Balanced Scorecard: Perspectives, Benefits & Implementation

Given the current complex business environment, the performance management system has to transcend financial metrics to offer a holistic view of the organisation and its capacity for stable and continuous successful functioning. One such system is the balanced scorecard. The balanced scorecard approach was developed in the 1990s by Robert Kaplan and David Norton and it is one of the most essential tools in planning and controlling strategy at present among companies which strive to transform daily operations into administrative, and strategic initiatives. The Strategic Planning Training Courses offered by the British Academy for Training and Development can help to understand how to apply this tool in connection with other elements of business development for organisational growth and increase in effectiveness.

This article aims to discuss the balanced scorecard methodology, advantages, viewpoints, and the process to implement it successfully.

What is a Balanced Scorecard?

“The balanced scorecard is defined as a strategic planning and management technique that enables organisations to manage the performance from different perspectives.”

In contrast to typical management accounting where only the financial performances are considered the key, the balanced scorecard business strategy includes several measures which provide the big picture view. Within it, organisations apply a set of metrics used to track key performance indicators (KPIs), which are distributed more or less equally across four major fields, also called perspectives, to provide a more balanced evaluation of results and potential.

4 Balanced Scorecard Model Perspectives

The 4 balanced scorecard model perspectives are an extensive way of looking at an organisation and its objectives and performance. These perspectives allow the organisation to relate its strategic plan to measurable objectives that can again be followed to check on performance. Below is a detailed explanation of each perspective:

1. Financial Perspective: 

This perspective is based on the financial goals of an organisation. It looks into factors like profit margins, rate of return (ROI) and revenue growth. The financial perspective looks at whether or not a firm’s strategy and operation is achieving greater profitability and sustainable growth in an organisation.

2. Customer Perspective: 

In this perspective organisations evaluate performance with reference to the customers. Measures like customer satisfaction, loyalty and market share reflect how good the organisation is at catering for its customers. The balanced scorecard approach argues that skills and customer satisfaction deployed by the organisation are the key to achieving financial success.

3. Business Process Perspective: 

This view focuses on the ability of activities within an organisation to deliver customer requirements and profitability goals. Such measures may be cycling times, improvement in product quality and innovation rates. Such a view guarantees that the internal system functioning acts correctly in relation to the overall strategic outlook.

4. Learning and Growth Perspective: 

The learning and growth perspective is based within an organisation’s absorptive capacity to innovate and learn to improve. In this area, metrics may include employee awareness programmes, the number of employees retained in the organisation, and the use of technology. This view ensures that an organisation is always growing and developing and is always preparing for change and to meet future challenges.

These four balanced scorecard perspectives allow organisations to have a broader view that will show the areas of strength and the areas that require change.

5 Benefits of Balanced Scorecard

Implementing the balanced scorecard method offers a number of advantages that can positively affect the performance and strategic positioning of an organisation. Key benefits of balanced scorecard include:

• Enhanced Strategic Alignment: By linking metrics and activities towards the aspects of strategic goals and objectives, the balanced scorecard facilitates establishment of harmony across the organisation.

• Holistic Performance Measurement: The balanced scorecard is different from the conventional financial performance for the reason that it was measured in accordance with several areas whereby the performance of the organisation is assessed comprehensively.

• Improved Decision-Making: A key advantage of the balanced scorecard approach is that the leaders in an organisation get data from a wide range of views to make better decisions.

• Greater Organisational Focus: Since it has clear goals and objectives, the balanced scorecard ensures everyone within an organisation is focused and accountable towards the accomplishment of core objectives.

• Encourages Continuous Improvement: Through the learning and growth perspective, the balanced scorecard fosters continuous learning and improvement within the organisation.

The preceding advantages explain why balanced scorecard methodology is widely applied at strategic planning and management in diverse industries.

Implementation of Balanced Scorecard

To use the balanced scorecard, it is recommended to have a structured approach that involves planning, alignment, and control. Here are the essential steps for the implementation of balanced scorecard:

1. Define Strategic Objectives: 

The process should begin with the assessment of the goals of the organisation in the long and short term. These objectives should align with the mission and vision statements and should include all the balanced scorecard model perspectives. Examples include increasing customer satisfaction, revenue, or organisational effectiveness.

2. Select Key Performance Indicators (KPIs): 

For each perspective, select Key Performance Indicators which can be used to determine realisation of the established objectives. In fact, it is crucial to make sure that all the chosen KPIs are Specific, Measurable, Attainable, Relevant and Time-bound (SMART).

3. Set Targets and Benchmarks: 

After defining the KPI, it is important to set performance goals and objectives to be achieved with reference to those KPI. Targets are used to define the expected performance levels on KPI while benchmarks assist in evaluating performance progress.

4. Communicate and Align: 

Various business strategies, including the balanced scorecard business strategy, require full embrace across the organisation. Make sure all organisational members receive information regarding the role and responsibilities needed based on the balanced scorecard.

5. Monitor and Evaluate: 

Set up your KPIs and check them regularly to read performance. A well–developed balanced scorecard helps an organisation to ascertain which aspects require attention so that it can change its strategies as necessary. Another purpose of evaluating results is to determine whether a current strategy is useful and whether changes are needed.

6. Continuous Improvement: 

Change is inevitable in organisational strategic plans and management; therefore, a balanced scorecard should be dynamic to meet organisational needs. Regularly monitor and update objectives, KPIs and targets on yearly basis to help in achieving business strategies.

Thus, adherence to these steps contributes to the creation of a balanced scorecard framework, indicating the precise directions for attaining strategic goals.

How to create a Balanced Scorecard

Developing a balanced scorecard entails identifying or choosing the KPIs that would embrace the organisation’s strategic planning in every perspective it assumes. Here’s a guide on how to create a balanced scorecard:

1. Define the Vision and Strategy: 

Explain the vision, mission, and values of the organisation. Such a foundation will be used to identify objectives and respective KPIs.

2. Develop a Strategic Map: 

A strategic map is an illustration of how objectives from the perspectives of a strategy map correspond to each other. The concept reveals how the accomplishment of goals in one paradigm such as customer satisfaction leads to enhancement of goals in the other paradigm, for instance financial performance.

3. Identify KPIs for Each Perspective: 

Choose KPIs that are consistent with the strategic plan of the organisation with regard to each of the 4 balanced scorecard model perspectives. For example, in the case of the marketing and sales objectives where the goal is to increase customer satisfaction, the KPI can be customer retention rate or Net Promoter Score (NPS).

4. Assign Weightage to KPIs: 

Weight each of the KPIs depending on the level of significance on the strategic map of the organisation.

5. Establish Data Collection and Reporting Mechanisms: 

Organise the ways to gather, process, and provide reports on the selected KPIs. These make it possible to have readily usable performance information for decision making.

6. Communicate and Implement: 

All the stakeholders need to be informed of the balanced scorecard in terms of what it intends to achieve, the measures that it will use to make its appraisals and the goals that it will seek to achieve.

Building and managing a balanced scorecard demands dedication to its constant assessments and preparedness to alter its strategy in accordance with the changing demands of a given enterprise.

In conclusion,

The balanced scorecard is not only a performance measurement system, but it is also a key element of a strategic management system. Whether the organisational strategy is aimed at improving customer satisfaction, enhancing internal efficiency, or innovativeness, the balanced scorecard supplies a strong platform for attaining and maintaining these goals.