Top 5 reasons why you should use Balanced Scorecard for Strategic Management in Manufacturing Industry

September 18, 2024

"If you can measure it, you can manage it." ~ Robert S. Kaplan

Are you tired of falling short in encountering the modern skills and competencies the business now chooses?  The reason may be that your business relies too much on conventional performance metrics. Conventional financial performance metrics were influential throughout the Industrial Revolution but are outdated in terms of depth needed for today’s complex business environments. Here comes the need to use Balanced Scorecard (BSC) software as a strategic management system. The holistic approach offered by BSC integrates financial, customer, internal process, and learning and growth perspectives (FCIL). In the rapidly evolving field of manufacturing, where creativity, efficiency, and precision are critical, businesses are always looking for new methods to stay ahead of the competition. A crucial component of the management process needs to be effective measurement. A best balanced scorecard gives executives a thorough framework that converts a company's strategic objectives into a logical collection of performance measurements. It was first introduced in the January–February 1992 issue of HBR ("The Balanced Scorecard—Measures that Drive Performance").

Role of Balanced Scorecard in Strategic Management

  • Define organisational strategy 

  • Visualisation of strategic objectives

  • Alignment of goals with Key Performance Indicators (KPIs)

  • Integration of financial, customer, and internal processes, and learning and growth, into a single framework

  • Facilitates communication

  • Comprehensive view of the organisation’s performance 

  • Allows easy comparisons and performance analysis

  • Quick identification of areas

  • Strategic feedback and learning

  • Predict future performance

What happens if you don't measure your Strategic Management with a Balanced Scorecard in a Manufacturing industry?

1. Time consuming data gathering

  • Scattering of data across various platforms

  • Delays in gathering of information due to the involvement of multiple owners

2. Lack of data customisation

  • Need of a tiresome process for information customisation

  • It is difficult to modify data for various reports or audiences

3. Volatile reporting

  • Inconsistencies due to the presentation of data in different forms 

  • Non presentation of reports according to the planned schedule 

4. Error prone decision making

  • Unorganised data and delays in analysis hinder decision making  


Here are the major ways how a Balanced Scorecard framework can elevate your strategic management process.

1. Structuring the Manufacturing Strategies

A lot of companies have trouble organising their business plans, which causes uneven implementation and a mismatch with overarching objectives.


The consequences of this unstructured strategy include 

  • Miscommunication : An unstructured strategy frequently leads to inadequate departmental communication, which scatters efforts around the business goals and creates confusion.

  • Improper prioritisations : An unclear structure creates a misunderstanding among the teams, which results in doing tasks that don't align with the company's objectives. The lack of opportunities and the wastage of resources are the problems it can cause. 

  • Lack of progress measurements : Identifying the areas that need improvement is essential for progress.  However, measuring the performances against strategic goals without a structured approach is difficult. 

Using a balanced scorecard makes it easy to structure the elements of your strategic planning process. The results generated by BSC by overcoming these challenges are given below.

             -  BSC improves and  transforms communication into actions 

    How ? 

    • Offers better communication by understanding all levels of organisation 

    • Linking organisational objectives to individual goals 

    • Generating unified strategic language, and enabling regular reporting and feedback
    Communication through Visualisation
    A clearer communication through the visualisation aspect of the balanced scorecard, like the dashboard and strategy maps, enhances strategic management. They convert abstract concepts into tangible visual representations, making it easier for stakeholders to understand how different goals and KPIs relate to one another.

             -  Master your strategic prioritisation

    How ? 

    • Avoid limited concentration on just one thing, like immediate cash advantages

    • Enables the team to focus on the critical objectives
    • Every aspect of the company is taken into account when determining priorities

             -  Effective performance measurement
                   How ? 

    • Enables specific KPIs for each strategic objective

    • Continuous tracking and monitoring to stay on track

    2. Holistic measurements across Four perspectives

    What if an organisation focuses too narrowly on financial outcomes? There is no doubt that it undermines competitiveness and long-term growth. This will result in a lack of balance and ultimately hinder long-term growth.  The BSC breaks down the company's overall strategy into specific, actionable objectives. This approach aids organisations in addressing this challenge by enabling a structural framework that equally focuses on financial performance, customer satisfaction, internal processes, and learning and growth.

    Now, look at how the balanced scorecard provides solutions for the challenges from each perspective.


    • Financial performance : An organisation which is struggling to attain financial performance due to rising costs, stagnant revenue growth, and declining profitability can take advantage of a balanced scorecard strategy.

      BSC offers comprehensive solutions for each challenge, which are given below
      -        Alignment of financial goals with strategic objectives for rising cost
      -  Innovative product offerings for stagnant growth
      -  Operational efficiency and optimised resource allocation for profitability
    • Customer satisfaction : Unmet customer expectations, inconsistent service quality and lack of personalised experiences are the major difficulties that companies face.

      For each challenge BSC focus on
      -         Understanding and exceeding the expectations of the customers
      -         Improving service quality
      -   Providing tailored experience
    • Internal processes : Supply Chain disruptions, delays in production, and inconsistent quality control are some of the struggles in manufacturing companies due to the inefficiencies in their internal processes.

      BSC offers a strategic response by
      -         Monitoring metrics like inventory turnover, lead time and supplier performance
      -         Setting  targets
      -   Tracking defect rates, customer returns and rework costs

    • Learning and growth : Optimising staff training and development is a challenge faced by many firms, which can result in skill gaps, stagnant career progression, and restricted organisational advancement.

      BSC application provides solutions by
      -         Focus on skill acquisition, training hours and career progression
      -         Tracks changes in employee satisfaction scores and retention rates
      -   Enables employees to see how their individual contributions impact the overall organisational success

    After focusing on every department's goals, the balanced scorecard moves to the next level. It is aligning each goal with the company's overarching strategy formulation.

    3. Organisational and Process Alignment

    No doubt that an organisation which has misaligned departments, inefficiencies and conflicting priorities stands far away from achieving its strategic goals. How can it compete without a cohesive framework to align efforts? Look at the challenges misalignment creates

    • Lack of work harmony among the divergent departments

    • Working against common company objectives

    • Decreased overall performance due to inefficiencies

    As a solution to this problem,  a balanced scorecard aids

    -   Better alignment with organisational structure
    -       Coordination of organisational procedures with the strategic goals
    -   Elimination of redundancies

    In doing so, the organisation will become more strategy-focused. Apart from this, it helps the organisation to streamline workflows  and focus on what truly matters.

    4. Better Planning and Execution

    Imagine an organisation relying on traditional methodologies for planning and execution with multiple sheets. Let's identify the problems of improper planning

    • Manual updation takes more time

    • Hinders the organisation from quickly adapting to the changes

    • Results in error-prone actions

    Look at how balanced scorecard contributes for  strategic planning and execution

    -   BSC automates data collection, analysis, and reporting
    -   Enables visualisation of strategic goals and associate them with certain performance indicators
    -   Provide settings for adjusting market and industry changes

    Additionally, it helps to provide real-time feedback on performance and progress. This feedback loop allows manufacturers to make reconstructions as needed.

    5. Decision-making with Data-Driven insights

    In this constantly changing market scenario firms struggle with poor decision making. Decision-making is complex for many organisations because they depend more on subjective judgments than reliable, data-driven insights.

    The challenges in this situation includes

    • Missing of opportunities

    • Loss of chances for development

    Here is how a balanced scorecard helps you with decision-making

    -   Work with quantifiable objectives and actual metrics
    -       Make decisions based on objective data rather than hunches or gut reactions
    -   Enables decentralised and scalable decision-making

    For example, a performance management scorecard can track KPIs such as production efficiency, defect rates, and customer satisfaction. With this data, managers can identify trends, pinpoint areas of concern, and make data-driven decisions that improve overall performance. Moreover, software-balanced scorecard solutions can automate data collection and analysis, making it easier for companies to monitor their performance in real time.

    Grasp the importance of the Balanced Scorecard through an example of its application in a Manufacturing company

    Let's look at the practical benefits of balanced scorecards for strategic planning, a practical scenario that highlights its importance in a business context. 
    A mid- sized manufacturing company has been facing challenges in profitability, operational efficiencies and customer satisfaction. 

    Look at the problems company faced before and the results gained after the implementation of Balanced Scorecard.

    Strategic area Challenges Results
    Financial perspective
    Scenario

    • High production cost due to rising labour and material cost
    • Under utilisation of machinery and overproduction
    • Don't have detailed picture of Financial health
    		 Decline in profitability due to inefficient resource utilisation and high operational costs. Balanced scorecard helped the company focus on resource utilisation and cost reduction. The management got a clear view of their financial performance. Hence, the company achieved a 10% increase in gross profit margin.
    Customer perspective
    Scenario

    • Massive customer loss
    • Variable product quality
    		 Lowered customer satisfaction due to delayed deliveries. Raising of returns and warranty claims due to defects and non conforming items. Market share was also shrinking. Balanced scorecard made the company focus on KPIs including defect rates, on-time delivery rates and customisation capabilities. Also enabled quality assurance programs and flexible manufacturing technologies. This leads to enhanced customer satisfaction with growth.
    Internal Process perspective
    Scenario

    • Poor quality control
    • Inefficient production process
    • Lack of process innovation
    		 Production process and wastage caused delays and raised costs. Defective products due to inconsistent quality checks and faced limited technological advancements. Operational efficiencies are enriched with the help of a balanced scorecard. The company cut production costs by 10%, lowered defects by 30%, and increased overall process efficiency by putting lean manufacturing techniques into practice and strengthening quality control.
    Learning and Growth perspective
    Scenario

    • High employee turnover
    • Low employee engagement
    • Missing of opportunities
    • Use of outdated software and equipment
    		 Reduced employee engagement. Lack of employee training and developmental activities. Lowered innovation and productivity. Balanced scorecard enables better training and developmental programs. As a result, employee engagement scores increased. The company increased efficiency and innovation by investing in cutting-edge technology, laying the groundwork for long-term success.

    Summary

    The Balanced Scorecard is the best solution for a business struggling to quickly keep up with modern business demands. BSC can efficiently make positive results by maintaining better strategic management in today’s complex environment. BSC brings structure to the business strategy by integrating financial, internal process, customer, and learning perspectives. It enhances communication by breaking down strategies and proper visualisation and prioritising key objectives. The holistic performance measurements offered by BSC align organisational goals and enable data-driven decision-making. Businesses that lack BSC deal with ineffective data management and weak reporting and are prone to making mistakes in choices. Strategic management is transformed by BSC software, allowing for long-term success and flexibility in a cutthroat environment.

    FAQ's

    1. Why is a Balanced Scorecard important in Strategic Management?

      Balanced scorecard provides a holistic approach for your business by integrating financial, internal process, customer, and learning and growth perspectives (FCIL). It helps to break down the strategies and execute the plans with a clear communication.

    2. What are the essentials of a Balanced Scorecard in Strategic Management?

      -       Align day-to-day work toward the company goal
      -       Clear communication of the strategies in every section
      -       Prioritise the actions to achieve the intended growth
      - Measure and monitor the performance

    3. How is the Balanced Scorecard a Strategic Management Tool?

      As a strategic management performance metric, BSC identifies and improves several internal business processes and their external outcomes. It starts with translating the organisation’s mission and strategies to several objectives. Then, it moves to measuring and tracking the progress along with providing feedback.

    4. What are the main elements of the Balanced Scorecard?

      -       Innovation and improvement
      -       Strategic goals
      -       Organisational learning goals
      -       Customer value
      -       Internal process
      -       Measuring KPI examples include sales, customers, employees, finance, retention, delivery performance, capacity utilisation, cycle time etc.

    5. What are the features of a Balanced Scorecard in the Strategic Management process?

      -       Brings structure to business strategy
      -       Holistic measures across four perspective
      -       Organisational and process alignment
      -       Better planning and execution
      -       Decision-making with data-driven insights
    Drive your Strategic Management with Data point Balanced Scorecard