Discover how balancing four competing interests for your organization can help you to create an organization-wide performance management approach.
Written by: James Milsom, Head of Marketing
Without a concrete method of tracking your business’ performance, there is no clear way to identify and demonstrate your successes to managers and stakeholders.
You can manage performance in various ways, and it is easy to focus on financial results as the main success metric.
The balanced scorecard is a management system that, while acknowledging the importance of financial results, broadens your focus to include looking at performance from various perspectives.
Today, we're looking at how to use the balanced scorecard to manage your organization's performance.
What is the balanced scorecard and how does it work?
An excellent way to measure progress and provide feedback to your employees and the organization, the balanced scorecard translates your strategic plan and goals into measurable metrics.
Of course, this means that to use the balanced scorecard system, you already need a strategy and an understanding of your strategic goals.
The balanced scorecard system hinges on the idea that how an organization measures performance can heavily impact the behavior of managers and employees - and the confidence of stakeholders.
Collecting data from multiple sources and measuring success from various perspectives can create a well-rounded picture of your organization’s financial health.
This is vital for both employees and stakeholders alike.
The performance measures in the balanced scorecard
Here are the four key areas where you should measure performance using the balanced scorecard.
The key performance indicators (KPIs) you use to track these things will vary depending on your organization and the nature of your business.
Customer perspective
This measure focuses on how well your organization meets your customers’ needs and expectations.
High customer satisfaction, and the customer loyalty and retention it results in, helps to build strong relationships with your customers and increase market share.
This perspective requires a combination of qualitative and quantitative measures - for example, carrying out customer satisfaction surveys (qualitative) and measuring customer acquisition over a set period (quantitative).
Internal processes
This perspective focuses on internal processes within your organization.
This could mean the efficiency and quality of manufacturing or how well you’re meeting your operational goals.
For example, if you produce a physical product, you might choose to track defect rates or monitor service delivery cycle times.
One of the benefits of monitoring internal processes is identifying areas in which you can save both time and energy, aiding overall productivity.
Learning and growth
This measure is based on your organization’s ability to learn and grow over time.
It includes employee training, development, and engagement - all of which are key to a successful organization.
Innovation is another big aspect of this measure - but that doesn’t mean you should measure success by how many new products or services you turn out.
It also places importance on research and development spending.
The overall focus is to gather information and use this data to support your competitive edge within your industry.
Financial data
While the balanced scorecard is often used to remind people that there are more focuses to keep in mind than financial results, it’s not to say they are completely unimportant.
Based on quantitative data, the financial perspective looks at ROI, cost reduction, and cash flow KPIs.
Using these results in tandem with the other key perspectives balances your scorecard.
How to use the balanced scorecard
Using the balanced scorecard in performance management means taking a holistic view of your organization’s health.
The key is finding the “balance” in the importance of the four key perspectives and avoiding prioritizing any one perspective too heavily over another.
This information lets you better communicate expectations to your employees and managers and keep your stakeholders informed.
The data you collect through your balanced scorecard also better aligns your organization’s actions with its desired outcomes and overall mission.
In order to reap the benefits of this management method, you need to understand business strategy fully and have established which strategic goals and KPIs are right for your business.
Then, as you collect and review the data for your balanced scorecard, you must ensure that you are prepared to make continual adjustments in order to encourage improvement.
How Uber uses their balanced scorecard
How i-nexus can help your performance management
We have the resources to help you connect the dots with your strategy execution, whichever works best for you. Maybe you’re interested in exploring other methods, such as Hoshin Kanri.
If you’ve decided that the balanced scorecard is the right method, we have the tools to help you plan, implement, and track your performance.
Book a free trial of i-nexus today, and we'll show you how to improve your strategy execution inside our platform thanks to having one undisputed view of your performance.
Learn more about strategy execution
Click here to learn more about strategy execution, or take a look at these content recommendations:
- Key to strategy execution eBook: Read how companies like Danaher and HP have mastered strategy execution and what you can learn from them.
- What role does a Strategy Realization Office play in your strategy execution?: Learn how you can govern your strategy execution with the emerging concept of the Strategy Realization Office (SRO)
- 13 ways to make your team care about goals: Try these 13 ideas for getting your team to buy into your goals, and create real accountability for delivering targets.
About the author
James Milsom is Head of Marketing at i-nexus. James has wide-ranging experience in telecommunications, energy, education, and software markets.
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 execution, contact James at james.milsom@i-nexus.com or connect with him on LinkedIn for the latest insights.
