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 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:

Financial – increase profit (objective), net profit (measure), increase of 5% per year (KPI), implement a new accounting system (initiative).
Customer – improve end-user experience (objective), customer satisfaction index (CSI) (measure), increase by 2.5% per year (KPI), complete detailed user requirement research (initiative).
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).
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.

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.