The Balanced Scorecard is a tool that allows a business to translate its vision and strategy into action. It was developed by Robert S Kaplan and David P Norton who wrote about it in 1996: Balanced Scorecard: Translating Strategy into Action and then followed up its success with further books: in 2001 The Strategy Focused Organisation, in 2004 Strategy Maps and finally in 2006 Alignment. In short, a testament to the value of the framework as a tool and its popularity.
Strategic Analysis
The key input for the Balanced Scorecard is the strategic analysis such as a completed SWOT Analysis, which represents the fruits of the strategic analysis of internal and external factors. The selected business strategies that have now emerged based on business strengths and market opportunity become the input to the Balanced Scorecard framework.
Balanced Scorecard for Strategic Management
The Balanced Scorecard framework is a tool that structures and links the strategies to operational implementation in four areas.
- Financial – financial measures such as profitability, sales growth, productivity or return on investment
- Customer - customer measures such as improved customer service, better customer satisfaction or higher loyalty
- Internal – internal measures such as develop value added services, improve order processing, improve delivery cycle
- Learning and Development – learning measures such as re-skill workforce, link rewards and performance, develop information assets
That linkage is shown through the strategy, performance measure, measure target to be achieved and initiative or plan linked to that strategy.
Financial Example
- Financial: Increase sales growth
- Measure: Increased Year-on-Year sales growth of product X
- Target: Gross volume increase of 25% over previous year
- Initiative: Market product X to local businesses by local sales staff
Customer Example
- Customer: Improve customer service
- Measure: Customer satisfaction survey
- Target: Customer satisfaction for service is over 99%
- Initiative: Train customer service staff in next 3 months in how to deal with customers
Internal Example
- Internal: Improve order processing
- Measure: Time to process order
- Target: Reduce time to process order by 20%
- Initiative: Use new system that simplifies order handling
Learning and Development Example
- Learning: link reward to performance
- Measure: employee satisfaction survey
- Target: All staff on reward for performance by end of year
- Initiative: Define reward structure and pilot in first half of year
Benefits
The balanced scorecard that results has many benefits to the business through both the process to develop it and as a communication tool to publicise the vision and strategy in action:
- Clarify and gain consensus about strategy
- Align consequent strategic initiatives and plans
- Communicate strategy throughout business
- Align business and personal goals to strategy
- Link strategic objectives to vision and budgets
- Perform periodic review and gain feedback
Business Strategy
The Balanced Scorecard is not the only tool that can be used for strategic management, however, it is both effective and popular. By linking the business strategies so clearly to the strategic plans it is much easier to see whether those initiatives align with strategy and to unite staff. Strategy maps can be used to help develop the balanced scorecard.
Roger Lever - Early career was in Treasury Banking and this led to my interest in financial investment, especially the stockmarket. Enjoy reading widely ...
