Implementing a Balanced Scorecard Approach to Your Strategic Plan
Posted on Aug 10, 2022 at 08:08 PM
The balanced scorecard methodology may be helpful if you want to create an effective strategic plan.
This methodology allows you to focus on the success of your organisation rather than getting bogged down in implementation details using four critical perspectives and financial metrics alone.
The following guide will help you create a strategic plan using the balanced scorecard methodology.
What Is a Balanced Scorecard (BSC)?
The term balanced scorecard (BSC) refers to a strategic management performance metric used to identify and improve various internal business functions and evaluate their resulting external outcomes.
Add to that; The Balanced Scorecard Uses to measure and provide feedback to organisations. Balanced scorecards are standard among companies in the United States, the United Kingdom, Japan, and Europe.
Data collection is crucial to providing quantitative results as managers and executives gather and interpret the information. Company personnel can use this information to make better decisions for the future of their organisations.
The Balanced Scorecard essentially invites companies to create a set of internal metrics that help them assess their business performance in 4 key areas or perspectives:
1- Financial flow:
Typical balanced scorecard metrics might include cash flow, sales performance, operating income, or financial return.
2- Customers:
Using the Balanced Scorecard, we can gain customer satisfaction through a higher percentage of new product sales, on-time delivery, higher net profit score or share of wallet.
3- Internal Business Process:
This would include measuring unit costs, cycle times, yield, error rates, etc.
4- Learning and growth:
Examples of the role of the balanced scorecard in this area are employee engagement scores, retention rates of high-performing staff, skill increases of staff, etc.
Characteristics of the Balanced Scorecard Model (BSC)
Information is collected and analysed from four aspects of a business:
1- Learning and growth are analysed by investigating training and knowledge resources. This first leg handles how well information is captured and how effectively employees use that information to convert it to a competitive advantage within the industry.
2- Business processes are evaluated by investigating how good products are manufactured. Operational management is analysed to track gaps, delays, bottlenecks, shortages, or waste.
3- Customer perspectives are collected to gauge customer satisfaction with the quality, price, and availability of products or services. Customers provide feedback about their satisfaction with current products.
4- Financial data, such as sales, expenditures, and income, are used to understand financial performance. These financial metrics may include dollar amounts, financial ratios, budget variances, or income targets.
What are the benefits of Balanced Scorecard Implementation?
The four perspectives of the Balanced Scorecard meet many performance management strategies:
Firstly, they require organisations to 'balance' their activities between the main drivers of business success. They also force organisations to assign tangible metrics to each perspective, increasing accountability and performance evaluation.
Add to that; The Balanced Scorecard also serves as a framework for communicating an organisation's strategy to broader stakeholders.
The card also allows employees to enter information into a single report, saving time, money and resources.
It also allows companies to track their service, quality performance, and financial statements.
Additionally, scorecards also allow companies to identify and minimise performance weaknesses.
And finally, One study showed that approximately 64% of organisations in the US were using the Balanced Scorecard to measure business performance. This card's benefit lies in its contribution to achieving profits through performance indicators (KPIs).
How to Implement the Balanced Scorecard
Before we dive into implementing the Balanced Scorecard for your organisation, we must look at what people often get wrong.
The big mistake people make when implementing the Balanced Scorecard is: A lot of people look at the Balanced Scorecard as 4 simple perspectives that you simply 'slot your goals' into. When they visualise the Balanced Scorecard, they think of it like this diagram:
4 simple perspectives link together to give you a Balanced Scorecard of your business performance. Each perspective contains a list of Strategic Objectives, Projects and KPIs. The end goal is to try and balance each perspective and result in improved performance. This approach to implementing the Balanced Scorecard is, however, fundamentally wrong.
The Balanced Scorecard is not a series of equally-weighted perspectives. It is instead a process whereby, starting at the bottom, you work your way upwards through each perspective to deliver the topmost - Financial Gain.
Each perspective unlocks your ability to deliver effectively against the one above it. So instead of the diagram above, you need to visualise the Balanced Scorecard from a strategy mapping point of view:
Another way to think of the Balanced Scorecard is as a series of leading and broader steps because it also applies to your goals and strategic projects in the company.
The best strategy for applying the balanced scorecard is as follows: (Learning and Growth, Internal Operations, and Customer Satisfaction). These are your leading steps, as they will facilitate the delivery of your one and primary lagging step, which is your Financial performance.
To learn how to implement the Balanced Scorecard, Let's work through the theory behind implementing the Balanced Scorecard as a series of 'steps':
Your ability to learn and grow will directly dictate your ability to better manage your internal processes. Improving your internal processes will positively impact your customers and reduce costs.
The combined benefit of this lower cost/higher customer engagement in your product (essentially sales) will lead to your end goal, increased profit and financial return.
When built up in the proper order, the pyramid leads to success. When implemented in this way, the Balanced Scorecard can be compelling in helping your organisation to:
- Create a concrete roadmap from the current state to a more successful 'future state'.
- Identify major roadblocks and areas where you lack the critical competencies to proceed to the next stage.
- Articulate how your goals will help the organisation move upwards through the stages.
- Prioritise business activities in the order they need to be tackled to allow the most rapid progression through the stages.
- Making profits
What are the problems with a balanced scorecard?
As with any strategic framework, there are many main criticisms of the balanced scorecard:
- Strategic planning for your company takes a lot of time.
- People never fully understand it and therefore fail to benefit from it.
- It's too rigid and doesn't account for changes in the business landscape precisely that it's too focused on financial measures above all else.
- It's too internally focused, almost completely ignoring macro-economic or competitive aspects of running a business.
Finally, many problems with implementing the Balanced Scorecard come from the fact that it is often viewed as a mere reporting framework rather than an authentic way of managing your business.
In conclusion,
To measure corporate performance, look at the top best problem-solving skills this year and Know that balanced scorecards are an excellent tool that, when properly implemented, will likely benefit most organisations. So if you want to enhance the performance of your employees and company managers and develop their tools, you can attend Strategic planning training courses in London.
