Knowing how to use Balanced Scorecards effectively increases productivity and brings many valuable insights into your business strategies; this blog post explains why it's essential for anyone looking to get ahead in their field today.
The Balanced Scorecard, pioneered in the 1990s by Kaplan and Norton, has become a key tool for many strategists, operational leaders, and chief executive officers looking to gain visibility into their organization's performance.
Its ability to provide insight into financial and non-financial perspectives of performance metrics – like customer satisfaction, product innovation, employee engagement, or process efficiency – can enable strategic alignment on a level that wasn’t possible before.
Read on for our beginners' guide to Balanced Scorecards - from its origins to the future, benefits, how to create one, and more, it's all here.
Jump to the section you want
- What is a balanced scorecard?
- What are the types of scorecards?
- How do you create a balanced scorecard?
- What are the seven main elements of a balanced scorecard?
- What does a well-designed balanced scorecard look like?
- Benefits of balanced scorecards
- Challenges of balanced scorecards
- Best practices for a balanced scorecard
- Evolution of the balanced scorecard
- Examples of balanced scorecards
- Balanced scorecard templates
What is a balanced scorecard?
A balanced scorecard is a performance measurement system that combines qualitative and quantitative measures of an organization's performance.
This framework helps measure what matters most in any organization by considering financial metrics, customer value, internal processes, innovation and improvement, and organizational learning goals.
The aim is to measure all the elements that create long-term value for stakeholders, such as customers, employees, suppliers, and other important participants in the business.
A balanced scorecard gives businesses an effective way to track progress toward their ultimate objectives.
Furthermore, it is an invaluable tool in terms of promoting team collaboration since it encourages individuals to work together on common goals while accounting for their responsibility as part of a bigger system
What types of scorecards are used in a business?
Business scorecards are a strategic and versatile tool for monitoring the performance of organizations and teams.
They provide valuable insight into improving processes and aligning strategic objectives across an organization's areas.
There are three main types of business scorecards: strategic, operational, and financial.
Strategic (balanced) scorecard
The strategic scorecard allows businesses to align strategic goals with tactics while tracking results over time.
With a balanced scorecard in place, you can ensure visibility into your performance.
It allows you to measure financial metrics, customer value, internal processes, innovation, and organizational learning goals.
This helps to create a more balanced view of the organization's performance, allowing you to identify areas that require improvement or where progress is being made.
An operational scorecard provides a snapshot into daily activities, helping organizations monitor operations, identify risks and optimize performance at any particular moment.
An operational scorecard measures critical performance indicators such as customer satisfaction, quality, and delivery lead times. It also allows businesses to assess their operational efficiency by tracking process changes and assessing how they impact the bottom line.
A financial scorecard gives a big view of an organization’s finances by examining overall financial data such as sales volumes, profits, and losses over different fiscal periods.
Using these three distinct tools together can enable greater strategic visibility and streamline operations for both short-term success and long-term sustainability.
How do you create a balanced scorecard?
Creating a successful balanced scorecard means mapping strategic objectives and goals and developing metrics to track your progress. It is one of many strategy execution methodologies you can use.
Step 0: Set your strategy
After evaluating your external and internal environments, take your assessment to create your strategy.
Step 1: Identify your goals
Start by pinning down the most important goals for your organization that you would like to measure with a balanced scorecard.
This could include financial goals, customer satisfaction, internal processes, innovation, or any other key areas of focus.
Step 2: Set targets
Set specific targets or milestones for each goal identified in step 1 to help you measure success.
Step 3: Create measures
Brainstorm measures that can be used to track each objective (these are often referred to as “metrics.”
Step 4: Assign responsibilities
Hold the team responsible for monitoring and meeting their objectives by setting individual or group-wide goals and assigning roles for each.
Step 5: Track progress
Track progress regularly over time, look for patterns in data, analyze changes, and adjust strategies accordingly.
This will help you identify potential issues as they arise and ensure that your organization is moving towards its targets.
Step 6: Report on results
Regularly report to stakeholders on performance against goals so that everyone can be informed of successes and opportunities for improvement.
This helps ensure organizational accountability and provides valuable insight into how strategies work.
Step 7: Adjust strategies
When necessary, adjust strategies based on data analysis and performance reports.
This allows organizations to stay on top of areas where improvement may be needed and ensure that they work towards their goals.
Additionally, tracking progress over time will provide valuable insight into how well various strategies perform.
What are the seven main elements of a balanced scorecard?
The seven main elements of a balanced scorecard are:
- Customer value
- Internal processes
- Innovation and improvement
- Organizational learning goals
- Financial metrics
- Operations, and
- Strategic goals.
a. Customer value
Customer value is the most important element of any balanced scorecard because it measures how well an organization provides services to its customers.
This can include aspects such as customer satisfaction ratings or net promoter scores.
b. Internal processes
Internal processes measure how efficiently an organization runs its day-to-day operations to meet customer needs and reach organizational objectives.
c.Innovation and improvement
Innovation and improvement examine how companies develop new products and services tailored to customer needs while improving existing ones.
d. Organizational learning goals
Organizational learning goals help companies assess their ability to learn from past experiences to adjust strategies and anticipate changes in the future.
e. Financial metrics
Financial metrics enable organizations to track performance against predetermined revenue targets or profitability levels.
Operations analyze the effectiveness of operating systems such as production methods or customer service delivery levels.
g. Strategic goals
Lastly, strategic goals measure the success of long-term strategies by looking at multiple angles, such as market share growth or brand recognition.
What does a well-designed balanced scorecard look like?
A well-designed balanced scorecard should provide visibility into these areas for management teams to make better-informed decisions about their business direction and strategy.
By combining quantitative and qualitative performance measures, business leaders can gain detailed insight into their current state and identify potential opportunities for improvement, allowing them to refine their strategies for greater success.
Furthermore, taking advantage of these multiple perspectives helps businesses focus on what matters most- the long-term objectives outlined in the balanced scorecard framework itself.
What should you use alongside a balanced scorecard?
Balanced scorecards should also be accompanied by other tools, such as financial scorecards and key performance indicators (KPIs).
Financial scorecards provide a big-picture view of organizational finances, while KPIs enable businesses to measure specific customer, process, or product outcomes.
Balanced scorecard best practices
To ensure the successful implementation of the balanced scorecard system and to maximize the insights received from these metrics, it is important to follow best practices and ensure that the following tasks are completed:
1. Establish clear goals and objectives
The first step in the balanced scorecard process is to define a set of performance objectives on which all stakeholders can agree.
This provides focus when developing measures and metrics, allowing companies to track their progress over time and make adjustments where necessary.
Establishing key performance indicators (KPIs), such as customer satisfaction levels or financial measures, enables organizations to monitor their progress toward achieving those goals more accurately.
2. Identify measurable KPIs
When creating a balanced scorecard, it’s important to identify key performance indicators (KPIs) that are both relevant and measurable.
These should be chosen carefully as they will be used to track progress against predetermined targets.
It is also beneficial for business owners or managers to consider areas of success or improvement opportunities to develop actionable metrics that can inform decisions regarding investments or initiatives that could lead to improved results in the future.
3. Develop actionable metrics
Actionable metrics should be established which provide insight into how the organization can improve its processes or profitability.
This requires careful consideration of existing data sources, such as customer feedback surveys or financial documents, to create meaningful KPIs that provide real-time insights into performance levels.
Leveraging technology solutions such as business intelligence (BI) tools can help streamline data collection processes while providing more accurate results over time with the less manual effort required by stakeholders.
4. Monitor performance over time
Companies should regularly monitor performance data by tracking trends, understanding areas of strength, and identifying opportunities for improvement across multiple KPIs over time.
Monitoring progress allows businesses to adjust strategies quickly if any changes need to be made for organizational goals or objectives to be achieved within a certain timeframe.
Technology solutions help simplify reporting tasks and allow leaders or managers more time for other tasks related to strategy-building or problem-solving activities.
5. Track customer satisfaction levels
A key part of any balanced scorecard is tracking customer satisfaction levels, which helps organizations identify areas where improvements can be made and determine whether customers are satisfied with the products or services offered by the company.
Collecting regular customer feedback enables businesses to gain valuable insights into how they can adjust their offerings over time.
Hence, as better meet customer needs while remaining profitable in the long term.
6. Utilize financial measures
Financial measures are also an important component of any balanced scorecard program, providing valuable insights into overall profitability or cash flow trends within an organization over time.
This allows decision-makers better visibility into current trends and informs them about effective strategies that may impact profitability or sustainability in the future.
7. Use technology where possible
Leveraging technological solutions can help organizations streamline their data collection process, automate reporting tasks, and accurately measure performance against target goals.
Technologies such as i-nexus can provide real-time insights into KPIs so decision-makers can more quickly adjust strategies when needed.
Overall, following best practices when implementing a balanced scorecard system helps businesses gain maximum value from their performance measurements while helping them reach organizational goals faster than if they had not been using any tracking system at all.
By setting clear goals and objectives ahead of time, leveraging technology solutions where possible, monitoring KPIs and other data points regularly over time, gathering customer feedback frequently, and utilizing financial measurements when needed – businesses will have access to comprehensive information that can help inform strategic planning while providing visibility into how well they are performing against predetermined targets at any given point in time.
What are the benefits of using a balanced scorecard?
The balanced scorecard has many advantages, including:
- Providing an organized and comprehensive way to track performance indicators and other metrics that are important to the organization;
- Allowing for the integration of financial measures with non-financial ones;
- Helping to identify areas of strength as well as areas needing improvement;
- Facilitating strategic planning by providing a framework for setting goals and objectives;
- Encouraging collaboration across departments within the organization; and
- Leveraging technology solutions to automate reporting tasks and provide real-time insights into KPIs.
What are the challenges and pitfalls of balanced scorecards?
The implementation of a balanced scorecard can present several challenges and pitfalls.
1. Failing to properly define their performance indicators
One of the most common is that organizations often fail to properly define all the indicators they will measure and track and develop a plan to track and report on those metrics over time.
Without specific goals before launching a balanced scorecard program, it can be difficult for decision-makers to draw meaningful insights from their performance data.
2. Data collection
Additionally, many companies struggle with collecting accurate data due to inadequate training for staff using the system or incorrect data entry procedures, which can lead to biased results or inaccurate reporting.
This can be further compounded by stakeholders not following through on their responsibilities in terms of providing timely updates or feedback on progress against KPIs, leading to outdated information being presented when analyzing results.
3. Focusing on lagging indicators
Another potential issue is that companies may focus too heavily on lagging indicators rather than proactively tracking leading performance metrics that provide visibility into trends before they become significant problems.
By neglecting this aspect of the balanced scorecard program, businesses may react too late when attempting to adjust strategies or address underlying organizational issues that could have been prevented through more proactive planning.
4. Inadequate technology
Finally, technological solutions such as i-nexus strategy software and business intelligence (BI) tools can help centralize and align the business to execute the goals in the scorecard.
Still, while reducing the manual effort required by stakeholders, adequate training is always necessary. Worse yet is an in-house solution not fit for purpose.
If not implemented correctly, these tools could end up introducing additional complexity and confusion into the system rather than simplifying processes and driving greater accuracy across multiple performance metrics over time.
How has the balanced scorecard evolved?
The Balanced Scorecard (BSC) has become an important tool for organizations to measure performance and track progress against predetermined goals.
Initially, the BSC was developed in the early 1990s. As a strategic management system, Robert Kaplan and David Norton focused on four performance measurement categories: financial, customer, internal business processes, and learning & growth.
In the following decades, many companies have adopted the balanced scorecard approach to gain greater insight into how they are performing while also setting targets for improvement in areas such as cost-effectiveness and quality control measures.
Over time, more organizations have come to recognize the power of using this type of strategy to better identify opportunities for improvement across their operations and ensure that they are striving towards ambitious goals while also achieving higher levels of success through data-driven decision-making.
Recent technological advances have allowed businesses to leverage tools such as i-nexus strategy software and business intelligence (BI) tools, which can help automate certain aspects of the process, including data collection and analysis, allowing stakeholders to focus on other important tasks.
This has enabled a more streamlined approach to implementing a BSC program within an organization, reducing complexity and confusion often associated with manual processes while allowing companies to quickly access up-to-date information about their performance against key indicators over time.
Additionally, stakeholders now have access to powerful analytics that can monitor key trends and identify potential issues before they become larger problems, enabling them to stay one step ahead when planning out their strategic goals or reacting quickly to changing market conditions.
Furthermore, with customer feedback becoming more accessible than ever before due to online survey platforms or social media sentiment analysis tools, businesses can now gain better insights into what customers think about their products or services to further inform their decision-making process when it comes to establishing targets or developing strategies within their balanced scorecard structure.
Overall, the use of balanced scorecards has proven itself over time as a powerful tool for driving higher levels of success within organizations when implemented correctly – providing visibility into how well they are performing against predetermined targets at any given point in time while helping inform strategic planning decisions based on reliable data points.
Companies that use the balanced scorecard include;
For companies like Amazon, the BSC allows them to monitor trends or identify potential issues before they become larger problems down the line.
This can help proactively address any situation that arises quickly and effectively, allowing them to stay one step ahead when reacting to changing market conditions or setting ambitious goals within their balanced scorecard structure.
Furthermore, customer feedback from online survey platforms or social media sentiment analysis tools is highly valuable for Amazon to gain better insights into what customers think about their products or services so that they can further hone their strategies accordingly.
With this information, they can adjust objectives based on customer preferences to ensure greater success within their balanced scorecard framework.
Overall, Amazon's use of a Balanced Scorecard has helped it remain one of the world’s leading eCommerce companies by providing detailed visibility into its performance over time while also allowing it to maintain a competitive edge by responding quickly and efficiently to changes in market dynamics or customer feedback within its balanced scorecard structure.
Examples of balanced scorecards
Using a balanced scorecard in healthcare
In healthcare, using a balanced scorecard can help improve patient care while monitoring critical performance indicators such as patient satisfaction, quality care outcomes, and safety records.
It can also help healthcare organizations improve operational efficiency by tracking changes in processes and assessing how these changes impact performance.
In addition, a balanced scorecard can be used to measure the financial performance of healthcare providers and analyze the impact of resource allocation decisions on organizational success.
By combining data from different sources, a scorecard provides a simple yet powerful tool for healthcare organizations to measure performance and identify areas for improvement.
Overall, using a balanced scorecard can help healthcare organizations streamline operations, improve patient care and be more financially efficient.
An example scorecard for your healthcare organization would look like this:
- Patient satisfaction
- Quality of care
- Cost efficiency
- Employee engagement
Using a balanced scorecard in customer service
Likewise, using a balanced scorecard in customer service can be an effective way to gain insight into how well customer service is performing and identify areas of improvement.
The balanced scorecard measures financial and non-financial metrics, such as customer satisfaction, quality of service, response times, employee engagement, and cost efficiency, giving organizations a comprehensive view of their customer.
A customer service scorecard example could include the following:
- Customer satisfaction: measure customer feedback and satisfaction scores and track changes in customer sentiments over time. This could be done through surveys, interviews, reviews, or other methods.
- Quality of service: assess the quality of service provided (including response times). Measure the accuracy of customer service representatives in resolving customer inquiries.
- Cost efficiency: track the cost of providing customer service, and measure how process improvements or other changes impact costs.
- Employee engagement: monitor employee engagement by tracking job satisfaction and retention rates. Measure employee performance and productivity over time.
By using a balanced scorecard to measure your customer service performance, organizations can quickly identify areas of improvement and take corrective action.
Using a balanced scorecard in a manufacturing environment
A balanced scorecard can also be an effective tool to assess the performance of a manufacturing environment. It provides visibility into strategic objectives and helps ensure that all production elements are effectively managed.
The balanced scorecard measures financial and non-financial metrics such as sales volume, quality, customer satisfaction, cost efficiency, delivery lead times, employee engagement, and process.
A manufacturing balanced scorecard would include metrics that measure financial performance, such as sales volume, profits, and losses over different fiscal periods.
It would also measure non-financial performance such as quality, customer satisfaction, cost efficiency, delivery lead times, employee engagement, and process.
The manufacturing scorecard could be broken down into four categories:
- Financial: Record sales volume, profits, and losses over different fiscal periods. Measure return on investment (ROI), market share, and other financial indicators.
- Customer-related: Track customer satisfaction scores, measured through surveys, interviews, or reviews. Monitor customer complaints, delivery lead times, and quality of products or services.
- Internal Process: Assess the efficiency of production processes, measure changes over time, track employee productivity and identify areas for improvement.
- Strategy: Monitor progress towards strategic goals, measure success in different markets or segments, and improve customer loyalty and overall market performance.
By using a scorecard in a manufacturing environment, your organizations can gain insight into their performance and identify areas of improvement.
This helps to ensure that production is efficient and effective while helping to achieve strategic objectives.
A balanced scorecard is a tool that provides both financial and non-financial perspectives on how an organization will achieve its goals.
Creating a balanced scorecard can be straightforward, but there are notable challenges in aligning businesses around goals.
However, increased productivity and invaluable data make creating a balanced scorecard worthwhile for any business.
With technology to support and overcome the pitfalls we've seen since the 1990s, more businesses than ever are benefiting from adopting a balanced scorecard approach.
Businesses such as Amazon and Coca-Cola have succeeded using this strategy - and there's no reason yours cannot follow suit.
To get started on your path, download a copy of our balanced scorecard Excel template today.
Learn more about strategy execution
Take the next steps in your journey by exploring our strategy execution resource hub or any of the below:
- Key to strategy execution eBook: Read how companies like Danaher and HP have mastered strategy execution and what you can learn from them.
- What does it mean to be Business Agile?: Leap into the future of strategic planning and execution with this fascinating insight.
- How AI and Machine-Assisted Learning will help strategy execution: As Artificial Intelligence becomes a mainstay in our lives, read how AI and machine-assisted learning will evolve to support your strategy execution.
About the author
James Milsom is Head of Marketing at i-nexus.
As Head of Marketing, his drive is to raise awareness and understanding of the challenges facing enterprises in delivering strategic objectives and transformation amidst changing markets and the obstacles traditional tools and methods present leaders.
If you’d like to talk more about strategy, reach out to James on firstname.lastname@example.org or connect with him on LinkedIn for the latest insights.