A balanced scorecard is a strategy performance management tool – a well structured report, that can be used by managers to keep track of the execution of activities by the staff within their control and to monitor the consequences arising from these actions.
A balanced scorecard is a strategic management performance metric that helps companies identify and improve their internal operations to help their external outcomes. It measures past performance data and provides organizations with feedback on how to make better decisions in the future.
The four perspectives of a traditional balanced scorecard are Financial, Customer, Internal Process, and Learning and Growth.
The balanced scorecard communicates your strategy so everyone knows where you want to go and how they can help your organization get there. Strategic alignment means every department, team, and even individual employee are all working towards common organizational performance goals.
The Balanced Scorecard provides a powerful framework for building and communicating strategy. The business model is visualised in a Strategy Map which helps managers to think about cause-and-effect relationships between the different strategic objectives.
One of the most powerful elements in the BSC methodology is the use of strategy mapping to visualize and communicate how value is created by the organization.
Third, balanced scorecard is a dynamic and flexible system that can adapt to changing environments and needs, while KPIs are more static and fixed indicators that require regular review and revision.
Therefore, an example of Balanced Scorecard description can be defined as follows: A tool for monitoring the strategic decisions taken by the company based on indicators previously established and that should permeate through at least four aspects – financial, customer, internal processes and learning & growth.
There are three main types of business scorecards: strategic, operational, and financial.
The balanced scorecard managing system “maps an organization's strategic objectives into performance metrics in four perspectives: financial, internal processes, customers and learning and growth,” reports NetMBA.
Objectives, Measures, Targets, and Initiatives
Strategic objectives - what the strategy is to achieve in that perspective. Measures - how progress for that particular objective will be measured. Targets - the target value sought for each measure. Initiatives - what will be done to facilitate the reaching of the target.
The scorecard allows your business to increase growth and improve day-to-day operations through a data-driven culture and communication. The balanced scorecard provides shared goals that are grounded in a shared understanding, and helps you focus on driving stakeholder alignment.
The main problem is that it does not provide practical guidance for deployment, and some executives view it as a "quick fix" that can easily be installed in their organizations. Implementing a balanced metrics system is an evolutionary process, not a one-time task that can be quickly checked off as “completed”.
This is because learning improves the internal business processes; this improvement leads to improved customer satisfaction; which in turn leads to improved financial results. The BSC emphasizes improvement and if an organization does not continually improve, it will eventually lose out to competitors that do.
One of the performance assessment methods used is Six Sigma and the Balanced Scorecard. Six Sigma is an organizational approach to improve operational excellence, while the Balanced Scorecard provides a framework for transforming organizational strategies into work matrices that help organizations compete.
A strategy map is a simple graphic that shows a logical, cause-and-effect connection between strategic objectives (shown as ovals on the map). It is one of the most powerful elements in the balanced scorecard methodology, as it is used to quickly communicate how value is created by the organization.
At a minimum, each strategic objective will have one KPI associated with it and certainly no more than three. So how many KPIs do I need? At a minimum 12 and at a maximum 36. Follow the rules, tried and tested over 20+ years of usage, and you cannot go wrong.
A balanced scorecard is used to help in the strategic management of organizations. The balanced scorecard is anchored on four perspectives, which include financial, business process, customer, and organizational capacity. It enables entities to discover their shortcomings and come up with strategies to overcome them.
[3] Learning & Growth Perspective focuses on the intangible assets of an organization, mainly on the internal skills and capabilities of the employees that are required to support the value-creating internal processes. The Learning & Growth Perspective focuses on Human, Information & Organization Capital.