The Balanced Scorecard (BSC) is a strategic planning and management tool that is widely used by organizations to align business activities to the vision and strategy of the company, improve internal and external communications, and monitor performance against strategic goals. In German, it is known as das Balanced Scorecard.
Introduced by Dr. Robert Kaplan and Dr. David Norton in the early 1990s, the BSC is designed to translate a company's mission and strategy into a set of objectives and measures that are communicated and monitored throughout the organization.
Key Components of the Balanced Scorecard
The BSC is built around four key perspectives, each representing a different aspect of the organization's performance. These perspectives are interrelated and interdependent, and they provide a comprehensive view of the organization's strategy and performance.
Each perspective has its own set of objectives, measures, targets, and initiatives, which are used to monitor and improve performance in that area.
Financial Perspective
The financial perspective focuses on how the organization looks to shareholders. It includes objectives such as maximizing shareholder value, improving financial performance, and ensuring the financial health of the organization.
Examples of measures for this perspective include return on assets (ROA), return on investment (ROI), earnings per share (EPS), and cash flow.
Customer Perspective
The customer perspective focuses on the organization's customers and their needs. It includes objectives such as increasing customer satisfaction, improving customer retention, and expanding the customer base.
Examples of measures for this perspective include customer satisfaction scores, customer retention rates, market share, and customer lifetime value.
Implementing the Balanced Scorecard
Implementing the BSC involves several steps, including translating the organization's mission and strategy into objectives, selecting appropriate measures, setting targets, and developing initiatives to achieve those targets.
The BSC should be cascaded throughout the organization, with each department or team developing its own scorecard that aligns with the organization's overall strategy.
Translating Strategy into Objectives
This step involves breaking down the organization's strategy into specific, measurable objectives for each of the four perspectives.
For example, a company's strategy to increase market share might translate into the following objectives: increase sales by 10% in the next year (financial), improve customer satisfaction scores by 15% in the next six months (customer), increase the number of new products introduced by 20% in the next year (internal business processes), and improve employee satisfaction scores by 10% in the next year (learning and growth).
Selecting Measures and Setting Targets
Once objectives have been set, appropriate measures must be selected to track progress towards those objectives. These measures should be specific, measurable, achievable, relevant, and time-bound (SMART).
Targets should be set for each measure, based on the organization's goals and the current performance level. These targets should be challenging but realistic, and they should be reviewed and adjusted as needed.
The Balanced Scorecard is a powerful tool for translating strategy into action and monitoring performance against that strategy. By focusing on multiple perspectives and cascading the scorecard throughout the organization, the BSC helps to ensure that everyone is working towards the same goals and that progress is being tracked and measured effectively.