Balanced scorecards are used to measure organizational performance based on decided criteria. There are several benefits of a balanced scorecard. In this article, we will explore the advantages of a balanced scorecard and understand what the purpose of a balanced scorecard is.

This method was developed by Dr. Kaplan at Harvard University. Since the idea came to light in the early 90s, it has become more popular, as many organizations have understood the use of a balanced scorecard.

Statistics prove that organizations that understand the importance of a balanced scorecard often do much better than those without a strategy-based performance management approach.

Let’s examine a few benefits of a balanced scorecard.

 

  1. Improved Strategic Planning

  2. Improved Strategy Communication

  3. Aligning Stakeholders

  4. Improved Measurement And Reporting

  5. Organizational Alignment

  6. Aligning Processes

 

1. Improved Strategic Planning

One of the advantages of a balanced scorecard is that it allows organizations to create a structure for their strategy. A strategy map is drawn out for the business model.

Being able to create a clear strategy allows management and the organization as a whole to look at the goals and understand which objectives are impacting more, and which ones are impacting less.

More priority can be given to the strategies that create a more positive impact,

A team comes together to plan and debate how the strategies will affect one another, and then a final plan is decided. The focus is on the outcomes of the effort and key drivers of performance. This helps create a full picture of the strategy.

 

2. Improved Strategy Communication

A snapshot of a business’ strategy ensures that all the stakeholders understand what the plan is. Passing the information is, therefore, easy and efficient. A balanced scorecard avoids miscommunication, and it makes it easy for everyone to understand the information.

It’s vital for everyone involved in a strategy to be well-informed about it so that they’re aware of the role they play.

A complicated, unnecessarily drawn out strategy is difficult to communicate effectively. A balanced scorecard solves that problem.

 

3. Aligning Stakeholders

People understanding the strategy is one thing, but making sure that everyone involved is taking steps to participate in that strategy is the only way for it to succeed.

It is a lot more difficult for an organization to achieve its goals if its key stakeholders are all working towards different objectives. The first step in ensuring that all stakeholders are working towards the same goals, is to make sure they all understand the goals.

The purpose of a balanced scorecard is to make sure that organizations and the people in them are working toward the same goal. Having the goals clearly mapped out helps everyone understand what they need to do.

 

4. Improved Measurement And Reporting

Making performance easier to measure shows the importance of a balanced scorecard. Specific key indicators and business objectives can be categorized using a balanced scorecard. Understanding performance and where the organization stands in relation to its goals helps keep the focus on results.

Using a balanced scorecard also helps organizations design more effective reports and metrics dashboards. Key concerns and objectives can be addressed and resolved quickly.

Having the right data and being able to monitor it well is another benefit of a balanced scorecard to put stricter measures on maintaining quality.

The reports that come back contain more concise information that helps management. This ultimately helps organizations make better decisions.

 

5. Organizational Alignment

Another purpose of a balanced scorecard is to help organizations align their organizational goals with strategic business goals. This allows all the functions of an organization to come together and focus on the same goals.

Ensuring that all business functions have access to and understand the balanced scorecard is important in achieving this objective.

 

6. Aligning Processes

Budgets, risk management strategies, and analytics can all be focused on the balanced scorecard strategies. 

The closer each process is aligned towards meeting the same goal, the higher the chances are of achieving that goal.

Aligning processes means that everything that the business does is focused on the same goal.

 

Important Things To Remember

Now that we understand the benefits of a balanced scorecard, there are a few important points to keep in mind.

 

  • The scorecard must be tailored to an organization.

You cannot use a generic template and expect to get results. While this is time-consuming, it’s crucial while creating a balanced scorecard.

  • There are various ways to use the balanced scorecard method. Understanding what works best for your organization is very important.

 

  • Management has to understand the importance of a balanced scorecard and may even have to learn how it works.

 

Having talked about the benefits of a balanced scorecard in helping management make the right decisions, it does require management to buy into it.

  • Accurate and sufficient data is also required to create a balanced scorecard. This can take serious effort and time.

 

While this is tedious, it’s key to ensuring that the balanced scorecard works.

Conclusion

A clear understanding of a balanced scorecard is important to be able to implement this performance management method effectively.

Performance management is vital to ensure an organization’s success. Coming together as a team and ensuring that the organization meets its goals can take a lot of effort.

Harappa’s Managing Teamwork course delves into how teamwork can be improved and helps students understand all the benefits of a balanced scorecard and how it can be implemented. Check it out now!

 

 

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