Tuesday, November 1, 2011

Utilizing the balanced scorecard in a nonprofit setting

As I read this week’s articles on the strategic planning process and evaluating current performance, I was drawn to the use of the balanced scorecard. I had read about this briefly in my Project Management class last mini, but we glossed over it for lack of time and thus I did not have the opportunity to understand it fully. Reading about it in this week’s “Using the Balanced Scorecard as a Strategic Management System” by Kaplan and Norton it appears to be a strong tool for balancing financial measures with nonfinancial areas, as well as linking short-term activities to long-term objectives in a way that facilitates feedback and learning.

The continued focus on financial aspects made me curious as to how the balanced scorecard can be applied to nonprofits, and if any changes to the tool are necessary in order to do so. An article (1) by the British performance management firm 2GC posits that “challenges facing non-profits using Balanced Scorecard stem mostly from the increased complexity of stakeholder demands and the potential variability of these requirements over time, when compared to for-profit organisations.”

Apparently there have been a number of generations of balanced scorecards, and the most recent – 3rd generation – is considered most applicable to nonprofits. This is primarily because it incorporates a “destination statement” (a one or two page description of the organization at a defined point in the future, typically three to five years away, assuming the current strategy has been successfully implemented) and a strategic linkage model that derives from this statement.

The role that the balanced score card can serve as a strategic management system is particularly useful for nonprofit organizations. As institutions with generally limited resources and a minimal focus on HR, intentional management systems often fall by the way side. By combining institutional strategy, business unit strategy and individual performance into one tool, it is ideal for the time and resource-strapped nonprofit.

At the same time, I am left wondering how the balanced scorecard benefit of assisting in identifying and eliminating nonstrategic investments can apply to a nonprofit that determines its “investments” (or programs) by following the money. When a call for proposals is put out by a funder, many nonprofits will apply even if it is only tangentially related to their work; this is their way of staying alive. How does a balanced scorecard prioritize these two issues?

(1) 2GC Active Management. (2008) “Frequently Asked Question: Can I apply Balanced Scorecard to my Non-Profit Organisation?” http://www.2gc.co.uk/pdf/2GC-FAQ8.pdf

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