The balanced scorecard encourages businesses to go beyond measuring success in dollars and cents. Here's what you need to know about how to approach a scorecard whether you're in IT, HR, or operations.
The balanced scorecard is a strategic management system which turns goals into performance-based objectives, and then measures those. It has been part of the business world for more than three decades, and it shows no sign of fading.
Many leaders focus on financial performance, but the scorecard goes further to look at how you're keeping customers happy.
This blog will talk about Kaplan and Norton's scorecard. It will explain its purpose and how it works. Additionally, it will discuss how departments like IT, HR, and operations utilize it.
Measures that drive performance
The balanced scorecard was launched in a landmark edition of the Harvard Business Review. In the 1992 article, "The Balanced Scorecard—Measures that Drive Performance", Dr. Robert S. Kaplan and Dr. David P. Norton introduced the concept. Wildfire adoption followed.
Kaplan and Norton expanded on the scorecard, though it remained key in measuring key performance across products and services. It's even used in personal strategy.
The scorecard acts as the bridge between lofty goals and the objectives that move a business towards these. Kaplan and Norton took standard financial measures and integrated these with customers, internal business processes, and learning and growth perspectives.
What is a Balanced Scorecard?
The scorecard is brilliant at turning strategy into action, especially when used alongside a strategy map and a planning tool like the x-matrix.
The balanced scorecard is a strong model for creating strategic alignment between functions.
The holistic framework encourages a balanced pursuit of financial health, customer satisfaction, operational efficiency, and continuous improvement. It's never enough to focus on one area, like continuous improvement.
What is a Balanced Scorecard approach?
The balanced scorecard approach is about one thing - balance. Balancing short-term objectives with long-term goals, financial measures with non-financial measures, and internal performance with external performance outcomes.
That is achieved by splitting your organization into four areas (perspectives):
- Financial Perspective: How do we look to our shareholders? This perspective focuses on financial objectives and performance measures like revenue growth, profitability, and return on investment.
- Customer Perspective: How do our customers see us? It emphasizes customer satisfaction, market share, and customer retention strategies.
- Internal Business Process Perspective: At what must we excel? This looks at the internal processes that should be optimized to deliver on customer expectations and financial objectives.
- Learning and Growth Perspective: Can we continue to improve and create value? This perspective concentrates on the intangible drivers of future success, such as employee skills, corporate culture, and technological innovation.
The perspectives are linked. If one thrives while the other three are failing, that is failure.
What is the purpose of the Balanced Scorecard?
The purpose of Kaplan and Norton's balanced scorecard wasn't just to offer an organizational performance measurement. It is a management tool that facilitates strategic planning and execution.
The scorecard guides your company to turn a strategy into daily projects by:
- Clarifying or updating a business’s strategy.
- Communicating strategic objectives across the organization.
- Aligning departmental and personal goals to the strategy.
- Planning, setting targets, and aligning strategic initiatives.
- Enhancing strategic feedback and learning.
This approach ensures that companies are not viewing success through a single lens, which leads to poor customer outcomes.
What business functions can use a Balanced Scorecard?
The flexibility of the balanced scorecard makes it something every business function can use. From IT and operations to HR and marketing, it's useful. Each business unit can use it to align its activities with the overall strategy of the organization:
- In IT, it might focus on aligning technology investments with business goals, improving system efficiency, and ensuring data security.
- Operations might use it to streamline processes, improve quality control, and enhance supply chain management.
- HR can apply the scorecard to align training and development, performance management, and recruitment strategies with business needs.
How is a Balanced Scorecard used in IT?
In IT, a balanced scorecard translates strategic goals into technological benchmarks, ensuring investments in technology directly support the business's overarching objectives. This alignment is crucial for enhancing organizational performance and supporting the internal processes that underpin success.
Here's how their IT scorecard could look:
1. Financial Perspective
- Objective: Align IT investments with business value.
- KPIs: Return on investment (ROI) for IT projects, IT budget variance, cost savings through IT improvements.
- Initiatives: Implement cost-effective technology, optimize IT spending, and demonstrate how IT contributes to revenue growth or cost reduction.
2. Customer (Internal and External) Perspective
- Objective: Enhance user satisfaction with IT services.
- KPIs: User satisfaction scores, service level agreement (SLA) compliance rates, response time to service requests.
- Initiatives: Develop user-centric IT services, improve helpdesk operations, and ensure IT projects meet user needs and expectations.
3. Internal Process Perspective
- Objective: Streamline IT operations and project delivery.
- KPIs: System uptime, incident resolution times, percentage of IT projects completed on time and budget.
- Initiatives: Implement process improvements, adopt best practices in IT project management, and enhance cybersecurity measures.
4. Learning and Growth Perspective
- Objective: Foster innovation and skill development within the IT team.
- KPIs: Number of training hours per employee, employee retention rates, number of innovative projects initiated.
- Initiatives: Encourage professional development, adopt new technologies, and promote a culture of continuous improvement and innovation.
How is a Balanced Scorecard used in operations?
Operational excellence is a pillar of business success. Through the balanced scorecard, operations can measure and enhance process efficiency, reduce waste, and boost productivity. This focus on internal business processes is instrumental in driving financial success and customer satisfaction.
Here's how their operational scorecard could look:
1. Financial Perspective
- Objective: Optimize cost efficiency and contribute to financial performance.
- KPIs: Cost reduction percentages, budget adherence, ROI on operational improvements.
- Initiatives: Implement lean manufacturing principles, streamline supply chain management, negotiate better terms with suppliers, and optimize inventory levels to reduce holding costs.
2. Customer Perspective
- Objective: Meet customer expectations in terms of quality, delivery, and service.
- KPIs: Customer satisfaction scores, on-time delivery rate, and product quality metrics (e.g., defect rates).
- Initiatives: Enhance quality control procedures, implement customer feedback loops to improve products and services, and ensure timely delivery through improved logistics and forecasting.
3. Internal Process Perspective
- Objective: Streamline operations to improve efficiency and effectiveness.
- KPIs: Process cycle times, throughput rates, waste reduction, and process improvement implementation rate.
- Initiatives: Adopt process improvement methodologies (e.g., Six Sigma, Kaizen), automate manual processes where feasible, and foster a culture of continuous improvement among staff.
4. Learning and Growth Perspective
- Objective: Develop the skills and capabilities of the operations team and foster a culture of innovation.
- KPIs: Employee training hours, employee turnover rate, number of improvement ideas submitted by employees, and successful innovation projects.
- Initiatives: Invest in learning and development, implement an idea submission and reward system to encourage innovation, and equip staff with the tools and technologies needed to innovate.
How is a Balanced Scorecard used in HR?
Focusing on employee development, satisfaction, and strategic alignment, HR can significantly impact organizational performance and create a culture of learning and growth. Here's how their HR scorecard could look:
1. Financial Perspective
- Objective: Increase the cost-effectiveness of HR.
- KPIs: HR expense to revenue ratio, cost per hire, ROI on training and development programs.
- Initiatives: Optimize HR processes to reduce costs, implement efficient recruitment strategies, and ensure training programs align with organizational goals to maximize ROI.
2. Customer Perspective
In the context of HR, "customers" are the organization's employees and managers.
- Objective: Improve employee satisfaction and engagement.
- KPIs: Employee satisfaction scores, engagement levels, turnover rates, and time to fill vacancies.
- Initiatives: Develop employee satisfaction surveys, create programs to enhance work-life balance, and streamline the recruitment process to fill vacancies more efficiently.
3. Internal Process Perspective
- Objective: Streamline HR processes and improve their effectiveness.
- KPIs: Efficiency of HR processes (e.g., time to process hires, promotions, and terminations), compliance rates, and accuracy of HR data management.
- Initiatives: Automate manual HR processes where possible, improve HR data management practices, and ensure compliance with labor laws and regulations.
4. Learning and Growth Perspective
- Objective: Foster a culture of continuous learning and development, and enhance HR capabilities.
- KPIs: Number of training hours per employee, percentage of employees participating in professional development programs, employee performance improvement post-training.
- Initiatives: Implement comprehensive training and development programs, encourage participation in professional development opportunities, and develop succession planning strategies to create leadership continuity.
Get started with the Balanced Scorecard
To get started on your very own scorecard, be sure to download a free 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.
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 james.milsom@i-nexus.com or connect with him on LinkedIn for the latest insights.
