Google BSC the Balanced Scorecard Is a

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Google BSC

The balanced scorecard is a concept used in strategy to bring about a sublime alignment of different stakeholder interests within an organization. The concept arises from the understanding that shareholders are just one of many stakeholders for a given organization. For the organization to sustain success, it must be able to meet the needs of all critical stakeholders. Thus, the most effective strategy will create a symbiosis between the interests of different stakeholder groups. The balanced scorecard is an output-based perspective, with the outputs being in one of four different categories -- financial, internal business process, knowledge and innovation, and customer. This perspective is the opposite of the traditional approach that only places the interests of shareholders (i.e. The financial interests) as important in the business. It is understood, in the balanced scorecard, that financial interests are most effectively met when all of the other interest are met as well. Google is an example of an organization that today is meeting the myriad interests of its critical stakeholders. Google, thus, is a shining example of balanced scorecard-style management, and serves as an excellent case study for understanding the concepts that underlie the balanced scorecard approach.

Four Steps

Kaplan and Norton (2000), the creators of the balanced scorecard, have developed what they see as the optimal four-step process for implementing the balanced scorecard in an organization. The four steps are to watch a variety of metrics, to connect the metrics to strategy, to develop a "strategic budget" and then to involve the organization in tracking the metrics. Each of the categories within the balanced scorecard should have metrics, and those metrics need to be aligned with the overall strategy. The strategic budget concept specifies that the organization should "authorize the initiatives necessary to attain scorecard targets" (Kaplan and Norton, 2000). Measuring the metrics ensures that the metrics play the valuable role in strategic control.

Google -- the Metrics

The financial element of the balanced scorecard is probably the easiest component for most organizations, because all corporations look at financial metrics already. In that sense, Google probably has a number of internal and external metrics. External metrics tend to be highly standardized and widely understood -- revenue, market share, gross income, net income, EBITDA, EPS, share price and a variety of financial ratios. Within these, the company must arguable choose to focus its energies on the most important. Google certainly wants to maximize its revenues, net income, and share price, as these are the basic measures that shareholders look at when evaluating a company.

On these, to this point, Google's performance has been exemplary. The company's numbers are such that they are self-explanatory: A market cap of $381 billion, EPS of $21.02, $59.8 billion in revenue with $12.9 billion in net income (MSN Moneycentral, 2015), 5 of the world's top 20 websites including the #1 (Alexa, 2015), and dominant market share in its industry (eMarketer, 2014).

In terms of internal business processes, the company will have a number of different metrics that it uses. These might not be known to the public. Google will definitely evaluate the efficiency of its ads -- clickthroughs in particular. The company will also have metrics that measure how well it turns over its accounts receivable. Some financial measures, especially managerial efficiency and return measures like return on assets or return on capital employed, would also provide indications of the company's internal business processes.

Knowledge and innovation -- the organizational capacity measures -- are critical for a company like Google. One of the ways in which this company will build for the future is by diversifying its business. To that end, it would probably want to look at non-advertising revenue as a percentage of total revenue. The number of copyrights and patents that it owns -- especially the latter -- will also reflect on its capacity. In many companies, advanced degrees are also a measure, but that is something that Google downplays (Andersen, 2014).

Customer metrics are also critical, as customers are central to the business. Market share, and share growth, are both reflections of this. But Google can also measure repeat customers, average revenue per customer, and it can take polls of customer satisfaction as well, as all of these reflect the degree to which Google is meeting the needs of its customers.

The theory behind the balanced scorecard is that the company will direct its resources not towards meeting one or two of these objectives, but all of them, and this will create a shift in strategy that will result in sustainable competitive advantage for the company.

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Google is a fine example of a company that, through the use of the balanced scorecard or not, has been able to excel in all of these metrics.

Connect Metrics to your Strategy

The second step is the most important aspect of the balanced scorecard, and success in this step reflects the difference between a company that truly excels and one that merely pays lip service to the concepts that underlie the balanced scorecard. As Kaplan and Norton (2000) note, KPIs are "just collections of good things to do." To effectively implement the balanced scorecard, the metrics need to be linked to strategy. This requires the company to understand, inherently, the links between the different elements of the scorecard. The ability to think critically and creatively simultaneously is an essential skill to devising strategy that legitimately connects the elements of the balanced scorecard together with strategy.

At Google, the company competes with a differentiated strategy. This means that it wants to be the innovator, and to compete by having a superior service offering to its competitors. The different tactics and strategies that Google has undertaken basically form a positive feedback loop that links the different elements of the balanced scorecard. The company began with great minds, and built a superior search engine. This met the needs of one customer group -- to have a better search engine. From there, Google developed its advertising capabilities, gathering information from its searches and selling that data to advertisers. As Google's share of search increased, it had more data, and the statistical robustness of the data allowed Google to deliver advertising placements that were more effective than those of competitors (Reeves & Deimler, 2011). So the needs of paying customers are being met.

Google then reinvested the profits it earned through this manner in order to continue to be the innovation leader in the field. It built a reputation as one of the best companies to work for, not just in terms of pay and perks, but also as a matter of prestige -- you would work with only the best people if you worked for Google. This allowed the company to continue to be the innovation leader. In turn, by dominating its industry, Google has also met every financial objective it could ever have thought up. With that money, it can continue to attract the best talent by outbidding every other company, and provide that talent with the resources needed to maintain the company's innovation leadership. In this, Google has a strategy that is not only aligned with the balanced scorecard approach, but creates a feedback loop that delivers sustainable competitive advantage for the company.

The Strategic Budget

A critical element in the balanced scorecard approach is to allocate resources. This may be easy for Google today, since it has $58 billion burning a hole in its wallet, but earlier in the company's life it needed to be very deliberate with the way that it allocated its resources. Even today, it needs to allocate its human resources in such a way that it is able to meet its balanced scorecard objectives. The strategic budget for Google initially would have focused on building the advertising business, but the company recognized early on the that advertising business would only thrive if it continued to be the search leader, so that is the area of the business that had the greatest emphasis.

Google also allocates its human resources in a different way, for much of its life offering them the opportunity to work on their own personal projects 10% of the time. This policy not only allowed the company to attract better people, but it led Google in a few different directions, such as to Android and Chrome, where Google employees wanted to solve problems that they were having. These two products now serve to further gather data for the company, which it can convert to even greater strategic advantage. The 10% strategy in particular had no obvious financial benefit. It is the sort of strategy that comes from the balanced scorecard approach. On the surface, it does not seem to deliver financial value, but the company knew that it needed to get the best people to work for it, and it also knew that eventually good projects would grow out of this allocation of human and financial resources. There was precedent -- companies like 3M and W.L. Gore have long utilized….....

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