Blog - Management

What is the Balanced Scorecard?

The balanced scorecard (BSC) is a strategic planning and management system that organizations use to:

Communicate what they are trying to accomplish
Align the day-to-day work that everyone is doing with strategy
Prioritize projects, products, and services
Measure and monitor progress towards strategic targets
The system connects the dots between big picture strategy elements such as mission (our purpose), vision (what we aspire for), core values (what we believe in), strategic focus areas (themes, results and/or goals) and the more operational elements such as objectives (continuous improvement activities), measures (or key performance indicators, or KPIs, which track strategic performance), targets (our desired level of performance), and initiatives (projects that help you reach your targets).

Who Uses the Balanced Scorecard (BSC)?

BSCs are used extensively in business and industry, government, and nonprofit organizations worldwide. Gartner Group suggests that over 50% of large US firms have adopted the BSC. More than half of major companies in the US, Europe, and Asia are using the BSC, with use growing in those areas as well as in the Middle East and Africa. A recent global study by Bain & Co listed balanced scorecard fifth on its top ten most widely used management tools around the world, a list that includes closely-related strategic planning at number one. BSC has also been selected by the editors of Harvard Business Review as one of the most influential business ideas of the past 75 years.

The BSC suggests that we view the organization from four perspectives, and to develop objectives, measures (KPIs), targets, and initiatives (actions) relative to each of these points of view:

Financial: often renamed Stewardship or other more appropriate name in the public sector, this perspective views organizational financial performance and the use of financial resources.
Customer/Stakeholder: this perspective views organizational performance from the point of view the customer or other key stakeholders that the organization is designed to serve.
Internal Process: views organizational performance through the lenses of the quality and efficiency related to our product or services or other key business processes.
Organizational Capacity (originally called Learning and Growth): views organizational performance through the lenses of human capital, infrastructure, technology, culture and other capacities that are key to breakthrough performance
Strategic Objectives are the continuous improvement activities that we must do to implement strategy. The break down the more abstract concepts like mission and vision into actionable steps. Actions that your organization take should be helping you achieve your strategic objectives. Examples might include: Increase Revenue, Improve the Customer or Stakeholder Experience, or Improve the Cost-Effectiveness of Our Programs.
One of the most powerful elements in the BSC methodology is the use of strategy mapping to visualize and communicate how value is created by the organization. A strategy map is a simple graphic that shows a logical, cause-and-effect connection between strategic objectives (shown as ovals on the map). Generally speaking, improving performance in the objectives found in the Organizational Capacity perspective (the bottom row) enables the organization to improve its Internal Process perspective (the next row up), which, in turn, enables the organization to create desirable results in the Customer and Financial perspectives (the top two rows).

Measures - Key Performance Indicators.

For each objective on the strategy map, at least one measure or Key Performance Indicator (KPI) will be identified and tracked over time. KPI’s indicate progress toward a desirable outcome. Strategic KPIs monitor the implementation and effectiveness of an organization's strategies, determine the gap between actual and targeted performance and determine organization effectiveness and operational efficiency.
Good KPIs:

Provide an objective way to see if strategy is working.
Offer a comparison that gauges the degree of performance change over time.
Focus employees' attention on what matters most to success.
Allow measurement of accomplishments, not just of the work that is performed.
Provide a common language for communication.
Help reduce intangible uncertainty
Strategic Initiatives

Strategic Initiatives are projects (new or existing) that are designed to help the organization achieve Strategic Objectives and have significant organization-wide impact. They are managed formally like any other project, meaning they are explicitly defined in terms of owner, schedule, resources needed, action steps, progress, and expected results. Some Strategic Initiatives are short-term (taking only a few days to implement) while others can take years to fully implement. Strategic Project Management is the process of managing projects to achieve strategic success.

Cascading

Cascading a balanced scorecard means to translate the corporate-wide scorecard (referred to as Tier 1) down to first business units, support units or departments (Tier 2) and then teams or individuals (Tier 3). The end result should be focus across all levels of the organization that is consistent. The organization alignment should be clearly visible through strategy, using the strategy map, performance measures and targets, and initiatives. Scorecards should be used to improve accountability through objective and performance measure ownership, and desired employee behaviors should be incentivized with recognition and rewards.

Cascading strategy focuses the entire organization on strategy and creating line-of-sight between the work people do and high level desired results. As the management system is cascaded down through the organization, objectives become more operational and tactical, as do the performance measures. Accountability follows the objectives and measures, as ownership is defined at each level. An emphasis on results and the strategies needed to produce results is communicated throughout the organization. This alignment step is critical to becoming a strategy-focused organization.

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