each category represents critical success factors in various areas. As a rule, choice of key performance indicators depends on strategic goals of a company. They are formulated in financial category, as this is not a secret that every commercial organization aims at making money and taking profits. First off, it is necessary to build a strategy map in order to understand how strategic goals will be implemented.

It should be noted that all indicators are interrelated. It means that in order to implement goals in financial category, goals in the other 3 categories have to be reached. Strategy maps vividly demonstrate these cause and effect ties. Let's take an example. Customer satisfaction results in increase of returning customer rate, number of customer contacts per employee improves sales rates etc. In order to offer customers high quality products the company should improve internal business processes which requires additional knowledge and skills of employees (learning and growth perspective).

If you are interested in metrics development, check this link to find out more about metrics development. Also, you can check other articles in Success Stories category.

Balanced Scorecard Toolkit includes step-by-step manuals, documents, presentations, check lists designed to help business professionals with successful development and implementation of Balanced Scorecard. Learn more about BSC Toolkit.