Leveraging Leadership

Balanced Scorecard Basics: Financial and Non-Financial Metrics for Leaders

• Emily Sander • Season 1 • Episode 140

Share episode

Emily Sander talks about using the Balanced Scorecard to improve business strategy. She explains how it can help align teams, balance financial and non-financial elements, and focus on both short-term and long-term goals. Emily also previews upcoming discussions on financial, customer, internal process, and learning and development perspectives.

Links Mentioned:


Free Resources:


Get in touch with Emily:


Who Am I?
If we haven’t yet before - Hi👋 I’m Emily, Chief of Staff turned Executive Leadership Coach. After a thrilling ride up the corporate ladder, I’m focusing on what I love - working with people to realize their professional and personal goals. Through my videos here on this channel, books, podcast guest spots, and newsletter, I share new ideas and practical and tactical tools to help you be more productive and build the career and life you want. 


Time Stamps:
00:00 Introduction to the Series
00:57 What is a Balanced Scorecard?
01:21 Who Should Use a Balanced Scorecard?
02:04 Emily's Experience with Balanced Scorecards
02:57 Aligning the Organization
04:18 From Control to Strategic Focus
07:24 Balancing Financial and Non-Financial Elements
08:08 Balancing Short-Term and Long-Term Goals
09:40 Leading and Lagging Indicators
10:48 Successful Teams and Companies
10:54 Sneak Preview of Next Episode
11:39 Conclusion and Next Steps

Speaker:

this episode, I want to kick off a multi part series or a multi episode series about operationalizing strategy through the lens of balanced scorecard. Balanced, uh, sorry, one quick note. If you are listening to this, there is also a YouTube version and I have some visuals that go along with this episode or these episodes. So you can check that out if you want to afterwards, if you're like, I'm on the go, I'm driving. I can't check that out later. No problem. I will walk you through everything that, uh, that we go through. All right. So Emily, what is this balance scorecard? You speak of balance scorecard is a strategic planning methodology, and it's much more than just a tracking template or KPIs or metrics. Those things are included in balance scorecard, but think of it like, a philosophy or an ethos or just a system. So a holistic system dynamic. So if you are a CEO, chief of staff, executive who need a strategic planning system that works, you might consider balanced scorecard. If you already have something in place like OKRs or EOS or something else, then I would still encourage you to listen to this. And just here are some of the elements that balance scorecard talks about. And you might already be doing them, which is great. And if you can. Incorporate some that sound good or sound like they would be effective in your company at this particular time. Then, then it's valuable too. If you're like Emily, I'm sitting here at a startup. We got nothing. Like give me something. I'll give you a balanced scorecard. And if you're like, I want to do that soup to nuts and that's great too. All right, so here we go. Oh, by the way, I have used balanced scorecard twice. So I have used balanced scorecard at the company that I was chief of staff at. And I also used it as at a company prior to that. And those two Versions of balance scorecard were very different and they were both effective. So there is some flexibility, adaptability, and customization that can go along with this. but just throughout this series, I would encourage you just to listen, soak up what's relevant and valuable to you. And then you might not do anything official like, Hey team, we're moving to balance scorecard now. Or, Hey, we're officially like bolting on this one piece of balanced scorecard. You might just infuse the balanced scorecard kind of spirit into things. So in conversations or how you tee things up or the Perspectives you bring up or the prompts you give to teams, those types of things. So I would listen, I would listen for that if nothing else. All right. One of the main tenants of balance scorecard or one of the main outcomes is it aligns the organization. And I know that's a buzzword and kind of something everyone says, but the visual I have here is of there's two. Big fat arrows with little individual arrows within each of those two fat arrows. The first fat arrow, it has the individual arrows going every which direction in it. So it's like up, down, left, right, diagonal. And that might be where you are today. Or that might be where you feel like you are today, where everyone is going every direction, we're pulling against each other. Left hand doesn't know what right hand is doing. We're going in circles. The second big arrow is where all the individual arrows inside of it are moving in the same direction. And they're all aligned. So everyone and all the energy and all the focus and all the time and all the resources are moving in the same direction and they're moving together. So if you can resonate with, Oh my gosh, we've got people going this way and that way. And we have people going in circles by themselves in their own little silo. And you want to get closer to, Oh, Everyone is rowing in the same direction. Everyone knows what everyone else is doing. We are all aligned. then you are in the right place and this might be for you. Okay. The other main tenant that balance scorecard espouses, I think that's right. Espouses is transitioning teams and cultures from a traditional control process to more of a strategic focused management process. Okay. In the control process, you have a strategy and that's typically thought up by one person or a group of, a small group of people in an ivory tower and it's lightning bolted down to the rest of the organization. It's like, here's the strategy. I don't know where, how they came up with that, but this is our strategy. Okay. And then the filter that is used to cascade that strategy down to the organization are the budgets that are assigned to people and it's sometimes it just feels so forced and you can feel this in companies where it's like I'm going to jam this strategy through the budget and it's like a square peg in a round hole and if you've been in one of these organizations you've got like Control like reporting and control through budgets. You have isolated measurements. You have single function information. All this stuff is going on. It's kind of like black and white. It's dreary. It's, you know, it's like bland. It's not a fun, vibrant place to work. Whereas if you have more of a strategic focus management system, you have the strategy. Yes, indeed. And that's done by maybe a small group of people, but they have input and feedback from their. In that conversation, they talk about it in a way that is what's best for the company. What's best for us as a group, not just individually. And that's how they, that's how they come up with a strategy. The vision and mission is clearly communicated to the rest of the organization and the filter that the strategy is. Cascaded down to the rest of the org is balanced scorecard or something similar. So this other layer besides budgets and through that you get things like learning and feedback or emphasis on the team. So a shared model, you get integrated measurements. You have cross functional information, um, like night and day difference from the control, the control example. So you've got this strategic focus. You've got the strategy through the balance scorecard filter. You're translating strategy into operating terms. You're making strategy a continuous process. So it's not just one and done at the beginning of the year. It's an ongoing, continuous, fluid two way street conversation dialogues happening all across the organization. And, and you make strategy everyone's job strategy is not just quote unquote leadership's job. It's everyone's job. Across all teams. If you're in product, you're part of the strategy. If you're in compliance, you're part of the strategy. If you're in accounting, you're part of the strategy. If you're in sales, you're part of the strategy. If you are a board member, you're part of the strategy. If you are a new hire, you're part of the strategy. Strategy is everyone's job. And everyone is plugged into that and excited about that. And they feel like they can contribute and, and shape that strategy as well. Okay. So the second main tenant is traditional control process to strategic focus management process. All right. Some of you might be going, Emily, you've said balance scorecard. What the heck is that thing balancing? Great question, Camper. So the first thing it's balancing is financial and non financial elements. Another way to say that isn't is tangible and intangible elements. So intangible might be things like employee skills or motivation or how adaptable a team is, or customer loyalty, things like that, that are just a little bit intangible. Balance scorecard says, look, you have to have finance. That's the language of business. And they call that the accounting model in their world. So the equation they, they put out there is accounting model plus intangibles equals balance scorecard. So you have to have both, but. People more often focus on the financial and just let everything else drop off. You have to have both. Okay. The next thing it's balancing is short term and long term. And I would hazard to guess that most people listening to this have been around and felt the pressure for short term results. If you're at a public company and have quarterly earnings reports, if you are working with a monthly board meeting that you have to, um, report out on those types of things can just drive certain types of decisions. If you have a company where everything is a fire drill, everything is important right now. So I'll stop everything and do this. This customer is screaming and you do a short term stopgap exercise in lieu of The long term strategy and putting these, it's almost like you have to have different layers and they're staggered. You have to have the long term play, and then you got the medium term stuff. And then you have the short term stuff. You have to be doing all of it. You can't have one or the other, but a lot of times companies will get pressure for those short term financial metrics and it can cause. Reduce spending on things like new product development on databases, on systems. Sometimes this stuff isn't that sexy, but it's necessary for long term success. So you might think about this in terms of, Hey, where's my team at? Where's our company at in terms of balancing short term and long term. And I will tell you if a company or a team focuses on short term forgoing all long term considerations for too long, they will no longer be around. You just, you just can't do that. So you have to be able to do both. All right. the last thing is balancing here is leading and lagging indicators. So what inputs or actions cause the desired outputs or results is your team, is your company considering both leading and lagging indicators or is it all lagging indicators? So like we want this output. And so we're just going to measure this over and over and over again. We're just going to talk to our people about this over and over and over again. But it's like, okay, that's, that's the effect. Like, what's the cause? Have you talked about like, what causes that? No. Well, then think about, okay, if we want that result, what are some things that we know work to get us there? What are some hypotheses or theories that we say, Hmm, you know what? I think if we did this. A little bit differently. Or I think if we added this step or removed this whole thing, this whole layer between us and the customers, we'd get closer to that result, or we'd get more of that result and experiment with it. But you have this baked into both the spirit of conversations With your teams and also the measurements. So are you measuring the leading indicators as well as the lagging indicators? And are you trying to map the cause and effect and correlation between those two things? So successful teams, successful companies have leading and la lagging indicators built in. Alright, so little sneak preview for next episode are the four perspectives, sometimes called themes or elements. I've also heard like legs of a stool type of thing. But anyway, there's four. I'm going to call them perspectives that Balance Scorecard has, and these are the hallmark perspectives, financial, customer, internal process, learning, and development, financial, customer, internal process, learning, and development. So we're going to deep dive into each one of those in an upcoming episode and also talk about Why Kaplan and Norton, who are the people who came up with balanced scorecard, chose those four and the cause and effect between those four. So why those four perspectives? And we'll get to that next time. I'll catch you next week on leveraging leadership.