The Balanced Scorecard method for measuring and promoting an organisation's performance
The Balanced Scorecard is a strategic planning and management tool that is used by organisations to measure and monitor their performance against a set of predetermined goals and objectives. It is based on the idea that a business's performance cannot be measured by financial metrics alone, but rather by a balanced combination of financial and non-financial measures.
The Balanced Scorecard typically includes four perspectives, each of which is aligned with the organisation's strategy and objectives. The intention is that these measures must work in balance with each other to further the organisation’s overall goals, avoiding distortions that measuring a single metric can introduce.
These perspectives are:
- Financial perspective - This perspective focuses on financial objectives and measures, such as revenue growth, profit margins, and return on investment.
- Customer perspective - This perspective focuses on customer satisfaction, loyalty, and retention, as well as measures such as market share and customer acquisition costs.
- Internal business processes perspective - This perspective focuses on the internal processes that drive the organisation's performance, such as product development, supply chain management, and quality control.
- Learning and growth perspective - This perspective focuses on the organisation's ability to innovate and improve, such as employee training and development, technology adoption, and knowledge management.
To develop a Balanced Scorecard, an organisation will tend to follow a few key steps. These include:
- Identifying the objectives and performance measures for each of the four perspectives that relate to the organisation’s strategy (yes, you’ll need one of these as a precursor).
- Developing initiatives and action plans to achieve the objectives.
- Implementing the Balanced Scorecard and monitoring performance against the established objectives.
Balanced Scorecards can be valuable because they provide a comprehensive view of an organisation's performance and to align the organisation's activities with its strategic objectives. By measuring and monitoring performance across multiple perspectives that are supposed to reflect the actual objectives of the organisation, the intention is to avoid “you get what you measure” traps.
However, you’ll still get what you measure, so great care is needed to get them right. Finally, this is why it’s important to ensure you put in review points to check that the measures and objectives still make sense.