The Balanced Scorecard Method

The Balanced Scorecard Method

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The phrase balanced scorecard was coined in the 1990’s and is a strategic planning and management system that is used across many industries and by governments, non-profits etc.

It is used by organisations across the world to improve and align their business strategies with the organisations vision and goals. It was originally created by Drs. Robert Kaplan and David Norton, as a performance measurement framework that added strategic non-financial performance measures to traditional financial metrics in order to provide a more balanced view of the organisations performance.It has now evolved as a measurement tool to a strategic and planning system which can guide an organisation on a day to day basis.

As a leader, some of the reasons you would want to implement the balanced scorecard are:

  • It increases focus on strategy and results
  • It measures what matters and consequently improves organisational performance
  • It aligns the organisations strategy with the work people do on a day to day basis
  • It focuses on the drivers of future performance
  • It improves communication of the organisation’s vision and strategy
  • It helps to prioritise projects and initiatives

In order to provide a holistic view of how the organisation is doing, the balanced scorecard views the organisation from four perspectives.

  • Learning and Growth Perspective
  • Internal Perspectives
  • Customer Perspective
  • Financial Perspective

Tips to Implement the Balanced Scorecard

Over the next couple of pages we will look at the four perspectives of the Balanced Scorecard in detail, how to use the balanced scorecard with your team and an example of a marketing team using the Balanced Scorecard Method.

1. Learning and Growth Perspective

To achieve our vision, how must our organisation learn and improve?

Some of the parameters you can use to evaluate this perspective are:

Human Capital: What are the skills, knowledge and attitude of my employees?

Organisation Capital: What is the culture, leadership and organisation development strategy that we need to implement?

Information Capital: What systems, databases and networks do we have?Some ways to do this are to develop strategic competencies, build a learning culture and expand capabilities with technology.

2. Internal Perspective

To satisfy our customers, which processes must we excel at?

This includes evaluating:

Operations Management Processes: Supply, Production, and Distribution

Customer Management Processes: Selection, Acquisition, Retention and Growth

Innovation Processes: New ideas, R&D, Design and Development

Regulatory & Social Processes: Environment, Safety & Health, Employment, Community

3. Customer Perspective

To achieve our vision, how must we look to our customers?

This includes measuring and assessing:

  • Customer Retention
  • Customer Profitability
  • Customer Satisfaction
  • Market Share
  • Customer Acquisition

All of these are affected by: price, quality, service, availability, brand.

4. Financial Perspective

If we succeed, how will we look to our shareholders?

The goal here is long-term shareholder value and is affected by two elements:

Cost efficiency: including improving cost structure and increasing asset utilisation

Revenue Growth: this includes expanding revenue opportunities, and enhancing customer value.

5. Setting Strategic Initiatives

In order to use the Balanced Scorecard at work, you need to ask yourself these questions:

  • What does success look like for each of these perspectives? How will you measure it? What are the KPI’s—Key Performance Indicators for each?
  • What are the objectives for each perspective? How will you implement them?
  • What are the strategies/goals for your team? What activities will differentiate you?
  • What is your teams mission and vision? What is the desired state?

6. KPI’s—Key Performance Indicators

A KPI is a measurement indicator that provides information on how far we have succeeded in achieving our objectives.

KPI’s must be clear, specific, and measurable performance indicators.Setting Strategic Initiatives

In order to use the Balanced Scorecard at work, you need to ask yourself these questions:

What does success look like for each of these perspectives? How will you measure it? What are the KPI’s—Key Performance Indicators for each?

What are the objectives for each perspective? How will you implement them?

What are the strategies/goals for your team? What activities will differentiate you?

What is your teams mission and vision? What is the desired state?

Some KPI’s that you can use to measure these perspectives are:

Productivity, Quality, Profitability, Timelines, Process Efficiency, Resource Utilisation, Cost Savings, Growth.

7. Marketing Strategy Map

Here are some of the annual goals decided by organisation X’s marketing team, using theBalanced Scorecard Method.

Learning & Growth: Develop functional marketing competencies, enhance technology for marketing, and foster creative thinking solutions in meetings.

Internal Processes: Have relationship managers for customers, develop a marketing communication program, develop marketing business intelligence, accelerate new product development ideas.

Customer: Create satisfied customers, enhance brand image

Financial: Optimise marketing efficiency, increase sales revenue

The team set out objectives and measures for each of these initiatives along with project plans and timelines, the team also set down a process to communicate these goals and the progress made on each of them both internally and to the organisation.