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The balanced scorecard is a system that helps in strategic management and planning. It is a system that identifies and corrects the internal business system to enhance the external outcome based on it. With the help of balanced scorecards, companies can:
- Inform about what and why they are doing something
- Have an overarching strategy and align everyone’s work with it
- Increase focus on the products, services and projects
- Keep a watch on the achievement of strategic goals and targets
The idea behind using the term “balanced scorecard” is to bring a balanced perspective to strategy and work. A balanced scorecard perspective helps the organization and the leaders ensure that all aspects of business are kept in check and in sync. It helps to establish a clear link between the project, its measurement metrics and the strategic goals of the organization.
Apart from business organizations, governments and non-profit organizations also deploy the balanced scorecard approach to achieve a balanced view of their work. The balanced scorecard was also listed as one of the top five business and management tools by Bain & Co. in a recent survey.
Balanced Scorecard Perspectives
There are four perspectives of a balanced scorecard. These four perspectives can be understood as the four key areas in which the balanced scorecard elicits organization and efficiency. Thus, they are separately monitored and analyzed. These areas are:
- Finance
- Customers
- Internal Business Processes
- Learning and growth
These 4 perspectives of a balanced scorecard are interconnected hierarchically. The main aim of most organizations is to achieve enhanced financial results. This is made possible when there is a focus on learning and growth within the organization. Learning and growth enhance the internal capacity of the organization. With enhanced internal capacity, the company can focus on enhancing internal processes, which affect the external outcomes. The external outcomes are directly linked with customers and other stakeholders. Better external outcomes will lead to greater customer and stakeholder satisfaction. All these combined increase the financial outcome. Thus, a balanced scorecard streamlines activities in these four areas to achieve the strategic objectives.
The balanced scorecard collects and analyzes information from these four areas. Here’s what is analyzed:
- Financial Information: Sales, expenses and income data are collected and evaluated for performance. The financial metrics used may be the country’s actual currency revenue, such as dollars, the budget variance, the financial ratios and the income targets.
- Customer Perspectives: Customers are requested for their stories through survey forms and interviews. The data collected is analyzed to understand the customer experience regarding the availability, quality and price of products and services. This information gives a peek into the level of customer satisfaction.
- Internal Business Processes: To achieve great quality and innovation, it is important that the manufacturing and operational processes are streamlined and functioning optimally. It is important to collect information about delays, bottlenecks, and any kind of wastage or shortage of resources; furthermore, establish ways to avoid the same.
- Learning and Growth: The gaps in training and knowledge are identified through employee surveys and feedback. It is important that the employees are trained in the relevant and latest technologies and methods to attain optimum performance from them. Employees are provided learning and growth opportunities. The measurement is done through the hours of training collated, and the number of certificates achieved.
Balanced Scorecard Examples
We have gained an understanding of the balanced scorecard perspective. Now we will look at some balanced scorecard examples. The following steps are needed to develop a balanced scorecard:
- Have a vision for the future
- Set strategic goals and objectives
- Define success factors
- Establish performance indicators and metrics
- Finalize action plan
Companies can use the above steps to gain insights into any of these balanced scorecard perspectives. For example, if a bank wants to enhance its financial output, it will need to identify gaps in customer service. For this, the bank can commission customer surveys or request customers to fill feedback forms. These surveys and forms have questions about bank visit satisfaction, wait times and delays, politeness and knowledge of employees, etc. With the help of this information, the bank can organize training for employees or launch new products and services as per customer requirements.
Let’s look at a more specific example of a balanced scorecard. Craft Brewery wanted improvements in all four areas of the balanced scorecard. The established the following objectives for the four areas:
- Financial – Revenue increase
- Customer – Increased customer ratings
- Internal business processes – Increased sales channels
- Learning and growth – Staff with enhanced skills
To fulfill the above objectives, Craft Brewery established specific quantifiable goals such as a 10% revenue increase, 15% average increase in customer purchase, 30% sales through new channels and 100% trained staff. The performance indicators were financial statements, customer invoices, % sales per channel, and the number of training certificates, respectively. The team designed different initiatives to achieve results in each segment. New credit policies were created for distributors, enhanced product mixes were designed with great combo deals, telemarketing and e-commerce channels were implemented, and partnerships with online course companies were established.
The above balanced scorecard examples show how the approach can not just streamline business activities through an established agenda, but also achieve quantifiable results. Harappa’s Managing Teamwork course inculcates a collaborative mindset and team skills. It helps learners use their emotional intelligence to work synergistically with people from diverse backgrounds. (yellowtail.tech) One important area of focus of this course is feedback — both giving and receiving. The feedback module comes with its own practice exercise and enables participants to learn the nuances of giving, receiving and interpreting feedback. With practical exercises, an individual can learn to manage team conflicts and become a better manager or leader. Ask for your free demo today!
