The Balanced Scorecard (BSC) model as we know it today was developed by Robert S. Kaplan and David P. Norton in the early 1990 years as an attempt to help companies measure business performance using financial and non-financial data.
The goal of these two researchers in creating the Balanced Scorecard was “aligning business activities with business vision and strategy, improving internal and external communications, and monitoring business performance in relation to the objectives Strategic objectives. “
Do you know this approach?
Continue Reading to understand the concept, know about the advantages it can offer and how it can be applied in your business!
What’s the Balanced Scorecard (BSC) for?
In practice, a BSC is a strategy execution tool that, at the most basic level, helps companies to:
- Clarify the strategy — articulate and communicate its priorities and business objectives;
- Monitor progress — Measure the extent to which priorities and strategic objectives are being delivered;
- Define and manage action plans — ensure activities and initiatives to implement strategic priorities and objectives.
To make this even clearer, let’s go to a metaphor:
Think of an old-fashioned ship that has paddle crews on each side. The first thing we need for a successful trip is a plan. The captain and the team map the sailing route detailing how they will sail from their port of departure to
The second thing they need are navigational instruments that help them understand where they are on their journey. These are especially important once the ship has left the harbor and sails in the open ocean. Without reliable navigation, they would be completely lost.
Finally, they need to ensure that the rowing team has the appropriate actions to move the boat forward in a coordinated manner and adjust the course when necessary.
Exactly the same applies to companies. They need a map of where they want to go and how they intend to get there. They need performance indicators to understand how well they’re “navigating.” And finally, they need to manage initiatives, projects and action plans that will help them achieve their plan.
The Balanced Scorecard would be, in this analogy, this map and the tools that facilitate strategic navigation of the business.
the key components of a Balanced Scorecard?
The BSC contains the following three distinctive components:
1. Strategy Map (Strategic map)
The first and most important component of a BSC is the so-called “strategy map” that visually maps the company’s key strategic objectives on a single page (somewhat like the navigation route in the example we cited above).
A strategy map shows the overall destination, as well as the main goals and priorities that the company must have along the way.
The strategic objectives are generally mapped across four perspectives, which are supported. They are:
- Financial Perspective;
- Customer perspective;
- Internal process perspective;
- Perspective of learning and growth.
Instead of listing strategic objectives in an apparently unrelated manner, the strategy map describes how each goal is compatible with others and how they help achieve the final destination.
2. Key Performance indicators
The second component of a BSC is key performance indicators that allow companies to measure and monitor progress in relation to their most important strategic objectives (outlined in the strategy map).
The main performance indicators, for short, are vital navigation instruments for managers.
3. Action Plan
The third component of a BSC is an Action plan that ensures the implementation of appropriate projects, programs or initiatives to meet each of the strategic objectives in the strategy map.
If these three components (strategic map, key performance indicators, and action Plan) are in place, the BSC can transform an organization. It is a strategy execution tool so popular and powerful because it allows companies to review and communicate their strategic plan in a very simple and graphical way, in addition to monitoring and managing the delivery of the plan.
Is the BSC already applied to your company’s strategy? What did you think of the information we brought in this article? Leave your comment!