Why the Balanced Scorecard?
A Balanced Scorecard is a strategic management tool that enables organisations to align their activities with their vision and strategy. It was first introduced by Robert S. Kaplan and David P. Norton in the early 1990s and has since been widely adopted by organisations worldwide. The Balanced Scorecard approach identifies key performance indicators (KPIs) across four perspectives: financial, customer, internal processes, and learning and growth.
Although the Balanced Scorecard approach was introduced over 20 years ago, it remains a relevant and valuable tool for organisations today. Many leading companies still use the Balanced Scorecard to align their strategic objectives with their overall vision and to track progress against key performance indicators (KPIs). For example, the global package delivery company UPS has used the Balanced Scorecard approach to improve its on-time delivery performance, reduce costs, and increase customer satisfaction. Coca-Cola uses the Balanced Scorecard to align its sustainability goals with its overall business strategy and to monitor progress against key environmental KPIs. Similarly, Adobe Systems has used the Balanced Scorecard to align its innovation strategy with its overall business strategy and to track progress against key innovation KPIs.
The Balanced Scorecard remains a valuable tool for organisations to align their strategic objectives with their vision and to track progress with KPIs. Its effectiveness has been proven repeatedly, and it will continue to be used by organisations well into the future.
Building an effective Balanced Scorecard
In the following sections, we will explore the critical steps involved in building an effective Balanced Scorecard. These steps include defining strategic objectives, identifying KPIs, setting targets, assigning accountability, developing action plans, monitoring progress, and communicating results. By following these steps, organisations can create a Balanced Scorecard that aligns their activities with their vision and strategy and provides a framework for improving performance and achieving their goals. Let’s dive in and explore each of these steps in more detail.
Defining Strategic Objectives
Defining the organisation’s strategic objectives is the first step in building an effective Balanced Scorecard. This involves identifying the organisation’s mission and vision and determining the goals needed to fulfil them. Strategic objectives should be specific, measurable, achievable, relevant, and time-bound. They should be aligned with the overall mission and vision of the organisation and be based on a thorough analysis of the organisation’s strengths, weaknesses, opportunities, and threats.
Identifying Key Performance Indicators
Once the strategic objectives have been defined, the next step is to identify the KPIs that will be used to measure progress towards these objectives. KPIs should be specific, measurable, and relevant to the strategic objectives. They should also be actionable and provide insight into the organisation’s performance. Examples of financial KPIs include revenue growth and profitability, customer KPIs include satisfaction and retention, internal process KPIs include cycle time and quality, and learning and growth KPIs include employee engagement and retention.
Setting Targets for Each KPI
After identifying the KPIs, the next step is setting targets for each. Targets should be challenging but achievable and aligned with the strategic objectives. They should be based on a thorough analysis of past performance, market trends, and the organisation’s capabilities. Targets should also be communicated clearly to all stakeholders, including employees, managers, and external partners, to ensure everyone is working towards the same goals.
To ensure that targets are achieved, assigning accountability for each KPI to a specific individual or team is essential. This will help ensure everyone is clear on their responsibilities and can focus on achieving their targets. Accountability should be based on a person’s skills, knowledge, and experience and aligned with the organisation’s structure and culture. It should also be communicated clearly to everyone involved to ensure transparency and promote collaboration.
Developing Action Plans
Once accountability has been assigned, the next step is to develop action plans for each KPI. These action plans should outline the specific activities, timelines, and resource requirements to achieve the targets. They should also be aligned with the organisation’s overall strategy and be reviewed regularly to ensure that progress is being made. Action plans should be developed in consultation with all stakeholders to ensure buy-in and support for the organisation’s goals.
Regular monitoring of progress towards achieving the targets for each KPI is critical to ensure that the organisation stays on track. This involves regularly reviewing KPI performance and taking corrective action if necessary. Monitoring should be based on timely and accurate data, and feedback should regularly be provided to all stakeholders. Maintaining a continuous improvement and innovation culture is also essential to ensure that the organisation stays ahead of the competition.
Effective communication of the results of the Balanced Scorecard is crucial to building buy-in and support for the organisation’s strategic objectives. Results should be communicated regularly to all stakeholders, including employees, customers, and shareholders, through various channels such as dashboards, reports, and presentations. Communication should be transparent and easy to understand, and feedback should be encouraged to ensure continuous improvement.
Benefits of a Balanced Scorecard
Implementing a Balanced Scorecard can provide several benefits to organisations. By aligning activities with the organisation’s vision and strategy, it can help improve organisational performance, increase employee engagement and alignment, and enhance customer satisfaction. It can also provide a framework for decision-making and resource allocation and promote a culture of continuous improvement and innovation.
In addition, the Balanced Scorecard approach can help organisations focus on both short-term and long-term goals and balance their focus across different perspectives. This can help organisations avoid a narrow focus on financial performance at the expense of other critical areas, such as customer satisfaction, employee engagement, and innovation.
Building an effective Balanced Scorecard is critical in aligning an organisation’s activities with its vision and strategy. It involves defining strategic objectives, identifying KPIs, setting targets, assigning accountability, developing action plans, monitoring progress, and communicating results. By implementing a Balanced Scorecard, organisations can improve performance, increase engagement and alignment, and enhance customer satisfaction. It can also provide a framework for decision-making and resource allocation and promote a culture of continuous improvement and innovation.