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What is Balanced Scorecard?

What is Balanced Scorecard?

What is it?

Balanced scorecard was created by Robert Kaplan and David Norton and it is based on the philosophy which says "if you cannot measure it, you cannot manage it then". BSC offers a way for an organization to achieve a wider perspective on its strategic decisions by considering the influence and impact on finances, customers, internal processes and employee learning. It is designed to measure the success degree in implementation of business strategy. The analysis takes into account financial and nonfinancial measures, internal improvements, past outcomes and ongoing requirements as indications of future performance.

Why is it important?

BSC helps to transform the organizational strategy into action and align employees to common goals. Also it helps to eliminate the conflict between goals caused by functional targets.

How to use it?

Identify the relevant critical success factors in the BSC perspectives - define the crucial capabilities and purposes of the department and explore inter-relationships.

Examples of factors:

  • finance / cashflow, return on investment, return on capital employed, financial results
  • internal business processes / number of activities per function, duplicate activites accross functions, process alignment (is the right process in the right department?) , process bottlenecks , process automation
  • learning and personal growth / Is there the correct level of expertise for the job?, employee turnover, job satisfaction, training or learning opportunities
  • customer / delivery performance to customer, quality performance for customer, customer satisfaction rate, customer percentage of market, customer retention rate 
  • technology / evaluation of technology required to carry out the activity efficiently

Implementation:

Implementation of BSC should be resulted in:

  • Improved processes
  • Motivated and educated employees
  • Enhanced information systems
  • Monitored progress
  • Greater customer satisfaction
  • Increased financial usage

Remember: The metrics and aims set up also must be SMART, as we mentioned above you cannot improve on what you cannot measure.

Author: Jana Loskotova