There are many management tools that seem to have amazing applications. One of them is considered to be one of the most influential business ideas – Balanced Scorecard. BSC, also called Balanced Scorecard in Polish Scorecard, enjoys global popularity. It is a tool for managing business results that combines vision with strategic goals, measures, targets and initiatives. However, the Balanced Scorecard is not yet fully understood or used by managers. What exactly is the Balanced Scorecard, how to use it and what benefits does it bring to the organization?
What is Balanced Scorecard?
As explained by the Balanced Scorecard Institute, the Balanced Scorecard was designed by Dr. Robert Kaplan and David Norton as a performance measurement framework that added a strategic, non-financial performance measure to traditional financial metrics. The goal was to provide managers and employees with a more balanced view of an organization’s performance. Originally, scorecards were primarily used in the for-profit sector. This is where organizations defined strategic priorities and then developed key performance indicators to monitor them. However, more recently, the Balanced Scorecard has also been adopted by the public and non-profit sectors. Organizational leaders also use the BSC to explicitly communicate vision and strategy.
Main perspectives in Balanced Scorecard
The traditional Balanced Scorecard presents the organization from four perspectives.The organization then develops specific goals that meet each perspective and collects data for each. What exactly are these perspectives and what questions should you ask about each one?
1. Financial perspective – What do you want to achieve in terms of profits? Where do you want to increase your revenue? What value do you want to return to shareholders? To what level should costs be reduced?
The financial perspective is presented using financial measures that enable the assessment of the strategy in terms of finances. It determines the economic condition of the company and how the implemented strategy affects this condition.
2. Internal business process perspective – How well does the company perform and do the processes result in products and services in line with customer requirements?
This Balanced Scorecard perspective is presented using indicators relating to processes that create value for the customer.
3. Customer Perspective – What goals should be considered to increase customer satisfaction with the products and services provided? How to improve public perception of your organization?
The purpose of this perspective is to define the market segment in which the company wants to compete. The measures used here should reflect the company’s contribution to customer service and their level of satisfaction.
4. Learning and development perspective – How to improve development in an organization? What should employees learn to increase business performance
Metrics presented in this perspective should show the basis for the long-term development and improvement of the entire company.
Remember that no company is associated with these specific four perspectives. Using the Balanced Scorecard, you are free to develop your own perspectives, depending on what is important to the success of the organization. For this reason, organizations began to move away from the traditional charter and developed others related to specific goals. Over time, the Balanced Scorecard has evolved to provide companies with not only performance measurements, but also what needs to be done and measured. Currently, the final scorecards are assessed through data interpretation and opportunities for improvement are then explored. Such an assessment allows you to define key issues
organizational performance indicators, defining data sources for the BSC and collecting them all in one place.
Benefits and main advantages of Balanced Scorecard
Organizations that use the Balanced Scorecard approach tend to perform better than organizations without a formal approach to performance management. The biggest benefits you will receive from using this method are:
- A better planned strategy
Firstly, the business model built using the Balanced Scorecard is visualized in strategic maps, which forces you to think about cause and effect relationships. The process of creating such a map ensures the achievement of strategic goals.
- Improve communication
Consequently, the fact that the strategy, with all its related goals, is mapped on a single piece of paper allows companies to easily communicate about the strategy internally and externally. This frees up employee involvement and accelerates goal achievement.
- Improvement of management information flow
The Balanced Scorecard ensures that companies measure what really matters to the organization. Companies using BSC can improve their processes within the company. And, as a result, the quality of strategic decisions is higher.
- Modified performance reporting
Companies using the Balanced Scorecard tend to report and communicate results better than organizations without this structured approach to performance management. The Balanced Scorecard approach helps companies identify what needs to be reported, and the strategy map template is an effective way to visualize performance.
The benefits listed can have incredible implications for a company. However, they will not be realized if the Balanced Scorecard is implemented half-heartedly . Also if, it is not made clear to the entire company during implementation.
The topic of Balanced Scorecard is very extensive and discussed through various sources – in films, books, the Internet. We recommend the official website Balanced Scorecard Institute to deepen your knowledge in this area. However, if you want to take a look at the current business situation of your organization and your development as a leader or verify your own business strategy, please contact us: info @perfectcircle.pl.
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