balanced-scorecard

What Is The Balanced Scorecard?

First proposed by accounting academic Robert Kaplan, the balanced scorecard is a management system that allows an organization to focus on big-picture strategic goals. The four perspectives of the balanced scorecard include financial, customer, business process, and organizational capacity. From there, according to the balanced scorecard, it’s possible to have a holistic view of the business.

Generate a Balanced Scorecard

Understanding the balanced scorecard

Once a concept primarily associated with balancing financial and strategic objectives, the balanced scorecard has now evolved into a holistic, all-encompassing management strategy

  • Organizations now use the balanced scorecard to:
  • Communicate what they are trying to accomplish.
  • Ensure that all employees are aligned in their day to day activities and values.
  • Prioritize the implementation of products, services, and projects.
  • Define strategic targets and then measure and monitor progress toward them.

By focusing on these four distinct areas, balanced scorecards reinforce good behavior in each and encourage growth and learning according to company objectives.

If objectives are not being met, then businesses can identify and then address factors that hinder performance.

Balanced scorecards, or BSCs, are used extensively in business, industry, government, and non-profit settings worldwide.

Many of the largest companies in the US, Europe, and Asia are using this system – and for good reason.

A recent study by Bain & Co discovered that it was the fifth most widely used management tool globally.

Harvard Business Review editors also called the BSC system one of the most influential ideas of the past 75 years.

The four perspectives of the balanced scorecard

The four perspectives of the balanced scorecard include financial, customer, business process, and organizational capacity.

Each has a proven track record of the effectiveness of several decades of use in business, and each is outlined briefly below.

Financial

For many businesses, the financial perspective is concerned with meeting shareholder expectations and making a profit.

This perspective is often the easiest to define and measure, but it is nonetheless a major focus of any balanced scorecard.

If the business is not making money, then it hints at problems in other perspectives which must be addressed.

Customer

The focus of the customer perspective is the implementation of measures directly related to customer satisfaction.

Satisfaction can be gauged when analyzing customer feedback on a business’s products and services around metrics such as quality, price, and availability.

Internal processes

Otherwise known as business processes, these define how well a business is operating.

Often, the success of business operations is defined by the ability to meet customer needs.

However, managing internal processes also means identifying any gaps, delays, shortages, or waste and then addressing them accordingly.

Learning and growth

This perspective looks at the culture of an organization. Are employees aware of the latest industry trends?

Does the organization encourage progressive and collaborative communication between employees?

Or are processes hampered by red tape? Most importantly, do employees have fair and easy access to training and other opportunities that enhance their growth?

Balanced scorecard examples

Before we delve into a balanced scorecard example, it’s worth noting that the term “scorecard” is a relic from the days when the concept was first introduced.

To be effective, the balanced scorecard needs to focus more on objectives and less on the data. 

This is not to say scores are unimportant, however.

They still matter in the context of defining what a business wants to achieve in the future, but they should not be used to measure metrics that may or may not impact the final result.

So what does a balanced scorecard contain?

The business needs to start by defining a set of objectives and understanding how improvements in one objective will have a positive impact on other objectives.

Typically, it is the impact of people, processes, and infrastructure on revenue or customer satisfaction that is most relevant.

These relationships are illustrated on a strategy map, which may also include a vision and mission statement.

The objectives themselves should also be listed in addition to their respective measures, KPIs, and initiatives. 

Now let’s consider the example of a telecommunications company that has the vision to transform society via its ultra-high-speed cellular network.

The company’s mission, perhaps unsurprisingly, is to become the #1 such provider in the United States.

The four balanced scorecard objectives for the telco company

Below we will take a brief look at all four objectives and list a measure, KPI, and initiative for each:

  1. Financial – increase profit (objective), net profit (measure), increase of 5% per year (KPI), implement a new accounting system (initiative).
  2. Customer – improve end-user experience (objective), customer satisfaction index (CSI) (measure), increase by 2.5% per year (KPI), complete detailed user requirement research (initiative).
  3. Internal processes – improve end-user ease of use (objective), user experience score (measure), at least 90% every reporting period (KPI), develop a training program for user interface and new offerings (initiative).
  4. Learning and growth – improve skills and knowledge (objective), employee development plans (measure), at least 95% introduced by EOFY (KPI), provide training on marketing and the product (initiative).

Notice how each objective has implications for the others.

For example, improving ease of use then improves the end-user experience and increases profit.

Strategic priorities and core values

As the telecommunications company grows, it may be prudent to break the vision down into smaller parts that different teams can work on.

These usually take the form of strategic priorities and results that may deserve balanced scorecards of their own.

Examples of strategic results and priorities include:

  • Brand awareness – a rejuvenated brand that uses past successes to appeal to the next generation of smartphone users.
  • Customer service – clarity of product with a streamlined user interface. Market-leading customer service that challenges the belief that all telecommunications companies offer opaque pricing and poor customer service from offshore call centers.
  • Content partnerships – a robust supply chain for information and content services with exclusive agreements in place.

Lastly and at the bottom of the balanced scorecard, the companies list the following values: transparency, accountability, collaboration, customer-centricity, empathy, simplicity, adaptability, and innovation.

Balanced Scorecard vs. OKR

what-is-okr
Andy Grove, helped Intel become among the most valuable companies by 1997. In his years at Intel, he conceived a management and goal-setting system, called OKR, standing for “objectives and key results.” Venture capitalist and early investor in Google, John Doerr, systematized in the book “Measure What Matters.”

Whereas the balanced scorecard is a tool to address performance with a more holistic approach.

The OKR is an aggressive, team-based, and open goal-setting tool, for startups and innovative organizations.

OKR is based on four superpowers:

And the cycle follows these steps:

Balanced Scorecard and The Strategy Map

strategy-map
Strategy maps are single-page, visual representations of organizational strategy. Their simplicity makes them ideal for communicating big-picture objectives to every employee in an organization – regardless of seniority or project involvement level. A strategy map is a visual representation of organizational objectives and how they relate to one another.

A strategy map is a tool that can be used in conjunction with the balanced scorecard to assess the performance of an organization better.

The strategy map in particular, is a visual representation of the organization looking at four aspects:

Both tools can be used to have a deeper qualitative understanding of the organization.

Balanced Scorecard and The Hoshin Kanri

hoshin-kanri-x-matrix
The Hoshin Kanri X-Matrix is a strategy deployment tool that helps businesses achieve goals over the short and long term. Hoshin Kanri is a method that seeks to bridge the gap between strategy and execution. Strategic objectives are clearly defined and the goals of every level of the organization are aligned. With everyone moving in the same direction, process coordination and decision-making ability are strengthened.

Where the balanced scorecard helps an organization to better assess the performance, the Hoshin Kanri matrix can be used in the execution phase for alignment between short and long-term goals, through four main quadrants:

Key takeaways

  • The balanced scorecard is a strategic planning and management system that businesses use to get a more “balanced” view of their performance.
  • The balanced scorecard has evolved from humble beginnings to be a holistic framework for business growth.
  • The balanced scorecard consists of four primary objectives with a track record of enabling businesses to become successful.

Connected Strategy Frameworks

ADKAR Model

adkar-model
The ADKAR model is a management tool designed to assist employees and businesses in transitioning through organizational change. To maximize the chances of employees embracing change, the ADKAR model was developed by author and engineer Jeff Hiatt in 2003. The model seeks to guide people through the change process and importantly, ensure that people do not revert to habitual ways of operating after some time has passed.

Ansoff Matrix

ansoff-matrix
You can use the Ansoff Matrix as a strategic framework to understand what growth strategy is more suited based on the market context. Developed by mathematician and business manager Igor Ansoff, it assumes a growth strategy can be derived from whether the market is new or existing, and whether the product is new or existing.

Business Model Canvas

business-model-canvas
The business model canvas is a framework proposed by Alexander Osterwalder and Yves Pigneur in Busines Model Generation enabling the design of business models through nine building blocks comprising: key partners, key activities, value propositions, customer relationships, customer segments, critical resources, channels, cost structure, and revenue streams.

Lean Startup Canvas

lean-startup-canvas
The lean startup canvas is an adaptation by Ash Maurya of the business model canvas by Alexander Osterwalder, which adds a layer that focuses on problems, solutions, key metrics, unfair advantage based, and a unique value proposition. Thus, starting from mastering the problem rather than the solution.

Blitzscaling Canvas

blitzscaling-business-model-innovation-canvas
The Blitzscaling business model canvas is a model based on the concept of Blitzscaling, which is a particular process of massive growth under uncertainty, and that prioritizes speed over efficiency and focuses on market domination to create a first-scaler advantage in a scenario of uncertainty.

Blue Ocean Strategy

blue-ocean-strategy
A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is value innovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.

Business Analysis Framework

business-analysis
Business analysis is a research discipline that helps driving change within an organization by identifying the key elements and processes that drive value. Business analysis can also be used in Identifying new business opportunities or how to take advantage of existing business opportunities to grow your business in the marketplace.

BCG Matrix

bcg-matrix
In the 1970s, Bruce D. Henderson, founder of the Boston Consulting Group, came up with The Product Portfolio (aka BCG Matrix, or Growth-share Matrix), which would look at a successful business product portfolio based on potential growth and market shares. It divided products into four main categories: cash cows, pets (dogs), question marks, and stars.

Balanced Scorecard

balanced-scorecard
First proposed by accounting academic Robert Kaplan, the balanced scorecard is a management system that allows an organization to focus on big-picture strategic goals. The four perspectives of the balanced scorecard include financial, customer, business process, and organizational capacity. From there, according to the balanced scorecard, it’s possible to have a holistic view of the business.

Blue Ocean Strategy 

blue-ocean-strategy
A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is value innovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.

GAP Analysis

gap-analysis
A gap analysis helps an organization assess its alignment with strategic objectives to determine whether the current execution is in line with the company’s mission and long-term vision. Gap analyses then help reach a target performance by assisting organizations to use their resources better. A good gap analysis is a powerful tool to improve execution.

GE McKinsey Model

ge-mckinsey-matrix
The GE McKinsey Matrix was developed in the 1970s after General Electric asked its consultant McKinsey to develop a portfolio management model. This matrix is a strategy tool that provides guidance on how a corporation should prioritize its investments among its business units, leading to three possible scenarios: invest, protect, harvest, and divest.

McKinsey 7-S Model

mckinsey-7-s-model
The McKinsey 7-S Model was developed in the late 1970s by Robert Waterman and Thomas Peters, who were consultants at McKinsey & Company. Waterman and Peters created seven key internal elements that inform a business of how well positioned it is to achieve its goals, based on three hard elements and four soft elements.

McKinsey’s Seven Degrees

mckinseys-seven-degrees
McKinsey’s Seven Degrees of Freedom for Growth is a strategy tool. Developed by partners at McKinsey and Company, the tool helps businesses understand which opportunities will contribute to expansion, and therefore it helps to prioritize those initiatives.

McKinsey Horizon Model

mckinsey-horizon-model
The McKinsey Horizon Model helps a business focus on innovation and growth. The model is a strategy framework divided into three broad categories, otherwise known as horizons. Thus, the framework is sometimes referred to as McKinsey’s Three Horizons of Growth.

Porter’s Five Forces

porter-five-forces
Porter’s Five Forces is a model that helps organizations to gain a better understanding of their industries and competition. Published for the first time by Professor Michael Porter in his book “Competitive Strategy” in the 1980s. The model breaks down industries and markets by analyzing them through five forces.

Porter’s Generic Strategies

competitive-advantage
According to Michael Porter, a competitive advantage, in a given industry could be pursued in two key ways: low cost (cost leadership), or differentiation. A third generic strategy is focus. According to Porter a failure to do so would end up stuck in the middle scenario, where the company will not retain a long-term competitive advantage.

Porter’s Value Chain Model

porters-value-chain-model
In his 1985 book Competitive Advantage, Porter explains that a value chain is a collection of processes that a company performs to create value for its consumers. As a result, he asserts that value chain analysis is directly linked to competitive advantage. Porter’s Value Chain Model is a strategic management tool developed by Harvard Business School professor Michael Porter. The tool analyses a company’s value chain – defined as the combination of processes that the company uses to make money.

Porter’s Diamond Model

porters-diamond-model
Porter’s Diamond Model is a diamond-shaped framework that explains why specific industries in a nation become internationally competitive while those in other nations do not. The model was first published in Michael Porter’s 1990 book The Competitive Advantage of Nations. This framework looks at the firm strategy, structure/rivalry, factor conditions, demand conditions, related and supporting industries.

SWOT Analysis

swot-analysis
A SWOT Analysis is a framework used for evaluating the business‘s Strengths, Weaknesses, Opportunities, and Threats. It can aid in identifying the problematic areas of your business so that you can maximize your opportunities. It will also alert you to the challenges your organization might face in the future.

PESTEL Analysis

pestel-analysis

Scenario Planning

scenario-planning
Businesses use scenario planning to make assumptions on future events and how their respective business environments may change in response to those future events. Therefore, scenario planning identifies specific uncertainties – or different realities and how they might affect future business operations. Scenario planning attempts at better strategic decision making by avoiding two pitfalls: underprediction, and overprediction.

STEEPLE Analysis

steeple-analysis
The STEEPLE analysis is a variation of the STEEP analysis. Where the step analysis comprises socio-cultural, technological, economic, environmental/ecological, and political factors as the base of the analysis. The STEEPLE analysis adds other two factors such as Legal and Ethical.

SWOT Analysis

swot-analysis
A SWOT Analysis is a framework used for evaluating the business’s Strengths, Weaknesses, Opportunities, and Threats. It can aid in identifying the problematic areas of your business so that you can maximize your opportunities. It will also alert you to the challenges your organization might face in the future.

Related Strategy Concepts: Go-To-Market StrategyMarketing StrategyBusiness ModelsTech Business ModelsJobs-To-Be DoneDesign ThinkingLean Startup CanvasValue ChainValue Proposition CanvasBalanced ScorecardBusiness Model CanvasSWOT AnalysisGrowth HackingBundlingUnbundlingBootstrappingVenture CapitalPorter’s Five ForcesPorter’s Generic StrategiesPorter’s Five ForcesPESTEL AnalysisSWOTPorter’s Diamond ModelAnsoffTechnology Adoption CurveTOWSSOARBalanced ScorecardOKRAgile MethodologyValue PropositionVTDF

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