Balanced Scorecard: The Right Tool to Successfully Translate your Strategies into Right Actions

What is a Balanced Scorecard

Throughout the existence of business organizations, financial measurement has been the traditional method. Setting financial goals and evaluating your business success based on the revenue gained sounds quite logical. However, the focus on the financial aspect alone doesn’t provide the full picture. To have a better understanding of a company’s standing and progress, businesses should embrace a more multifaceted and structured approach.

That’s where the BSC comes in. The balanced scorecard can be described as a carefully selected set of quantifiable measures that derive from an organization’s strategy. The BSC is also defined as a visual tool to measure the effectiveness of certain actions against your company’s strategic plans. The balanced scorecard methodology emerged in the result of the research of a dozen companies by Robert S. Kaplan and David P. Norton, who were looking for new methods of measuring performance.

The BSC system balances the accuracy of financial metrics with other drivers of economic success, like customer satisfaction and internal business processes. A 1999 Ernst & Young study revealed that “even for large-cap, mature companies, non-financial performance counts”. The same research also found out that non-financial aspects make up 25 percent of the investor’s decision to fund a business.

What’s more, the findings suggest that taking into account non-financial aspects usually results in more accurate earnings forecasts. Quite an attractive prospect!  So, what aspects does the BSC focus on?

The 4 Perspectives of the Balanced Scorecard

According to the BSC approach, we should view an organization from the following 4 perspectives:

• Financial
• Customer
• Internal Business Process
• Learning and Growth

The picture below represents the questions you should consider for each of the 4 perspectives of the balanced scorecard.

The 4 perspectives are mutually dependent. For example, if you train your employees (the Learning and Growth aspect), they will make your company processes run smoother (Internal Business Processes). Smooth operations within your company influence your customers’ satisfaction, and the more satisfied your customers are, the more the revenue will be (the Financial perspective).

Also, as the diagram implies, the balanced scorecard approach aligns a company’s strategy and mission with short-term goals. It translates the strategy into performance objectives, measures, targets, and initiatives. These can be organized for each perspective of the BSC in the table below.

How to Build a Balanced Scorecard

Though it may seem a bit complex at first, the balanced scorecard implementation lets businesses reap significant benefits. They include the so desired financial returns, alignment of your employees with overall goals, better collaboration, and a continuous focus on your company strategy. The structured approach of the BSC gives a better understanding of reality, which is the guarantee of success. So, how can you build your company’s BSC? The core steps of crafting and implementing the balanced scorecard approach logically derive from its structure and include:

• Defining your company mission and strategic vision.
• Setting objectives for the four perspectives of the balanced scorecard. 

Also note that even though the original BSC contained the 4 perspectives, your organization may require to customize this – substitute or include additional areas – to make your BSC most relevant for your business.

• Determining the cause-effect relationship between your objectives.
• Deciding on measures for each objective.

Make sure to use a professional tool for strategic planning like KeepSolid Goals to visualize your company’s balanced scorecard. KeepSolid Goals includes a collaboration feature, so you will be able to craft your BSC together with all the concerned parties.

Once your BSC strategic map is ready, share it with the necessary colleagues, partners, or employees, so that everyone is on the same page.

Conclusions

Today’s highly competitive environment requires businesses to take a multifaceted approach to performance management. The balanced scorecard is just the right strategic planning and management system that addresses the challenge. Combine the BSC approach with KeepSolid Goals, the strategic planning software, and begin your journey to success!