One thing every executive director, executive team member, board member, business owner and senior pastor have in common is the foundational desire to maximize the impact of the organization they are leading. There is an innate call on leaders to be wise stewards of the capital resources invested in their organization (financial, intellectual, human and relational) and to guide these resources toward a fully interwoven and leveraged investment to achieve the greatest return. That is what great leaders do.
The specific definition and measurement of impact is uniquely defined by each organization, and more specifically, is shaped by the strategic plans fashioned to achieve their vision and mission.
While business owners have a more uniquely defined set of measures in their financial targets (gross and net margin, EBITDA, quick ratio, etc.), I firmly believe every organization — whether it is a nonprofit, church or for-profit — will achieve broader and more sustainable impact with a multi-dimensional balanced scorecard approach.
As I walk you through the high-level concepts and practical steps in creating a balanced scorecard, I'd like you to be thinking about how you're measuring and engaging your organization toward the stated vision and mission. I have seen balanced scorecards maximize impact as part of two Fortune 50 organizations, and I have seen the same as the leader of a 40-person nonprofit.
So, let’s dive in!
What is a Balanced Scorecard?
In the simplest terms, a balanced scorecard is a set of measurable outcomes an organization’s board and executive leadership use to track the performance of the stated desired outcomes defined by their strategic plan. A balanced scorecard intentionally measures outcomes in four different aspects of the organization, creating a balanced view of the organization's overall health and performance. The four areas are, broadly, as follow:
- Financial and impact — focuses on core financial health and mission impact measures
- Employee — focuses on overall organizational health, engagement, capability and development
- Donor/customer — focuses on the people who are buying or are served by your products and services
- Operations — looks at how efficiently your internal business processes and infrastructure are running
The basic premise is a balanced scorecard that drives excellence in each of these four critical areas of the organization is necessary to achieve true operational excellence. Any organization that measures and focuses on only a few of these will be sub-optimized. For example, a nonprofit may overly focus on the donor/customer perspective and therefore erode program impact. Or a for-profit business may overly focus on earnings per share, which can incentivize gimmicks that erode long-term shareholder value. Said another way, exceptional stewardship of an organization’s full capital investment calls us to focus on each of these four components simultaneously.
My experience guided me to create the overall framework of a strategic plan in alignment with these areas: net, identify key financial strategies, employee strategies and operational efficiency initiatives.
The Real Benefits of a Balanced Scorecard
You can summarize the benefits in three simple outcomes: strategic alignment, organizational engagement and executive governance.
A significant benefit of using a balanced scorecard framework is that it gives every organization a tangible way to connect the dots between the various components of its strategic plan and management. Specifically, a balanced scorecard creates a visible connection between the projects and programs that people are working on, the measurements being used to track success, the strategic objectives the organization is trying to accomplish and its mission, vision and strategy. Each senior leader plays a role in identifying and driving their part of the scorecard. The senior executive’s/board’s mandate is to insure all of the puzzle pieces fit together. That is worth gold to any organization.
A balanced scorecard can enhance organizational engagement by providing line-of-sight between executive leadership and every level of the company. It achieves this by cascading organization-wide strategy, goals and measures to the tactical action plans and measures owned by people in the organization. This will allow every person in the company to clearly see how the work they are doing is essential to achieve the vision and mission. Accountability follows the objectives and measures, as ownership is defined at each level. That is powerful!
No matter if the executive governance of the organization is a nonprofit board, an elder board, a private equity board, a business owner or a for-profit board — balanced scorecards create a breadth of insight, accountability and transparency. When an executive governance body is actively engaged with executive leadership on the broad creation of the key strategic imperatives, you create an optimized and effective means by which they can exercise their fiduciary responsibilities, stewardship and oversight. That allows the executive governance body to bring the best strategic value possible
What Are the Key Steps to a Balanced Scorecard?
Let me start by saying this right up front: The entire executive governance body and leadership team must adopt using a balanced scorecard approach as a journey, not a destination, which will require discipline and continuous adherence from all parties. It simply requires full commitment. In my experience, the benefits far outweigh the effort.
Once you have executive alignment, what are the broad critical steps required?
- Clearly state and communicate the vision, mission and outcomes of the organization. Consensus is a must-have.
- Translate the mission and outcomes into specific strategic objectives and achievable operational goals.
- Identify an executive owner for each component of the strategic plan. This owner is responsible for clarifying the specific tasks and measurements (KPIs) that are part of each operational goal.
- Engage each member of your organization to link their individual work plan and expected (measurable) performance to specific tasks that are part of the operational goal tasks.
- Provide an executive and organizational platform to regularly review and interpret the metrics and adjust the organization’s strategy based on the feedback.
How Balanced is Your Scorecard?
In conclusion, I hope you can seize some vision for how a balanced scorecard could provide a clearer path toward both operational excellence and maximizing the impact of your organization. When this is done right, it is a powerful way to create alignment in an organization, which can provide even greater benefits when outside forces require it to pivot and alter current strategy.
I want to leave you with a few questions to consider:
- Which of the four areas of your organization need more clarity on success measures?
- How involved is your executive governance in setting overall strategy and how aligned are they on metrics?
- How engaged and aligned is each member of your staff with your strategic plan?
- How developed are your strategies and measures to build organizational health?
- Does each area of organizational activity and operational budget link to your core strategic outcomes?
Balanced scorecards are doable and effective, and they create value, align organizations and facilitate effective organizational governance. What's holding you back from a greater impact?
What's holding your nonprofit back?