September 23, 2017
 
Using the Nonprofit Balanced Scorecard

By Dylan Miyake

To thrive in an increasingly competitive environment, nonprofits need to think strategically by looking ahead, using leading indicators, instead of only looking back using lagging indicators. The Balanced Scorecard can help them do it.

The Balanced Scorecard was developed by Drs. Robert Kaplan and David Norton in 1992 to address a simple need: a more complete and balanced view of organizational performance. Their research helped shift the focus away from strictly backward-looking financial results to a more balanced system which monitors performance in the customer, internal process, and learning perspectives as well.

The ability to manage an organization’s strategy by measuring performance against key strategic objectives and understand the cause and effect linkages among them has revolutionized the way organizations are managed.

Mission Driven Organizations and the Balanced Scorecard

Mission-driven organizations have begun implementing the Balanced Scorecard management system at a much more rapid pace in the past few years. Increased competition for funding, volunteers, and membership, along with stricter reporting requirements from various constituents, are just a few of the reasons that mission driven-organizations are turning to the Balanced Scorecard.

Charitable organizations have long been without formal oversight that mandates external disclosure of results. However, increased competition for fundraising dollars, share of mind, and positive media attention has fostered a more competitive environment for these nonprofits. Many have noted that charities eager to get the dollar of the younger, more entrepreneurial investor will be forced to demonstrate a “return on investment.”

Sally Beaty echoed the views of many in a Wall Street Journal opinion article when she said, “It’s time to make sure our gifts are being used as intelligently as possible. Instead of showering hard-earned dollars on charities and hoping for the best, we need to demand, clear, detailed information on the results of their efforts.” Sophisticated investors have come to expect this kind of transparency. Charities will need to provide the same information if they are going to compete for donations.

Measures that Drive Performance

The Balanced Scorecard can be thought of as the “strategic chart of accounts” for mission-driven organizations.

It captures both the financial and the non-financial elements of an organization’s strategy, and discusses the cause and effect relationships that drive business results. It allows, for the first time, an organization to look ahead – using leading indicators – instead of only looking back using lagging indicators. The Balanced Scorecard puts strategy – the key driver of results today – at the center of the management process.

Central to the Balanced Scorecard management process is an idea called the “strategy map.” The strategy map is the cause and effect diagram of an organization’s strategy – designed to fit on one page and to “tell the story of the strategy.” Just this simple step of making the strategy tangible and communicating it out to the organization has helped untold nonprofits take the first step on executing their strategy.

Once the strategy map has been developed, it’s important to develop a system of measurement that supports the strategy. Since you can’t manage what you can’t measure, this step is critical to shifting the organization away from tactics towards strategy. A good Balanced Scorecard measurement system will have 15-20 strategic measures that monitor the performance of the strategy and answer the question “how effectively are we executing our strategy?”

Finally, once the strategy map has been developed and measures defined, performance gaps can be identified and projects created to fill the performance gaps. These projects – called initiatives in Balanced Scorecard-speak – answer the question “what must be done and when” and should be monitored on a continual basis.

At its core, the Balanced Scorecard is a simple idea – communicate, measure, and implement your strategy – but the power of it lies in its simplicity. If you can get your entire organization on one page, working toward a set of common measures and focused on a few key projects, you can rapidly and effectively execute on your mission and provide your funders and donors with transparent insight into how their funds are being invested.

The Balanced Scorecard has been the subject of six articles in the Harvard Business Review (HBR); four best-selling business books that have been translated into 19 languages, and numerous case studies and public conferences worldwide. The editors of HBR identified the Balanced Scorecard as one of the most significant management ideas of the past 75 years.

Dylan Miyake is managing partner at Ascendant Strategy Management Group, a consultancy focused on helping nonprofit organizations execute strategy with the Balanced Scorecard. For more information, please contact him at dmiyake@ascendantsmg.com or visit www.ascendantsmg.com.

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