Every business wants success and profitability—but how do you achieve that goal? There are different methods and strategies you can employ to improve your organization’s performance and profitability. One method is using a balanced scorecard. This planning tool can help you better understand and execute your business strategy.
In this article, we will discuss what balanced scorecards are, how to use them, and the benefits they offer businesses. We’ll also provide some tips on how to get started with balanced scorecards in your organization.
What is a Balanced Scorecard?
A balanced scorecard (BSC) is a planning tool that helps organizations track, monitor, and execute their business strategy. The balanced scorecard approach was first developed in 1992 by Drs. David Norton and Robert Kaplan.
The balanced scorecard approach is based on the premise that businesses need to focus on four key areas in order to be successful:
- Financial performance
- Customer satisfaction
- Employee engaugement
- Operational efficiency
Each of these four areas is represented by a set of metrics or goals. To create a balanced scorecard, businesses first need to identify the key performance indicators (KPIs) that are important to their organization. Once KPIs are identified, businesses can create goals and objectives for each KPI.
The balanced scorecard approach offers an overview of an organization’s operational performance. It is not focused on short-term results, but rather takes a long-term view of how an organization can be successful.
Elements of a Balanced Scorecard
A balanced scorecard has the following elements:
Strategies Objectives are the activities required to implement the organization’s strategy. Every balanced scorecard will have different strategic objectives based on the specific goals of the organization. Strategy maps are simple illustrations that depict logical cause-and-effect relationships between strategic objectives.
Key Performance Indicators (KPIs)
As we mentioned earlier, KPIs are the metrics that businesses use to measure progress towards their goals. KPIs can either be financial or non-financial—financial KPIs might include measures such as revenue growth, profitability, and return on investment (ROI). Non-financial KPIs might include measures such as customer satisfaction, employee engaugement, and operational efficiency.
Targets and Initiatives
After KPIs are identified, businesses need to set targets for each KPI. Initiatives are the actions that need to be taken in order to achieve the targets. In addition to setting targets and initiatives, businesses also need to establish a timeframe for each KPI.
The Cascading strategy focuses on communication and aligning the balanced scorecard throughout the organization. Every employee should be aware of the balanced scorecard and how their daily tasks contribute to the organization’s overall strategy.
It should be reviewed and updated on a regular basis to ensure that it is still relevant and aligned with the organization’s goals. At the same time, the balanced scorecard should be flexible enough to accommodate changes in the business environment.
Benefits of Using a Balanced Scorecard
There are many benefits of using a balanced scorecard in your organization, including:
- Tracking business progress towards its goals and objectives.
- Outlines the criteria for measuring and weighing metrics for companies so that all aspects of the organization gets the proper attention they need.
- Communicates the company strategy to all employees.
- Aligns departmental goals with the company strategy.
- Helps to identify and track KPIs that are most important to the success of the organization.
- Set and track progress against specific objectives and goals.
- Encourage employees to get involved in the strategic planning process.
- A more holistic way to measure performance for both financial and non-financial indicators.
Perspectives of a Balanced Scorecard
A balanced scorecard has four different perspectives: Financial perspective, Customer perspective, Employee perspective, and Operational perspective.
Each of these four perspectives is important in understanding how well a company is balanced and achieving its goals.
The Financial Perspective
The financial perspective measures the financial outcomes of an organization. This perspective is important because it ensures that the organization is meeting its financial obligations and achieving profitability. At the same time, the financial perspective will also help to identify any financial risks that the organization might be facing.
The Customer Perspective
The customer perspective measures how well an organization is meeting the needs of its customers. This perspective is important because satisfied customers are essential for a company’s success. Without satisfied customers, a company will not be able to generate revenue or profit.
The Employee Perspective
The employee perspective measures how well an organization is engauging and developing its employees. This perspective is important because motivated and engauged employees are essential for a company’s success. Workers are the backbone of any organization and they need to be properly supported in order to perform at their best.
The Operational Perspective
The operational perspective measures how well an organization is executing its daily operations. This perspective is important because efficient and effective operations are essential for a company’s success. At the same time, the operational perspective will also help to identify any areas of improvement for the organization.
How To Develop a Balanced Scorecard
There are a few steps that you need to follow in order to develop a balanced scorecard:
Step 1: Assessment
The first step is to conduct an assessment on the current state of your organization. This will help you to identify any areas of improvement that need to be addressed. In most cases, an organization will establish or revalidate essential strategic components (e.g., valies, mision, vision, enablers and challenges, market studies, and customer and stakeholder needs analysis) in this phase.
Step 2: Strategy
The second step is to develop a strategy for your organization. This will help you to identify the goals that you want to achieve and the objectives that need to be met. Organizations follow the strategy carefully to develop or clarify a plan to compete more effectively, adapt to changing circumstances, or both.
Step 3: Objectives
The third step is to develop objectives for each perspective of the balanced scorecard. This will help you to identify the KPIs that need to be tracked. Objectives should be qualitative goals that are meant for long-term improvements. Objectives are formulated on the strategic level and combined into a balanced set.
Step 4: Strategy Mapping
The fourth step is to create a strategy map for your organization. This will help you to visualize the relationships between the different objectives. The strategy map will also help you to identify the initiatives that need to be taken in order to achieve the objectives.
Step 5: Performance Measures
The fifth step is to develop performance measures for each perspective of the balanced scorecard. This will help you to track the progress of your organization. For each objective, you should identify a few KPIs that need to be tracked.
Step 6: Strategic Initiatives
This phase is to come up with strategic initiatives for each objective. This will help you to take action and achieve the objectives. Strategic initiatives should be specific actions that need to be taken in order to achieve the objectives.
Step 7: Implementation
The seventh step is to implement a balanced scorecard in your organization. This will help you to put the scorecard into action and start tracking the progress of your organization. In addition, you should also train your employees on how to use the balanced scorecard.
Step 8: Evaluation
The eighth step is to evaluate the progress of your organization. This will help you to see if the balanced scorecard is working as intended. You should also make sure to revise the balanced scorecard on a regular basis.
By following these steps, you can develop a balanced scorecard for your organization. This will also help you to improve your organization’s performance and profitability. In addition, the balanced scorecard will also help you to better plan and execute your business strategy.
Create and Implement Balanced Scorecards Using DATAMYTE
DATAMYTE has software that lets you create and implement balanced scorecards with ease. The DataMyte Digital Clipboard is a workflow automation software that helps you to create, implement, and track balanced scorecards. Using our easy-to-use drag-and-drop interface, you can quickly create balanced scorecards for your organization.
You can also use our Digital Clipboard to track the progress of your organization and see how well the balanced scorecard is working. The DataMyte Digital Clipboard also lets you edit and revise the balanced scorecard on a regular basis. Doing so will save you time and effort in the long run.
With the DataMyte Digital Clipboard, you have an all-in-one solution for creating and implementing balanced scorecards. Book a demo with us today to learn more about how we can help you improve your organization’s performance and profitability with a balanced scoreboard.
A balanced scorecard can help your organization to improve operational performance and overall profitability. With this tool, you will also be able to better plan and execute your business strategy. Use this guide to create a balanced scorecard for your organization and start tracking your progress today!