A framework for strategic planning and performance management known as the balanced scorecard aids organisations in crystallising their vision and strategy and putting them into practise. It was created in the early 1990s by Robert Kaplan and David Norton, and it has since grown to be one of the most well-liked performance management systems worldwide.
The concept behind the balanced scorecard is that businesses should not just pay attention to their financial success but also to other crucial factors like client happiness, internal company operations, and learning and development. Organisations may gain a more complete view of their entire success by measuring performance in these four categories.
Four views make up the balanced scorecard:
The organisation’s financial performance, including revenue, profit, and return on investment, is assessed from this angle.
Customer perspective: This viewpoint evaluates how successfully an organisation satisfies the demands of its clients, including market share, customer loyalty, and customer satisfaction.
Internal business process perspective: This viewpoint assesses how effectively an organisation’s internal processes, such as product creation, production, and customer service, are in line with its overall strategy.
The learning and growth viewpoint analyses the organisation’s capacity for innovation and improvement through factors including worker satisfaction, staff development, and training.
Organisations choose a few key performance indicators (KPIs) to monitor their success from each viewpoint. KPIs must be precise, quantifiable, doable, pertinent, and time-limited.
The balanced scorecard exercise is ongoing. As the organisation’s strategy and performance evolve, they should be regularly examined and revised. Organisations can clearly see their entire performance and pinpoint areas for improvement by employing the balanced scorecard.
The balanced scorecard’s advantages
Organisations may gain from the balanced scorecard in a number of ways, including:
Better strategic alignment: The balanced scorecard aids businesses in integrating their long-term goals with their day-to-day activities. Organisations may make sure that their strategy is followed throughout the whole organisation by concentrating on the four viewpoints.
Better decision-making: The balanced scorecard offers a framework for decision-making inside organisations. Organisations may monitor performance across the four viewpoints to see how actions are affecting their overall performance.
Better communication: The balanced scorecard assists businesses in informing employees, clients, and other stakeholders about their strategy and performance. Organisations may make sure that everyone is speaking the same language by employing a standard structure and terminology.
Performance improvement: By identifying areas for improvement and monitoring their progress over time, the balanced scorecard may assist organisations in improving their performance.
Methods for Using the Balanced Scorecard
There are several approaches to executing the balanced scorecard. An outline of the procedure is given in the steps that follow:
Definition of the organisation’s vision and strategy: The first stage is to specify the goals and objectives of the organisation. This will make it easier to make sure that the balanced scorecard is in line with the general objectives of the company.
The next stage is to determine the key performance indicators (KPIs) that will be used to gauge success from each perspective. KPIs must be precise, quantifiable, doable, pertinent, and time-limited.
Establish goals for the KPIs: Having established the KPIs, objectives should be created for each one of them. Targets have to be ambitious yet doable.
Gather information and monitor performance: The following stage is to gather information and monitor performance in relation to the goals. The organisation may use this data to pinpoint areas where it is functioning well and those where it needs to improve.
Take corrective action: Corrective action should be taken to enhance performance in light of the data. This might entail altering the strategy, KPIs, or objectives.
A strong instrument that can aid organisations in doing better is the balanced scorecard. Organisations may apply the balanced scorecard and begin to reap the rewards by following the above-described procedures.