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.

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 which 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?

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 strategic frameworks

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
The PESTEL analysis is a framework that can help marketers assess whether macro-economic factors are affecting an organization. This is a critical step that helps organizations identify potential threats and weaknesses that can be used in other frameworks such as SWOT or to gain a broader and better understanding of the overall marketing environment.

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

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.

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.

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.

Other strategy frameworks

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"