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 organization, improve internal and external communications, and monitor performance against strategic goals. It was developed by Dr. Robert Kaplan and Dr. David Norton in the early 1990s and has since been adopted by thousands of organizations worldwide.
At its core, the Balanced Scorecard is a method of translating an organization's mission and strategy into a set of performance metrics that can be used to track progress and ensure that all business activities are aligned with the organization's goals. It is called 'balanced' because it considers not just financial measures, but also customer, internal business processes, and learning and growth perspectives.
Perspectives of the Balanced Scorecard
The Balanced Scorecard is built around four interrelated perspectives, each focusing on a different aspect of the organization's operations and performance. These perspectives are not independent of each other but are interconnected and interdependent.
The four perspectives are: Financial, Customer, Internal Business Processes, and Learning and Growth. Each perspective has its own set of objectives, measures, targets, and initiatives that are used to track progress and ensure that the organization is on track to achieve its strategic goals.
Financial Perspective
The Financial perspective focuses on how the organization looks to shareholders. It includes measures such as revenue growth, profit margins, return on assets, and shareholder value. The objectives in this perspective are typically related to creating value for the shareholders and ensuring the financial health of the organization.
For example, a company might set a target to increase its return on assets from 10% to 15% over the next three years. To achieve this, it might implement initiatives such as improving operational efficiency, reducing costs, or expanding into new markets.
Customer Perspective
The Customer perspective focuses on the needs and expectations of the organization's customers. It includes measures such as customer satisfaction, customer retention, market share, and customer lifetime value. The objectives in this perspective are typically related to creating value for the customer and ensuring customer satisfaction and loyalty.
For instance, a company might set a target to increase its customer satisfaction score from 80 to 90 over the next two years. To achieve this, it might implement initiatives such as improving customer service, enhancing product quality, or offering new and innovative products.
Strategic Mapping and Alignment
Strategic mapping is a key aspect of the Balanced Scorecard. It involves translating the organization's mission and strategy into a set of strategic objectives and measures for each of the four perspectives. These objectives and measures are then cascaded down to the department, team, and individual levels, ensuring that everyone in the organization is working towards the same goals.
Alignment is another critical aspect of the Balanced Scorecard. It ensures that all business activities are aligned with the organization's strategy and that resources are allocated accordingly. This is achieved by linking the objectives and measures in each perspective to the initiatives that will be used to achieve them.
Cascading Objectives
Cascading objectives involves translating the organization's strategic objectives into objectives for each department, team, and individual. This ensures that everyone in the organization understands how their work contributes to the achievement of the organization's strategic goals.
For example, a company's strategic objective to increase market share might be cascaded down to the marketing department as an objective to increase brand awareness, to the sales team as an objective to increase the number of new customers, and to individual salespeople as an objective to make a certain number of sales calls per day.
Aligning Resources
Aligning resources involves ensuring that the organization's resources, including its budget, people, and technology, are allocated in a way that supports the achievement of its strategic objectives. This is achieved by linking the initiatives in each perspective to the resources that will be used to implement them.
For instance, a company might allocate a larger budget to the marketing department to support its initiatives to increase brand awareness and market share. It might also provide training and development opportunities to employees to support its initiatives to improve customer service and employee skills.
In conclusion, the Balanced Scorecard is a powerful tool for strategic planning and management. By focusing on the four perspectives of financial, customer, internal business processes, and learning and growth, it helps organizations to align their business activities with their strategic goals, improve internal and external communications, and monitor performance against strategic goals. By cascading objectives and aligning resources, the Balanced Scorecard ensures that everyone in the organization is working towards the same goals and that the organization's resources are being used effectively to achieve its strategic objectives.