Balanced scorecard: definition, how to create and examples
By Indeed Editorial Team
Updated 24 November 2022
Published 3 January 2022
The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.
Most companies have always focused on income and expenses over a period to evaluate their performance. With time, they have realised that more factors like financial capacity, business process, customer base and organisational capacity define achieving management and growth objectives. Therefore, a balanced scorecard is part of the strategic management tool every company creates to help them focus on the values that are important to its growth objectives while effectively relating with internal and external factors. In this article, we explain what a balanced scorecard is, how to create and examples of a balanced scorecard.
What is a balanced scorecard?
A balanced scorecard is a management system vision tool put in place to help interpret the goals of a company into various performance objectives. Companies then monitor, measure and evaluate these objectives to ensure the achievement of their goals. A balanced scorecard gives the management of a company a detailed view of the performance of its objectives as they concern key points like customer service, finance, product development and employee satisfaction. Where a company fails to write its strategic goals, evaluations made from the balanced scorecard help to know when change is necessary.
Perspectives of a balanced scorecard
A balanced scorecard evaluates performance from four different perspectives. You can adjust a balanced scorecard to be flexible to other views, depending on the strategic goals of an organisation. These four perspectives include:
1. Financial analysis
Most companies aim to receive returns on their investments and control key risks encountered while running the business. They achieve this by meeting the needs of all relevant players in the business, including the customers, suppliers and shareholders. The financial scorecard perspective therefore monitors and evaluates operating cost, return on investment and recurring profits.
2. Customer analysis
This perspective of the balanced scorecard observes how the business can provide value for the customers. It also monitors and determines the customer satisfaction level regarding the company's products or services. Customer analysis, therefore, evaluates strategic goals such as customer acquisition, cost per acquisition, return on investment, testimonials and reviews, referrals, word-of-mouth marketing and customer retention.
3. Internal analysis
This considers internal business processes of the company, such as collaboration, team spirit and openness, communication channels and human resource management. It considers the objectives and measures that can aid the business in running effectively. They do this by assessing the company's services and products to determine if they're up to standard and can satisfy the customers' needs and desires.
4. Learning and growth analysis
The capacity of an organisation or business is crucial to optimising its objectives and goals. It's important for the personnel of a business to show high performance as it relates to the business's culture, leadership, skill sets and knowledge. This perspective measures perspectives such as employee training and adaptation, employee satisfaction, retention rate, innovation, result-driven data and learning milestones.
How to create a balanced scorecard
Understanding the four perspectives of creating a balanced scorecard makes it easier to create a balanced scorecard for the execution of your strategic goals. The four perspectives are your starting point, and then you can add goals that specifically concern your company. Below is how to create a balanced scorecard:
1. Build your purpose statement
Your company's purpose statement shows how you're unique among the competition that exists and can exist in the market. Your purpose statement tells what your company exists to do, how it intends to win using a competitive advantage, who your customers are, how you intend to attract them and where you can go to get them on your side. Some organisations hire agencies to create their balanced scorecard so that their team can focus only on the business. The disadvantage of this is that it is essential to ensure the team clearly understands the purpose statement from the start.
2. Interview important decision-makers
Creating a balanced scorecard is more desirable if done with the input of those who have a stake in the business. Everyone who gets paid by your company has a stake in the business except that some are more important than others. Focus on these important stakeholders to explore questions based on their job requirements in the company and industrial expertise. Recall that one of the four perspectives of a balanced scorecard is an internal analysis and that this interview is the first step to better, effective strategic goals across all departments in your company. External stakeholders are also important.
3. Create, discuss and adjust the strategic goals
The goal of the interview is to gather essential information for creating a balanced scorecard. Everyone's idea matters in terms of the company's strategic goals. Try to engage the key people in clarity sessions as many times as necessary to ensure you're all in alignment. This is necessary because people expect to see their ideas reflected in the goals and may feel ignored if otherwise. This could even make them distrustful of the company because of its politics. Endeavour to avoid this, as every successful strategic goal begins with the energy internal stakeholders put behind it.
4. Communicate with larger senior managers and stakeholders
After successfully drafting and adjusting the strategic map for a balanced scorecard, it's time to put it before a larger board of the company. At this stage, you want to explore what they think about the draft and adopt useful recommendations they have based on the company's strategic goals. Avoid the urge to make your presentation get their approval by all means possible. Be flexible and open-minded. The better you can explain the details of the map, the easier it helps them to give quality input and build confidence in the company's overall goal.
5. Identify action plans and performance indicators
A balanced scorecard defines action plans for each goal and identifies the key players and key performance indicators (KPIs). For a straightforward process, allow key players in each department to design their action plan for the assigned goals as long as it aligns with the overall strategic goal. Allow KPIs to align with what various departments like to track in relation to their duties. For example, the product designers may have an interest in how many new customers downloaded an app because of the new feature. The sales team is more interested in how the new feature boosted sales and at what rate.
Examples of a balanced scorecard
You can choose to create a scorecard for different departments in your company. The steps you can consider are clear objectives, goals, key performance indicators by a certain percentage and the initiatives that the departments can undertake. Below are examples of balanced scorecards:
customer service scorecard
event KPIs and scorecard
Sample of a balanced scorecard
Below are samples of balanced scorecards:
A company scorecard is the parent strategic performance map that helps it identify and improve internal activities that in turn enable positive external outcomes. Below is an example of a company scorecard:
Increase profit margin by 10%
Rank among 2021 XYZ's most profitable businesses of the year
High-profit margins products sell better by 6%
Focus on high-income buyers
Promote high-margin products
Improve value perception of a product
Build customer loyalty across major stores in ABC
Sellers increase orders for the product by 9%
Introduce varieties of the same product for different market segments
Increase the competency of the sales and marketing department via new tools
Enhance the department's capacity to adopt innovative marketing trends to grow sales.
Increased social media engagement
Improved feedback and survey channels
Establish focus groups/communities for early adopters of a company's new products
Learning and Growth Analysis
Establish key competence indicators for each department
Competitors begin to imitate the company
Launch deep customer-brand loyalty programs and incentives
From ensuring product design to maintaining quality per batch, the job of the product department critically affects the overall goal of the company. Below is a sample of a product-balanced scorecard:
Increase the company's profit margin by 10%
Reduce the cost of production per unit of product
25% reduction in production cost
Focus on buying production materials directly from the manufacturer or buying in bulk
Reduce the cost of advertisement
Encourage referral and word-of-mouth marketing
New customer acquisition rise by 12%
Create systems for surveying the reception of new products and features by the market
Establish teamwork between the product department and the sales/marketing department
Understand how customers react to new features
Establish internal support with meeting sales and marketing goals
Increase in product design productivity by 17%
Customers increased engagement and adoption of new features
Introduce bi-weekly brainstorming sessions between product and marketing/sales departments.
Learning and Growth Analysis
Explore key competence indicators of product designers
Create facilities for enhancing the competencies of product designers
5% increase in purchases of new products.
Support internal and external training opportunities for product designers
Disclaimer: The model shown is for illustration purposes only, and may require additional formatting to meet accepted standards.
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