What is the Balanced Scorecard? How can one explain it into simple words? Here it is – the presentation of the Balanced Scorecard concept explains key aspects of the BSC, giving you clear understanding of what it is and how one can benefit from using it in business.
I think you already read on Wikipedia that Balanced Scorecard is a “strategy performance management tool”.
Why would any company need such a tool?
Let’s answer this question first! According to studies, most companies fail to execute their strategy and fail to translate their strategy to a lower level. That’s because of strategies that are too complex. Sometimes only the person who wrote the strategy plan understands what it is about. Strategy might tell business what should be achieved, but have not an idea about how it should be achieved.
With Balanced Scorecard, the strategy approach is becoming more structured. The Balanced Scorecard gives a system that explains how one should describe the company strategy, what perspectives should be taken into account and as a result, this approach gives exciting results!
- Most Fortune 1000 companies already have implemented the Balanced Scorecard. About 80% of organizations using balanced scorecard reported improvements in operating performance. That’s definitely great results and the worth implementing in any company.
Why it is “Balanced”?
Let’s take a closer look at the concept name. While “scorecard” is clear, what about “balanced”? Why is it balanced? Here comes the information that you can find anywhere if you Google “Balanced Scorecard” term. You will see nice diagrams with four sectors. These sectors are perspectives that were suggested by inventors of the Balanced Scorecard concept.
4 Perspectives of Balanced Scorecard
Four standard perspectives are
- Customer relationship
- Education and Growth
- Internal Business Processes
Why these four? Because when you are trying to introduce some business idea or business goal, it is necessary to take into account how it is connected to various parts of your business.
- Want to improve sales in local market?
- How will it affect your internal business processes?
- What additional training will you need to do for your employees?
- How to organize relationship with customers, and what investment do you need to make?
These four standard perspectives allow you to have a balanced overview of where your business is, where it should move and how.
Key Performance Indicators
The next important aspect of the Balanced Scorecard are KPIs. KPIs are placed inside perspectives and actually measure your performance on the way to a specified business goal. Designing a good KPI is actually a kind of art.
People tend to introduce KPI as measuring something, but just measuring what you can measure is not a good idea.
- Some KPIs are too detailed and others have nothing to do with business goals.
Balanced Scorecard and Employees
Now let’s talk about roles we have in a Balanced Scorecard. It is obvious that someone has to design the scorecard and KPIs. A good idea here would be to involve both top management and line-level employees (yes, these guys you will work on your perfect strategy). Otherwise it is almost impossible design good KPI’s and make the system work.
Another important tool, that is now considered as a part of a Balanced Scorecard is a Strategy Map. Forget about charts that one had to draw before publishing on their website sharing with the press. A strategy map should be a visualization of your strategy. One should be top level and there should be more lower level strategy maps that include actual indicators of what is going on in your business.
The latest modifications of the Balanced Scorecard include the idea called “Cascading“. Once companies discovered that the concept is powerful and worth implementing all over the company, the need for linking scorecard appeared. The process of connecting the scorecards is called cascading. The idea is that your top manager might drill down to the lower levels of scorecard in your company to get information about, say, KPI of certain employee in a business group. Top level indicators might be combination of lower level scorecard.
Balanced Scorecard Tools
How is a Balanced Scorecard done technically? Most ERP’s now include something that is called Balanced Scorecard (actually, it is dashboards and KPI’s), many professionals prefer to use Excel as it is simple and the company already has it.
- The BSC Designer product (available at www.bscdesigner.com) is one of the products that was designed specifically for the Balanced Scorecard. The PRO version is as expensive as any professional business tool, but there is a freeware version as well.
The most important
To summarize the idea about the Balanced Scorecard. It doesn’t actually matter a lot what automation tool you use, how many perspectives you have, and what consulting company has designed KPI’s for you. What matters is if you actually use the Balanced Scorecard daily and if it helps to improve your results.