Perhaps the best way to understand the answer to ‘what is a balanced scorecard’ and to also understand the essence of its methodology, is by defining it as “Balanced Performance Indicators”.
But, to understand what Balanced Scorecard is, and what its purpose is, we must know its origin and make a short trip back in time, specifically to the United States in the early 90s.
There was a growing concern among Americans of their assessment of business performance systems, which were based primarily on financial and accounting indicators and were becoming obsolete.
Then there was a group of scholars and executives looking to develop an innovative system that was more reliable and trustworthy, and after extensive research in 1992, the Balanced Scorecard emerged.
Presented by the successful executive David P. Norton and the respected professor Robert S. Kaplan, the Balanced Scorecard was originally used only as a business performance evaluation model, but with huge success over the years, it evolved into an efficient management and strategic planning method.
Some of the reasons for the success of the Balanced Scorecard
In today’s corporate world, which is dominated by competitiveness and where excellence makes all the difference, the challenge for managers is to maintain a system that can provide useful, fair and accurate information, aiding the always delicate decision-making process.
In this context, the Balanced Scorecard is seen as the ideal tool for its ability to integrate Strategic, Operational and Organizational actions in a company, while simultaneously defining the business strategies, business management, management services and the focus on total quality.
Some examples of critical processes for businesses that can be managed using the Balanced Scorecard are budgets and forecasts, investment directions and the establishment of compensation for affecting individual and collective goals.
What is a Balanced Scorecard? From 4 valuable perspectives
- Customer Perspective: The aim here is to precisely monitor how the company is delivering value to its customers, using indicators of satisfaction and outcomes (such as surveys) and always taking into account the deadline, quality, cost and the performance of the products or services.
- Process Perspective: Consists of identifying and mapping the processes essential to achieving the company’s objectives, implementing them on the basis of continuous improvement. The processes that add value to products and services should be kept in mind, especially so as to, create value for investors and shareholders as they have the potential to attract and gain customers.
- Growth Perspective: It aims to ensure the company’s growth in the medium and long term through investments in equipment, research, and development of new products and services and human resources training. A thorough analysis should be done in order to identify what infrastructure the company can and should receive investment for.
- Financial Perspective: In this dimension, the primary objectives are to ensure a return on investments made in the business, appropriately manage the risks involved in the business and continually improve both Corporate Governance and IT Governance. Financial goals should be aligned with strategic planning, and revenue and productivity variables appear as significant performance indicators of the actions already taken and as a means of projecting those that are yet to come.
Benefits from implementing the Balanced Scorecard
- Convert strategies into goals and goals into effective action.
- It gives managers a comprehensive and systematic view of operational performance.
- It is a constant process of measuring and updating plans and goals.
- Facilitates and streamlines internal and external communications of the organization.
- Allows the development of a culture of learning and continuous improvement.
Hopefully, this comprehensively answers “what is a balanced scorecard”, for information on process performance metrics or KPI’s; check out this article for a description of 10 of them.