Strategic management is pivotal for any organization’s success. By adding the Balanced Scorecard, the progress can be tracked substantially. It helps to identify exactly how things are going, and what needs to be modified to meet long-term goals.
So, what is Balanced Scorecard (BSC)?
The Balanced Scorecard refers to a performance metric that is used to measure and provide feedback to organizations.
The Balanced Scorecard is a set of financial and non-financial measures regarding a company’s success factors. It reflects the essence of the organization’s value-creating activities. It is used to identify and improve various segments of a business and their resulting external outcomes.
The Balanced Scorecard assists organizations in overcoming three key issues:
- effective organizational performance measurement
- the rise of intangible assets
- the challenge of implementing strategy
Organizations benefit from using the Balanced Scorecard in the following ways:
- Clearly communicates the vision and strategy across the organization
- Enables tracking of strategy implementation with periodic reporting
- Streamlines initiatives and aligns them with crucial objectives
- Clarifies roles and breaks down functional domains
- Streamlines and simplifies the strategic planning process
- Drives resources allocation and budgeting process
The multidimensional set-up provided by Balanced Scorecard Approach helps managers get a fast and comprehensive view of the business. It allows CEOs to examine performance from four important perspectives:
- Financial analysis – It includes measures such as sales growth, operating income, and return on investment.
- Customer analysis – It refers to the implementation of specific measures which ensure customer satisfaction and retention.
- Internal Process analysis – It looks at how to link business processes to strategic goals
- Learning and Growth – It assesses intense global competition and concentrate upon how an organization can learn and innovate.
These processes allow managers to provide the guidance to better meet long-term goals.
a. Balanced Scorecard Template
b. Performance Measurement Framework
c. Balanced Scorecard example
How to implement a Balanced Scorecard?
Balanced Scorecard is an effective tool for strategy deployment through alignment of relevant processes. To implement this, you need to go along with the following steps:
Step 1: Organizational Assessment
The initial step suggests executing a thorough internal assessment of the organization. It includes the evaluation of the strategic elements:
- the mission and vision
- organization values.
Step 2: Strategic Initiative
The second step is about determining the strategic themes. This includes strategic themes and perspectives, which are modelled to focus on the customer needs and value proposition.
Step 3: Using Operational language
The Strategies are mostly presented in the statements and the intent of the strategy are not translated into operational language. As various executives interpret it in their own way, this can lead to misalignment. Therefore, the strategy needs to be translated into operational language.
Step 4: SBU and Departmental BSC preparation
For the successful implementation of Strategy, every strategic business unit must align their processes with corporate BSC.
The SBUs/Departments draft BSC gets prepared by selecting the measures having high impact on SMs/KPMs of CEOs BSC.
Step 5: Individual Score Cards preparation
With the completion of the departmental BSC, the Individual Score Cards (ISCs) of executives are to be prepared.
The purpose is to allow the management team to be communicative with the vision, internal process, and objectives of the enterprise.
Step 6: Gap Analysis and Stretching Targets
The targets of preparing individual score cards are to device plans in a logical manner. It is very important to compare the actual performance with the desired mark. GAP Analysis process helps to identify –
- Gap Over Standard
- Gap Over Internal Best Performance
- Gap over Benchmark
- Gap over Customer requirement
and many more!
Thus, it helps to stretch the target around these gaps.
Step 7: Review Process
The effectiveness of BSC is achieved through methodical review process. It helps in fine-tuning the SMs/KPMs and initiating corrective actions.
The daily, monthly and quarterly review systems should be integrated with BSCs. Moreover, organizations can utilize BSC software, developed in line with BSC methodology.
A Balanced Scorecard should result in:
- Improved processes
- Motivated employees
- Enhanced information systems
- Monitored progress
- Greater customer satisfaction
- Increased financial usage
Finalising the Balanced Scorecard
A Corporate scorecard takes approximately 8 weeks to be completed.
- The first workshop to finalize the strategy map is conducted at the end of the 6 weeks point.
- The next one takes place around 2 weeks after that to finalize the Balanced Scorecard.
- If 6 to 8 departmental cascades are found to be in place, then all scorecards can be completed in around 10 to 12 weeks.
- Followed by these workshops, a series of those being unique for corporate and individual departments are also conducted during this time.
Sustaining the Balanced Scorecard
The Balanced Scorecard must be embedded in the management systems to get the best results. However, to ensure that the implementation of the Balanced Scorecard will minimize resistance, several important aspects need to be in place –
- Make sure that a Change Management plan has been designed in accordance with the BSC.
- The transformation process should be driven from the top. Therefore, it is crucial to maintain an engaging leadership.
- Based on the results, develop an organizational culture by establishing a strategy management system
- Concentrate on the organization’s strategy by holding review meetings
- Enhance individual accountability for results through objective ownership
- Align the core aspects, corresponding systems and employee performance around strategy through reward programs
- Create a performance, results oriented culture
- Link budget formation, cost accounting and performance results
- Emphasize on continual improvement – in employee learning and skills development, in process and in understanding customer needs and satisfaction. Ensure to provide employee satisfaction with utmost care.
- Link key organization initiatives to the Balanced Scorecard development process
Implementing the Balanced Scorecard system company-wide should be the key to the successful realization of the strategic vision.
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