Given that we work in the mission-driven sector (governments, education, associations, and nonprofits), I receive a lot of questions about the Balanced Scorecard in this area. How can a for-profit concept apply in the nonprofit space? Does the Balanced Scorecard support nonprofits? Isn't this a management framework that puts financials at the top of the strategy map? Little do people know that even in the 1996 book on the Balanced Scorecard by Drs. Norton and Kaplan, there is a section on nonprofit organizations.

Of course, nonprofits need to modify the strategy map to meet their needs, just like government agencies do. Neither of these organizations is in business to make money, so the financial perspective cannot be at the top of the strategy map.

The traditional for-profit strategy map has four perspectives. At the top of the map is the financial perspective. It shows how you create value for an organization. Typically there is a combination of revenue growth and cost management that creates enterprise value. Beneath that is the customer perspective. This is typically written in the words of the customers, but it also describes why a customer would choose your company and it would demonstrate customer behavior. Typically, you would have measures that would show what customers say and what they do. Of course, if you keep your customers happy, then they buy more from you and you make more money.

The Internal Process Perspective comes next. Here we see the key activities that you need to do well in order to make your customers happy and to manage costs (or the regulatory and safety environment as well). Sometimes these activities are put into themes or categories. Beneath the internal process perspective is Learning and Growth, and here we focus on the skills, culture and infrastructure of your organization. So, if you have the right people, working in the right environment, focused on the right activities, you will make your customers happy and grow your enterprise. Easy right?

It is easy, and it is easy because it tells a simple story. For nonprofit organizations, the key is to tell the simple story with your strategy map. One way to do this is to balance constituent needs and financial demands. Another way is to put financials at the bottom of the scorecard. Let's look briefly at both.

Financials with Constituents

At the top of a mission-driven scorecard, you typically find the mission. Ideally, all strategic activities directly and indirectly link up to the mission. Beneath the mission, you sometime see the customer and financial perspective side-by-side. Customers can be called constituents because typically they are not buying things in the tradition of the for-profit organization. Financials are at the top next to the constituents because an organization is trying to give the constituent as much as they can while balancing the financial money that they have. In healthcare, for example, you may be trying to provide your constituents with the best quality of life or quality of care. This is balanced with the resources you have. Beneath these two perspectives is the internal process perspective. Here you would expect a combination of activities that affect the constituents as well as those that affect the finances. Things that affect finances are operational efficiency and fundraising. If you do a lot of fundraising in your nonprofit, this is a good example of a map structure that might work.

Financials at the bottom

Of course, if your financials are a given, or if they are very strong, you may find that the story doesn't work as well with financials at the top. You may want to put financials at the very bottom. In this scenario, you are saying that the financial wherewithal of the organization is the foundation for having the right people doing the right things to satisfy our constituents, which help achieve the mission. I've seen financially strong associations use this model as well as school districts. Schools tend to have the majority of their funding determined by the state, and thus they see finances as a given or a resource to be invested appropriately.

So, what is the right way?

This is a good question, but hard to answer. The right strategy map, is the one that does the best job of communicating the strategy of the organization. At our upcoming Mission-Driven Summit 2012, we'll have one organization present a strategy map with the finances down the entire side because they believe that finances allow them to execute on all aspects of the strategy. The map should be seen as a communication device and you need to figure out the best way to use this device to communicate to your internal (staff, volunteers, and board) and external (constituents, donors, funders) what your strategy is and how you plan to achieve your mission.

We will be having a strategy map contest at the upcoming summit in March to give you even more ideas about mission-driven maps.

• My Balanced Scorecard and the Theory of Constraints (September 9, 2010)
• Are You Lost Without a Map? (November 7, 2008)