Balanced Score Card (BSC)
The four key components of Strategy Analysis are principles, practices, techniques, and skills. They play an essential role in identifying and validating the organization’s strategic needs, defining suitable solution approach(es) and solution(s), and planning, monitoring, and engaging stakeholders to achieve the organization’s strategic objectives. Techniques describe a step-by-step approach to conducting Strategic Analysis activities.
Want to keep track of the execution of all business activities by the staff and monitor the consequences arising from these actions? Here is a Strategy Analysis technique to achieve that. This blog will look at a technique called Balanced Score card with examples.
The Balanced Scorecard (BSC) is a strategic performance management tool developed by Drs. David Norton and Robert Kaplan in the early 1990s. It is a framework for measuring and managing organizational performance that focuses on four key areas: financial performance, customer satisfaction, internal processes, and learning and growth. The BSC is designed to help organizations align their strategies, objectives, and activities with their overall mission and vision.
The BSC was initially developed as a tool for measuring and managing financial performance, but it has since evolved to include other performance metrics such as customer satisfaction, internal processes, and learning and growth. The BSC is based on the idea that organizations should measure and manage performance in all areas of the business, not just financial performance. This holistic approach to performance management allows organizations to identify areas of strength and weakness to develop performance enhancing strategies for all areas.
The BSC is used by organizations of all sizes and in all industries. It is a popular strategic planning, budgeting, and performance management tool. The BSC is also used to measure and manage the performance of individual employees and teams.
The BSC has been widely adopted by organizations around the world and is considered one of the most successful performance management tools. It has been credited with helping organizations improve their performance and achieve their strategic goals.
Purpose
Balanced Scorecard is a strategic planning and management tool to measure organizational performance beyond traditional financial measures aligned to the organization’s vision and strategy. A Balanced Scorecard takes a holistic view of an organization and coordinates MDIs so that all departments experience efficiencies in a joined-up fashion.
Description
To embark on the Balanced Score Card, path an organization first must know (and understand) the following:
- The company’s mission statement
- The company’s strategic plan/vision
Then
- The financial status of the organization
- How the organization is currently structured and operating
- The level of expertise of their employees
- Customer satisfaction level
- Learning and growth dimension – Employee training and learning, product and service innovation, and culture.
- Business process dimension – How well the enterprise is operating and if its products meet customer needs.
- Customer dimension – Customer focus, satisfaction, and delivery of value.
- Financial dimension – Profitability, revenue growth, and added economic value.
Meaningful measures are quantitative, linked to strategy, and easily understandable.
Two types of indicators used in BSC are:
Lagging – Provide results of actions already taken.
Leading – Provide information about future performance.
Usage Considerations
To construct and implement a BSC, managers should:
- Identify the performance categories that best link the business’s vision and strategy to its results (such as financial performance, operations, innovation, and employee performance)
- Articulate the business’s vision and strategy
- Establish objectives that support the business’s vision and strategy
- Develop effective measures and meaningful standards, establishing both short-term milestones and long-term targets
- Ensure company wide acceptance of the measures
- Create appropriate budgeting, tracking, communication, and reward systems
- Collect and analyze performance data and compare actual results with desired performance
- Act to close unfavorable gaps
Figure 7: Balanced Scorecard to Implement and Manage Strategy
Advantages of Balanced Score Card
- Improved Performance Measurement: The Balanced Scorecard provides a comprehensive view of performance by measuring financial and non-financial performance indicators. This helps organizations identify areas of improvement and focus on areas that need attention.
- Improved Communication: The Balanced Scorecard provides a common language for communicating performance objectives and results. This helps to ensure that everyone in the organization is on the same page and working towards the same goals.
- Improved Strategic Alignment: The Balanced Scorecard helps to ensure that all activities within the organization are aligned with the overall strategy. This helps ensure that resources are being used most effectively to achieve the desired results.
- Improved Accountability: The Balanced Scorecard helps to ensure that everyone in the organization is held accountable for their performance. This helps to ensure that everyone is working towards the same goals and that performance is being monitored and evaluated.
- Improved Decision Making: The Balanced Scorecard provides a comprehensive view of performance that can be used to make informed decisions. This helps to ensure that decisions are based on accurate and up-to-date information.
Weakness of Balanced Score Card
- It is difficult to measure intangible assets: The Balanced Scorecard is designed to measure tangible assets such as financial performance, customer satisfaction, and operational efficiency. However, measuring intangible assets such as brand value, customer loyalty, and employee morale is difficult.
- It is difficult to measure the impact of external factors: The Balanced Scorecard does not take into account external factors such as economic conditions, competitive environment, and technological changes. However, these external factors can have a significant impact on the performance of a company.
- It is difficult to measure the impact of strategic initiatives: The Balanced Scorecard does not measure the impact of strategic initiatives such as new product launches, marketing campaigns, and organizational restructuring. However, these initiatives can have a significant impact on the performance of a company.
- It is difficult to measure the impact of long-term strategies: The Balanced Scorecard does not measure the impact of long-term strategies such as research and development, capital investments
Relationship of Balanced Score Card with other Strategy analysis techniques
The BSC is closely related to other strategy analysis techniques such as the SWOT analysis, Porter’s Five Forces, and the Value Chain Analysis. The BSC is used to measure and monitor the performance of an organization in terms of its strategic objectives, while the other techniques are used to analyze the external environment and the internal capabilities of the organization. The BSC is also used to identify improvement areas and develop strategies to achieve the desired goals.
The BSC provides a framework for organizations to measure and monitor performance against strategic goals and identify improvement areas. Additionally, the BSC can be used to identify and prioritize initiatives that will help the organization achieve its goals. As organizations continue to become more complex and global, the need for a comprehensive and integrated approach to strategy analysis will only increase, making the Balanced Scorecard an invaluable tool for organizations.
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