What’s the best way to align your entire organization behind a very focused strategy? Create a Balanced Scorecard (BSC), one of the most popular management tools ever introduced. It can also be one of the most productive tools if it’s understood and used properly by management teams. I help government agencies and companies of all sizes in all types of industries develop Balanced Scorecards. I have most likely developed more scorecards for more companies across more industries than anyone over the years and I have found that it’s important to know the key features of a Balanced Scorecard to be successful.
To ensure you transform your organization by using a Balanced Scorecard, you must address these three features:
- Strategy Map
A successful Balanced Scorecard starts with a one-page overview called a Strategy Map. This is a crucial feature. A Strategy Map gives your business clarity and focus. It visually represents your company’s strategic goals covering four perspectives: financial, customer, internal processes, and learning and growth.
Financial: What financial goals do you want to achieve? Examples include growing profit margins, hitting revenue targets, achieving cost savings and efficiencies, etc. This is usually the top perspective for most for-profit companies.
Customer: What do you need to deliver to your customers and market(s) to achieve your financial objectives? Examples might be objectives focused on growing market share in a specific segment, improve customer service and satisfaction or increase brand awareness.
Internal Processes: What do you need to concentrate on internally as a business to make money and achieve your financial and customer goals? Here you define the things you have to be really good at – your core competencies. This might include improving your customer relationships processes or optimize operations.
Learning and Growth: What intangible drivers of performance must be addressed to achieve your objectives? These might include goals for human talent (e.g. recruiting and retaining the right people), information capital such as networks and technology infrastructure, and even corporate culture.
You should usually have 10-15 goals across all the four perspectives that really give you clarity and focus. We’re in a time where strategic focus is more important than ever.
- Action Plans
The second feature of the Balanced Scorecard is that it contains Action Plans. For each strategic goal that you identified, you need to determine what projects, programs and activities need to be put in place to deliver it. Action Plans help ensure that your Strategic Map is not taking you on a trip to fairyland. They link plans to your strategic objectives so you can achieve success in business.
The Key Performance Indicators (KPIs) and metrics that you establish for each goal help you track how well you’re delivering your strategic goals, strategy and action plans. This feature of a Balanced Scorecard help you to monitor how well you’re doing and tracks progress over time.
Strategic Performance Management Framework
All of these 3 elements sit as part of a strategic performance management framework in your organization. Certainly, an important step to your success is having these components of a Balanced Scorecard in place, but you must also have a routine—a framework—that you follow to regularly review and report on performance as well as revise your strategy when needed.
In our fast-changing environment, I advise organizations to assess your strategic goals every 6 months or so and adjust as necessary. And of course, if your areas of focus change, then you need to consider how to modify your action plans and indicators to be applicable to the new or revised strategic focus areas. I often see organizations design a Balanced Scorecard and then mistakenly run with the same one for two or three years.
Remember this is a process. If you create a Balanced Scorecard and address these features, you will really align your entire organization around a focused strategy. The features of the Balanced Scorecard:
- Clarify and communicate business priorities and objectives to the entire organization
- Define and manage action plans to ensure that there are activities and programs that will deliver the strategic objectives
- Monitor and measure progress on strategic objectives
The Balanced Scorecard is highly regarded in the business world. It’s been adopted by more than half of major companies in Asia, Europe and the United States. A global study by Bain & Co. found that the Balanced Scorecard is one of the top ten most widely used management tools around the world. While the Balanced Scorecard was voted one of the most influential ideas ever presented in the Harvard Business Review and all types of organizations adopt it, it won’t work for your organization if you don’t develop and implement it correctly.
Where to go from here
If you would like to know more about , check out my articles on:
Or browse the Strategy & Business Performance to find the metrics that matter most to you.