Introduction
In today’s post-pandemic business landscape, organizations face unprecedented levels of competition, making it challenging to keep up with the ever-changing nature of the market. Consequently, organizations need a tool to ensure that they are navigating the changes effectively, aligning their strategies with their goals, and executing their plans efficiently. That’s where the Balanced Scorecard comes in. In this article, we’ll provide a comprehensive analysis of the key factors that impact the Balanced Scorecard, including the methodology, benefits, perspectives, framework, approach, and benchmarking. We’ll also explore the relationships between the four components of a balanced scorecard and the strategy map, and finally we’ll provide a Free Balanced Scorecard Template to better make informed decisions.
Table of Contents
- Introduction
- Why Balanced Scorecard is important
- What are the four components of Balanced Scorecard?
- When to use a Balanced Scorecard
- Balanced Scorecard in government organizations and HRM
- Balanced Scorecard with examples
- Conclusions
- Bibliography
Why Balanced Scorecard is important
The Balanced Scorecard was first introduced in the early 1990s by Robert Kaplan and David Norton as a performance management tool. It has since been widely adopted by organizations around the world. Today, it is still important because of the holistic view of the organization’s performance that is able to provide.
The Balanced Scorecard (herein abbreviated as BSC) also enables organizations to identify areas for improvement, measure progress towards achieving their goals, and communicate their performance to stakeholders (Kaplan & Norton, 1992).
This helps organizations to stay competitive and adapt to changing market conditions: this is absolutely crucial in today's landscape.
In light of this, the Balanced Scorecard is important because it can act as a powerful strategic management tool for organizations. But,
Is Balanced Scorecard methodology still relevant?
The methodology of the Balanced Scorecard is based on the premise that organizations should not just focus on financial metrics but should also take into account non-financial measures such as customer satisfaction, employee engagement, and process efficiency.
By incorporating non-financial metrics, such as customer satisfaction and employee engagement, organizations can create a more holistic view of their performance, which ultimately leads to better decision-making (Melnyk, Bititci, Platts, Tobias, 2002). Thus, the methodology is still relevant, especially if it is supported by Business Intelligence infrastructure and AI-based data-driven growth strategies.
Indeed, the Balanced Scorecard methodology involves creating a set of metrics, or KPIs (Key Performance Indicators), that reflect the organization’s strategic objectives across four perspectives: financial, customer, internal processes, and learning and growth. These metrics should assess:
- The company’s current state, so act as lagging indicators (output measurements);
- Future conditions, so act as leading indicators (predictive measurements).
What are the four components of a BSC?
As stated, the Balanced Scorecard framework consists of four perspectives: financial, customer, internal processes, and learning and growth. Each perspective represents a different aspect of the organization’s performance. These perspectives are:
Financial perspective
This perspective measures the financial performance of the organization. The financial perspective includes indicators such as revenue, cost, profit, and return on investment (ROI).
Customer perspective
This perspective evaluates the satisfaction of customers with the organization’s products and services. The customer perspective includes indicators such as customer satisfaction, market share, and customer retention rate.
Internal Processes
This perspective measures the efficiency and effectiveness of the organization’s internal processes. The internal process perspective includes indicators such as cycle time, defect rate, and process improvement.
Learning and growth perspective
This perspective measures the organization’s capacity to learn, innovate and improve. The learning and growth perspective includes indicators such as employee satisfaction, training and development, and innovation.
The core of this framework is represented by the organization’s vision and mission: they provide the long-term direction and are translated into specific objectives and measures for each of the four perspectives. Moreover, the BSC framework involves creating a strategy map, which is a visual representation of the organization’s strategic objectives and how they are interconnected. The strategy map helps to communicate the strategy to employees, and align their efforts with the organization’s objectives. Finally, it’s crucial to establish the action plans, that are developed to achieve the objectives of the Balanced Scorecard. They identify the specific actions to be taken, the responsible parties, and the timelines for completion.
This is essentially the general framework to follow in order to properly develop a balanced scorecard.
When to use a Balanced Scorecard
In general terms, the Balanced Scorecard should be used in order to align an organization’s activities with its strategy, and to monitor its progress towards achieving its objectives (Rigby, 2001).
Actually, there are further situations when a BSC turns out to have a great value. The Balanced Scorecard approach can also help to:
- Communicate the strategy to employees: The Balanced Scorecard approach provides a clear and concise way to communicate the organization’s strategy to employees. The strategy map and Balanced Scorecard help employees to understand how their work contributes to the organization’s objectives.
- Facilitate continuous improvement: The Balanced Scorecard approach encourages continuous improvement. It helps to identify areas where the organization can improve, and to develop action plans to address these areas.
- Benchmark: Comparing an organization’s performance to that of its peers. Benchmarking can be used to identify best practices and to improve performance. Benchmarking can help the organization to identify areas where it is underperforming, and to develop specific corrective actions.
- Allocate Resources: The BSC can be used to prioritize and allocate resources based on the organization’s strategic priorities and performance metrics.
- Change Management: The BSC can be used to track progress during change initiatives, such as mergers and acquisitions, new product launches, or process improvements. The BSC can help ensure that the organization stays on track and achieves the desired outcomes.
For instance, a company might want to focus on improving customer satisfaction by offering better helpdesk and ticketing.
Translating the BSC in actions could result in increased customer loyalty and retention, leading to higher profitability and shareholder value. Additionally, the process improvements required to enhance customer service might also lead to greater efficiency in internal processes.
Benefits are quite obvious: implementing the Balanced Scorecard approach can have a significant impact on organizations. By using the framework to develop and execute strategy, organizations can improve their overall performance (in terms of ROE/ROI), and achieve their strategic objectives (Neely, Adams & Kennerley, 2002).
BSC
Balanced Scorecard in government organizations and HRM
The BSC methodology is suitable for use in government organizations. In fact, many governments around the world have already implemented it to improve the efficiency and effectiveness of their operations.
The BSC can help governments to achieve their strategic goals by aligning their activities and resources with their strategic objectives. For example, a government may have objectives related to improving public health, reducing crime rates, and increasing economic growth. The BSC can help to track progress towards these objectives by using a set of key performance indicators (KPIs) that are aligned with the government’s strategic priorities.
However, it is important to note that the implementation of the Balanced Scorecard in a government organization can be complex and challenging, due to the large size and bureaucratic nature of many government organizations. Careful planning, stakeholder engagement, and effective communication are critical for successful implementation. Additionally, government organizations may need to tailor the BSC approach to their specific needs and context, as the standard Balanced Scorecard framework may not always be directly applicable.
A Balanced Scorecard (BSC) can also be a valuable tool in Human Resource Management (HRM) as it enables organizations to align HR initiatives with the overall strategic goals of the company.
Indeed, the Balanced Scorecard helps to identify the key HR metrics and initiatives that support the overall strategic goals of the organization. Moreover, BSC can be used to identify areas where improvements are needed, and track progress towards achieving HR goals (Tushman, O’Reilly, 2004).
According to the organizational structure adopted, the climate and the related culture, the Balanced Scorecard can also be used to improve communication between HR and other departments. This helps to ensure that HR initiatives are aligned with the needs of other departments and that there is a shared understanding of the strategic goals of the organization.
This is especially useful when the management goal is to promote collaboration and decentralization, as in the Adhocratic structure.
Balanced Scorecard with examples
Balanced scorecard can accommodate a wide range of metrics, including financial and non-financial ones, both short and long-term oriented (Ittner & Larcker, 2003). The balanced scorecard methodology was initially developed as a performance measurement tool for strategic management, but it has since been adopted by various organizations, including government agencies, non-profit organizations, and educational institutions. The balanced scorecard can be customized to suit the specific needs and goals of an organization, making it a versatile tool for measuring performance and aligning strategies.
10 real-life Balanced Scorecard examples are set out below:
| Company | Financial | Customer | Internal Processes | Learning & Growth |
|---|---|---|---|---|
| Nike | Revenue growth, return on investment, cost reduction | Customer satisfaction, brand perception, loyalty | Product quality, supply chain efficiency, innovation | Employee training and development, talent retention, diversity and inclusion |
| Nestlé | Revenue growth, profitability, asset utilization | Customer satisfaction, loyalty, brand perception | Product quality, supply chain efficiency, innovation | Employee training and development, innovation, diversity and inclusion |
| Apple | Revenue growth, profitability, asset utilization | Customer satisfaction, loyalty, brand perception | Product quality, supply chain efficiency, innovation | Employee training and development, innovation, diversity and inclusion |
| Amazon | Revenue growth, profitability, asset utilization | Customer satisfaction, loyalty, retention | Logistics efficiency, customer service, innovation | Employee training and development, innovation, diversity and inclusion |
| Coca-Cola | Revenue growth, profitability, asset utilization | Customer satisfaction, loyalty, brand perception | Product quality, supply chain efficiency, innovation | Employee training and development, innovation, diversity and inclusion |
| Netflix | Revenue growth, profitability, subscriber acquisition | Customer satisfaction, retention, engagement | Content creation and acquisition, customer service, innovation | Employee training and development, innovation, diversity and inclusion |
| Tesla | Revenue growth, profitability, production efficiency | Customer satisfaction, loyalty, brand perception | Quality control, supply chain efficiency, innovation | Employee training and development, innovation, safety and sustainability |
| CVS Health Corp. | Revenue growth, profitability, asset utilization | Customer satisfaction, retention, loyalty | Inventory management, process efficiency, innovation | Employee training and development, innovation, diversity and inclusion |
| Habitat for Humanity | Fundraising, resource allocation, program impact | Volunteer satisfaction, community involvement, impact | Program efficiency, project management, innovation | Staff training and development, diversity and inclusion, community outreach |
Note that this is just an example table, and the specific metrics and objectives used in a balanced scorecard can vary depending on the company and its strategic goals.
BSC Free Template
We can provide two version of a free balanced scorecard template:
- The first one here is an editable Google Sheets template that includes four key perspectives;
- Plus, here there is a printable PDF version that you can use to track your progress on-the-go.
Leave a comment below with the preferred version and you’ll receive the template.
Conclusions
The Balanced Scorecard is a powerful tool for developing and executing strategy. By using the framework to align individual efforts with the organization’s overall strategy, organizations can improve their overall performance and achieve their strategic objectives. In the 21st century, we expect the Balanced Scorecard to be integrated with BI solutions and KPI automated dashboard that can improve steering control and performance management as we know them.
Bibliography
ITTNER, C. D., & LARCKER, D. F. (2003). Coming up short on nonfinancial performance measurement. Harvard Business Review, 81(11), 88-95.
KAPLAN, R. S., & NORTON, D. P. (1992). The balanced scorecard: Measures that drive performance. Harvard Business Review, 70(1), 71-79.
MELNYK, S. A., BITITCI, U. S., PLATTS, K. W., & TOBIAS, J. (2002). Designing and implementing performance measurement systems. International Journal of Operations & Production Management, 22(2), 216-224.
NEELY, A., ADAMS, C., & KENNERLEY, M. (2002). The performance prism: The scorecard for measuring and managing business success. Financial Times Prentice Hall.
RIGBY, D. K. (2001). Management tools and techniques: A survey. California Management Review, 43(2), 139-160.
TUSHMAN M. L., O’REILLY C. A. (2004). The Ambidextrous Organization. Harvard Business Review (pp. 74-75).
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