What is a balanced scorecard? (With aspects and examples)
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 organisations use the balanced scorecard to improve performance and manage strategies for efficiency. A balanced scorecard provides valuable information on the organisation's operations and their results, which helps in decision making by identifying areas requiring improvement, outlining strategies and tracking results. When you know what a balanced scorecard is and its aspects, you can implement strategies effectively and establish objectives that scale your business and increase your customer base. In this article, we explain what a balanced scorecard is, the four aspects of the balanced scorecard model and its benefits and provide examples of balanced scorecards.
What is a balanced score?
Knowing the answer to 'What is a balanced score?' can help you determine which business areas affect customer outcomes and require improvement. A balanced scorecard is a tool used by organisations to manage performance by identifying and improving various internal processes and their results using key performance indicators. It enables you to map out strategies by linking strategic objectives and measures to your vision. It balances financial performance with non-financial goals and measures in four areas of the organisation, including learning and growth, business processes, customer perspectives and financial data.
Making decisions and plans using the balanced scorecard requires collecting data to facilitate analysis by the management. When using the balanced scorecard, you start by identifying a few financial and non-financial objectives linked to your strategic priorities. Then you consider measures and set their targets before setting strategic initiatives, which refer to strategic projects. Doing this helps you avoid creating costly projects with no significant impact on your strategy.
Aspects of the balanced scorecard
The balanced scorecard model has four aspects, also referred to as legs, which an organisation analyses to influence behaviours and outcomes. The four legs show the organisation's vision in the future and its strategy to achieve this vision using statistics, objectives and initiatives. It is a management tool that can help you know where to allocate time and resources for future success. These four legs have a causal relationship with changes in one area affecting changes in another area and they comprise:
Learning and growth
Evaluation of learning and growth, also referred to as organisational capacity, occurs through analysing objectives and measures on the training and knowledge resources. It covers staff performance, skills, leadership, training, knowledge base, technology and organisational culture. You can know how well your staff capture and use the information and help them produce results that give your business a competitive edge. This first leg involves making investments and provides a framework for creating and improving values.
Business processes involve how the business is running and the quality of products where you investigate how well manufacturers produce goods. A complete analysis of operational management tracks delays, shortages, wastages and bottlenecks in fulfilling customer orders. Streamlining internal processes using the best methods and technology to reduce costs and improve cash flow and project completion can enhance business processes. You can focus on innovative ideas for performance improvement.
This aspect of the balanced scorecard involves objectives and measures of your customers, focusing on customer satisfaction. You gain knowledge of customers' perspectives concerning price, quality and product or service availability. It is essential to understand what customers want from your business by considering their viewpoint. You can get customer feedback through surveys, interviews and questionnaires, which provide insight into areas for improvement to sustain sales and increase brand loyalty.
In this leg of the balanced scorecard, objectives and measures show the financial performance of your business. The accounting department reports financial results, such as income, sales, expenses, investments and cash flow, for a specific period. Other metrics used include financial ratios and budget variances. It is essential that these financial records be accurate and reliable because they help determine the organisation's trajectory by internal and external stakeholders. You can link objectives from the other legs to know precisely which investments and projects to undertake.
Benefits of using the balanced scorecard
The following are benefits of using the balanced scorecard:
Strategic planning: The balanced scorecard provides a practical framework for implementing and managing the organisation's strategy with a visualised strategy map enabling managers to determine the cause and effect of different strategic objectives. It creates consensus and a complete picture of the strategy having performance outcomes and crucial enablers for future performance identified.
Performance reporting: The Balanced Scorecard improves performance reporting focusing on essential issues, which helps monitor strategy execution. It provides a step guide to achieving your goals with necessary reports and dashboards to track performance.
Communication and execution: The visualised picture of the strategy map enables organisations to communicate and execute strategies efficiently, internally and externally. It promotes understanding and helps keep staff and stakeholders engaged in reviewing and realising the strategy.
Suitable management information: Through key performance indicators, you measure what matters using quality management information. The balanced scorecard also facilitates better decision-making using the key performance indicators.
Organisational alignment: The balanced scorecard helps align the organisational structure with strategic objectives. You can execute strategies well by linking strategy to business operations such that all departments and support functions work towards achieving the same goals.
Projects and initiatives alignment: The balanced scorecard helps organisations to maintain focus on delivering the most strategic objectives since they map projects and initiatives to strategic goals. By identifying leading measures when creating the balanced scorecard, they can focus on strategic objectives that influence change in behaviours and outcomes.
Process alignment: When you implement balanced scorecards effectively, you get periodic performances that help align business processes with strategic priories as you track and update them to manage performance. You can review performance analytics and streamline the productivity of your staff.
Efficiency: The balanced scorecard brings information from various sources into a single report. You save money, time and resources when the need arises to review this information and make improvements.
Examples of balanced scorecards
Financial institutions, like banks, often use internally balanced scorecards to carry out surveys and measure their level of customer service. They contact customers and ask them to rate various services in the banking hall or online, such as wait times, availing information on bank products and services, staff services and proximity of service centres. They may ask customers to rate services and make suggestions for improvement immediately after using them. The information collected can help address issues with procedures, products and services to improve efficiency and customer satisfaction.
Sometimes, organisations hire third parties to carry out surveys and compile reports. The external firms use their balanced scorecards to collect data, analyse it and provide recommendations. They help organisations identify issues that hinder performance in operations and provide strategies for improvement in the future. You can create your balanced scorecard or hire an external firm to increase your customer base and revenues with prioritised strategies that enhance performance.
FAQs about the balanced scorecard
The following are some of the FAQs and answers about balanced scorecards:
What is a balanced scorecard, and what are its aspects?
A balanced scorecard is a tool businesses use to manage performance by identifying and improving various internal processes and their outcomes using key performance indicators. You can know which areas in your business affect customer outcomes and require improvement. Also, it enables you to map out strategies by linking strategic objectives and measures to your vision. The four aspects of the balanced scorecard, also called legs, include learning and growth, business processes, customer perspectives and financial data. They make up your organisation's vision and strategy and require analysing the data collected in the balanced scorecard.
How can the balanced scorecard help your business?
The balanced scorecard has aspects that help you determine areas of growth in your business, identify inefficiencies, devise strategies for improvement and create strategic objectives and priorities. It enables you to make timely decisions on significant issues, save money, time and resources and communicate strategic objectives and priorities in line with the organisation's vision to internal and external stakeholders. Using the balanced scorecard, you can easily track performance in service, quality and financial data. Also, you can make short-term and long-term goals that align with the success and development of your staff.
Who uses the balanced scorecard?
Various businesses, organisations and governments use the balanced scorecard to measure performance and enable performance management. It is more effective for established companies with several years of operation since it uses past performance data to help map out strategies for the future with the feedback provided. In the organisation, various executive team members and departmental heads, such as project managers, human resource managers and account managers, use the balanced scorecard to make informed decisions. Such decisions include developing learning lessons and training, forecasting financial growth and approving strategies.
Explore more articles
- 25 management core competencies to develop in the workplace
- 5 stages of the business life cycle: definition and tips
- Source control: definition, importance and examples
- What is due diligence and when do businesses use it?
- The different levels of measurement used in research
- Client sales gifts: 11 ideas to show your appreciation
- 5 HR certifications (plus descriptions and benefits)
- What is a power interest grid and how do you use one?
- What is market pricing? (Plus types, factors and tips)
- How to create a YouTube channel (steps and channel types)
- How to scan a document to email (with alternative methods)
- A guide to leadership level 5 (characteristics and FAQs)