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The economics of a firm, its management, and further development planning pose a big challenge to many owners and managers of companies. One must take into account a lot of information, much of which very often cannot be reliably estimated. And this leads them to rely on their own judgement and intuition. To make important business and strategic decisions one can use figures given by economic indicators; in this article, we would like to show you one of the modern methods for extraction of this kind of information.
This method is called Balanced scorecard (BSC). It was born in the 1920s out of cooperation of researchers from the Big Four and academics from Harvard University. This method is primarily used as a tool to measure performance efficiency of a company while reaching into its strategic direction as well.
The process of using this method is as follows: a company has to determine the way it wants to reach long-term goals. From these strategic goals result constituent goals which must be met first. When the company manages to determine these main and constituent goals, comes the last and most important part of the whole process: determination of measurable data which will indicate how good or bad the company is doing on the road to reaching its goals.
The name itself gives away what the method consists of. A company determines an indicator which is then monitored and its “score” is watched. The score can mean fulfillment or non-fulfillment of the pre-determined value, alternatively the percent that has been fulfilled. If the pre-determined value is not met, measures to fulfill it are taken. Of course, there are more than one indicator.
The individual measurable data stems from four areas:
However, we cannot talk about a specific form of indicators when we talk about choosing them. That is because the environment, conditions and other influences are different for every company and that is why the indicators must be chosen individually. But in general terms we can say that different indicators will be monitored by production companies than by companies providing services.
We would now like to mention in short the indicators that can be monitored in companies providing services. The following indicators can, theoretically, be used in advising companies of all kinds, whether they provide economic advice or legal advice, and similarly in marketing, advertisement, or PR agencies. In relation to the customer the indicators might be: the time necessary to reply to a customer, customer’s satisfaction, repeated request by the customer to receive the service, success rate of different methods of contact with the customer, and others. In these companies the strongest pressure is put on productive hours, that is hours of work directly for the customer which he or she pays for. On the other side there are hours used for internal needs of a company which do not bring any income to the company. It is also useful to keep an eye on fluctuation, overtime, and sickness rate of employees.
Thus, every company chooses its own indicators it wants to monitor, based on its individual needs, and also the figures that should be reached. An important condition for the data to provide a correct estimation is that the monitored criteria is set correctly. It is then possible to monitor how the pre-determined figures are reached and based on that make fitting managerial or other strategic decisions. It is important to understand the nature of the given business and mainly the goals which are to be reached.
Today, we have summed up one of the options for your managerial decision making. If you have any questions about these issues, do not hesitate to contact our firm. In the next article we will focus on the use of the BSC in production companies and after that on the SWOT analysis which focuses on evaluating the present and future internal and external environment of a company.
Author: Zbyněk Švejcar
