Introduction

Whether you are a local government authority or an international consultancy firm, executing your organisational strategic planning is no easy task. The challenge for many organisations has been the search for efficient forms of strategic management to contribute to success in a premeditated and organised manner. In this sense, the balanced scorecard, also known as BSC, can help different institutions immensely.

The balanced scorecard has been found to be in use in more than 50% of the Fortune 1000 companies by Bain and Co, a management consultant, and consistently figures in the list of top ten management practices prepared by their customers over the last ten years[1]. The balanced scorecard is explained in this insight, englobing its history and why your organisation should implement it. Then, the methodology itself is explained, and how you can apply it to achieve your organisation’s vision and improve your corporate performance.

What is a balanced scorecard (BSC)?

The balanced scorecard is a strategic management tool that helps leaders adopt measures that drive project performance from start to finish. The main objectives of the balanced scorecard are:

• Communicating the companies’ strategies and objectives;
• Streamline feedback to all employees;
• Align strategies and set goals for the whole team;
• Clarify the strategy and vision of a project or business.

Company managers tend to create different types of strategic planning; however, they tend to leave these strategies on the walls of their businesses. The balanced scorecard means “balanced performance indicators“ and is one of the most used methodologies worldwide to facilitate the execution of a strategic plan. It helps managers take their plan off the walls and transform it into concrete actions.

The balanced scorecard was created by professors Robert Kaplan and David Norton[2], from Harvard University (USA), around the 1990s. Many methodologies that focus on financial performance emerged during the period of the Industrial Revolution.

Based on this scenario, the creators of the BSC carried out a study motivated by the belief that the existing methods for measuring performance were insufficient. With this vacuum, the BSC methodology was innovative as it allowed for evaluating and improving business performance. Furthermore, the BSC was also well known for helping companies to unfold their mission, vision and values. Therefore, it extrapolates the financial analysis and analyses the company in a 360° view.

In summary, in addition to measuring all aspects of business processes and actions, the method also allows:

• Data extraction for decision-making.
• Indicator of objectives.
• Map of future long-term activities.

Why should your business use the balanced scorecard (BSC)?

Indeed, the main objective of managers is to focus the organisation’s efforts on the search for excellent results. However, the biggest concern is the short-term activities and how the company will achieve these goals. With the rush of everyday life, routine activities, emails to answer, and so many other tasks in progress, often, the focus is lost on what needs to be done to achieve long-lasting goals. As a result, the company’s vision can end up being forgotten when it should be continuously executed.

Team members may have a hard time executing activities that achieve the solid and gradual growth of the business. Therefore, the balanced scorecard is completely focused on the company’s vision. In fact, the BSC was created precisely for this: to connect the company’s long-term objectives with the actions and results carried out in the present. 

Therefore, the method is focused on managing the company’s strategy. Its purpose encourages executives and teams to work with the future in mind. For this to happen, it is necessary to promote the convergence of efforts, the commitment to performance and the involvement of all those responsible. Thus, the organisation becomes more competitive and profitable.

But how much of the organisational performance can be improved with the balanced scorecard?

It is difficult to quantify precisely how much organisational performance can be improved, as it can vary significantly depending on the specific goals and circumstances of the organisation. A balanced scorecard is a management tool that helps organizations align their business activities with their vision and strategy and track performance across multiple perspectives, including financial, customer, internal processes, and learning and growth.

Nonetheless, there is evidence to suggest that organisations that implement a balanced scorecard are more likely to achieve their strategic goals and outperform their peers. For example, results from research contrast the performance of balanced scorecard firms with matched non-BSC firms in stock market gains. Results show that balanced scorecard firms had a higher average return than the non-BSC firms in each grouping. BSC firms outperform non-BSC firms by 27.12% points in the market value of equity sample, by 30.17% points in the book-to-market sample, and by 27.58% points in the net assets sample[3].

The concept of the balanced scorecard, the BSC

The balanced scorecard management model contributes to defining the strategies and planning, looking at the business in a broader way. The idea is based on some key terms such as: 

• Strategic management;
• Measurement of progress;
• Strategy;
• Goals;
• Indicators;
• Goals;
• Strategic initiatives.

Financial Perspective

The financial performance indicators are essential to evaluate if the execution of the strategies fulfils their roles and contributes to the business results. However, with the application of the balanced scorecard, these measurements should not be the only ones to guide a business’s performance. These indicators should only show the result of the other actions. Therefore, the question that must be answered in this case is:

What financial objectives should we pursue to satisfy shareholders?

Customer Perspective

It is very common for companies to make offers of real value to their customers. However, offering good services say little about long-term strategic planning. Therefore, the BSC method requires that the mission can be defined in actions to be controlled. In short, everything must be organised with time, quality and service targets. Therefore, the guiding question for this perspective is:

What needs of our customers must we meet to achieve financial objectives?

Internal Process Perspective

There is no point in having a clear and defined customer perspective if it is not translated into actions and internal processes. In summary, the focus should be on business processes that generate greater customer satisfaction. Identifying and measuring the company’s internal skills ensures continued market leadership. The question that guides this perspective is:

In which internal processes must we excel to satisfy our shareholders and customers?

Learning and Growth Perspective

With the measurements of the last two perspectives above defined, the organisation can understand what is essential for competitive success. However, the market and competition demand that the company reinvent itself continuously with new products and efficient processes. Focus on specific improvements to existing processes should enter planning from a learning and growth perspective. So, the question to be answered is:

How should the organisation learn and innovate to achieve its goals?

Nine recommendations on how to implement the balanced scorecard (BSC) model

Indeed, there is no point in defining the four perspectives and answering the questions that guide them if they are not related to each other. Only then will they have an effect. Now that you know the concept of the BSC, the question is: how to successfully implement it in your company? To achieve great usage of this tool, there are some steps to be followed. Check out the following tips to implement it in your business:

Recommendation number one: create a strategic map

Creating a strategic map[4] is the principle of the balanced scorecard methodology. In fact, it should contain the mission and objectives of your company, each sector and the points of intersection between the different areas. It is the strategic map that describes the essential points for the realisation of the company’s plan. It is vital that the company’s manager makes all employees feel part of this process: they must understand and know the role of each one within the company.

Recommendation number two: set goals for each perspective

For the process to work, you need to have a strategy with clear and defined goals. Stipulate the goals of the areas that must be included in the balanced scorecard, considering the four following perspectives: 

• Financial.
• Customers.
• Internal processes.
• Learning and growth.

Recommendation number three: create SMART indicators

It is essential to have defined performance indicators. This contributes to the periodic measurement of the evolution of the strategy. After all, the balanced scorecard is a management methodology. The balanced scorecard is flexible, and regardless of the types of indicators chosen for each objective, it is essential that they are clear, measurable and easy to collect. The method also allows you to make the necessary changes over time.

If you do not measure the results of your actions, you have no way of knowing whether to change course, maintain or discard any strategy.

Recommendation number four: unfold and co-create goals

Definitively, setting goals and leaving them on paper will not help with your planning. At this stage, the goals must be unfolded for all the professionals directly involved. It is recommended that this task of unfolding goals be done jointly by managers and personnel to ensure the correct alignment of expectations.

Recommendation number five: set a list the strategic actions

Each action taken by the company’s departments must be aligned with the strategic objectives. For example, the acquisition of a management system brings agility to processes, improves productivity and, consequently, results. Therefore: it is in tune with what the company expects for the future. This is an example of an action that can be part of a goal that the company seeks to achieve. In addition, being in tune with the most common objectives in the corporate world, such as:

• Increased sales.
• Market positioning.
• Gaining competitiveness.

Recommendation number six: align employees and all departments of the organisation in the same strategy

The various departments of an organisation follow different routines. Perhaps the demands for results and the pace of work vary from the finance department to human resources, for example. It is usual for leaders in each area to develop approaches.

Still, all teams must be on the same page. Remember that, at the end of the day, all efforts serve the same purpose, which is to achieve the strategic objectives of the company.

Recommendation number seven: link operational improvements to strategic priorities

As much as the balanced scorecard proposes a clear vision of the final objective and no matter how much the team consults the strategic map, the route to success may contain unexpected obstacles. Sometimes it happens that the company invests too much energy, time or money in an activity that brings little results. This wastefulness is a notorious waste of resources.

No one adopts ineffective strategies on purpose. The mistake is in insisting on them. In the same way that the driver avoids a hole in the road, looking for an alternative route is necessary to correct operational failures as soon as they appear.

Recommendation number eight: hold review meetings to monitor and guide strategy implementation

Periodic meetings with the company’s leaders, or even with all employees, exist precisely to point out what is still not working and what the team can do to adjust internal processes. Review meetings must happen to analyse performance indicators, recognise failures, and correct them. Let’s say the operation turns out to be too expensive. In this case, those involved can suggest alternatives to lower day-to-day costs. How about switching providers? Or run an internal campaign to save material? Even the simplest attitudes can guarantee financial strength for the business.

Recommendation number nine: periodically test and adapt the ongoing strategy

As you can see, learning with a balanced scorecard is constant. The strategy map is subject to change as review meetings take place. It may be that the market changes in a few months due to an international crisis or changes in consumer behaviour. So never treat your plans like an airtight instruction manual. They are more like a synthesis of dynamic ideas that must adapt to reality.

The benefits of the balanced scorecard (BSC) in organisations

Now that you understand how to apply the balanced scorecard in your organisation, you can also comprehend the numerous benefits of this management methodology. Check out some advantages of implementing the method in your organisation below.

Better communication and strategy execution

A strategic map is a tool that helps all areas to understand the organisation’s objectives visually and. Also, it lets everyone know the strategic elements that need to be worked on and how they affect each other.

Alignment between personnel and the organisation

The balanced scorecard method allows teams to be aligned with the organisation through the strategic vision. It will be much easier for those involved to understand the vision, in addition to knowing the development of their work and how the reports can help to reach the objective.

Better information management

With the balanced scorecard, companies can create their KPIs (Key Performance Indicators) for the most varied strategic objectives. Above all, this helps to keep the focus only on what is relevant and avoids wasting time and money. In addition, it contributes to good decision-making.

Better strategic planning

This is undoubtedly one of the most important advantages, as there is no point in having a strategic plan if it is not in line with the company’s reality. Likewise, it also needs to run.

The balanced scorecard helps managers ensure that all areas are covered easily and understandably.

For this, the strategic map is used, identifying the cause-and-effect relationships between the different objectives. This structure helps keep goals at the centre, with specific indicators that serve to monitor performance and track initiatives.

Conclusion

In short, the balanced scorecard is a very effective tool for carrying out the actions defined in the strategic plan. The method helps managers in the task of understanding and monitor task performance. In addition to assisting the growth of companies, such as:

• Financial.
• Customers.
• Learning and Growth.
• Internal processes.

In conclusion, implementing the balanced scorecard methodology in the organisation is a fundamental measure to identify the main management errors and corrective actions in time. It even allows strategies to be redefined, if necessary, to achieve the goals initially established. In summary, it aims to implement a long-term vision in short-term routines.

[1] Sanjay Kumar, “Researching the Effectiveness of the Balanced Scorecard by Using the Process Perspective A Research Proposition,” SSRN Electronic Journal, 2013, https://doi.org/10.2139/ssrn.2368919.

[2] Robert Kaplan and David Norton, “The Balanced Scorecard—Measures That Drive Performance,” Harvard Business Review, January 1, 1992, https://hbr.org/1992/01/the-balanced-scorecard-measures-that-drive-performance-2.

[3] Aaron Crabtree and Gerald DeBusk, “The Effects of Adopting the Balanced Scorecard on Shareholder Returns,” Advances in Accounting 24 (June 1, 2008): 8–15, https://doi.org/10.1016/j.adiac.2008.05.016.

[4] Rainer Lueg, “Strategy Maps: The Essential Link between the Balanced Scorecard and Action,” Journal of Business Strategy 36, no. 2 (January 1, 2015): 34–40, https://doi.org/10.1108/JBS-10-2013-0101.