Created in the 1990s in the United States, Balanced Scorecard is a methodology developed by professors at Harvard Business School. This method is very important because it has changed the way business leaders and managers evaluate their business.
What is a company’s BSC? What are its benefits and how to deploy it in an organization? If you are interested in learning more about it, keep reading this post!
What is Balanced Scorecard?
Balanced scorecard, or simply BSC, consists of “balanced performance indicators.” It’s a methodology oriented towards the strategic management of organizations that presumes that a company’s management indicators shouldn’t be limited to financial and economic information.
Even though financial indicators are of absolute importance, they aren’t sufficient to ensure that your company is heading in the right direction. It’s fundamental that company performance be evaluated with other objectives that make up your strategic planning.
Thus, balanced scorecard can be defined as a strategic management model that helps verify a company’s progress in reaching its long term goals. To do this, 4 strategic perspectives have to be taken into account:
- Financial perspective;
- Customer perspective;
- Internal process perspective;
- Learning and growth perspectives.
For each perspective, goals should be predefined which will then be measured and their progress followed.
For a company to become more profitable, it needs to satisfy its customers and the market. To do this, it’s crucial to improve internal processes, which will only be possible through learning and innovation.
What are the 4 Balanced Scorecard perspectives?
As discussed in the previous topic, to make the strategy analysis of a company easier, the Balanced Scorecard has 4 points of view that help to evaluate and develop it.
These perspectives should bring answers to 4 of the main issues of the enterprise. In this topic we will learn in depth what they are and how they can be applied. Find out.
Here, the focus is financial success and the goal is ensuring that the measures bring the return on investment and increase turnover, as well as containing risks. Interestingly, this perspective has long been one of the only ones in which the Balanced Scorecard was used.
To use it in this perspective, the financial goals need to be in accordance with the strategic planning. In addition, using the revenue and productivity variables can help as indicators of activities that have generated good results for the enterprise.
An example of questions that may be used to define the indicators is:
- Are we able to meet our current expenses?
- Did we obtain return on our investments?
- How can we use our financial statements to measure revenues?
Identifying whether the company is delivering satisfactory results to customers is the goal of this perspective. To do this, the organization may use result indicators and carry out customer satisfaction surveys. Throughout this process, it is important that the company evaluates its product, including its cost, quality, and the performance of what it is delivering.
One way to put this perspective into practice is to ask the following questions:
- How is our service to our consumers?
- Are our products meeting people’s expectations?
- Would customers recommend us to others?
3. Internal Processes
In this topic, the perspective is related to identifying and optimizing what happens internally in the company, especially if these processes affect its goals. Overall, the focus is on finding out what needs to be done in order to improve the company’s performance.
To put this Balanced Scorecard perspective into practice, management may ask:
- Are we achieving our goals?
- Is the investment in technology generating good results?
- How is the team motivation?
4. Learning and Growth
The last perspective has as its main purpose the growth of the company in the medium to long term. To achieve this result, you may invest in the company’s processes, that is, in machinery, research of new methods, development of goods, team improvement, etc.
Some questions that may be asked for this perspective are:
- What is the value of what we offer?
- How can we continue to improve our market value?
- Do we need to upgrade services or goods?
What are the Benefits of Implementing Balanced Scorecard?
Implementing balanced scorecard can offer the following benefits to organizations:
- Makes it possible to evaluate performance overall;
- Helps leaders develop common sense in terms of company strategy;
- Enables managers to communicate this strategy to other employees, establishing a connection with the established goals;
- Makes it possible for companies to integrate their financial plans with their business plans;
- Makes it possible to evaluate learning and perfect it constantly.
How Should You Implement Balanced Scorecard?
Implementing balanced scorecard should involve the entire company, because it’s imperative that everyone can see where the company wants to go.
The first step is creating a strategy map, which should contain the mission and goals of the company and every department, as well as the points where they intersect and are interconnected – all of this taking into account the 4 perspectives listed.
Make a Balanced Scorecard presentation for the entire team, encouraging change in the company culture. All employees need to be familiar with the methodology prior to its application. Define the strategic indicators that will be used.
BSC is a tool based on performance metrics. Therefore, it is essential that the measurers present the program’s evolution periodically. Only then can the company evaluate if it is going in the right direction to achieve its goals.
We also point out that each company has a specific reality, which means that the indicators have some particularities. Also, for the BSC to work, it is essential that everyone involved is committed to the same purpose. In addition to developing the methodology, investing in efficient and comprehensive communication is critical.
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