What is Balanced Scorecard?
The “Balanced Scorecard” is a tool developed by Kaplan and Norton, which is used to evaluate the effectiveness of strategic performance management. It basically is an addition to traditional financial measures to the strategic measures to get a more balanced view of the performance. It gives the organisations a direction to “connect the dots” between the various components of strategic management and planning. It gives them a link and a visible connect between the projects and programs people are working on, helping them to measure and track the success of Key Performance Indicators (KPIs), along with the strategic objectives, the mission, vision the organisation is trying to accomplish.
Uses of Balanced Score Card:
- Helps to communicate what the organisation is trying to accomplish.
- Align the day-to-day activities performed along with the strategy planned.
- Prioritize projects, product, and services.
- Monitor and measure progress towards the strategic targets.
Four Perspectives of Balanced Scorecard:
The four perspectives are critical for an organization’s success. These perspectives can always be tweaked and tailored as per your organization’s needs.
- Financial
- Customer
- Internal Processes
- Learning and Growth
1. Financial:
Financial perspective is the major focus of Balanced Scorecard. We must look at the traditional financial measures such as Return on Investment (ROI), growth, fixed costs, profits and so on.
2. Customer:
It is always fruitful to examine the organization’s activities from the point-of-view of your customers’ and stakeholders’ perspective. It is always good to know how your customers’ view your activities, get some reviews and feedback by performing some surveys for the same.
3. Internal Processes:
It is always necessary to examine the company’s internal processes to look for areas of improvement like
- Process improvements
- Quality optimisation
- Capital utilization.
This will help removing the inefficiencies and identifying the errors.
4. Learning and growth:
This perspective helps in examining the overall health of the company in terms of the junior employees regarding their growth and contribution to the organization, training employees for helping them compatible with the ever-changing technologies, using the latest tools and systems to foster innovation in the organization.
How to draw a balanced Scorecard?
Balanced scorecards are the easiest to create for your organization by adding the for perspectives that apply and are relevant to the organization.
- Determine the vision – The company’s main vision is placed in the centre of the balanced scorecard. We should always keep the vision / goal in mind.
- Add perspectives – place the four perspectives in a circle, around the vision.
- Add objectives and measures – in each perspective you need to define the specific objectives, measures, targets, and initiatives.
- Connect each piece – link each of the perspectives to others using the arrows to indicate they are interconnected for achieving the company vision.
- Share and communicate- here you can use the balanced scorecard to demonstrate how the initiatives and short – term actions are supporting to achieve the long-term objectives of the company.
Benefits of Balanced Scorecard:
- Better Strategic Planning:
You can build a powerful framework and communication strategy with the help of Balanced Scorecard. Strategy map is used to help managers for understanding the different strategic objectives and their relationships, which is visualised in a business model. Key enablers /drivers are identified for knowing the future performance, and the complete outcome of the strategy is known.
- Improved strategy Execution
We know “Communication is the key”. Understanding a strategy will help people execute it properly. One-page picture of the strategy allows the companies to easily communicate the strategy. This helps to engage the employees and the external stakeholders deliver and review the strategy. Also, it facilitates the communication of the strategy internally and externally.
- Improved Alignment of Projects:
The Balanced Scorecard helps mapping the projects and the initiatives to the strategic objectives, ensuring the initiatives and the projects deliver the strategic objectives as per the desired results.
- Improved decision making:
Designing Key Performance Indicators (KPIs) for various strategic objectives is performed using the Balanced Scorecard Approach. This approach ensures that the companies can measure what needs to be. BSC approach helps the companies to gather higher quality information for the management, which helps in better decision-making.
- Quality Performance Reports:
With the help of Balanced Scorecard, management reporting becomes more accurate. It helps to focus on the important strategic issues, by designing the performance reports using the Balanced Scorecard Approach for dashboards. This in turn helps the companies better monitor and execute their plans to achieve the strategic objectives. This also helps managers know which areas need improvement.
- Improved Organisation Structure:
To execute the plan, organisations must ensure that all the support functions and their business units are aligned to achieving the same goals. The Balanced Scorecard enables the companies to align their organisational goals along with the strategic objectives, helping to link strategy to operations.
- Improved Organisational Processes:
Proper implementation of Balanced Scorecard ensures proper alignment of organisational processes including risk management, budgeting, and analytics. This will ensure the organisation functions as per the strategy implemented.
How to Implement BSC (Balanced Scorecard)
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