The Balanced Scorecard (BSC) is a strategic planning and management system that organisations use to align business activities to the vision and strategy of the organisation, improve internal and external communications, and monitor organisation performance against strategic goals.
The BSC provides a framework for organisations to translate their mission and strategy into a set of performance measures that are balanced across four perspectives: Financial, Customer, Internal Processes, and Learning & Growth. These four perspectives provide a balanced view of an organisation's performance, ensuring that financial measures are not the sole focus.
The Balanced Scorecard was developed in the early 1990s by Drs. Robert S. Kaplan and David P. Norton. They were both professors at the Harvard Business School and were concerned that traditional financial measures were not sufficient to measure a company's performance. They believed that financial measures only provided a historical view of an organisation's performance and did not take into account other important factors such as customer satisfaction, internal processes, and learning & growth.
In response to this, Kaplan and Norton developed the Balanced Scorecard, which was first introduced in the Harvard Business Review article "The Balanced Scorecard - Measures that Drive Performance" in 1992. The article quickly gained popularity and the Balanced Scorecard became widely adopted by organisations around the world.
How to Use the Balanced Scorecard
Using the Balanced Scorecard involves several steps:
- Define the organisation's mission and strategy: This includes identifying the organisation vision, values, and long-term goals.
- Identify the key performance perspectives: These are the four perspectives of the Balanced Scorecard: Financial, Customer, Internal Processes, and Learning & Growth.
- Develop performance measures for each perspective: This includes identifying the specific measures that will be used to track performance in each perspective.
- Set targets for each performance measure: This includes identifying the desired level of performance for each measure.
- Establish initiatives to improve performance: This includes identifying the specific actions that will be taken to improve performance in each perspective.
- Monitor and review performance: This includes regularly tracking performance against targets and making adjustments as necessary.
Typical use cases for the Balanced Scorecard include:
- Strategic planning: The Balanced Scorecard can be used to align business activities with the organisation's vision and strategy.
- Performance measurement: The Balanced Scorecard can be used to monitor and track performance against strategic goals.
- Communication: The Balanced Scorecard can be used to improve internal and external communication by providing a clear and concise view of the organisation's performance.
- Continuous improvement: The Balanced Scorecard can be used to identify areas for improvement and to track progress over time.
The Balanced Scorecard is a powerful tool for strategic planning and management. It provides a framework for organisations to align business activities to the vision and strategy, improve internal and external communications, and monitor organisation performance against strategic goals.
Balanced Scorecard Strategic Use
By focusing on four key perspectives, financial, customer, internal processes, and learning and growth, the BSC offers a balanced view of an organisation's performance, enabling managers to make informed decisions and drive continuous improvement.
Financial Perspective: The financial perspective of the BSC focuses on measuring an organisation's financial health and performance. This includes traditional financial metrics such as profitability, return on investment, and shareholder value. By tracking these metrics, organisations can ensure they are financially sustainable and can fund their strategic objectives.
Customer Perspective: The customer perspective of the BSC focuses on understanding and meeting customer needs and expectations. This includes metrics such as customer satisfaction, customer loyalty, and market share. By monitoring these metrics, organisations can identify areas for improvement in their customer relationships and ensure they are delivering value to their customers.
Internal Process Perspective: The internal process perspective of the BSC focuses on optimising an organisation's internal processes and operations. This includes metrics such as process efficiency, quality, and innovation. By tracking these metrics, organisations can identify opportunities for process improvement, reduce waste, and increase efficiency.
Learning and Growth Perspective: The learning and growth perspective of the BSC focuses on an organisation's ability to learn, adapt, and grow. This includes metrics such as employee satisfaction, skills development, and knowledge management. By monitoring these metrics, organisations can ensure they have a motivated and skilled workforce, and are well-positioned to adapt to changing market conditions.
Best Practices & Common Pitfalls
To maximise the impact of the Balanced Scorecard, it is essential to follow best practices and to avoid common pitfalls.
- Establish Clear Objectives: Before implementing the BSC, it is essential to establish clear strategic objectives for the organisation. These objectives should be specific, measurable, achievable, relevant, and time-bound (SMART). By setting clear objectives, organisations can ensure that the BSC is aligned with their strategic goals and that everyone is working towards the same end.
- Select Relevant Metrics: When selecting metrics for the BSC, it is important to choose those that are relevant to the organisation's strategic objectives. Metrics should be easy to measure, relevant to the organisation's goals, and aligned with its values. By selecting relevant metrics, organisations can ensure that the BSC provides meaningful insights into their performance.
- Communicate and Engage: To ensure the success of the BSC, it is essential to communicate and engage with all stakeholders. This includes employees, customers, suppliers, and investors. By involving everyone in the BSC process, organisations can ensure that everyone understands the organisation's strategic objectives and how their work contributes to achieving them.
- Regularly Review and Update: The BSC is not a one-time exercise. It is essential to regularly review and update the BSC to ensure that it remains aligned with the organisation's strategic objectives. This includes updating metrics, setting new objectives, and engaging with stakeholders. By regularly reviewing and updating the BSC, organisations can ensure that it remains a valuable tool for monitoring performance and achieving strategic goals.
By following best practices and avoiding common pitfalls, organisations can ensure that the BSC is aligned with their strategic objectives and provides meaningful insights into their performance. With a clear focus on financial, customer, internal processes, and learning and growth perspectives, the BSC offers a balanced view of an organisation's performance, enabling managers to make informed decisions and drive continuous improvement.
