The Balanced Scorecard: An Innovative Strategic Management System

A few weeks ago we ran an article entitled “Measuring Success: Knowing When You Have Truly Arrived” where we discussed the importance of recognizing how you define success so that you can better measure it. Having a system whereby you quantify and qualify your status is crucial in achieving true success. Unfortunately, most measurement systems require you to look to the past in determining your success rather than the future. The Balanced Scorecard is a forward-thinking measurement and management system that could help you improve your tax practice’s health.

The Balanced Scorecard is an approach to strategic business management that was developed in the early 1990’s by Doctors Robert Kaplan and David Norton as a means of enabling businesses to activate their vision and strategy in order to improve performance and results. On their website, The Balanced Scorecard Institute, they describe their system as follows:

“The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age companies must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation.”

The Balanced Scorecard suggests measuring four business perspectives in order to develop a business strategy that will improve the future of your business.

The Learning and Growth Perspective

Kaplan and Norton say, “learning and growth constitute the essential foundation for success of any knowledge-worker organization.” You and your employees must constantly be learning more about the tax industry in order to advance and grow. Often this requires a paradigm shift as business owners put more emphasis on training opportunities. This can come in the form of professional programs and designations that you provide for both you and your employees. It can also come in the form of mentoring programs you establish within your own programs, enabling employees to learn from you and their colleagues.

The Business Process Perspective

This perspective refers to internal business processes and metrics designed to measure this perspective which will enable you to see how smoothly your business is running. To determine a metric for the Business Process Perspective you must determine how well your services are conforming to customer needs, which is related to the next perspective.

The Customer Perspective

Customer satisfaction is a leading indicator of business success, because if your clients are not satisfied, it won’t be long before they leave your practice in search of another practice that will satisfy their needs. Measuring this perspective requires you to determine the different types of clients you serve and how your services satisfy their needs.

The Financial Perspective

This is a perspective you should know well. In additional to traditional financial measures, the Balanced Scorecard also requires one to look closely at risk assessment and cost-benefit data. Kaplan and Norton argue that the problem with traditional management and measurement systems is that too much emphasis is placed on financial analysis; this leads to an unbalanced business. However, when this perspective is measured with the other three perspectives, you’ll be more likely to enjoy a healthy and balanced tax practice.

It’s important to expose yourself to different and innovative approaches to strategic business management. This is one you just might want to consider.

References
Averson, Paul. “What is the Balanced Scorecard?” 1998. The Balanced Scorecard Institute.
“Balanced Scorecard Behaviors.” BNET.com. A & C Black Publishers.