What are the Benefits of using Balanced Scorecards?
Research has shown that organisations which use a Balanced Scorecard approach tend to outperform organisations without a formal approach to performance management.
The key benefits of using a Balanced Scorecard include:
- Better Strategic Planning- The Balanced Scorecard provides a powerful framework for building and communicating strategy. The business model is visualised in Strategy Maps which forces managers to think about cause-and-effect relationships. The process of creating a Strategy Map ensures consensus is reached over a set of interrelated strategic objectives. This means that both performance outcomes as well as key enablers of future performance (such as the intangibles) are identified to create a complete picture of the strategy.
- Improved Strategy Communication- The fact that the strategy with all its interrelated objectives is mapped on one piece of paper allows companies to easily communicate strategy internally and externally. This facilitates the understanding of the strategy and helps to engage staff and external stakeholders in the delivery and review of strategy.
- Better Management Information- The Balanced Scorecard approach forces organisations to design key performance indicators for their various strategic objectives. This ensures that companies are measuring what actually matters. Research supports this as companies with a Balanced Scorecard approach tend to report higher quality of their management information as well as increasing benefits form the way this information is used to guide management insights and strategic decision making.
- Improved Performance Reporting- companies using a Balanced Scorecard tend to report performance and communicate performance better than organisations without such a structured approach to performance management. Increasing needs and requirements for transparency can be met if companies create meaningful management reports and dashboards to communicate performance both internally and externally. The Balanced Scorecard approach helps companies identify what to report and the Strategy Map template is a powerful way of visualising performance, especially if the various objectives and measures are communicated in traffic-light formats and colour coded management dashboards.
These are compelling benefits; however, they won’t be realised if the Balanced Scorecard is implemented half-heartedly or if too many short cuts are taken during the implementation. Below I will discuss some of the main pitfalls.