A Balanced Scorecard may sounds like a healthy way to record a sporting event’s statistics while in fact it is a useful tool for every business. Much like sports, organizations have many moving pieces and players. The Balanced Scorecard technique combines strategic planning with traditional financial metrics to produce a ‘balanced’ organizational view. This popular approach allows employees to clearly understand their performance expectations, alerts managers to areas where performance may diverge from expectancies and gives them the ability to improve on these discrepancies.
A Balanced Scorecard applies a company’s vision and mission statements to measurable objectives. Performance can often be a nebulous term and the Balanced Scorecard defines and gauges optimum performance for organizations by measuring performance against several other objectives.
Ancestors of the Balanced Scorecard were simple charts divided into four sections: Financial, Customer, Internal Business Processes and Learning and Growth. Designing a successful Balanced Scorecard requires selecting five or six metrics for each of these sections and centering them around the organization’s vision and strategy.
The Balanced Scorecard technique can bring clarity and refresh business strategies. Through observing your company’s key objectives, this strategy keeps long-term goals in sight while connecting those components to annual organizational goals and budgets. This process also helps to facilitate organizational change and increase comprehension of corporate vision and values across the board.
What Does a Balanced Scorecard Evaluate?
When planning and evaluating, the company’s vision and values are the lynchpins around which all other objectives are anchored. Each objective should relate back to the vision. Balanced Scorecard evaluates four aspects best represented by the chart above.
- Financial Performance: This takes into account revenue, earnings, cash flow and return on investment.
- Internal Business Processes: Considers quality, productivity and timeliness. Answers the question “What must we excel at?”
- Customer Value Performance: Measures satisfaction, loyalty and market share. Answers the question “How do customers see us?”
- Learning and Growth: It is important to continue the search for improvement and create the maximum amount of value.
Why Implement a Balanced Scorecard?
A Balanced Scorecard is one of several management and planning techniques. This type of approach has many outcomes, which can include an increased focus on strategy and results from management and staff. After utilizing the Balanced Scorecard technique there should be several key takeaways:
- Ability to better prioritize projects
- Renewed focus on what can drive the strongest future performance
- Organizational strategy aligned with daily objectives
- Overall performance improved by measuring several objectives- not just financial
Balanced Scorecard Success Factors
A successful balanced scorecard evaluation should culminate with the ability for management to identify needs and close the gaps in the organization. The balanced scorecard approach takes a step back and attempts to align all of an organization’s values under one umbrella with the company’s vision statement as the strong backbone.
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