13 th INTERNATIONAL SCIENTIFIC CONFERENCE ON PRODUCTION ENGINEERING –CIM2011 Croatian Association of Production Engineering, Zagreb 2011 ALIGNING BALANCED SCORECARD WITH ORGANIZATION STRATEGY Sabahudin Jašarević, Alan Lisica, Darko Petković Dr.sc. S. Jašarević, Faculty of Mechanical Engineering, Fakultetska 1, 72000 Zenica, B&H A. Lisica, Economic d.o.o. Vitez, PC 96, 72250 Vitez Dr.sc. D. Petković, Faculty of Mechanical Engineering, Fakultetska 1, 72000 Zenica, B&H Keywords: Balanced Score Card, strategy, organization performance, AHP Abstract BSC has become one of the most popular metodologies for measuring organization performance and translating strategy into understandable set of measures. The challenge of measure selection is one of the principal obstacles to effective BSC implementation. Much of the BSC related literature has remained at the framework level. The purpose of this article is to address the measure selection problem and to propose the use of a Analytical Hierarchy Process to address the problem more effectively. The main objective of this research is to propose a methodology that will support existing measurement framework during the process of design. 1. INTRODUCTION What you measure is what you get. Organization’s performance measurement system strongly affects the behavior of managers and employees. Traditional financial measures can give misleading signals for continuous improvement and innovation activities. They worked well for the industrial era, but they are out of step with the skills and competencies companies are trying to master today. The complexity of managing an organisation today requires that managers are able to view performance in several areas simultaneously. The goal of a performance measurement system is to help direct the allocation of resources, to assess and communicate progress toward strategy, or to evaluate managerial performance. In order to have validity, performance measurement must derive from the strategy of the organization. The strategic management process does not end when the firm decides what strategy (ies) to pursue. There must be a translation of strategic thought into strategic action. A key challenge in management is making all parts of the organisation work in line with the strategies. The Balanced Scorecard (BSC) proposed by Kaplan and Norton has been accepted by the business world, as a set of measures that gives managers a fast but comprehensive view of the business. BSC complements the financial measures with measures on customers, internal processes, and the organisation’s learning and growth activities – operational measures that are the drivers of future financial performance. Therefore, it enables companies to track financial results while simultaneously monitoring progress in building the capabilities and acquiring the intangible assets they would need for future growth. Later on, it’s founders described the way of using their model as an integrated system of the whole strategic planning process. The major challenges in BSC design are the selection of measures. What still remains vaguely explained is the operational (practical) connection of the BSC model to the strategic planning and performance measurement process. BSC is essentially a conceptual model, and as such, researchers and practitioners have difficulties defining measures, and aligning BSC with organization strategy, since this was not established clearly. Although there is an abundance of literature on the BSC framework, there is a scarcity of literature on how this framework should be properly implemented. The purpose of this article is to address the measure selection problem and to propose the use of a multi-criteria approach to address the problem more effectively.The main objective of this research is to propose a methodology that will support existing measurement framework during the process of performance measurement system design and to advance the decision-making process. The ambition is to demonstrate a method that could easily connect directly the various performance measures of a BSC with the stated goals and objectives of any firm. Specifically, it explains how the multicriteria method of Analytical Hierarchy Process (AHP) could practically facilitate this connection. It analyses how a firm could arrange the various performance criteria in such a way that could be capable of controlling its stated goals and objectives through the implementation of its strategy. In this paper, we implement the BSC using the AHP.