Balanced scorecard and some tips on creating one

1. What is a Balanced Scorecard? Balanced Scorecard is a system used to manage performance that is based on the organization’s goals and objectives. It was introduced on 1992 by Robert Kaplan and David Norton. They conducted a research about the traditional approach that focuses on one perspective or area, specifically the “financial perspective”. They found out that this approach may only lead to track short term goals. They also researched about successful organizations and found out that they all have something in common. A clear strategy and vision that is not focused on one area which is finance, but focuses on three more areas such as customers, knowledge and growth, and Internal business process. These became known as the 4 perspectives that create balance between the financial and non-financial measures. The 4 Perspectives of a Balance Scorecard The First one is the Financial perspective. Its goal is to answer the question, “How should we look to our shareholders?”. This may include the metric for sales, loss and revenue target. Second is the Customer perspective. This perspective is created to answer the question, “How should we appear to the customer?”. The metrics that are included here are the satisfaction of the customer and the net promoter score. Next is the Knowledge and Growth perspective. This focuses on answering the question, “How can we improve to sustain our vision and strategy?”. This involves the capabilities of the employees, their learning to improve their performance and things that can empower the employees. The last one is the Internal Business Process perspective and this addresses the question, “What should we be best at to meet customers and shareholders?”. The possible metrics can be products quality or services offered and the efficiency of the service provided. Creating a Balanced Scorecard When creating a Balanced Scorecard, the first thing to keep in mind is to have a realistic and specific visions and strategies. Just like in building a house without a strong foundation, it will not stand firm no matter how many times you rebuild it. Second is to focus on a few measures that can influence change. Choose measures that matters and focus on them to succeed rather than choosing a wide range of measures that accomplish nothing. The last one is to avoid using metrics that were used by other companies. Always remember that every business or company is unique. This means that the existing metrics from Business A may not be appropriate for Business B. You may need to put an effort to choose the metrics based on the vision and strategies of your firm. A clear strategy and vision aligned using these 4 perspectives will lead to a better communication of strategy in the company and a simplified translation of strategy to metrics that leads to a better implementation. If you want to get more information about the Balanced Scorecard or some tips on how to choose a metric for your perspectives, please visit us at https://ezzyscorecard.com/blog. You might also want to try our Balance Scorecard Online Tool to track your organization’s progress.