Sound strategic planning is critical for an organization’s success because it helps define and communicate what the organization wants to accomplish and the steps necessary to get there. Unfortunately, less than 10% of strategies are effectively executed according to Fortune Magazine. Further, success is often defined primarily in terms of dollars raised which can be a narrow and short-term outlook to measuring how well a strategic plan was executed.

To effectively and comprehensively execute a strategic plan, organizations should create a balanced scorecard. A balanced scorecard, often displayed as a table, is an operational performance management tool that lists measures of success from four organizational perspectives: learning and growth, internal processes, customer (or in the case of nonprofits, funding source), and financial.

An example of a balanced scorecard for a small shelter:

Organizational Perspective	Learning and Growth	Internal Processes	Customer (Funding Source)	Financial
success measured by	# of seminars attended	# of meals served	# of new donors referred by existing donors	amount of money raised from new donors

 

R.S. Kaplan and D.P. Norton, some of the earliest proponents of the balanced scorecard, discuss its characteristics and merits in the article, “Using the Balanced Scorecard as a Strategic Management System.”

The four perspectives of the balanced scorecard are interlinked

Learning and Growth >Internal Processes >Customer >Financial

For an organization to be financially successful, it must be successful at supporting customer needs. For example, to effectively raise money, an organization must understand and satisfy the philanthropic goals of their donors. To satisfy the goals of donors, internal processes such as providing client services require both effectiveness and efficiency. Lastly, learning and growth (e.g. attending seminars) of employees must be supported to better serve clients. In supporting the learning and growth of employees, a process begins that eventually leads to organizational financial success.

What are the benefits of a balanced scorecard to nonprofit organizations?

Saves costs and resources

According to Professor Clinton Free of the Queen’s School of Business, quantifying a strategic plan into measureable terms results in the development of success markers that can be tracked. By reviewing these trackers, an organization can more quickly and conveniently determine whether or not a strategic plan is working. If the plan isn’t working, then organizational adjustments can be made before problems accumulate, costs increase, and resources drain.

Balances competing concerns

Kaplan and Norton state that perspectives that are often in competition (e.g. short-term vs. long-term goals, financial vs. non-financial goals) with one another are incorporated into the scorecard and are thus balanced. This is important because if we only focused on financial goals, for example, we deemphasize the value of continual employee learning and growth. Similarly, if we only focused on non-financial goals, we would deemphasize the importance of fundraising in helping our organization be sustainable. The scorecard ensures that all of these perspectives are simultaneously addressed.

Builds capabilities in the short-term for future growth

The follow-up benefit of balancing competing concerns is building the capacity necessary for sustainable organizational growth, say Kaplan and Norton. Since the balanced scorecard framework recognizes the importance of learning and growth, employees that attend seminars or workshops, for example, can become more effective at their jobs leading to organizational financial success over the long term.

Quickly and clearly communicates strategic plan to multiple stakeholders

According to Kaplan and Norton, the balanced scorecard is not only a measurement tool, but also a communication tool. The scorecard can be used to communicate strategic vision throughout an organization that includes its board members, employees, volunteers, donors, and clients. Thus, the scorecard helps get everyone aligned and on the same page.

Aids in performance management

Since the scorecard facilitates transparency across the organization, accountability also increases which helps with employee performance, according to Kaplan and Norton. Therefore, the scorecard also becomes a performance management system that encourages employees to prioritize tasks in alignment with the scorecard. Further, the scorecard facilitates consistency between the organization’s mission and daily actions.

How do you develop and execute abalanced scorecard?

1. Translate the organization’s strategic plan into goals that fit under the four perspectives

If the organization’s strategic plan hasn’t been reviewed in awhile, this would be a good time to revisit and clarify the organization’s direction for the next three to five years. Once the plan has been reviewed and finalized use it to determine what goals need to be achieved under the four perspectives.

These are just some of the questions that can be asked to help determine an organization’s goals. Based on the strategic plan, what does it mean to achieve financial success? For the “customer” perspective, what are the key funding sources (e.g. grants, monthly donors, legacy giving)? How will we keep these customers happy? For the internal processes perspective, what will need to be done to effectively serve clients? How will we determine if we’re meeting their needs appropriately? For the learning and growth perspective, what are we doing to ensure that employees are gaining knowledge that will help the organization run more effectively and efficiently over the long term?

Throughout the translation process, facilitate engagement and gain consensus from all stakeholders. Collect feedback from all levels including the board, employees, volunteers, donors, and clients. This demonstrates recognition of their importance to the organization and also eases implementation later in the process so nothing is a shock or surprise to anyone.

2. Develop measuresto track how well the organization is meeting its goals

Although balanced scorecards can become lengthy and complex, your organization’s scorecard doesn’t have to be. Especially for smaller organizations, it’s good to keep the scorecard simple with one measurement per perspective. As staff becomes accustomed to the tool and the organization grows, additional measures can be added. For medium-sized organizations, it is recommended that two to four measures be used as a starting point. Larger organizations can use five or more.

Kaplan and Norton describes effective measures as being valid (i.e. accurately represents what is being measured), clear, having benefits that outweigh their costs, and available on a timely basis.

For example, a small shop has a goal to diversify its donor base. Therefore, an effective measure would track “of total money raised, the percentage that came from donors who have never given to us before.”

3. Communicate the scorecard by linking itto departmental and individual performance

This step is more appropriate for medium to large-sized organizations that actually have departments, but this step can still be executed by small shops that are looking to fully leverage the balanced scorecard. Now that the balanced scorecard has been developed for the organization, the measures need to be linked to departmental and individual performance so that there is ownership and responsibility for the measures, say Kaplan and Norton. For example, financial perspective measures could be owned by fundraisers whereas internal processes measures could be owned by program managers.

Reach consensus as to when the scorecard will be used to measure departmental and individual performance. It is recommended that measurements take place quarterly or semi-annually.

4. Set targets, create an action plan and allocate resources

According to Kaplan and Norton, once ownership of measurements has been achieved, each department or individual will have to develop targets to achieve by the mutually agreed upon measurement date. Then, an action plan to reach those targets should be formulated to ensure success. Finally, be sure to allocate the appropriate budget and number of people to execute the action plan.

For example, looking at the small shop that wants to diversify its donor base, the organization’s fundraiser would set a target of “30% of total money raised is from donors who have never given to us before -to be achieved within six months.”An action plan item could include asking for donations from small businesses located in the vicinity of the organization.

5. Review, learn, and revise

On the mutually agreed upon measurement date, use the scorecard to determine if targets have been met. Even if targets have been met or exceeded, it is recommended that a review of the action plans occur anyways to ensure that the right things keep getting done! If targets haven’t been met, review what could have been done better. Perhaps more budget allocation, more people, or more effective action itemsis required. Further, this is an opportunity to determine if there are synergies and best practices to share among the perspectives for cross-organizational support. If targets are consistently not being achieved across the four perspectives, then perhaps a review of the scorecard or strategic plan itself is warranted. A scorecard should be reviewed yearly regardless. Further, whenever a strategic plan is revised, the scorecard should be revised to reflect those changes.

Variations of scorecards

There are scorecards that use different terminology or link the perspectives in a different order. Regardless, the theme of using scorecards to achieve organizational success from multiple and balanced perspectives is always present. Further, there’s also a tool called a strategy map, which is derived from the balanced scorecard and is used to further emphasize the links among the four perspectives. The National Marrow Donor Program successfully implemented a strategic map to drive organizational efficiency.

Scorecard considerations

Professor Free mentions a few considerations when using the balanced scorecard. First, avoid using too many measures. The KISS (keep it simple, silly) principle even applies to scorecards! Second, avoid using just the balanced scorecard to measure success. Continue to use other tools, such as donor satisfaction surveys, in addition to the scorecardto track success.

The successful use of balanced scorecards in nonprofit organizations

There are many examples of the successful use of balanced scorecards in nonprofit organizations including Kenya Red Cross, the Indianapolis Museum of Art, National Marrow Donor Program, and Teach for America.

Measurement doesn’t have to be challenging or complicated. By translating strategic plans into balanced scorecards, you can create an effective and comprehensive roadmap for organizational success.

John Paul de Silva holds an MBA from the Queen’s School of Business. He is also managing director of Social Focus Consulting which provides affordable solutions to Toronto-area nonprofits. He can be reached at JohnPaul@SocialFocusConsulting.ca or on Twitter @goSocialFocus.

Photos (from top) via iStock.com. All photos used with permission.