Balanced Scorecard for Better Strategy Planning and Management
July 11, 2024
Balanced Scorecard (BSC) is a performance evaluation and management tool that gives a quick and precise view of business Key Performance Indicators (KPIs). Using different KPI metrics, BSC identifies, analyses, controls, improve internal business functions, and measures external outcomes. Balanced Scorecard provides a quantitative analysis of various performance metrics through which organisations can interpret information and make better decisions. A balanced scorecard connects the dots between various strategic planning and management components.
Organisations use a Balanced Scorecard to:
Define and enhance the business strategies
Understand the vital elements of the business strategy
Link strategic objectives to long-term goals, annual budgets and resource allocation processes
Improve organisational vision and strategy
Facilitate change within the organisation
The Balanced Scorecard essentially calls organisations to create internal metrics to assess their business performance in four key areas. They are Finance, Customer, Process and People.
Finance Goals - Analysis of financial goals that will have a positive impact on the organisation (revenues, earnings, return on capital, cash flow)
Customer Goals- BSC analyses metrics like on-time delivery, quality, customer satisfaction, market share, customer loyalty and others that the customers value the most.
Process Goals- BSC analyses the organisation's ongoing processes and identifies ways to align them with financial and customer goals (quality measures, productivity rates, timeliness). Assessing internal business processes helps the organisation understand how smoothly and efficiently the business is running.
People Goals- Capabilities that the employees should possess to achieve the overall organisational goals (morale, knowledge, turnover, use of best-demonstrated practices). It is about the general corporate culture.
Why Balanced Scorecards (BSC)?
1. Better Strategic Planning
The Balanced Scorecard is essential to build and communicate strategies within the organisation. A strategy map shows the cause-effect relationship of different strategic objectives and ensures harmony between interrelated strategic objectives. Strategy mapping improves all strategic communication efforts through which employees can see how well they contribute to the organisation's goals.
2. Improve Strategy Communication & Execution
Executing a strategy that is not fully understood is challenging. Communicating strategy internally is vital to implement the organisation's goal or plans successfully. Employees should understand what the plan is and continuously contribute to the organisation's growth. Regularly communicating the strategic plans will enable employees to align with organisational vision.
3. KPIs Analysis
Key Performance Indicators (KPIs) are a type of performance measurement that evaluates an organisation's success in various activities. Balanced Scorecard and Key Performance Indicators align employees' performance with the organisation's long-term strategic goals. KPI analysis help organisations understand whether they are moving in the right direction and make the right decisions to implement other improvement strategies.
4. Better Organisational Alignment
The Balanced Scorecard makes sure that the organisational structure aligns with the strategic goals and plans. Organisations should ensure that all business processes and support functions work towards the same goals. On ensuring this, organisations will be able to execute growth plans effectively.
5. Better Process Alignment
A strategy focused organisation undoubtedly gets better outcomes. Once implemented, the balanced scorecards help the organisation align various business processes such as budgeting, risk management, analytics, and more with the preset strategic priorities.
