Balanced Scorecard: Examples, Uses and Guidelines

1. The Balanced Scorecard – Definitions, Terminology, Model Structure

What Is a Balanced Scorecard (BSC)?

A balanced scorecard (BSC) is a business framework used to implement and manage an organization’s strategy. It examines internal business processes and external outcomes to determine how a company is performing and when corrective action is necessary. By measuring the effectiveness of operational activities and identifying areas of improvement, the BSC helps a company better align efforts with overall strategic plans. This is why the balanced scorecard can become such a powerful tool to drive organizational success.

Balanced Scorecard Short Glossary

When dealing with a balanced scorecard, the most frequent related terms that will come to your attention are:

• Objective – the high-level goal you have in mind;

• Measures – the means that allow you to determine whether you’re meeting your goals;

• Initiatives – the actions in which financial resources and efforts are invested to accomplish an objective and improve performance;

• Action items – the subtasks that help you complete your initiatives;

• Strategy map – a one-page visual depiction of an organization’s scorecard.

Understanding the Balanced Scorecard Model - the Four Perspectives

The traditional balanced scorecard model was introduced in 1992 by David Norton and Robert Kaplan, who took previous business performance metrics (exclusively financial) and developed them to include non-financial ones as well. By doing so, they created an adapted methodology that was published in Harvard Business Review’s article " The Balanced Scorecard – Measures That Drive Performance ".

The balanced scorecard model proposed by Norton and Kaplan

According to this reference paper, a balanced scorecard relies on the following four perspectives to monitor organizational health and support continuous improvement at the level of strategic performance and results:

• Financial – the perspective of the shareholders, which translates the goals that impact an organization;
  Typical measures used by for-profit companies include operating income, revenue growth, return on investment and equity, profit, fixed costs and other aspects of interest to the owners.

  Originally designed to be used by for-profit companies, the balanced scorecard became more widely accepted and adapted for other types of organizations as well (government, non-profits). Since the latter don’t have profit, the financial perspective was retitled “Stewardship” to refer to the management of funds and staff.

• Customer – how the customers experience and perceive an organization; it involves identifying your company’s facets that are important to your customers and support your financial standing; renamed as “Beneficiaries” or “Recipients” by non-profits and “Stakeholders” by government agencies or technology companies;

  This perspective examines a company’s activities from the customers’ point of view and compares its service to that of its competitors. Specific metrics differ from one industry to another, but most focus on time, quality and service levels, which makes customer satisfaction and enterprise responsiveness the most common ones overall.

  To gauge your customer’s perspective, a series of useful questions can serve as a starting point:

  • What is the feedback received from your customers?

  • How do you collect this feedback (surveys, review platform or other sources)?

  • What objective measure do you have for customer satisfaction?

• Business Processes – the key processes used to meet customer and shareholder requirements;

  This perspective inspects a company’s internal processes and supporting technologies to identify which of them can be improved and streamlined by removing inefficiencies and faulty aspects.

  Examples of areas tracked through the business process perspective of the balanced scorecard:

  • The time to take an order, onboard a new hire or complete other internal processes;

  • The percent of paperless and self-service (with no need for outsourcing) processes;

  • Setup time, cycle time, first pass yield and the time to launch a new product (manufacturing industry).

• Learning and Growth – also known as “organizational capacity”, this perspective looks at how a company fosters ongoing change and creates value; it considers the organization’s health in terms of how well knowledge is captured and how effectively employees put information to use to turn it into a competitive advantage over the industry.

  Relevant metrics for organizational capacity result from examining specific areas such as:

  • how well employees perform;

  • their skills;

  • training methods applied in a way that helps them grow;

  • tools employed to encourage and sustain innovation;

  • company culture;

  • leadership;

  • knowledge base.

2. How to Use a Balanced Scorecard – Purposes

Helping an organization both articulate and act upon its strategy, a balanced scorecard is most often put to use in the following ways:

• To provide an overall view over an organization’s big-picture goals

  Given that many companies focus solely on sales and expenses, a balanced scorecard (which tracks both financial and non-financial measures) reminds executives that other aspects – such as quality and service - are just as important.

• To reinforce good behavior in an organization and attain objectives that result from its primary functions

  By separately analyzing the four perspectives mentioned above, a balanced scorecard helps companies to identify factors that hinder business performance and outline corrective action within each “department”.

• To communicate the strategy across the organization

  A balance scorecard lays out a strategy map that communicates priorities and objectives to employees, customers, suppliers, and other stakeholders in a clear and concise way.

• To align an organization’s day-to-day activities, divisions and departments around a common strategy

  By identifying, measuring and improving various internal business functions and their external outcomes, a balanced scorecard links a company’s vision, mission and values to strategic measures, initiatives and targets. It also breaks down goals and metrics into business units, which helps all stakeholders understand how their projects contribute to the overall organizational success.

• To track and improve strategic performance

  A balanced scorecard monitors and measures progress towards strategic objectives, acting as a source of feedback on which managers and executives can rely to make better decisions for the organization.

• To facilitate business planning

  By providing clear metrics that stakeholders can interpret and use, the balanced scorecard serves as a guide for a better:

  - prioritization of enterprise projects and products;

  - implementation of strategy maps where value is added;

  - development of strategic objectives and initiatives.