The Basics of a Balanced Scorecard

If you’re in management or otherwise involved in strategic planning, you’ve probably heard about a balanced scorecard. But what is a balanced scorecard, anyway? The shallow definition is that a balanced scorecard takes into account financial and non-financial indicators when measuring the success of an organization or project. In truth, it’s more complex, and powerful, than that. 

Companies must measure more than financial performance. For the most part, financial performance is a measure of what has happened already. With a balanced scorecard you can get a better sense of where you are headed, as well as evaluate what has happened in the past. Other factors involved in a balanced scorecard could include things like customer satisfaction, product reviews, and inventory efficiency. These can all play a part in determining whether an organization is meeting its strategic goals. 

Balanced Scorecard Perspectives

A balanced scorecard can include four perspectives that offer an overall view of performance. These include learning and growth, internal processes, the customer, and financial. These are all the perspectives you need to properly track how your organization and projects are progressing. They are all interconnected as well. You might find that your revenues have been growing. However, if your customers are not satisfied, then you cannot expect that trend to continue. Also, if a part of your internal operations, such as your warehouse, does not have the people with the right knowledge and skill sets, then it will suffer and become a burden to your business. 

Reasons to Use a Balanced Scorecard

There are several reasons why organizations, from large corporations to government departments to small nonprofits, use balanced scorecards. Here are some of the most common and important. 

A Holistic View of the Organization

Sometimes executives and shareholders can get too caught up in the financial aspect of things. Everything is about dollars in and out, to the detriment of the other perspectives that make up a successful company or organization. Using a balanced scorecard reminds everyone of the grander scheme of things, so that decisions can be based on more than just the financial aspect. Not only that, but all of the interconnectivity between perspectives can be shared quickly and easily on one page. 

Clear Vision

All too often, when a company shares its vision or its strategies, the communication can be dense. The data could be filled with jargon or a jumble of numbers that many employees and other interested parties may not understand or want to be bothered to slog through. A balanced scorecard provides a clear and concise vision. It is easily digestible, and staff can quickly spot where they fit in within the structure of the organization. This keeps everyone engaged, on the same page, and working towards the organization’s goals. 

Metrics Connected to Goals

It’s important for everyone to understand why they are working to achieve the metric goals set out for their jobs. It’s easy to tell the warehouse manager that they must be more efficient in some way. However, without connecting to the overall goals of the company, you will be less likely to get buy-in. With a balanced scorecard, the warehouse manager will clearly understand why efficiency is important to their job, as well as to the strategy of the company. It might seem obvious that being more efficient is important in terms of cutting costs or providing products faster to customers. However, it might not be obvious to the warehouse manager, or they may not see the point if it significantly changes their day-to-day job. Connecting the metrics to the goal will help motivate and provide a reason to make changes. 

Planning and Strategy

Strategy development can be hard to envision when working with words and numbers. They do not truly capture the connections between perspectives and company departments. A balanced scorecard makes it simpler for everyone involved when developing strategy and planning for the future. Planners can see the metrics and rank projects in priority so that they can build timelines and understand where each section of the company will come into play. Sometimes the toughest part of developing a strategy is knowing what to downgrade in significance, and what to hone in on. 

Balanced Scorecard Development

It is not necessarily a quick process to create a balanced scorecard. It must include the input from several stakeholders, including management, employees, customers, shareholders, and other interested parties. Hold interviews, conduct surveys, and convene focus groups to get a better sense of what is important, and what everyone’s perspective is. That way you will have a wide-ranging set of options and viewpoints to add to your own to help develop your scorecard. After implementation, make sure to regularly review your progress based on your metrics targets to monitor your success. 

A balanced scorecard can be a powerful tool for organizational planning and strategy development. Make sure that if you use one, that you take the time to build it effectively so that you can take advantage of its many possible benefits.

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