What is a balanced scorecard – Definition, Approach and Examples
What is a balanced scorecard
The Balanced Scorecard (CMI) is the translation of ” Balanced Scorecard “. It is a system originally developed for the measurement of financial processes , which has become an integral management system efficiency or performance.
The goal of the WCC is to give companies or organizations elements to measure its success. The principle behind it is that ” you can not control what you can not measure “.
It is a tool that allows to establish corporate control and monitor the objectives of a company and its different areas or units. Allows monitoring by indicators , compliance with the strategy developed by the management while to take fast and accurate decisions to achieve the objectives.
It is a means to set and achieve the strategic goals and objectives of your organization. As measurement and management approach that, allows clarification of the vision, strategy and action translation. It is a method to align business performance with organizational strategy.
Balanced Scorecard Definition
” The Balanced Scorecard (CMI) is a management tool that allows you to “monitor” by indicators, compliance with the strategy developed by management, while allowing make quick, smart decisions to achieve the objectives. ”
The Balanced Scorecard is a very useful tool for business management in the short and long term. First, because by combining financial and non – financial indicators it allows forward trends and make proactive strategic policy. And second, because it provides a structured guide to select the indicators involving the management of the company method. We can use balanced scorecard for measuring company performance. The effectiveness of the balanced scorecard is in a good understanding of its fundamentals, a complete application involving the management of the company.
It is a tool to implement the strategy and mission of a company from a set of performance measures, it emphasizes the achievement of financial targets, and includes inductors future action to achieve these goals, provides a structure to transform strategy into action, made possible through the cause and effect diagram establish strategic hypothesis (through the sequence), allowing anticipate future as the business will create value for customers.
The BSC is a management model that translates the strategy related objectives measured by indicators linked to action plans that align the behavior of members of the organization.
Through a coherent system of elements such as strategy maps, resource allocation and performance assessment, the Balanced Scorecard geared parts usually uncoordinated in our organizations, to adapt the behavior of people to business strategy.
We could say that the BSC provides a “snapshot” that allows us to examine how we are undertaking today our strategy in the medium and long term. To focus on the “picture” previously, it is necessary to realize our vision of the business strategic objectives related to each other according to different perspectives. This exercise is achieved to make the strategy more understandable and therefore easier communicable, This effort also allows us to organize all elements of management of the company about its true objectives.
Elements of a balanced scorecard that help in implementation
Using the balanced scorecard as a strategic management system you must focus on these elements that are listed below:
1) Mission, Vision and Values
Implementation of BSC starts with defining the mission, vision and values of the organization. The strategy of the organization will only be consistent if these elements have been conceptualized.
Does this mean that the model must start with the definition or revision of mission, vision and values?Not necessarily, since many are already defined. In addition, they are much more sustainable over time than the other model elements. What seems clear is that they are the starting point. From the definition of the mission, vision and values strategy, which can be represented directly in the form of strategic maps, or conceptualized, in another format it is developed. Again, the important thing is not whether the development of the strategy is part of the model; what really matters is whether there is a definite and appropriate strategy. If it is, it will be the starting point for the development of model elements; otherwise, the first step is the definition of the strategy. In many implementations, the strategy often already be defined, and what shape it is involved in a strategic map.
2) Outlook, Strategy Maps and Objectives
2.1. Strategy Map
Strategy maps enables an organization to describe and illustrate, clear and concise language, objectives, initiatives, market objectives, performance measures (the balanced scorecard measures that drive performance) and all links between the parts of the strategy. Thus, employees have a visual representation of how their work relates to the overall objectives of the company, while managers have a deeper understanding of their strategy knowledge and means to correct any error or deviation occurring during the implementation of the strategy.
The strategy map helps to assess the importance of each strategic objective, as we grouped presents perspectives.
Prospects key critical dimensions are those in the organization. The four perspectives most commonly used are:
- Financial Perspective: What should we do to meet the expectations of our shareholders?
- Customer Perspective: What should we do to meet the needs of our customers?
- Internal Perspective: What process should be excellent to meet those needs?
- Learning perspective: What aspects are critical to maintain that excellence?
2.3. Strategic Objective
Determine qualitatively what you want to achieve. The strategic objectives are the result of the planning process.
Example of strategic objectives:
- Financial perspective
– Increase the value of the unit
– sales growth in key segments
– Maintain profitability set by the central
- Customer Perspective
– Profitable customer loyalty
– Improve product density per customer
– Penetrate new channels
– Increase sales of new products
– Improve customer satisfaction
- Internal perspective
– Identify new customer
– Increase the intensity of the relationship with customers
– improve service quality
– Manage resources more efficient way
– Reinforcing the image / brand
- Learning and Growth perspective
– Improve the skills of key people
– Improve internal communication
– Enhance key alliances
– Adapting technology to the needs
– Change management processes to
3) Customer Value Proposition
Since the BSC must be simple and easily understandable, is key to select those strategic objectives are first – level priority. To do this, it is useful to define the customer value proposition, ie: what differentiates our organization to customers. Different strategy gurus have distinguished ways to compete. Kaplan and Norton’s summary, following the classification of Trecy and Weserman in:
- Product Leadership: it focuses on the excellence of its products and services, which offer the highest quality and functionality.
- Customer Relationship: it focuses on the ability to generate links with customers, to meet them and provide appropriate products and services to your needs.
- Operational excellence: it focuses on providing products and services at a competitive price for quality and functionality they offer.
Organizations try to be excellent in one of these strategies, maintaining minimum standards. It is logical that customer prospects and therefore the process and learning and growth, focus on related strategy which has not achieved the minimum required objectives.
4) Goals indicators
Indicators (also called measures) are the means we have to show whether or not we are meeting the strategic objectives.
A strategic objective, such as the development of commercial capabilities of our key personnel, can be measured through indicators.
You can set two types of indicators:
- Outcome indicators: measure the result of the strategic objective. It also called indicators of effect.
- Cause indicators: measure the result of actions that allow their achievement. They are also called inductors indicators.
5) Strategic Initiatives
Strategic initiatives are actions that the organization will focus to achieve strategic objectives. In our companies do things, but are they really focused towards meeting the strategy? In many organizations we find an excess of initiatives and projects with lack of resources and time to carry them out.
It is important to prioritize initiatives based on strategic objectives. If we analyze the impact of initiatives in each of the strategic objectives, we can visualize, initiatives that add little value to the fulfillment of these goals and objectives without support strategic initiatives.
6) Responsible and Resources
Each objective, indicator and initiative should be responsible. A person in charge of controlling compliance.
Another key aspect for a successful implementation of the BSC is to allocate the resources necessary for the proper development of strategic initiatives. It is the first step to implement the strategy. It is therefore necessary to establish the teams in charge of each initiative and the role that different people will play them. And also provide the resources necessary initiatives for compliance. It is recommended that the budget contains an item of resources allocated to strategic initiatives. These resources must be differentiated from the operating budget, the capital budget and other budgets that companies use, so we can prevent other activities gobble those resources that should be devoted to meeting critical initiatives defined in the BSC.
7. Subjective evaluation
Although we talked about the establishment of indicators for monitoring the objectives and initiatives, it is desirable to provide some flexibility to the model as an assessment tool analysis and strategic thinking. For this reason, it is important to establish procedures for a subjective evaluation of the different elements, complementary to the fulfillment of specific indicators that we use for measurement.
The benefits provided by the BSC not solely derived from the existence of a set of coherent for better understanding and communication of the strategy elements. The design process of these elements, and their subsequent evaluation are also of great benefit.
Characteristics of Balanced Scorecard
The development of an integrated management system requires a balanced system of indicators.The system recognizes the cause and effect relationship between actions and results. Recognizes that to delight an investor, the company has to be profitable. He recognizes that to make the customer happy need to reduce or eliminate costs and improve product quality or service. To maintain long – term competitive advantage, you need to learn and innovate. The Balanced Scorecard has the following characteristics:
- Articulates the factors driving organizational strategy.
- It puts arms and hands to the vision / mission.
- It allows concretely understand the importance of the organization and its goals.
- Define specific goals critical to success.
- It allows its diffusion throughout the organization.
- Defines the development of performance indicators for each goal.
- Ensures that everyone understands indicators and areas of the company in general.
- Communicates how these are interrelated.
- Connect each measure to a formal feedback system.
- Integrates communication with regularity.
- Facilitates the revision of targets and corrective actions that may be necessary.
Balanced scorecard examples
We have seen a lot of information on the scorecards, process them and monitor them how to control it . To close the article on the scorecards , let take some examples of operational dashboards.
The operational command box differs from the balanced scorecard in their shortsightedness and comprising each of the departments or areas of the organization with the mission to assess all aspects for each section and facilitate decision making. Needless to say that the set of indicators that make these dashboards can be totally different depending on the department. Thus, while the financial department could be a key indicator of monthly sales for the marketing department could speak of feeling and brand loyalty with customers and with our company.
Using Excel spreadsheets for your scorecard
Thanks to Microsoft Excel (or any spreadsheet) we can design, evaluate and control our scorecard to strategize our company and provide intelligence to decision making.
The mode of operation of this Excel sheet to design tables operating controls is really simple and intuitive. This would be to introduce the desired strategic objectives (differentiating between the four perspectives: financial, customer, internal processes and development) in a column. Immediately after we post the indicators that go us to monitor the implementation and compliance percentage of these strategic objectives. After entering the desired values (should always be realistic) month we will post the actual data. These are the actual data that will compare with desired to evaluate our strategy.
All this is going to generate an overview of our company for months , so we can study the situation within each department and perspective. Having introduced real data and desired in our scorecard data, we can also calculate monthly deviations between the two figures . If we add these monthly data, we will have the vision of the organization annually.
Of course, you can also choose to delve into the network and download Excel templates already created and very generalises to build your own dashboard.
Other resources to build a picture of operational command
In addition to Excel, there are also tools or software that can help us in creating a scorecard human resources for our company.
– Bingo Intelligence : is a Business Intelligence software for easy setup and yielding valuable information. It has a very similar interface to Microsoft Office and can be arranged all indicators scorecard that you consider relevant depending on the area or department assigned to it . It also allows the creation of graphics and data streams to display information showiest and quickly.
– QlikView : another tool focused on Business Intelligence dashboards to measure and track key processes of any organization. If something stands out it is a careful interface and easy installation to configure the different indicators in a few clicks.
– MicroStrategy Software that provides valuable information at a glance and to manage more efficiently the different business areas of the organization. With MicroStrategy you can combine data from a variety of sources , so that the user provides performance information across multiple disciplines and dimensions.