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

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

Ansoff Matrix

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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 by whether the market is new or existing, and the product is new or existing.

Blitzscaling Canvas

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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.

Business Analysis Framework

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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.

Gap Analysis

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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.

Business Model Canvas

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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

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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.

Digital Marketing Circle

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A digital channel is a marketing channel, part of a distribution strategy, helping an organization to reach its potential customers via electronic means. There are several digital marketing channels, usually divided into organic and paid channels. Some organic channels are SEO, SMO, email marketing. And some paid channels comprise SEM, SMM, and display advertising.

Blue Ocean Strategy

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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.

ReadBCG Matrix

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.

ReadBalanced Scorecard

PEST 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.

ReadPestel 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.

ReadScenario Planning

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.

ReadSWOT Analysis In A Nutshell

Growth Matrix

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In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).

ReadGrowth Matrix In A Nutshell

Comparable Analysis Framework

comparable-company-analysis
A comparable company analysis is a process that enables the identification of similar organizations to be used as a comparison to understand the business and financial performance of the target company. To find comparables you can look at two key profiles: the business and financial profile. From the comparable company analysis it is possible to understand the competitive landscape of the target organization.

ReadComparable Analysis Framework In A Nutshell

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"