Considered by Harvard Business Review as one of the most influential ideas of the 20th century. The Balanced Scorecard (BSC) is a strategic management system created by Robert Kaplan and David Norton. Aware of the changing economy and increasing reliance on financial calculations, they designed it as a tool to assist companies in creating a more complete measurement system. This system allows them to utilize not only finances, but also other intangible assets like employees, brand recognition, product perception and relationships with clients and suppliers.
The BSC does more than just assess the company results. It also translates the organization goals and vision into actionable plans. To do this Kaplan and Norton use four perspectives to design and evaluate their strategies.
Learning and Growth Perspective
This involves employee training and professional development. Management should think what procedures need to be implemented or improved upon in order to achieve the company’s vision. Are employees knowledgeable enough to meet expectations? Do they have the tools they need to perform well? Are the supervisors ready to train and mentor their personnel? These are the questions managers must answer when designing a plan. Keep in mind that the effectiveness of this plan is highly dependent on the performance of the staff and supervisors.
Internal Business Process Perspective
As the name indicates, this perspective is about understanding the internal procedures of the company. It means knowing what procedures need to be altered in order to better satisfy shareholders and customers. Each department should stipulate their own internal objectives, targets and initiatives, so that they can work more efficiently to achieve the organization’s vision. Every department has different goals and needs, so procedures need to be tailored differently for each part of the business.
This looks at the number of returned products and client complaints versus the overall level customer satisfaction. There are different procedures that can be established to help determine how your service stacks up. An effective business plan should always consider the clientele; customer satisfaction is the priority of the company, since unhappy clientele are bad for business. Know what your users think about your company and its products or services, then make the necessary corrections to address problem areas.
This focuses on a company’s financial measurements. On its own, using only this approach can lead to an unbalanced vision; however, using it in tandem with data from other perspectives will allow a company to utilize proper cost-benefit analysis and produce better changes to their strategy.
As mentioned before, the BSC is not just a measurement structure; it’s also management system. Based on the unique strategies of each perspective, the organization can design an overarching execution plan. This is something that will link the strategic planning of each perspective to an actionable plan using the following six steps.
- Develop the strategy
- Translate the strategy
- Align the organization
- Plan Operations
- Monitor and learn
- Test and Adapt the strategy
Implementing the BSC is not an easy task. All staff and management needs to be invested and on the same page for it to work as intended. It may be difficult to learn to adopt new processes and strategies if your company is used to doing things a certain way, but by being diligent, the organization will eventually find a route to greater success.
V. Sanchez | DBPC Blog