What is a Balanced Scorecard?
The balanced scorecard is a strategic planning and management technique that is mostly used to achieve organizational goals. Organizations can easily monitor the performance of the development strategies through a balanced scorecard which is set earlier. It helps to optimize the overall business process. Somewhere it is also called the upgraded version of the performance measurement system.
History of The Balanced Scorecard
The Balanced Scorecard was developed by Dr. Robert Kaplan of Harvard University and Dr. David Norton for measuring the performance of an organization. Primarily, a balanced scorecard was used to measure short-term financial performance. A balanced scorecard is presently used by many organizations to measure both financial and non-financial performance. As a result, it is known as a fully integrated strategic management system.
The innovation of the balanced scorecard was described as follows by Kaplan and Norton:
“The balanced scorecard retains traditional financial measures. But financial measures tell the story of past events, an adequate story for industrial-age companies for which investments in long-term capabilities and customer relationships were not critical for success. These financial measures are inadequate, however, for guiding and evaluating the journey that information age company must make to create future value through investment in customers, suppliers, employees, processes, technology, and innovation.”
The Four Perspectives of the Balanced Scorecard
There are 4 major areas or perspectives of the balanced scorecard. An organization’s success mainly depends on the performance of those 4 areas, so it is used to measure business performance. Balance scorecard perspectives can be described as below:
- Financial Perspective –It focuses on financial performance, costs, income, effective resource use, etc. Financial measures are essential to ensure the success of the company and play a significant role to improve the financial growth or financial performance of the company. Money management can be effectively monitored and planned for future business endeavors.
- Customer Perspective –It measures the level of customer value, customer satisfaction, retention, market, etc. Customers are the driving factor of a business organization. Setting proper customer-related objectives and measures can help organizations to achieve more customer satisfaction. Proper customer satisfaction helps to expand the business dimension.
- Business Process Perspective –It measures the business efficiency, cost, and quality related to the business processes. The internal business process especially the efficiency status of the process plays a vital role in business operations. The business outcome depends on business efficiency. If the efficiency level is higher, then more productivity is ensured. Optimization of the process can help to achieve more efficiency.
- Learning and Growth Perspective –It focuses on human capital, employee satisfaction, employee retention, infrastructure, technology, and others capability of the organization. Organizations need to pay more attention to the development process of overall employee performance. The organization has to set KPIs for the employee, measure the achievement and identify the gaps where they can improve. Training helps employees to improve their competency levels.
Requirement of Balance Scorecard
There are many valid reasons for implementing a balanced scorecard in the organization which are as below:
- A business balance scorecard basically increases the focus on the organization’s business strategy.
- Helps organizations to accurately measure the performance of the KPIs.
- Helps employees to be more aligned with the organization’s strategy, as strategies are finalized and targets are cascaded down.
- It helps the entities to overcome their shortcomings through proper strategic planning.
The Strategic Objectives of Balanced Scorecard Perspectives
Every perspective of the balanced scorecard has significant strategic objectives. The strategic objectives of balanced scorecard perspectives can figure out as below-
1) Strategic Objectives of Financial Perspective
- Increasing business profit,
- Reducing overall business costs,
- Increasing or expanding of business area or market.
2) Strategic Objectives of Customer Perspective
- Increasing customers satisfaction,
- Reducing customer claims,
- Searching for new customers and their requirements.
3) Strategic Objectives of Business Process Perspective
- Increasing efficiency,
- Initiation of new technology in the production process,
- Increasing acquisition and improving product quality.
4) Strategic Objectives of Learning and Growth Perspective
- Improving employee competency,
- Increasing leadership quality of the employees,
- Improving the human capital management system of the organization.
The strategic objectives of the balanced scorecard will enable you to properly design your strategic map for the success of the business.
Advantages and Disadvantages of Balanced Scorecard
A balanced scorecard is a standard approach that has its own set of advantages and disadvantages. Balanced scorecard implementation is sometimes difficult due to a few difficulties.
Advantages of Balanced Scorecard
- It ensures proper data management to keep growing organizations’ performance.
- It integrates a variety of business programs for extraordinary performance.
- It may help organizations to improve business efficiency and employee performance.
- It reduces operational costs and increases business revenue.
- It improves overall business communication.
Disadvantages of Balanced Scorecard
- It increases the number of performance indicators which can be perplexing for the employees.
- It is actually difficult to set a strategic map for the balanced scorecard.
- The balanced scorecard system has to be updated regularly and dedicated peoples need to look after the performance.
There are some specific steps of developing a balanced scorecard that is very important for the achievement of organizational goals.