What is a Balanced Scorecard?

When it comes to gauging an organization’s health, the financial bottom line is often the go-to metric. But what if there’s more to the story?
The Balanced Scorecard (BSC), is a revolutionary tool that offers a broader perspective on performance. Through the BSC, businesses can translate their mission and vision into actionable indicators spanning customer satisfaction, daily operations, staff development, and of course, finances. The meaning of the Balanced Scorecard, as its name suggests, provides a balanced view of an organization’s performance. It goes beyond just financial numbers, emphasizing that elements like continuous learning, efficient processes, and a focus on customers are equally essential for a business’s long-term financial well-being. It also ensures that every task performed today is in sync with tomorrow’s goals.

Definition of Balanced Scorecard

The Balanced Scorecard (BSC) is a strategic management tool that provides a comprehensive view of an organization’s performance by measuring it from four key perspectives: financial, customer, internal processes, and learning and growth. It goes beyond traditional financial metrics, aiming to give a more holistic view of an organization’s health and strategic alignment.

The History of the Balanced Scorecard

Robert S. Kaplan and David P. Norton introduced the Balanced Scorecard in 1992. They believed that while old businesses focused mainly on financial numbers, modern companies needed a broader view to address their varied goals and challenges.

The Benefits of the Balanced Scorecard

The Balanced Scorecard (BSC) lays out goals tied to strategic priorities in finance and non-finance. The next step is figuring out how to measure progress. It plans specific tasks or projects to meet those goals only after that. This unique sequence ensures that every project directly supports the strategy and doesn’t waste resources.

The Balanced Scorecard (BSC) is a tool companies use as a strategic planning and management tool for several key reasons, such as:

• Communication

It clearly states the company’s goals, ensuring everyone understands the objectives.

• Alignment

The BSC ensures that daily tasks and activities directly support the company’s overarching strategy.

• Prioritization

It helps organizations determine which projects, products, or services should be focused on for strategic success.

• Monitoring

With BSC, companies can regularly check their progress, ensuring they’re on track to achieve their strategic targets.

The Four Perspectives of The Balanced Scorecard

Financial

How do we look to our shareholders? This touches upon revenue, profitability, and growth metrics. Links lower-level objectives to guide investments.

Customer

How do customers see us? It delves into customer satisfaction, loyalty, and retention rates. Emphasizes understanding customer needs.

Internal process

What processes must we excel at? This evaluates the efficiency of business operations and the quality of products/services. Highlights areas for innovation.

Learning and growth

Can we continue to improve and innovate? This looks into employee training, corporate culture, and other avenues for organizational growth. Targets improvement and value creation.

For each perspective, goals are defined, after which measures are set to track progress towards those goals. Subsequently, initiatives (actions to achieve the goals) are outlined, and success indicators are identified. The end product, the BSC, serves as both a performance monitor and a strategic guide, ensuring alignment of day-to-day operations with broader organizational aspirations.

Who uses the Balanced Scorecard?

Companies everywhere, from businesses to nonprofits to governments, use the balanced
scorecard approach. It’s a favorite tool of many top companies in the US, Europe, Asia, and beyond. It’s so popular that a Bain & Co survey ranked it among the top ten management tools globally.

Real-world Examples of Companies That Use the Balanced Scorecard Framework

The following Balanced Scorecard examples show how diverse companies spanning various industries employ the balanced scorecard framework tailored to their specific needs and strategic objectives.

Apple Computer

In the 1990s, Apple used the balanced scorecard to shift its emphasis from being solely a product-focused company to becoming a customer-centric one. They introduced customer satisfaction metrics and began conducting global surveys to track key market segments. They also emphasized core competencies like user-friendly interfaces, powerful software architectures, and effective distribution systems.

J.D. Power & associates

While they’re more known for providing scorecards, J.D. Power gives companies in various industries a balanced scorecard. They measure and report on customer satisfaction, product quality, and loyalty, offering industry benchmarks.

Tata Consultancy Services (TCS) – Library & Information Services function (LIS):

Started in 1970, the LIS function used the BSC approach to track its performance. They regularly evaluated their librarian’s knowledge to align with business domain expertise and tracked the network growth of their libraries.

Volkswagen

The automobile manufacturer implemented a balanced scorecard to align its strategy with operations and check if they’re achieving its goals. They used it to improve product quality, enhance customer relations, and streamline internal processes.

Tesco

The UK-based retail giant Tesco used the balanced scorecard approach to redefine their strategy in the early 2000s. They focused on four key perspectives: the customer perspective (like customer satisfaction and loyalty), operations (store formats and stock levels), people (employee development and training), and finance (profit margins, sales growth).

How to Create a Balanced Scorecard?

Creating a balanced scorecard (BSC) is a strategic activity that helps organizations align their day-to-day activities with their broader goals and objectives. Here’s a step-by-step guide:

Define your organization’s vision and strategy.

Start by outlining your organization’s vision, mission, and main strategic goals.

Identify the four key perspectives

• Financial Perspective: Understand how financial success looks for your organization.
• Customer Perspective: Focus on customer needs and satisfaction.
• Internal Process Perspective: Examine your core processes and operational efficiency.
• Learning and Growth Perspective: Look into your organizational growth, learning, and innovation.

Develop objectives for each perspective.

These can range from boosting annual revenue (financial) and enhancing customer loyalty (customer), to streamlining product delivery (internal process) and improving employee training programs (learning and growth).

Choose metrics and KPIs

Tangible KPIs might include aiming for a 15% ROI (financial), increasing customer retention by 10% (customer), reducing product delivery time by 20% (internal process), or amplifying training sessions by 50% (learning and growth).

Set targets for each KPI

Decide on specific, measurable targets for each KPI to ensure they are aligned with your strategic goals and are realistic yet challenging.

Identify Initiatives to achieve targets.

To boost revenue, consider diversifying the investment portfolio. Enhance customer loyalty through a loyalty program, streamline product delivery with a new inventory management system, and improve employee training by introducing an e-learning platform. Each initiative directly supports specific objectives and KPIs, creating a focused approach to strategic growth.

Link initiatives and KPIs to budget and resources.

Allocate necessary resources (human resources, money, or technology) for each initiative to ensure effectiveness.

Implement the BSC

Deploy the BSC throughout the organization. Ensure everyone comprehends the significance of the BSC and their roles in realizing the broader goals.

Monitor, Report, and Review

Consistently track progress on KPIs. Utilize the BSC for routine strategic evaluations, modifying objectives, KPIs, or initiatives based on performance or any shifts in the organization’s strategy or the wider environment.

Iterate and Improve

Remember, the BSC isn’t static. As your organization grows and evolves, frequently revisit and tweak your scorecard to make sure it stays aligned with your latest strategy and objectives.

The strength of the BSC doesn’t just lie in its design but in its regular use, continuous evaluations, and the dedication of the entire organization to its strategic objectives.