There has long been somewhat of a rift in the business world between the understood importance and value of performance measures, and the actual implemented strategies that might be suggested. Integral designs to overall strategy based on KPI evaluation and detailed analytics often meets an internal pushback.
This has certainly been changing though. The value of detailed performance measurements shouldn't be ignored, and when it is, disaster can often follow. The balanced scorecard approach however, allows for a comprehensive framework by which to measure performance and compare it to a company's strategic goals. 31% of companies reported they found the balanced scorecard to be "extremely helpful." With 42% reporting as "very helpful."
What is a balanced scorecard? The scorecard is built around 4 measurable perspectives. Not only does it measure financial indicators, but also customer experience, internal processes, and improvement and innovation. These metrics are more grounded in broader strategic objectives. The amount of critical factors is limited by the scorecard and this allows for a forced focus and direction by each manager. These perspectives offer a zoomed out look at company wide progress and can balance outside views such as operating costs vs new product development.
So how does a balanced scorecard work? What are these four perspectives? And how can a business benefit from using the accountability of a balanced scorecard system? Let's take a closer look at balanced scorecards and why they're used.
The Four Perspectives Of A Balanced Scorecard
The scorecard was introduced to give a deeper perspective on how to measure successes in business growth. A way to look at things that considers more than just the financial evaluation of profits and expenses.
A balanced scorecard looks at an evaluation of a company's performance success from 4 different perspectives.
Financial - The financial perspective is the most familiar one. This perspective looks at return on investment, growth trends, fixed costs, profits, and other financial metrics related to earning vs expenditure. Targets and achievements of one's financial goals and projections.
Growth And Learning - A company has to adapt and evolve with many changing factors to remain healthy. This can include employee training and recruitment, introduction of new and changing technology, nurturing internal growth and promotion, building and implementing innovations to systems and processes, and much more. All of these factors can be measured to show how well your company adapts and responds to industry change, or even can show how quickly a company can bring a product to market from inception. These atypical metrics can mean so much towards a healthy perspective of a company's success. The growth and learning perspective is really what allows for the context given to the performance data gathered.
Business Processes
It's not an exaggeration to say that everything hinges on smooth internal operations. Inefficiencies, redundancies, and error-prone operations can grind things to a halt, or severely undermine the success of other contingent processes. Sometimes a balance between expense and quickness needs to be struck, or the choice of which to prioritize can mean everything going forward. This can be so important to measure on the scorecard, because these issues often come from miscommunication or poor collaboration. According to Balanced Scorecard Collaborative, as high as 95% of typical workforce employees do not understand the "strategy" of their organization.
Customer Experience
The fourth key perspective is that of your customers and shareholders. It is important to understand and measure how your customers view your business's activities. Above anything else, it's the awareness that is important. What this customer view may be can mean very different things in different situations. Sometimes a customer perspective may be expected but not justified. Perhaps there is a new development that will streamline services that you can provide, but until you are ready to move forward, customers are growing impatient. This kind of data measurement can be so valuable in planning pacing for a business.
How Can A Balanced Scorecard Be Best Used For Strategizing?
Balanced scorecards can be as simple or as complex as you need, and how different scorecards interact with the goals and values of other departments can be designed to best suit the global operational goals of the company. The key points will be to determine the main vision of the company's goal. Whatever all processes feed into, the overall vision must be established.
Once established, this main vision can be approached by these four perspectives to contrast which things synergize and which conflict with each other. Measure success not only within one perspective, but relating to all perspectives. Visually establish links and indicate how different processes and metrics are connected.
Use these representations to share and communicate data that can contribute to goal evaluation, streamlining, and maximizing progress across all levels of operations. If all teams and processes can stay on the same page and have full accountability, there will inevitably be less errors and failures across all chains.
* This is a contributed article and this content does not necessarily represent the views of sciencetimes.com
